<SEC-DOCUMENT>0001144204-12-034941.txt : 20120614
<SEC-HEADER>0001144204-12-034941.hdr.sgml : 20120614
<ACCEPTANCE-DATETIME>20120614172021
ACCESSION NUMBER:		0001144204-12-034941
CONFORMED SUBMISSION TYPE:	POS AM
PUBLIC DOCUMENT COUNT:		3
FILED AS OF DATE:		20120614
DATE AS OF CHANGE:		20120614

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CORNERSTONE BANCSHARES INC
		CENTRAL INDEX KEY:			0001038773
		STANDARD INDUSTRIAL CLASSIFICATION:	NATIONAL COMMERCIAL BANKS [6021]
		IRS NUMBER:				621175427
		STATE OF INCORPORATION:			TN
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		POS AM
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-166625
		FILM NUMBER:		12908337

	BUSINESS ADDRESS:	
		STREET 1:		4154 RINGGOLD RD
		CITY:			CHATTANOOGA
		STATE:			TN
		ZIP:			37412-416
		BUSINESS PHONE:		4236982454

	MAIL ADDRESS:	
		STREET 1:		4154 RINGGOLD RD
		CITY:			CHATTANOOGA
		STATE:			TN
		ZIP:			37412-0416

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	EAST RIDGE BANCSHARES INC
		DATE OF NAME CHANGE:	19970507
</SEC-HEADER>
<DOCUMENT>
<TYPE>POS AM
<SEQUENCE>1
<FILENAME>v316046_posam.htm
<DESCRIPTION>POS AM
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<P STYLE="margin: 0"></P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">As filed with the Securities and Exchange
Commission on June 14, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">&nbsp;Registration No.&nbsp;333-166625</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>UNITED STATES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITIES AND EXCHANGE COMMISSION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif"><B>Washington</B></FONT><B>,&nbsp;D.C.
20549</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><FONT STYLE="font-size: 12pt"><B>Post-Effective
Amendment No. 2 to Form S-1</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>REGISTRATION STATEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>UNDER THE SECURITIES ACT OF 1933</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><FONT STYLE="font-size: 12pt"><B>Cornerstone
Bancshares, Inc.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><I>(Exact name
of registrant as specified in its charter)</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; border-collapse: collapse; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 33%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Tennessee</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><I>(State or other jurisdiction of<BR>
        incorporation or organization)</I></P></TD>
    <TD STYLE="width: 3%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 31%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>6021</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><I>(Primary Standard Industrial<BR>
        Classification Code Number)</I></P></TD>
    <TD STYLE="width: 3%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 30%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>62-1173944</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><I>(I.R.S. Employer<BR>
        Identification Number)</I></P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>835 Georgia
Avenue</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif"><B>Chattanooga</B></FONT><B>,
Tennessee 37402</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(423) 385-3000</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><I>(Address, including
zip code, and telephone number, including area code,</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><I>of registrant&rsquo;s principal executive
offices)</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>Nathaniel F.
Hughes</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>President </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Cornerstone Bancshares, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>835 Georgia Avenue</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif"><B>Chattanooga</B></FONT><B>,
Tennessee 37402</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(423) 385-3000</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><I>(Name, address,
including zip code, and telephone number,</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><I>including area code, of agent for service)</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B><I>Copies of
communications to:</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">W. Scott McGinness, Jr.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Miller &amp; Martin PLLC</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif">Suite</FONT>
1000, Volunteer Building</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">832 Georgia Avenue</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif">Chattanooga</FONT>,
Tennessee 37402-2289</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(423) 756-6600</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif"><B>Approximate
date of commencement of proposed sale to the public: </B></FONT>As soon as practicable after the effective date of this registration
statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif">If
any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule&nbsp;415
under the Securities Act of 1933, check the following box.&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">&thorn;
</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif">If
this form is filed to register additional securities for an offering pursuant to Rule&nbsp;462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering.&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">o</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif">If
this form is a post-effective amendment filed pursuant to Rule&nbsp;462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">o</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif">If
this form is a post-effective amendment filed pursuant to Rule&nbsp;462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">o</FONT></P>

<P STYLE="font: 10pt Wingdings; margin: 0pt 0; text-indent: 0.25in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white">Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of &ldquo;large accelerated filer,&rdquo; &ldquo;accelerated filer,&rdquo; and &ldquo;smaller reporting
company&rdquo; in Rule 12b-2 of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; border-collapse: collapse; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD NOWRAP STYLE="width: 29%; font-size: 10pt; text-align: justify; padding-left: 0.48in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Large accelerated filer&nbsp;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD NOWRAP STYLE="width: 23%; font-size: 10pt; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Accelerated filer&nbsp;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD NOWRAP STYLE="width: 21%; font-size: 10pt; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Non-accelerated filer&nbsp;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD NOWRAP STYLE="width: 27%; font-size: 10pt; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Smaller reporting company&nbsp;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">&thorn;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><B>&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>The Registrant hereby
amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance
with Section&nbsp;8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to Section&nbsp;8(a), may determine.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>EXPLANATORY
NOTE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This Post-Effective
Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-166625) (the &ldquo;Registration Statement&rdquo;) of Cornerstone
Bancshares, Inc. (the &ldquo;Company&rdquo;) is being filed pursuant to the undertakings in Item 17 of the Registration Statement
to update and supplement the information contained in the Registration Statement, as originally declared effective by the Securities
and Exchange Commission (the &ldquo;Commission&rdquo;) on June 23, 2010, and updated by Post-Effective Amendment No. 1, declared
effective by the Commission on May 11, 2011: (1) to include the information contained in the Company&rsquo;s Annual Report on Form
10-K for the fiscal year ended December 31, 2011 (the &ldquo;Annual Report&rdquo;) that was filed with the Commission on March
29, 2012, and (2) to disclose that the offering of Series A Convertible Preferred Stock has been extended until December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; color: red">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; color: red">The information in this prospectus
is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer
to buy these securities in any state or jurisdiction where the offer or sale is not permitted.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: red"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white; color: red">Preliminary
Prospectus Subject to Completion, Dated June 14, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white; color: red">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CORNERSTONE BANCSHARES, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>600,000 Shares
of Series A Convertible Preferred Stock ($15,000,000)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">We
are offering to sell up to 600,000 shares of our Series A Convertible Preferred Stock</FONT>, which we refer to in this prospectus
as the &ldquo;Series A Preferred Stock,&rdquo;<FONT STYLE="color: black"> at a price of $25.00 per share. </FONT>The annual cash
dividend on each share of Series A Preferred Stock is $2.50, which is equal to 10% of the original issue price of $25.00 per share
of Series A Preferred Stock (subject to adjustment as described herein), and is payable quarterly in arrears, if, as and when declared,
and subject to regulatory approval, on the 15th day of February, May, August and November that immediately follows the end of the
Dividend Period (as defined herein) to which such dividends relate. Any dividend payable on shares of Series A Preferred Stock
that is not declared by our board of directors or paid will accumulate from the Initial Dividend Commencement Date (as defined
herein).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each share of Series
A Preferred Stock will be convertible at your option at any time into five shares of our Common Stock, which we refer to herein
as the &ldquo;conversion rate&rdquo; (subject to adjustment as described herein), reflecting an initial conversion price of $5.00
per share of Common Stock. The shares of Series A Preferred Stock are also convertible at our option, in whole or in part, into
shares of our Common Stock at the conversion rate, at any time on or after July 31, 2015 if the closing price (as defined herein)
of our Common Stock equals or exceeds 150% of the conversion price on each of the 30 consecutive trading days immediately preceding
the date we give notice of our election to so convert. Cash will be paid in lieu of issuing any fractional shares. Subject to prior
regulatory approval, the Series A Preferred Stock is also redeemable by us, in whole or in part, at any time after July 31, 2015
for a redemption price equal to the original issue price plus any accumulated and unpaid dividends. All shares of our Common Stock
issued upon conversion of the Series A Preferred Stock will be freely tradable without restriction under the Securities Act of
1933, as amended, except for shares purchased by our &ldquo;affiliates.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">This
offering will be made to our </FONT>shareholders<FONT STYLE="color: black">, to our and </FONT>Cornerstone Community Bank&rsquo;s
(our subsidiary) officers, directors and employees, and <FONT STYLE="color: black">to the public through any eligible broker or
dealer named in a subscription agreement as having assisted the subscriber in making the investment</FONT>, whom we collectively
refer to in this prospectus as the &ldquo;Offerees.&rdquo; We are offering these shares on a &ldquo;first come, first served&rdquo;
basis. We do not intend to sell fewer than 100 shares or more than 100,000 shares to any person, although we reserve the right
to make exceptions in our sole discretion. The offering of shares of Series A Preferred Stock to the Offerees is being made primarily
through the efforts of our directors and<FONT STYLE="color: black"> executive officers, but may also be sold through eligible brokers
or dealers at a price of $25.00 per share for which we will pay a commission equal to 2.0% of that amount. </FONT>Unless extended
or terminated earlier by us in our sole discretion, this offering will terminate on December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will conduct the
offering solely on a best efforts, no minimum basis, which means there are no purchase commitments from underwriters and no minimum
number of shares that must be sold in the offering in order to accept subscriptions and close the offering. With respect to shares
offered, all funds will be placed in a segregated account at Cornerstone Community Bank pending our acceptance of the associated
subscriptions. Accordingly, we may raise less than <FONT STYLE="color: black">$15,000,000 </FONT>in the offering and the funds
from any subscriptions we accept will be immediately available to us. As soon as practicable after the acceptance of any subscription,
we will cause to be sent certificates for shares of <FONT STYLE="color: black">Series A Preferred Stock </FONT>representing the
subscriptions accepted by us. If the offering is not completed, or if any part of your subscription is not accepted, your funds
will be returned, without interest, as soon as practicable. We reserve the right to amend or terminate the offering at any time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">Prior
to this offering, there has not been a public market for the shares of Series A Preferred Stock. We anticipate that the shares
of Series A Preferred Stock will be quoted in the over-the-counter market and, thus, that a secondary, though limited, market may
develop for the shares sold in this offering. Our Common Stock is quoted on the OTC Bulletin Board under the symbol CSBQ</FONT><B>.
</B>On May 3, 2012, the last reported sale price of the Common Stock was $1.75 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>Investing in the
Series A Preferred Stock involves a high degree of risk which is described in the &ldquo;Risk Factors&rdquo; section beginning
on page 10 of this prospectus.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
presents an estimate of the average per share proceeds to us and the maximum potential proceeds to us if the offering is fully
subscribed, assuming payment of the 2.0% commission on 50% of the shares sold.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 1in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Per&nbsp;Share</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Total</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 68%; text-align: justify">Price to the public</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">25.00</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">15,000,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Broker-dealer commissions</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">150,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Proceeds, before expenses, to us</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">24.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">14,850,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>As of March 31,
2012, we have sold 425,369 shares of Series A Preferred Stock and have paid aggregate commissions on $46,970. As of May 31, 2012,
we have declared and paid six dividends on the Series A Preferred Stock. All dividends are currently subject to prior regulatory
approval by the Federal Reserve Bank and all future dividends, if any, will be subject to prior regulatory approval. In subsequent
dividend periods, we have neither sought regulatory approval or paid dividends.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>Neither the Securities
and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase">The
date of this Prospectus is</FONT> <B>[_______________]</B>, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>TABLE OF CONTENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="width: 95%">ABOUT THIS PROSPECTUS</TD>
    <TD STYLE="width: 5%; text-align: right">ii</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>PROSPECTUS SUMMARY</TD>
    <TD STYLE="text-align: right">1</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>SUMMARY CONSOLIDATED FINANCIAL DATA</TD>
    <TD STYLE="text-align: right">7</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>RISK FACTORS</TD>
    <TD STYLE="text-align: right">10</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS</TD>
    <TD STYLE="text-align: right">20</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>USE OF PROCEEDS</TD>
    <TD STYLE="text-align: right">21</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>DETERMINATION OF OFFERING PRICE</TD>
    <TD STYLE="text-align: right">22</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>THE OFFERING</TD>
    <TD STYLE="text-align: right">23</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>MARKET PRICE OF OUR COMMON STOCK AND RELATED SHAREHOLDER MATTERS</TD>
    <TD STYLE="text-align: right">25</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>PLAN OF DISTRIBUTION</TD>
    <TD STYLE="text-align: right">26</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>OUR BUSINESS</TD>
    <TD STYLE="text-align: right">27</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>MANAGEMENT</TD>
    <TD STYLE="text-align: right">35</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>RECENT DEVELOPMENTS</TD>
    <TD STYLE="text-align: right">37</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>DESCRIPTION OF THE SERIES A PREFERRED STOCK</TD>
    <TD STYLE="text-align: right">40</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>DESCRIPTION OF OTHER CAPITAL STOCK</TD>
    <TD STYLE="text-align: right">46</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>VALIDITY OF THE SECURITIES</TD>
    <TD STYLE="text-align: right">47</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>EXPERTS</TD>
    <TD STYLE="text-align: right">48</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>WHERE TO FIND MORE INFORMATION ABOUT US</TD>
    <TD STYLE="text-align: right">48</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>DOCUMENTS INCORPORATED BY REFERENCE</TD>
    <TD STYLE="text-align: right">49</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>ABOUT
THIS PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">It is important for
you to read and consider all of the information contained in this prospectus before making your investment decision. You should
rely only on the information contained in this prospectus and any related free writing prospectus that we file with the Securities
and Exchange Commission, or the Commission. We have not authorized any other person to provide you with additional or different
information. If anyone provides you with additional or different information, you should not rely on it. We are not making an offer
to sell our Series A Preferred Stock in any jurisdiction in which the offer or sale is not permitted. You should assume that the
information contained in this prospectus is accurate only as of the date on the front cover page of this prospectus, regardless
of the time of delivery of this prospectus or any sale of our Series A Preferred Stock. Our business, financial condition and results
of operations may have changed since that time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In this prospectus
we rely on and refer to information and statistics regarding the banking industry and banking markets in Georgia and Tennessee.
We obtained this market data from independent publications or other publicly available information. Although we believe these sources
are reliable, we have not independently verified and do not guarantee the accuracy and completeness of this information.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No action is being
taken in any jurisdiction outside the United States to permit a public offering of our Series A Preferred Stock or possession or
distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside
the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution
of this prospectus applicable to those jurisdictions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In this prospectus,
we frequently use the terms &ldquo;we&rdquo;, &ldquo;our&rdquo;, &ldquo;us&rdquo; and the &ldquo;Company&rdquo; to refer to Cornerstone
Bancshares, Inc., including our wholly owned subsidiary, Cornerstone Community Bank, except where it is clear that the terms mean
only Cornerstone Bancshares, Inc. To understand the offering fully and for a more complete description of the offering you should
read this entire document carefully, including particularly the &ldquo;RISK FACTORS&rdquo; section beginning on page 11.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<DIV STYLE="padding: 0.6pt; border: Black 1pt solid">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">PROSPECTUS
SUMMARY</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>This summary highlights
selected information contained elsewhere in this prospectus. It may not contain all of the information you should consider before
investing in the Series A Preferred Stock. You should read the entire prospectus carefully, and particularly consider our financial
statements, the notes thereto and the section on Risk Factors, before deciding to invest in the shares of Series A Preferred Stock
offered under this prospectus.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Bank Holding Company Structure and Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cornerstone Bancshares,
Inc. is a Tennessee-chartered bank holding company registered under the Bank Holding Company Act of 1956, as amended, and headquartered
in Chattanooga, Tennessee. We conduct our operations primarily through our wholly owned subsidiary, Cornerstone Community Bank.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cornerstone Community
Bank (the &ldquo;Bank&rdquo;) is a Tennessee banking corporation emphasizing personal service to businesses and households located
within the Chattanooga, Tennessee Metropolitan Statistical Area (MSA). The Bank has five full-service banking offices located in
Hamilton County, Tennessee, and one loan production office located in Dalton, Georgia. The principal business of the Bank consists
of attracting deposits from the general public and investing those funds, together with funds generated from operations and from
principal and interest payments on loans, primarily in commercial loans, commercial and residential real estate loans, consumer
loans, and residential and commercial construction loans. Funds not invested in the loan portfolio are invested by the Bank primarily
in obligations of the U.S. Government, U.S. Government agencies, various states and their political subdivisions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank owned and
operated a subsidiary, Eagle Financial, Inc. (Eagle), a finance and factoring company. On December 1, 2011, the Bank elected to
transfer the operations, assets and liabilities of Eagle into the Bank. The transfer allowed the Bank to combine the operations
of Eagle with the Bank&rsquo;s asset based lending department. As a result, the Bank formed Eagle Financial, a division of Cornerstone
Community Bank. The Bank maintains the existence of this subsidiary in an inactive status.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31,
2011, we had total assets of $422.7 million<B>, </B>$260.4 million of loans net of unearned interest and loan loss allowance and
shareholders&rsquo; equity of $35.2 million.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Market and Competition</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The banking business
is highly competitive and we experience competition in our markets from many other financial institutions. The Bank competes actively
with over 20 commercial banks, as well as finance companies, credit unions and other financial institutions located in its service
area, which includes Hamilton County, Tennessee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Based
on information most recently made available as of December 31, 2011, the Bank&rsquo;s deposits totaled approximately $314 million.
The deposit base represents approximately 4% of the deposit base in the Chattanooga, Tennessee Metropolitan Statistical Area (MSA).
Three major regional banks represent approximately 60% of the deposits in the Chattanooga, Tennessee MSA. These larger financial
institutions have greater resources, higher lending limits than the Bank, and each of the three institutions has over 20 branches
in the Chattanooga, Tennessee MSA</FONT>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Market Segment</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank&rsquo;s primary
market segment is businesses with annual sales of $1 million to $50 million and households attracted to our increased focus on
customer service and personal touch. To succeed in this competitive market segment, we have attracted highly trained and experienced
lending specialists that can advise business owners with respect to financial and strategic goals and recommended structures that
can be implemented to accomplish their goals. Tools the Bank uses to accomplish this service include general commercial credit
products, such as lines of credit, term loans and cash management programs, as well as, asset based lending and Small Business
Administration lending programs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

</DIV>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<DIV STYLE="padding: 0.6pt; border: Black 1pt solid">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Business Strategy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank competes for
deposits principally by offering depositors a variety of deposit programs with competitive interest rates, quality service and
convenient locations and hours. The Bank intends to continue to focus its resources to seek out and attract small business relationships
and take advantage of its ability to provide flexible service that meets the needs of this customer class. We feel this market
niche is the most promising business area for the future growth of the Bank.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Supervision and Regulation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">As
a bank holding company, we are registered with and regulated by the Board of Governors of the Federal Reserve System (the &ldquo;Federal
Reserve&rdquo;). </FONT>We are also required to comply with the rules and regulations of the Securities and Exchange Commission
(the &ldquo;Commission&rdquo;) under federal securities laws. As a Tennessee-chartered commercial bank, t<FONT STYLE="color: black">he
Bank is subject to the supervision and regulation of the Tennessee Department of Financial Institutions (the &ldquo;TDFI&rdquo;).
Because the Bank&rsquo;s deposit accounts are insured up to the applicable limits by the Deposit Insurance Fund (&ldquo;DIF&rdquo;)
of the Federal Deposit Insurance Corporation (&ldquo;FDIC&rdquo;), the Bank is also subject to the supervision and regulation of
the FDIC.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Recent Developments Giving Rise to this
Offering</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a result of negative
developments over the past few years in the capital and credit markets generally and in the local areas in which we operate particularly,
we have experienced significant declines in our asset quality. Resultant loan losses and related provision expenses greatly reduced
our earnings in 2007, 2008, and 2009 and led to a net loss of $4.7 million in 2010. Coupled with our continued payments of cash
dividends throughout 2007 and 2008 and the first two quarters of 2009, these losses caused material deterioration in the Bank&rsquo;s
capital levels. To assist the Bank in maintaining regulatory capital levels, we drew funds under our line of credit facility with
Silverton Bank, N.A. to fund contributions to the Bank&rsquo;s capital during 2007 and 2008. In March 2009, the line of credit
was reworked into two holding company loans (a revolving line of credit and a term loan). However, due to the continuing decline
in our financial condition during 2009, we were unable to maintain compliance with certain financial covenants contained in the
credit facility agreement relating to these holding company loans. The loans are secured by our pledge of 100% of the Bank&rsquo;s
common stock. In May 2009, Silverton Bank, N.A. was closed by the <FONT STYLE="color: black">Office of the Comptroller of the Currency,
and the FDIC, which was named receiver, formed Silverton Bridge Bank, N.A. to take over its operations. The FDIC subsequently notified
us that our holding company loans could be sold in the open market. </FONT>In January 2010, the loans were renewed and Cornerstone
received a waiver regarding previous covenant violations through December 31, 2009 and they had an aggregate outstanding balance
of approximately $5.25 million as of May 31, 2010. <FONT STYLE="color: black">Because we did not receive further waivers, our independent
registered public accounting firm stated in its opinion with regard to our 2009 financial statements substantial doubt about our
ability to continue as a going concern.</FONT> However, on March 29, 2011, Cornerstone received an additional waiver regarding
all previous covenant violations in existence through December 31, 2010 and a waiver of any covenant violation that occured through
December 31, 2011. In consideration for such additional waivers, Cornerstone agreed to, among other things, pay in full the outstanding
principal balance in the amount of $750,000 of one of the two outstanding notes. On March 28, 2012, we received an additional waiver
of covenant compliance thresholds for 2012, conditioned upon the following: (1) we will continue to provide covenant compliance
certificates to the Lender, (2) the Bank will limit its dividend payments to amounts necessary to service the term loan and line
of credit and to pay income taxes, and (3) we paid a processing fee of $25,000. Therefore, as of April 1, 2012, Cornerstone has
only one outstanding loan in the principal amount of approximately $2.6 million and <FONT STYLE="color: black">our independent
auditors have issued unqualified opinions with regard to our 2010 and 2011 financial statements without a going concern consideration.</FONT>
See &ldquo;RECENT DEVELOPMENTS &mdash; Asset Quality Deterioration and Covenant Considerations Under the Company Loan.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 12, 2009,
following a joint examination of the Bank by the FDIC and the TDFI commenced on October 8, 2009, the FDIC presented us with a letter
noting that the Bank had been downgraded from a &ldquo;well capitalized&rdquo; to an &ldquo;adequately capitalized&rdquo; position
within the meaning of applicable FDIC regulations as a result of the decline in the Bank&rsquo;s capital levels as of September
30, 2009. As a result, the FDIC, among other things, placed restrictions on the Bank&rsquo;s ability to pay cash dividends, requiring
that the Bank first obtain a non-objection from the FDIC. Therefore, we have not received dividends from the Bank since November
12, 2009, which has impaired our ability to service our indebtedness under our holding company loans and contributed to the developments
described above. Due to an increase in earnings and a reduction in risk-based assets, the Bank returned to a &ldquo;well capitalized&rdquo;
position under the FDIC regulations as of March 31, 2010, but is now subject to higher capital requirements under the FDIC and
TDFI enforcement actions discussed below. See &ldquo;RECENT DEVELOPMENTS &mdash; Joint Examination of the Bank and Downgrade in
its Capital Position.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

</DIV>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Following the issuance
of a written report by the FDIC and the TDFI concerning their joint examination of the Bank in October 2009, the Bank entered a
consent order with the FDIC on April 2, 2010 and a written agreement with the TDFI on April 8, 2010, each concerning areas of the
Bank&rsquo;s operations identified in the report as warranting improvement and presenting substantially similar plans for making
those improvements. The consent order and written agreement, which we collectively refer to as the &ldquo;Action Plans&rdquo; in
this prospectus, among other things, prohibit the Bank from declaring or paying cash dividends without the written consent of the
FDIC and the TDFI, and further require that the Bank develop and implement a number of specified written plans, policies and procedures.
In addition, the Action Plans require the Bank to prepare and implement a written capital plan to increase its Tier 1 capital and
to achieve and maintain specified capital ratios that exceed the requirements for &ldquo;well capitalized&rdquo; institutions under
current FDIC regulations. For a detailed discussion of the requirements of the Action Plans, see &ldquo;RECENT DEVELOPMENTS &mdash;
FDIC and TDFI Enforcement Actions.&rdquo; The Action Plans will remain in effect until modified or terminated by the FDIC or the
TDFI, as the case may be. To date, we have fully and timely complied with the requirements of the Action Plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Also as a result of
the October 2009 joint examination, we received a letter dated March 30, 2010 from our primary banking regulator, the Federal Reserve
Bank of Atlanta (the &ldquo;Federal Reserve Bank&rdquo;). The letter directs us to obtain the written approval of the Federal Reserve
Bank before we (i) incur any indebtedness; (ii) declare or pay any dividends; (iii) redeem any corporate stock; or (iv) make any
other payment representing a reduction in our capital, except for the payment of normal and routine operating expenses. The letter
notes that we are in &ldquo;troubled condition&rdquo; under Regulation Y as a result of the Bank&rsquo;s condition. Therefore,
we are required to give notice to the Federal Reserve Bank before we undertake any changes in senior executive management or directorships,
and to obtain the approval of the Federal Reserve Bank (with the written concurrence of the FDIC) before we grant or enter into
any agreement to provide a golden parachute or severance payment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In light of the foregoing
developments, we are conducting this offering to raise the capital necessary to: (i) fund the payments of the dividends on the
Series A Preferred Stock, (ii) fund anticipated holding company expenses, including debt service, and (iii) provide the balance,
if any, as additional capital to the Bank so that it may meet the capital levels required under the Action Plans. See &ldquo;USE
OF PROCEEDS.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Trading Market</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Prior to this offering,
there has not been a public market for the shares of Series A Preferred Stock. We anticipate that the shares of Series A Preferred
Stock will be quoted in the over-the-counter market and, thus, that a secondary, though limited, market may develop for the shares
sold in this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Common Stock is
quoted on the OTCBB, but it is not listed on a national securities exchange. Because our Common Stock is not listed for trading
on any national securities exchange there may be a limited market for these shares, including any shares of Common Stock acquired
upon conversion of the Series A Preferred Stock. The trading symbol for our Common Stock is CSBQ.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our principal executive
offices are located at 835 Georgia Avenue, Chattanooga, Tennessee 37402, and our telephone number is (423) 385-3000. Our internet
address is www.cscbank.com. The information that is contained on or that may be accessed through our website does not constitute
a part of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

</DIV>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: center; text-indent: -1in"><B>&nbsp;</B></P>

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<DIV STYLE="border: Black 1pt solid; width: 100%">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: center; text-indent: -1in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: center; text-indent: -1in"><B>The Offering</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: center; text-indent: -1in"><B>&nbsp;</B></P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="font: 10pt Times New Roman, Times, Serif; width: 99%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 33%">Issuer</TD>
    <TD STYLE="width: 2%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 65%; text-align: justify">Cornerstone Bancshares, Inc.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Shares Offered</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">Up to 600,000 shares of Series A Preferred Stock. As of March 31, 2012, we have sold 425,369 shares of Series A Preferred Stock.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Offering Price</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">$25.00 per share. The offering price was established by management and the board of directors after consideration of a number of factors. See &ldquo;<FONT STYLE="text-transform: uppercase">Determination of Offering Price</FONT>&rdquo; at 22.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Liquidation Preference</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">The sum of (i) the original issue price of $25.00 per share</FONT> of Series A Preferred Stock (subject to adjustment as described in this prospectus) and (ii) the amount of all accumulated and unpaid dividends.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Maturity</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">Perpetual.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Dividends;<BR>
Restrictions on Dividends</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">10% per annum on the original issue price
        of $25.00 per share of Series A Preferred Stock (subject to adjustment as described in this prospectus), which is initially equal
        to $2.50 per annum per share. Dividends on shares of Series A Preferred Stock are cumulative from the Initial Dividend Commencement
        Date (as defined herein) and are payable in cash quarterly in arrears, if, as and when declared, on the 15th day of February, May,
        August and November of each year that immediately follows the end of the Dividend Period (as defined herein) to which such dividends
        relate. The foregoing defined terms are set forth in DESCRIPTION OF THE SERIES A PREFERRED STOCK &mdash; Dividends&rdquo; at page
        40.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Holders of Series A Preferred Stock have
        a priority on the receipt of dividends relative to the holders of our junior securities, including our Common Stock. Until we have
        declared and paid or set aside for full payment of the quarterly dividends on the Series A Preferred Stock for all past dividend
        periods, we may not declare or pay dividends on shares of securities junior to, or purchase or redeem shares of securities on parity
        with or junior to, the Series A Preferred Stock. See &ldquo;DESCRIPTION OF THE SERIES A PREFERRED STOCK &mdash; Dividends&rdquo;
        at page 40.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to its letter dated March 30,
        2010, the Federal Reserve Bank has restricted our ability to declare or pay any dividends. Therefore, dividends on the Series A
        Preferred Stock will accumulate and will not be declared or paid until such time as the Federal Reserve Bank may terminate or waive
        this restriction. As of May 31, 2012, we have declared and paid six dividends on the Series A Preferred Stock with approval of
        the Federal Reserve Bank. However, we cannot predict whether we will be in a position or able to pay dividends in the future.</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Conversion by Holder</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">The holders of Series A Preferred Stock will have the right to convert, at any time and at their option, some or all of their shares of Series A Preferred Stock into shares of our Common Stock at the then applicable conversion rate. Subject to future adjustment as described in this prospectus, each share of Series A Preferred Stock is convertible into five shares of our Common Stock (which reflects an initial conversion price of $5.00 per share of Common Stock). See &ldquo;<FONT STYLE="text-transform: uppercase">Description of the Series A Preferred Stock</FONT> &mdash; Optional Conversion Rights&rdquo; beginning at page 43.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

</DIV>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="font: 10pt Times New Roman, Times, Serif; width: 99%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 33%">Conversion by Us</TD>
    <TD STYLE="width: 2%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 65%; text-align: justify">We may, at our option, at any time on or after July 31, 2015, cause some or all of the shares of Series A Preferred Stock to be converted into shares of our Common Stock at the then applicable conversion rate if the closing price of our Common Stock equals or exceeds 150% of the then applicable conversion price of the Series A Preferred Stock on each of the 30 consecutive trading days immediately preceding the date we give notice of our election to so convert. See &ldquo;<FONT STYLE="text-transform: uppercase">Description of the Series A Preferred Stock</FONT> &mdash; Mandatory Conversion Rights&rdquo; beginning at page 43.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Redemption</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">Subject to prior approval by the Federal Reserve, the Series A Preferred Stock is redeemable, in whole or in part, at our option at any time after July 31, 2015 for a redemption price equal to the original issue price of $25.00 per share of Series A Preferred Stock, plus any accumulated and unpaid dividends. See &ldquo;<FONT STYLE="text-transform: uppercase">Description of the Series A Preferred Stock</FONT> &mdash; Redemption&rdquo; at page 42.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Ranking</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">The Series A Preferred Stock will be, with respect to dividends and upon liquidation, dissolution or winding-up: (i) junior to all our existing and future debt obligations; (ii) junior to any future class or series of capital stock, the terms of which expressly provide that it ranks senior to the Series A Preferred Stock; (iii) on a parity with any future class or series of capital stock, the terms of which expressly state that such class ranks on a parity with the Series A Preferred Stock; and (iv) senior to our Common Stock and any other class or series of capital stock, the terms of which do not expressly provide that it ranks senior to or on a parity with the Series A Preferred Stock. See &ldquo;<FONT STYLE="text-transform: uppercase">Description of the Series A Preferred Stock</FONT> &mdash; Ranking&rdquo; beginning at page 41.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Voting</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">The holders of Series A Preferred Stock will have no voting rights except as required by law.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Offering Period</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">Our shareholders, our and the Bank&rsquo;s officers, directors and employees, and the public through eligible brokers and dealers will be offered the opportunity to purchase the shares of Series A Preferred Stock on a &ldquo;first come, first served&rdquo; basis. Unless extended or terminated by us in our sole discretion, this offering will terminate December 31, 2012.<B> </B>See &ldquo;<FONT STYLE="text-transform: uppercase">The Offering</FONT>&rdquo; beginning at page 23.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Commissions</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">We expect to pay a commission equal to 2.0% of the offering price for shares sold through eligible brokers and dealers. As of March 31, 2012, we had paid aggregate commissions of $49,070.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>No Minimum Offering</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">We have conducted and will continue to conduct the offering solely on a best efforts, no minimum basis, which means there is no minimum number of shares that must be purchased in the offering. As of March 31, 2012, we have sold 425,369 shares of Series A Preferred Stock. We may raise less than $15,000,000 in the offering and the funds from any subscriptions will be immediately available to us. We may amend or terminate the offering at any time. See &ldquo;<FONT STYLE="text-transform: uppercase">The Offering</FONT>&rdquo; beginning at </FONT>page 23.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

</DIV>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<DIV STYLE="border: Black 1pt solid; width: 100%">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="font: 10pt Times New Roman, Times, Serif; width: 99%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 33%">Use of Proceeds</TD>
    <TD STYLE="width: 2%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 65%; text-align: justify">If the offering is fully subscribed, the net proceeds of the offering will be approximately $14,643,930, depending on the amount of the actual expenses incurred. We have used and intend to use such proceeds as follows: (i) fund the payments of the dividends on the Series A Preferred Stock, (ii) fund anticipated holding company expenses, including debt service and (iii) provide the balance, if any, as additional capital to the Bank so that it may meet the capital levels required under the Action Plans. See &ldquo;<FONT STYLE="text-transform: uppercase">Use of Proceeds</FONT>&rdquo; at page 21.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Shares Outstanding as of March 31, 2012 (1)</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">6,500,396 shares of Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">425,369 shares of Series A Preferred Stock.</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Shares Outstanding After this Offering(1)</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">6,500,396 shares of Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">600,000 shares of Series A Preferred Stock,
        assuming the sale of all offered shares, which are initially convertible into 3,000,000 shares of Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">9,500,396 shares of Common Stock on a fully
        converted basis.</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Subscription Procedures</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If you want to subscribe for shares of
        Series A Preferred Stock, you must complete the subscription agreement which accompanies this prospectus and send the completed
        subscription agreement, with payment of the aggregate offering price for the shares you want to purchase, to Cornerstone Bancshares,
        Inc. Your subscription agreement and payment must be received by us before the termination of the offering. If you use the mail
        to submit your order form, we recommend that you use registered mail, return receipt requested. See &ldquo;<FONT STYLE="text-transform: uppercase">The
        Offering</FONT> &mdash; How to Subscribe&rdquo; beginning at page 23.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">All funds tendered for the purchase of
        Series A Preferred Stock in the offering will be held in a segregated account at the Bank. Your subscription funds will not be
        released to us or for our use or commingled with our funds unless your subscription is accepted and shares are to be issued to
        you with respect to your funds.</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>No Revocation</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">You may not revoke your subscription after we receive your subscription agreement. See &ldquo;<FONT STYLE="text-transform: uppercase">The Offering</FONT> &mdash; How to Subscribe&rdquo; beginning at page 23.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Regulatory Limitation</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">We will not issue Series A Preferred Stock in the offering to any person who, in our opinion, would be required to obtain prior clearance or approval from any state or federal bank regulatory authority to own or control such shares if</FONT> such clearance or approval has not been obtained or any required waiting period has not expired prior to our termination of the offering.<FONT STYLE="color: black"> See &ldquo;<FONT STYLE="text-transform: uppercase">The Offering</FONT> &mdash; Regulatory Limitation&rdquo; at page 24.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Times New Roman, Times, Serif; vertical-align: baseline">(1)</FONT></TD><TD STYLE="text-align: justify"><B>The number of shares of Common Stock outstanding excludes 919,850 shares of Common Stock issuable
upon exercise of outstanding stock options as of March 31, 2012, with a weighted average exercise price of $3.77 per share</B>.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

</DIV>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<DIV STYLE="border: Black 1pt solid; width: 100%">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="font: 10pt Times New Roman, Times, Serif; width: 99%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 33%">Purchases by Directors and Executive Officers</TD>
    <TD STYLE="width: 2%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 65%; text-align: justify">We contemplate that all of our directors and a majority of our executive officers will invest in the offering, but we presently do not know how many shares of Series A Preferred Stock they intend to purchase. As of March 31, 2012, they had purchased 29,120 shares as a group. See &ldquo;<FONT STYLE="text-transform: uppercase">The Offering</FONT> &mdash; Purchases by Directors, Executive Officers and Others&rdquo; at page 24. Our directors and executive officers currently beneficially own approximately 17.85% of the outstanding shares of Common Stock. </TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>No Board Recommendations</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">Any investment in our Series A Preferred Stock must be made pursuant to your evaluation of your best interests. Accordingly, our board of directors does not make any recommendation to you regarding whether you should purchase our Series A Preferred Stock.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Risk Factors</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">Before investing, you should carefully review the information contained under &ldquo;<FONT STYLE="text-transform: uppercase">Risk Factors</FONT>&rdquo; beginning at page 10 for a discussion of the risks related to an investment in our Series A Preferred Stock.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Questions on Subscription Procedures</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">You should direct any questions concerning the procedure for subscribing to Frank Hughes at Cornerstone Bancshares, Inc. You may telephone Frank Hughes at (423) 385-3000.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font: normal 10pt Times New Roman, Times, Serif">SUMMARY
CONSOLIDATED FINANCIAL DATA</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth summary consolidated financial data for us for the periods and at the dates indicated. The summary consolidated financial
data have been derived from our audited financial statements for each of the five years that ended December&nbsp;31, 2011, 2010,
2009, 2008 and 2007. Certain of the measures set forth below are not measures recognized under generally accepted accounting principles,
or GAAP, under the rules and regulations promulgated by the Commission. For a discussion of management&rsquo;s reasons to present
such data and a reconciliation to GAAP, please see &ldquo;&mdash; GAAP Reconciliation and Management Explanation of Non-GAAP Financial
Measures&rdquo; below. You should read the detailed information and the financial statements included elsewhere in the prospectus.
Historical results are not necessarily indicative of future results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

</DIV>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<DIV STYLE="border: Black 1pt solid; width: 100%">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 99%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="18" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>At&nbsp;and&nbsp;for&nbsp;the&nbsp;Fiscal&nbsp;Years&nbsp;Ended&nbsp;December&nbsp;31,</B></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2008</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2007</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; text-align: left; text-indent: -0.1in; padding-left: 0.1in">Total interest income</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">20,494</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">25,211</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">26,308</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">30,680</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">34,784</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Total interest expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,362</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,202</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11,189</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,698</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,414</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Net interest income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,132</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,009</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,119</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,982</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,370</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Provision for loan losses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">445</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,291</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,899</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,498</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,409</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Net interest income after provision for loan losses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,687</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,718</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">220</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,484</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,961</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Noninterest income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,183</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,081</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,327</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,887</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,695</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Noninterest expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,652</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">18,042</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,062</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,563</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,926</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Income before income taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,218</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6,243</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(13,515</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,808</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">730</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Income tax expense / (benefit)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">188</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,535</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(5,336</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,296</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(141</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 0.1in">Net income (loss)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,030</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(4,708</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(8,179</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,512</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">871</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-indent: -0.1in; padding-left: 0.1in">Per Common Share Data:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Net income / (loss), basic</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.05</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.73</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(1.26</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.39</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.13</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Net income / (loss), assuming dilution</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.05</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.73</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(1.26</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.38</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.12</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Cash dividends paid</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.28</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.22</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">Book value</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.89</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.55</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.28</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.78</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.70</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">Tangible book value</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.89</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.55</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.89</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.33</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5.24</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; text-indent: -0.1in; padding-left: 0.1in">Financial Condition Data:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">Assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">422,655</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">441,499</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">532,404</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">471,803</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">444,421</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Loans, net of unearned interest and allowance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">260,365</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">276,115</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">330,787</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">378,472</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">369,883</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Cash and investments</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">127,332</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">133,651</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">164,982</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">57,286</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">51,798</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Federal funds sold</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">11,025</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">Deposits</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">314,042</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">335,447</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">404,742</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">326,583</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">313,250</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">FHLB advances and other borrowings</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">43,045</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">54,715</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">72,350</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">71,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">47,100</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Federal funds purchased and repurchase agreements</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">29,391</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">24,325</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">26,322</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">35,790</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">41,560</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Shareholders&rsquo; equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">35,208</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">25,819</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">27,837</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">36,502</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">36,327</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Tangible shareholders&rsquo; equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">35,186</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">25,782</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">25,258</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">33,661</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">33,386</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; text-indent: -0.1in; padding-left: 0.1in">Selected Ratios:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Interest rate spread</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.36</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.24</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.95</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.67</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.51</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Net interest margin</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.55</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.43</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.27</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.16</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5.22</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Return on average assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.24</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(0.94</TD><TD STYLE="text-align: left">)%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1.69</TD><TD STYLE="text-align: left">)%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.55</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.21</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Return on average equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.46</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(15.79</TD><TD STYLE="text-align: left">)%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(24.34</TD><TD STYLE="text-align: left">)%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.71</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.14</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Return on average tangible equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.46</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(15.81</TD><TD STYLE="text-align: left">)%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(26.36</TD><TD STYLE="text-align: left">)%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.26</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.31</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">Average equity to average assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.91</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5.95</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.93</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.27</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9.86</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Common stock dividends payout ratio</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">70.59</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">149.71</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Ratio of nonperforming assets to total assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.26</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5.99</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.36</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.48</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.40</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Ratio of allowance for loan losses to nonperforming loans</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">93.90</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">66.98</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">80.24</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">226.23</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">791.16</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Ratio of allowance for loan losses to total average loans, net of unearned income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.71</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.93</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.63</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.49</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.88</TD><TD STYLE="text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>GAAP Reconciliation and Management Explanation of Non-GAAP
Financial Measures</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Certain financial information
included in our summary consolidated financial data is determined by methods other than in accordance with GAAP. These non-GAAP
financial measures are &ldquo;tangible book value per share,&rdquo; &ldquo;tangible shareholders&rsquo; equity,&rdquo; and &ldquo;return
on average tangible equity.&rdquo; Our management uses these non-GAAP measures in its analysis of our financial performance.</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">&ldquo;Tangible book value per common share&rdquo; is defined as total equity reduced by recorded
preferred stock, goodwill and other intangible assets divided by total common shares outstanding. This measure is important to
investors interested in changes from period-to-period in book value per common share exclusive of changes in intangible assets.
Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing total book value
while not increasing the tangible assets of a company. For companies such as us that have engaged in business combinations, purchase
accounting can result in the recording of significant amounts of goodwill related to such transactions.</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">&ldquo;Tangible shareholders&rsquo; equity&rdquo; is shareholders&rsquo; equity less goodwill and
other intangible assets.</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">&ldquo;Return on average tangible equity&rdquo; is defined as earnings for the period divided by
average equity reduced by average goodwill and other intangible assets.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">These disclosures should
not be viewed as a substitute for results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP performance
measures which may be presented by other companies. The following table presents a reconciliation to provide a more detailed analysis
of these non-GAAP performance measures:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

</DIV>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<DIV STYLE="border: Black 1pt solid; width: 100%">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 99%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt; text-indent: -9pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="18" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">At&nbsp;and&nbsp;for&nbsp;the&nbsp;Fiscal&nbsp;Years&nbsp;Ended&nbsp;December&nbsp;31,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2008</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2007</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; padding-left: 9pt; text-indent: -9pt">Number of common shares outstanding</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">6,500,396</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">6,500,396</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">6,500,396</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">6,319,718</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">6,369,718</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt; text-indent: -9pt">Total shareholders&rsquo; equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">35,208,305</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">25,819,153</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">27,837,479</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">36,501,509</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">36,327,350</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt; text-indent: -9pt; padding-bottom: 1pt">Less: Preferred Stock</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">9,899,544</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">2,727,424</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">Book Value</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">25,308,761</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">23,091,729</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">27,837,479</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">36,501,509</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">36,327,350</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; padding-left: 9pt; text-indent: -9pt">Book value per share</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">3.89</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">3.55</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">4.28</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">5.78</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">5.70</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">Book value</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">25,308,761</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">23,091,729</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">27,837,479</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">36,501,509</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">36,327,350</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt; text-indent: -9pt; padding-bottom: 1pt">Less: goodwill and other intangible assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">22,487</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">37,317</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">2,579,211</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">2,840,773</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">2,941,798</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">Tangible book value</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,286,274</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">23,054,412</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,258,268</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">33,660,736</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">33,385,552</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-left: 9pt; text-indent: -9pt">Effect of intangible assets per common share</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">-</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">-</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">0.39</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">0.45</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">0.46</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-left: 9pt; text-indent: -9pt">Tangible book value per common share</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">3.89</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">3.55</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">3.89</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">5.33</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">5.24</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt; text-indent: -9pt">Net income / (loss)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,030,052</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(4,707,521</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(8,178,639</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,511,824</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">871,152</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">Average equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29,740,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29,820,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">33,600,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">37,435,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,737,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-left: 9pt; text-indent: -9pt">Return on average equity</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">3.46</TD><TD STYLE="font-weight: bold; text-align: left">%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">(15.79</TD><TD STYLE="font-weight: bold; text-align: left">)%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">(24.34</TD><TD STYLE="font-weight: bold; text-align: left">)%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">6.71</TD><TD STYLE="font-weight: bold; text-align: left">%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">2.14</TD><TD STYLE="font-weight: bold; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">Average equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">29,740,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">29,820,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">33,600,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">37,435,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">40,737,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt; text-indent: -9pt">Less: goodwill and other intangible assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">22,487</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">37,317</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,579,211</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,840,773</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,941,798</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt; text-indent: -9pt">Average tangible equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">29,717,513</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">29,782,683</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">31,020,789</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">34,594,227</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">37,795,202</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-left: 9pt; text-indent: -9pt">Effect of intangible assets</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">(0.01</TD><TD STYLE="font-weight: bold; text-align: left">)%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">(0.02</TD><TD STYLE="font-weight: bold; text-align: left">)%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">(2.02</TD><TD STYLE="font-weight: bold; text-align: left">)%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">0.55</TD><TD STYLE="font-weight: bold; text-align: left">%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">0.17</TD><TD STYLE="font-weight: bold; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-left: 9pt; text-indent: -9pt">Return on average tangible equity</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">3.47</TD><TD STYLE="font-weight: bold; text-align: left">%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">(15.81</TD><TD STYLE="font-weight: bold; text-align: left">)%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">(26.36</TD><TD STYLE="font-weight: bold; text-align: left">)%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">7.26</TD><TD STYLE="font-weight: bold; text-align: left">%</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">2.31</TD><TD STYLE="font-weight: bold; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

</DIV>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;&nbsp;</P>

<P STYLE="margin: 0">&nbsp;<FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>RISK FACTORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>An investment in
our Series A Preferred Stock involves risk, and you should not invest in our stock unless you can afford to lose some or all of
your investment. You should carefully read the risks described below before you decide to buy any of our Series A Preferred Stock.
Our business, prospects, financial condition and results of operations could be harmed by any of the following risks.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Risk Factors Related to this Offering</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>The Series A Preferred Stock is
subordinated to our obligations to creditors and will rank junior to all of our and our subsidiaries&rsquo; liabilities in the
event of bankruptcy, liquidation or the winding-up of assets.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Series A Preferred
Stock is subordinated to our obligations to our creditors, including our depositors. If we are in default to these creditors,
you may not receive dividend payments on the Series A Preferred Stock. In the event of a bankruptcy, liquidation or winding-up
of our Company, our assets will be available to pay the liquidation preference of our Series A Preferred Stock only after all
of our liabilities have been paid. In addition, our right to participate in any distribution of assets of any subsidiary, upon
the subsidiary&rsquo;s liquidation or otherwise, and thus your ability as a holder of our Series A Preferred Stock to benefit
indirectly from such distribution, will be subject to the prior claims of creditors of that subsidiary, except to the extent that
any of our claims as a creditor of such subsidiary may be recognized. As a result, our Series A Preferred Stock is also effectively
subordinated to all existing and future liabilities and obligations of our subsidiaries. In the event of bankruptcy, liquidation
or winding-up, there may not be sufficient assets remaining, after paying our and our subsidiaries&rsquo; liabilities, to pay
amounts due on any or all of our Series A Preferred Stock then outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>As a bank holding company, we are
subject to federal regulatory oversight and may be, and currently are, prohibited from declaring or paying dividends on the Series
A Preferred Stock without regulatory approval.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a bank holding
company, our ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines
of the Board of Governors of the Federal Reserve System, or Federal Reserve, regarding capital adequacy and dividends. By letter
dated March 30, 2010, the Federal Reserve Bank restricted our ability to declare and pay any dividends, including with respect
to the Series A Preferred Stock, until such time as the Federal Reserve Bank may terminate this restriction or approve a request
for such declaration or payment. Following requests for and receipt of regulatory approval to pay dividends on the Series A Preferred
Stock, we have declared and paid five dividends on the Series A Preferred Stock</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We depend on dividends, distributions
and other payments from the Bank, which are currently restricted, for sufficient cash flow to pay dividends on the Series A Preferred
Stock and to make payments on our indebtedness.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are a legal entity
separate and distinct from the Bank. Our principal source of cash flow, including cash flow to pay dividends to our shareholders
and principal and interest on our outstanding indebtedness, is dividends from the Bank. The ability of the Bank to pay dividends
and other distributions and to make loans to us is subject to regulatory oversight by both the FDIC and the TDFI. If the Bank
is unable to make dividend payments to us and sufficient capital is not otherwise available, we may not be able to make dividend
payments to our shareholders, including the holders of our Series A Preferred Stock or our Common Stock, or service our indebtedness.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank is currently
subject to a consent order with the FDIC and a written agreement with the TDFI, each of which prohibits the Bank from declaring
or paying cash dividends without consent. These dividend restrictions will continue until such time as the Bank&rsquo;s financial
condition improves significantly enough for the FDIC and TDFI to terminate their respective Action Plans. Therefore, we currently
do not have access to sufficient cash flow to allow us to declare and pay scheduled dividends from this source on the Series A
Preferred Stock. If we are also unable to adequately service our holding company indebtedness and comply with financial covenants
relating thereto or obtain a waiver for such violations, the lender has the authority to declare the loans in default and take
possession of the Bank&rsquo;s common stock. In that event, we could be forced into receivership or liquidation and you could
lose all or part of your investment in the Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The purpose of this
offering is to alleviate many of the conditions and concerns described in the preceding paragraph, in part, by raising sufficient
capital to pay down our outstanding indebtedness under the holding company loan, which was approximately $2.6 million as of May
31, 2012. However, we cannot assure you that the proceeds we receive in this offering will be sufficient to enable such debt retirement.
Further, even if we are able to retire such indebtedness, we will continue to be subject to restrictions prohibiting our declaration
and payment of dividends on the Series A Preferred Stock until such time as the Federal Reserve Bank may terminate or waive the
same. As a bank holding company, we are subject to federal regulatory oversight and may be, and currently are, prohibited from
declaring or paying scheduled dividends on the Series A Preferred Stock above.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event each
of the foregoing restrictions and related conditions are terminated and we again have sufficient cash flow and capital resources
to make scheduled dividend payments on the Series A Preferred Stock and our indebtedness, we may again in the future have such
difficulty, in which case we may have to sell assets, seek additional capital or restructure or refinance our indebtedness. If
we cannot make scheduled payments on our indebtedness, we could be forced into receivership or liquidation and you could lose
all or part of your investment in the Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>No broker has agreed to purchase
any of the Series A Preferred Stock and we may not be able to sell all of the shares we are attempting to sell in the offering,
in which case we may not be able to provide sufficient capital to the Bank to meet the capital levels required under the Action
Plans and could lead to deterioration of our financial condition and further adverse regulatory action.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A significant portion
of the Series A Preferred Stock is being sold directly through the efforts of our directors and executive officers. No broker,
dealer or other person has any obligation to purchase, or find purchasers for, any shares of Series A Preferred Stock. Because
the offering is not underwritten, there can be no assurance that any particular number of shares will be sold. As of March 31,
2012, we have sold 425,369 shares. If less than all of the shares offered are subscribed for, we will have less funds available
for the uses contemplated in this prospectus, including the provision of additional capital to the Bank in an amount sufficient
to meet the capital levels required under the Action Plans. See &ldquo;<FONT STYLE="text-transform: uppercase">Use of Proceeds</FONT>.&rdquo;
Under the Action Plans, the Bank is required to implement a capital plan to increase its Tier 1 capital and achieve and maintain
specified capital ratios for so long as the Action Plans remain in effect. In the event the Bank fails to maintain such capital
ratios, the FDIC and the TDFI may require the Bank to implement a contingency plan that could include the requirement to sell
or merge the Bank. See &ldquo;RECENT DEVELOPMENTS &mdash; FDIC and TDFI Enforcement Actions.&rdquo; Assuming the Bank is no longer
subject to the requirements of the Action Plans, our failure to maintain the Bank as &ldquo;well capitalized&rdquo; for bank regulatory
purposes could adversely affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability
to pay dividends to shareholders, results of operation and financial condition generally. A bank that is not &ldquo;well capitalized&rdquo;
is subject to a number of restrictions under FDIC rules not otherwise placed on &ldquo;well capitalized&rdquo; institutions, including
its ability to accept brokered deposits and the deposit interest rates that it pays. Further, such undercapitalization may lead
to adverse regulatory action, including the issuance of a consent order or related directive, such as the Action Plans to which
the Bank is currently subject, and possibly to being forced into receivership.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>There is currently no established
public market for the shares of Series A Preferred Stock, which could limit your ability to sell such shares for an amount equal
to or higher than the offering price or at all.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There is no established
public trading market for the Series A Preferred Stock. Although we currently anticipate that the Series A Preferred Stock will
be quoted in the over-the-counter market, we cannot assure you that this market will be established. Even if established, we do
not expect that an active public trading market for the Series A Preferred Stock will develop. We also cannot assure you that
any such trading market will be sustained after the completion of the offering, or that holders of Series A Preferred Stock will
be able to sell their Series A Preferred Stock at favorable prices or at all. Accordingly, the Series A Preferred Stock will likely
have little to no liquidity and holders thereof should be prepared to hold the Series A Preferred Stock for an indefinite period.
If a market for the Series A Preferred Stock develops, any such market may be discontinued at any time. If a public trading market
develops for the Series A Preferred Stock, future trading prices of the Series A Preferred Stock will depend on many factors,
including, among other things, the price of our Common Stock into which the Series A Preferred Stock is convertible, prevailing
interest rates, our operating results and the market for similar securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>The market for our Common Stock
is limited and historically has experienced significant price and volume fluctuations, which may make it difficult for you to
resell the Series A Preferred Stock or the shares of Common Stock into which the Series A Preferred Stock are convertible.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Series A Preferred
Stock will be convertible into shares of our Common Stock. Our Common Stock is currently traded on the OTC Bulletin Board, or
the OTCBB, under the symbol CSBQ. The volume of trading activity in our stock is relatively limited. A public trading market having
the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and
sellers of our Common Stock at any given time. This presence depends on the individual decisions of investors and general economic
and market conditions over which we have no control. Given the lower trading volume of our Common Stock, significant sales of
our Common Stock, or the expectation of these sales, could cause our stock price to fall. Even if a more active and liquid market
develops, there can be no assurance that such market will continue, or that you will be able to sell your shares at or above the
offering price.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Further, the market
for our Common Stock historically has experienced and may continue to experience significant price and volume fluctuations similar
to those experienced by the broader stock market in recent years. Generally, the fluctuations experienced by the broader stock
market have affected the market prices of securities issued by many companies for reasons unrelated to their operating performance
and may adversely affect the price of our Common Stock. In addition, our announcements of our quarterly operating results, changes
in general conditions in the economy or the financial markets and other developments affecting us, our affiliates or our competitors
could cause the market price of our Common Stock to fluctuate substantially.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If you hold Series A Preferred Stock,
you are not entitled to any rights with respect to our Common Stock, but you are subject to all changes made with respect to our
Common Stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If you hold Series
A Preferred Stock, you are not entitled to any rights with respect to our Common Stock (including, without limitation, voting
rights and rights to receive any dividends or other distributions on our Common Stock), but you are subject to all changes affecting
the Common Stock. You will only be entitled to rights on the Common Stock if and when we deliver shares of Common Stock to you
upon conversion of your Series A Preferred Stock. For example, if an amendment is proposed to our charter or bylaws requiring
shareholder approval and the record date for determining the shareholders of record entitled to vote on the amendment occurs prior
to delivery to you of the shares of Common Stock, you will not be entitled to vote on the amendment, although you will nevertheless
be subject to any changes in the powers, preferences or special rights of our Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Once you submit an executed subscription
agreement together with payment of the subscription price, you may not revoke your subscription for shares in the offering.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Once you submit a
properly completed subscription agreement to us for the offering, together with payment in full of the subscription price for
the applicable number of shares in one of the forms prescribed, you may not revoke your subscription, even if less than all of
the shares that we are offering are actually purchased. We have not established a minimum number of shares to be sold, and we
intend to accept promptly all properly completed and fully paid subscriptions which are received by us up to the maximum amount
of the offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>You may suffer dilution of the Common
Stock issuable upon conversion of your Series A Preferred Stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The number of shares
of our Common Stock issuable upon conversion of your Series A Preferred Stock is subject to adjustment only for stock splits and
combinations and certain other specified transactions. The number of shares of our Common Stock issuable upon conversion of your
Series A Preferred Stock is not subject to adjustment for other events. See &ldquo;<FONT STYLE="text-transform: uppercase">Description
of the Series A Preferred Stock</FONT> &mdash; Adjustments to the Conversion Price.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The terms of the Series
A Preferred Stock do not restrict our ability to offer shares of our Common Stock in the future or to engage in other transactions
that could dilute our Common Stock. We have no obligation to consider the interests of the holders of the Series A Preferred Stock
in engaging in any such offering or transaction. If we issue additional shares of our Common Stock, that issuance may materially
and adversely affect the price of our Common Stock and, because of the relationship of the number of shares of our Common Stock
you are to receive on conversion to the price of our Common Stock, such other events may adversely affect the trading price of
the Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event we need
additional capital, whether as a result of this offering being undersubscribed or other factors, we may conduct another offering
which could result in dilution of your Common Stock upon conversion of your Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>In the event you convert your shares
of Series A Preferred Stock to Common Stock, your right to dividends on or repurchase or redemption of such Common Stock would
be subject to the prior dividend rights of the holders of our outstanding shares of Series A Preferred Stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Holders of our Common
Stock, including holders of Series A Preferred Stock whose shares are converted into Common Stock, are subject to the prior dividend
rights of any holders of our Series A Preferred Stock then outstanding. As long as shares of Series A Preferred Stock are outstanding,
cash dividend payments and repurchases or redemptions relating to certain equity securities, including our Common Stock, are prohibited
until all accumulated and unpaid dividends for all past dividend periods are declared and paid in full (or set aside for full
payment) on such Series A Preferred Stock. This could adversely affect the market price of our Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risk Factors Related to our Business</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>There could in the future be doubt as to our ability
to continue as a going concern.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31,
2011, Cornerstone had one loan, currently being serviced by Midland Loan Services for the FDIC, which totaled approximately $3
million. The loan contains certain compliance covenants which include stated minimum or maximum target amounts for Cornerstone&rsquo;s
capital levels, the Bank&rsquo;s capital levels, nonperforming asset levels at the Bank and the
ability of Cornerstone to meet the required debt service coverage ratio, which is computed on the four most recent consecutive
fiscal quarters. Due to the level of nonperforming assets of the Bank and not currently meeting the required debt service coverage
ratio, Cornerstone was not in compliance with these two covenants at December 31, 2011. However, Cornerstone had previously obtained
waivers through December 31, 2011. During March 2012, Cornerstone obtained from the FDIC a waiver of the covenant compliance requirements
through December 31, 2012, granted that all payments are made in accordance with the aforementioned repayment schedule. However,
if we are unable to comply with such covenants or obtain an additional waiver from the lender for violations that occur after
December 31, 2012, if any, the lender may declare the loan in default and take possession of the Bank&rsquo;s common stock. If
this event were to occur, our assets and operations would be substantially reduced and therefore our ability to continue as a
going concern would be in substantial doubt.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>The Bank is subject to enforcement actions that could
have a material negative effect on our business, operations, financial condition, results of operations and the value of our Series
A Preferred Stock and Common Stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank entered into
a consent order with the FDIC on April 2, 2010 and a written agreement with the TDFI on April 8, 2010, which we collectively refer
to in this prospectus as the Action Plans. The Action Plans are substantially similar and relate to areas of the Bank&rsquo;s
operations identified as warranting improvement through a joint examination of the Bank by the FDIC and the TDFI commenced on
October 8, 2009. The Action Plans, among other things, prohibit the Bank from declaring or paying cash dividends without the written
consent of certain officials of the FDIC and the TDFI. The Action Plans further restrict the Bank from extending additional credit
to certain borrowers whose existing credit has been classified as &ldquo;loss,&rdquo; &ldquo;doubtful&rdquo; or &ldquo;substandard&rdquo;
or has been charged off the books of the Bank and, in each case, is uncollected. In addition, the Action Plans require the Bank
within 60 days after their respective effective dates to prepare and implement a written capital plan to (i)&nbsp;increase its
Tier 1 capital to no less than 8% of the Bank&rsquo;s average total assets; and (ii) achieve and maintain, after establishing
a reasonable allowance for loan and lease losses, (a) its Tier 1 leverage capital ratio at not less than 8% of the Bank&rsquo;s
average total assets; (b) its Tier 1 risk-based capital ratio at not less than 10% of the Bank&rsquo;s total risk-weighted assets;
and (c) its total risk-based capital ratio at not less than 12% of the Bank&rsquo;s total risk-weighted assets. Other requirements
under the Action Plans primarily relate to the development and implementation of written plans, policies and procedures, including
with respect to management and staffing, interest rate risk, appraisal weakness, liquidity, credit underwriting and loan administration,
annual profit plan and budget, and reduction and collection of delinquent loans. For a detailed discussion of the requirements
of the Action Plans, see &ldquo;RECENT DEVELOPMENTS &mdash; FDIC and TDFI Enforcement Actions.&rdquo; The Action Plans will remain
in effect until modified or terminated by the FDIC or the TDFI, as the case may be. Generally, enforcement actions such as the
Action Plans can be lifted only after subsequent examinations substantiate complete correction of the underlying issues. The Bank
is required to provide written progress reports to the regulatory officials on a quarterly basis until such time as the requirements
of the Action Plans have been accomplished and the Bank has been released in writing from such obligation. To date, we have fully
and timely complied with the requirements of the Action Plans. <FONT STYLE="color: black">While we intend to take such further
actions as may be necessary to comply with the requirements of the Action Plans, we may be unable to comply fully with future
deadlines or other terms of the Action Plans. </FONT>Failure to adhere to the requirements of the Action Plans could result in
more severe restrictions and civil monetary penalties. Should we fail to maintain the capital ratios specified in the Action Plans,
the FDIC and the TDFI may require the Bank to implement a contingency plan that could include the requirement to sell or merge
the Bank. If we suffer continued deterioration in our financial condition, the Bank may be subject to being placed into a federal
conservatorship or receivership, in which case we probably would suffer a complete loss of the value of our ownership interest
in the Bank and we subsequently may be exposed to significant claims by the FDIC and the TDFI. The terms of the Action Plans could
also have a material adverse effect on our business, operations, financial condition, results of operations and the value of our
Series A Preferred Stock and Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our loan portfolio includes residential
construction and land development loans, which have a greater credit risk than residential mortgage loans.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We engage in residential
construction and land development loans to developers. This type of lending is generally considered to have more complex credit
risks than traditional single-family residential lending because the principal is concentrated in a limited number of loans with
repayment dependent on the successful operation of the related real estate project. Consequently, these loans are more sensitive
to the current adverse conditions in the real estate market and the general economy. These loans are generally less predictable
and more difficult to evaluate and monitor and collateral may be difficult to dispose of in a market decline. Furthermore, during
adverse general economic conditions, such as are now being experienced in residential real estate construction nationwide, borrowers
involved in the residential real estate construction and development business may suffer above normal financial strain. As the
residential real estate development and construction market in our markets has deteriorated, our borrowers in this segment have
begun to experience difficulty repaying their obligations to us. If additional charge-offs or foreclosures relating to these loans
are necessary in the future, our results of operations would be negatively impacted. Additionally, to the extent repayment is
dependent upon the sale of newly constructed homes or lots, such sales are likely to be at lower prices or at a slower rate than
was expected when the loan was made, which may result in such loans being placed on non-accrual status and subject to higher loss
estimates even if the borrower keeps interest payments current. These adverse economic and real estate market conditions may lead
to further increases in non-performing loans and other real estate owned, increased charge-offs from the disposition of non-performing
assets, and increases in provision for loan losses, all of which would negatively impact our financial condition and results of
operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If our asset quality continues to
decline or we continue to experience greater loan losses than anticipated, our earnings and overall financial condition will be
adversely affected even further.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our assets are primarily
comprised of loans. The risk of credit losses on loans varies with, among other things, general economic conditions, the type
of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan,
the value and marketability of the collateral for the loan. While the risk of nonpayment of loans is inherent in banking, we have
experienced higher nonpayment levels than anticipated, which has had a significant adverse effect on our earnings and overall
financial condition. Although we have taken actions to prevent further decline, including the creation of a special asset committee
to develop and review action plans for minimizing loan losses and the dedication of resources to assist in the collection and
recovery process, there can be no assurance that the outcome of such actions will be successful. As required under the terms of
the Action Plans to which the Bank is subject, the Bank has established a loan review committee comprised of a majority of non-employee
directors to periodically review the Bank&rsquo;s loan portfolio and identify and categorize problem credits. To minimize the
likelihood of a substandard loan portfolio, we assess the credit worthiness of customers and perform collateral valuations. Management
also maintains an allowance for loan losses based upon, among other things, historical experience and an evaluation of economic
conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various
assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for loan losses based
upon a percentage of the outstanding balances and takes a charge against earnings with respect to specific loans when their ultimate
collectability is considered questionable. If management&rsquo;s assumptions and judgments prove to be incorrect and<FONT STYLE="color: red">
</FONT>the allowance for loan losses is inadequate to absorb losses, or if regulatory authorities require us to increase our allowance
for loan losses as a part of their examination process, additional provision expense would be incurred and our earnings and capital
could be significantly and adversely affected. Moreover, additions to the allowance may be necessary based on changes in economic
and real estate market conditions, new information regarding existing loans, identification of additional problem loans and other
factors, both within and outside of management&rsquo;s control. These additions may require increased provision expense which
would negatively impact our results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We have increased levels of other real estate, primarily
as a result of foreclosures.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As we have begun to
resolve non-performing real estate loans, we have increased the level of foreclosed properties, primarily those acquired from
builders and from residential land developers. Foreclosed real estate expense consists of three types of charges: maintenance
costs, valuation adjustments due to new appraisal values and gains or losses on disposition. As levels of other real estate increase
and also as local real estate values decline, these charges will likely increase, negatively affecting our results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our Series A Preferred Stock will
reduce net income available to holders of our Common Stock and earnings per common share.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The cash dividends
paid or accumulated on our Series A Preferred Stock, and any future capital stock we may issue which is senior to our Common Stock,
will reduce any net income available to holders of Common Stock and our earnings per common share. The preferred stock will also
receive preferential treatment in the event of liquidation, dissolution or winding up of our Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We may require additional capital
which may not be able to be obtained or, if obtained, may cause significant dilution to current shareholders.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may require capital
from sources other than earnings generation. Such other sources may include an offering of equity-based securities, which could
significantly dilute your investment in the event of conversion. In November 2009, the FDIC downgraded the Bank&rsquo;s status
to an &ldquo;adequately capitalized&rdquo; institution, which, among other things, restricts the interest rates payable by the
Bank for time deposits. We are conducting this offering, in part, to provide additional capital to the Bank to meet these elevated
capital requirements. See &ldquo;USE OF PROCEEDS.&rdquo; In the event, however, proceeds from this offering are insufficient for
such purpose, we intend to pursue additional sources of capital, which may include additional equity investments, additional offerings
of equity-based securities, borrowed funds or any combination of these sources. Our ability to access these alternative capital
sources may be limited due to the regulatory restrictions currently placed on us and the Bank or the condition of the capital
markets. Therefore, we may have difficulty rebuilding the Bank&rsquo;s capital reserves and we may provide new investors in the
future certain rights, preferences and privileges senior to our current shareholders which may adversely impact our current shareholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Liquidity needs could adversely
affect our results of operations and financial condition.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We rely on dividends
from the Bank as our primary source of funds. However, in November 2009, following the conclusion of a joint examination of the
Bank by the FDIC and the TDFI, the FDIC placed restrictions on the Bank&rsquo;s ability to pay cash dividends, requiring that
the Bank first obtain a non-objection from the FDIC. This restriction was subsequently extended in April 2010 pursuant to the
Action Plans. See &ldquo;RECENT DEVELOPMENTS &mdash; FDIC and TDFI Enforcement Actions.&rdquo; Furthermore, the majority of the
Bank&rsquo;s funds are comprised of customer deposits and loan repayments. While scheduled loan repayments are a relatively stable
source of funds, they are subject to the ability of borrowers to repay the loans. The repayment of loans can be adversely affected
by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups,
reductions in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and international
instability. Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general
interest rate levels, returns available to customers on alternative investments and general economic conditions. Accordingly,
we currently are, and may from time to time in the future be, required to rely on secondary sources of liquidity to meet withdrawal
demands or otherwise fund operations. Alternative sources include advances from the Federal Home Loan Bank and federal funds lines
of credit from correspondent banks. While we believe that these sources are currently adequate, there can be no assurance they
will be sufficient to meet future liquidity demands. We may be required to slow or discontinue loan growth, capital expenditures
or other investments or liquidate assets if these alternative sources are not adequate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our success depends significantly
upon economic conditions in the local markets where we operate.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Substantially
all of our loan and deposit customers live, work and bank in the Chattanooga, Tennessee MSA. As a result, our success depends
upon a sound local economy to provide opportunities for new business ventures, increased loan demand and the need for deposit
services. </FONT>Our profitability is impacted by these local factors as well as general economic conditions and interest rates.
For example, our earnings may be negatively impacted by increases in unemployment rates or reductions in population, income levels,
deposits and housing starts. The Chattanooga, Tennessee MSA has experienced an economic downturn characterized by falling home
prices, rising foreclosures, reduced economic activity, increased unemployment and an increased level of commercial and consumer
delinquencies. These a<FONT STYLE="font-family: Times New Roman, Times, Serif">dverse economic conditions have inhibited our growth
and diminished the ability of some of our customers to service their loan obligations. </FONT>If economic conditions in our local
markets do not improve or deteriorate further, we could experience any of the following consequences, each of which could further
adversely affect our business:</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">demand
                                                                                                            for our products and
                                                                                                            services could decline;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">loan
                                                                                                            delinquencies may
                                                                                                            continue to increase;
                                                                                                            and</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">nonperforming
                                                                                                            assets and foreclosures
                                                                                                            may continue to increase.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A prolonged economic
downturn could also negatively impact collateral values or cash flows of borrowing businesses, and as a result our primary source
of repayment could be insufficient to service the debt. In addition, adverse consequences to us in the event of a prolonged economic
downturn in our local markets could be compounded by the fact that many of our commercial and real estate loans are secured by
real estate located in those market areas. Significant decline in real estate values in these market areas would mean that the
collateral for many of our loans would provide less security. As a result, we would be more likely to suffer losses on defaulted
loans because our ability to fully recover on defaulted loans by selling the real estate collateral would be diminished. Adverse
economic conditions in our local markets, including sustained periods of increased payment delinquencies, foreclosures or losses
in the State of Tennessee or the State of Georgia, could impair our ability to collect loans and could otherwise have a negative
effect on our assets, revenues, results of operations and financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Continuing negative developments
in the financial services industry and U.S. and global capital and credit markets may lead to additional regulation and further
deterioration of our results of operations and financial condition.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Negative developments
in the capital and credit markets beginning in 2008 and continuing through the date of this prospectus have resulted in uncertainty
in the financial markets. Financial institutions across the United States, including the Bank, have experienced deteriorating
asset quality. Loan portfolios include impaired loans to businesses struggling to stay in operation or achieve adequate cash flow.
Further a decline in collateral values supporting these loans have also impacted the ability of a business or consumer to obtain
loans or increased financial institutions losses in the event of foreclosure and liquidation. At the same time financial institutions
have experienced concerns regarding liquidity. This concern has increased the competition for deposits in our local market as
well as wholesale funding options. These events have impacted our stock price, as well as the stock price of other bank holding
companies. The potential impact of these events may be an expansion of existing or creation of new federal or state laws and regulations
regarding lending and funding practices, liquidity standards and compliance issues. See, for example, &ldquo;&mdash; We cannot
fully predict the impact of recently enacted legislation on our business&rdquo; below. Continued negative developments as well
as our ability to respond to these new operating and regulatory requirements could further negatively impact our results of operations.
The negative consequences could limit our ability to originate new loans or obtain adequate funding or increase costs associated
with regulatory compliance. Ultimately, these changes could result in modifications to our existing or future strategic plans,
capital requirements, compensation, financial performance and stock performance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>There can be no assurance that recently
enacted legislation will stabilize the U.S. financial system.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-size: 10pt">Under
the Temporary Liquidity Guaranty Program (&ldquo;TLGP&rdquo;), the FDIC will (i) guarantee, through the earlier of maturity or
June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions and (ii) provide unlimited FDIC
deposit insurance coverage for noninterest bearing transaction deposit accounts, Negotiable Order of Withdrawal Accounts (commonly
known as NOW accounts) paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts (commonly known as IOLTA)
held at participating FDIC-insured institutions through December 31, 2009. Such unlimited insurance coverage expired and was not
extended under the Dodd-Frank Act (defined below). The $250,000 deposit insurance coverage limit was scheduled to return to $100,000
on January&nbsp;1, 2010, but was extended by congressional action until December&nbsp;31, 2012 and the NOW and IOLTA accounts
are subject to such $250,000 insurance coverage limit. Coverage under the TLG Program was available for the first 30 days without
charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending
on the initial maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts
in covered accounts exceeding $250,000. The U.S. Congress enacted the Emergency Economic Stabilization Act of 2008 (&ldquo;EESA&rdquo;)
in response to the impact of the volatility and disruption in the capital and credit markets on the financial sector. The Treasury
and the federal banking regulators implemented a number of programs under this legislation to address these conditions and the
asset quality, capital and liquidity issues they have caused for certain financial institutions and to improve the general availability
of credit for consumers and businesses. In addition, the U.S. Congress enacted the American Recovery and Reinvestment Act of 2009
(&ldquo;ARRA&rdquo;) in an effort to save and create jobs, stimulate the U.S. economy and promote long-term growth and stability.
</FONT>The EESA and ARRA have been followed by numerous actions by the Federal Reserve, the U.S. Congress, the U.S. Treasury,
the FDIC, the Commission and others to address the liquidity and credit crisis that followed the sub-prime meltdown. These measures
include homeowner relief that encourages loan restructuring and modification; the establishment of significant liquidity and credit
facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short
selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility
to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other
weaknesses in the banking sector. The purpose of these legislative and regulatory actions is to stabilize the U.S. financial system.
The TLGP, the EESA, the ARRA and the other regulatory initiatives described above may not have their desired effects. If the volatility
in the markets continues and economic conditions fail to improve or worsen, our business, financial condition, results of operations
and/or access to credit, as well as the trading price of our common stock, could be materially and adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We cannot fully predict the impact of recently enacted
legislation on our business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The impact of the
Dodd-Frank Act on the financial services industry will be broad, with enhanced regulatory oversight and compliance, including,
among other things, (i) enhanced resolution authority of troubled and failing banks and their holding companies; (ii) increased
capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes to assessments to be paid to the
FDIC for federal deposit insurance; and (v) numerous other provisions designed to improve supervision and oversight of, and strengthening
safety and soundness for, the financial services sector. In addition, the Dodd-Frank Act established a new framework for systemic
risk and oversight in the industry which has resulted and will continue to result in sweeping changes in the regulation of financial
institutions aimed at strengthening safety and soundness for the financial services sector.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We expect that many
of the requirements called for in the Dodd-Frank Act will be implemented over time, and most will be subject to implementing regulations
over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act
will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements
will have on financial institutions&rsquo; operations is unclear. The changes resulting from the Dodd-Frank Act may impact the
profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent
capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These changes may also require
us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new
statutory and regulatory requirements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We are subject to federal and state
regulations that impact our operations and financial performance.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We operate in a highly
regulated industry and are subject to examination, supervision and comprehensive regulation by various federal and state agencies,
including the Federal Reserve, the FDIC and the TDFI.<FONT STYLE="color: red"> </FONT>Many of the banking regulations we are governed
by are intended to protect depositors, the public or the insurance funds maintained by the FDIC, not shareholders. Compliance
with the numerous banking regulations is costly and requires investment in human and information technology resources. Certain
of our activities, such as the payment of dividends, mergers and acquisitions, investments, loans and interest rates charged,
interest rates paid on deposits and locations of offices, are impacted by these regulations. We are also subject to capitalization
guidelines established by banking authorities, which require us to maintain adequate capital to support our growth. To be categorized
as &ldquo;well capitalized,&rdquo; an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The laws and regulations
applicable to the banking industry are subject to change at any time. We cannot predict the events that will result in regulatory
changes nor their impact on the banking industry in general and us in particular. Because government regulation greatly affects
the business and financial results of all commercial banks and bank holding companies, the cost of compliance could adversely
affect our ability to operate profitably.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Sarbanes-Oxley
Act of 2002 and the related rules and regulations promulgated by the Commission have increased the scope, complexity and cost
of corporate governance, reporting and disclosure practices. These regulations are applicable to us. We have experienced, and
may continue to experience, increasing compliance costs as a result of the Sarbanes-Oxley Act. These necessary costs are proportionately
higher for a company of our size and will affect our profitability more than that of some of our larger competitors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>We have a significant deferred tax asset and cannot assure
you that it will be fully realized.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have net deferred
tax assets of $2.1 million as of December 31, 2011. We did not establish a valuation allowance against our federal net deferred
tax assets as of December 31, 2010 or December 31, 2011 because we believe that it is more likely than not that all of these assets
will be realized. In evaluating the need for a valuation allowance, we estimated future taxable income based on management prepared
forecasts. This process required significant judgment by management about matters that are by nature uncertain. If future events
differ significantly from our current forecasts, we may need to establish a valuation allowance, which could have a material temporary
adverse effect on our results of operations and financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Competition from financial institutions and other financial
service providers may adversely affect our profitability.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The banking business
is highly competitive and we experience competition in each of our markets from many other financial institutions. We compete
with other commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies,
securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other community banks
and super-regional and national financial institutions that operate offices in our primary market areas and elsewhere.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Additionally, we face
competition from de novo community banks, including those with senior management who were previously affiliated with other local
or regional banks or those controlled by investor groups with strong local business and community ties. These de novo community
banks may offer higher deposit rates or lower cost loans in an effort to attract our customers, and may attempt to hire our management
and employees.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We compete with these
other financial institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base
from other existing financial institutions and from new residents. We expect competition to increase in the future as a result
of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Changes in interest rates could adversely affect our
results of operations and financial condition.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Changes in interest
rates may affect our level of interest income, the primary component of our gross revenue, as well as the level of our interest
expense. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions
and the policies of various governmental and regulatory authorities. Accordingly, changes in interest rates could decrease our
net interest income. Changes in the level of interest rates also may negatively affect our ability to originate real estate loans,
the value of our assets and the ability to realize gains from the sale of our assets, all of which ultimately affects earnings.
Economic events prompted the Federal Reserve, beginning in September 2007, to reduce its federal funds rate. Due to the rapid
decline in interest rates, we were unable to recalibrate our liabilities at the same rate at which loan rates declined. As a result,
the net interest margin was impacted negatively during 2009. However, the Bank has been able to improve its net interest margin
over the last two years as liabilities have been repriced to lower interest rates. If the Federal Reserve&rsquo;s federal funds
rate remains at extremely low levels or does not increase above our interest rate floors, our funding costs may increase which
will negatively impact the net interest margin and our financial performance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We rely heavily on the services
of key personnel and the unexpected loss of any of those personnel could adversely affect our operations.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We rely on the strategies
and management services of Mr. Nathaniel F. Hughes. The loss of his services could have a material adverse effect on our business,
results of operations and financial condition. Mr. Hughes currently serves as President and Principal Executive Officer. Under
the terms of the letter dated March 30, 2010 we received from the Federal Reserve Bank, however, we must first give notice to
the Federal Reserve Bank before undertaking any change in our senior executive management. The steps necessary to confirm Mr.
Hughes as Chief Executive Officer are being performed. We are also dependent on certain other key officers who have important
customer relationships or are instrumental to our lending and depository operations. We believe that our future results will also
depend upon our ability to attract and retain highly skilled and qualified personnel.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We are subject to Tennessee&rsquo;s
anti-takeover statutes and certain charter provisions that could decrease our chances of being acquired even if the acquisition
is in the best interest of our shareholders.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a Tennessee corporation,
we are subject to various legislative acts that impose restrictions on and require compliance with procedures designed to protect
shareholders against unfair or coercive mergers and acquisitions. These statutes may delay or prevent offers to acquire us and
increase the difficulty of consummating any such offers, even if the acquisition would be in our shareholders&rsquo; best interests.
Our charter also contains provisions which may make it difficult for another entity to acquire us without the approval of a majority
of the disinterested directors on our board of directors. Secondly, the amount of common stock owned by, and other compensation
arrangements with, certain of our officers and directors may make it more difficult to obtain shareholder approval of potential
takeovers that they oppose. Agreements with our senior management also provide for significant payments under certain circumstances
following a change in control. These compensation arrangements, together with the common stock and option ownership of our board
of directors and management, could make it difficult or expensive to obtain majority support for shareholder proposals or potential
acquisition proposals that the board of directors and officers oppose.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>The success and growth of our operations
will depend on our ability to adapt to technological changes.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The banking industry
and the ability to deliver financial services is becoming more dependent on technological advancement, such as the ability to
process loan applications over the Internet, accept electronic signatures, provide process status updates instantly, reliable
on-line banking capabilities and other customer expected conveniences that are cost efficient to our business processes. As these
technologies are improved in the future, we may, in order to remain competitive, be required to make significant capital expenditures.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>&nbsp;</B></P>

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<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: left"><B>&nbsp;</B></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may from time to
time make written or oral statements, including statements contained in this prospectus, that constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 (the &ldquo;Exchange Act&rdquo;). The words &ldquo;expect,&rdquo;
&ldquo;anticipate,&rdquo; &ldquo;intend,&rdquo; &ldquo;consider,&rdquo; &ldquo;plan,&rdquo; &ldquo;believe,&rdquo; &ldquo;seek,&rdquo;
&ldquo;should,&rdquo; &ldquo;estimate,&rdquo; and similar expressions are intended to identify such forward-looking statements,
but other statements may constitute forward-looking statements. These statements should be considered subject to various risks
and uncertainties. Such forward-looking statements are made based upon management&rsquo;s belief as well as assumptions made by,
and information currently available to, management pursuant to &ldquo;safe harbor&rdquo; provisions of the Private Securities
Litigation Reform Act of 1995. Our actual results may differ materially from the results anticipated in forward-looking statements
due to a variety of factors. Such factors include, without limitation, those specifically described under &ldquo;RISK FACTORS&rdquo;
above, as well as the following: (i) our ability to continue as a going concern, (ii) the effect of enforcement actions to which
the Bank is subject, (iii) the relatively greater credit risk of residential construction and land development loans in our loan
portfolio, (iv) the possibility that our asset equality will continue to decline or that we will continue to experience greater
loan losses than anticipated, (v) increased levels of other real estate, primarily as a result of foreclosures, (vi) the impact
of our Series A Preferred Stock on net income available to holders of our Common Stock and earnings per common share, (vii) our
ability to obtain additional capital and, if obtained, the possibly significant dilution to current shareholders, (viii) the impact
of liquidity needs on our results of operations and financial condition, (ix) economic conditions in the local markets where we
operate, (x) the impact of continuing negative developments in the financial industry and U.S. and global capital and credit markets,
(xi) uncertainty that recently enacted legislation will stabilize the U.S. financial system, (xii) the unpredictable impact of
recently enacted legislation on our business, (xiii) the impact of federal and state regulations on our operations and financial
performance, (xiv) whether a significant deferred tax asset we have can be fully realized, (xv) competition from financial institutions
and other financial service providers, (xvi) changes in interest rates, (xvii) our ability to retain the services of key personnel,
(xviii) the impact of Tennessee&rsquo;s anti-takeover statutes and certain charter provisions on potential acquisitions of the
holding company, (xix) our ability to adapt to technological changes and (xx) our ability to sell a substantial amount of the
Series A Preferred Stock. Many of such factors are beyond Cornerstone&rsquo;s ability to control or predict, and readers are cautioned
not to put undue reliance on such forward-looking statements. Cornerstone does not intend to update or reissue any forward-looking
statements contained in this report as a result of new information or other circumstances that may become known to Cornerstone.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>&nbsp;</B></P>

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<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: left"><B>&nbsp;</B></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>USE
OF PROCEEDS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following table
sets forth the calculation of our net proceeds from the offering at the subscription price of $25.00 per share. Since the offering
is not conditioned on the sale of a minimum number of shares and since it is being conducted on a best efforts basis, with no
purchase commitment from any underwriter, we are presenting this information assuming in the alternative that, in addition to
the sales to date, we sell 100% of the shares offered.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Proceeds&nbsp;from&nbsp;Offering</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">As&nbsp;of&nbsp;3/31/12</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">100%</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 68%; text-align: left">Gross Offering Proceeds</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">10,634,225</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">15,000,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Maximum Amount of Potential Commissions (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,970</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">150,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Estimated Expenses of the Offering</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">192,302</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">206,070</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Net Proceeds</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">10,394,953</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">14,643,930</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">(1)</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">We
                                                                                                                                            would
                                                                                                                                            pay
                                                                                                                                            a
                                                                                                                                            commission
                                                                                                                                            </FONT>of
                                                                                                                                            2.0%
                                                                                                                                            of
                                                                                                                                            the
                                                                                                                                            subscription
                                                                                                                                            <FONT STYLE="color: black">price
                                                                                                                                            to
                                                                                                                                            any
                                                                                                                                            eligible
                                                                                                                                            FINRA
                                                                                                                                            member
                                                                                                                                            firm
                                                                                                                                            named
                                                                                                                                            on
                                                                                                                                            an
                                                                                                                                            executed
                                                                                                                                            subscription
                                                                                                                                            agreement
                                                                                                                                            as
                                                                                                                                            having
                                                                                                                                            assisted
                                                                                                                                            the
                                                                                                                                            holder
                                                                                                                                            with
                                                                                                                                            completing
                                                                                                                                            such
                                                                                                                                            </FONT>subscription.
                                                                                                                                            For
                                                                                                                                            purposes
                                                                                                                                            of
                                                                                                                                            this
                                                                                                                                            table
                                                                                                                                            we
                                                                                                                                            have
                                                                                                                                            assumed
                                                                                                                                            that
                                                                                                                                            we
                                                                                                                                            would
                                                                                                                                            pay
                                                                                                                                            this
                                                                                                                                            commission
                                                                                                                                            on
                                                                                                                                            50%
                                                                                                                                            of
                                                                                                                                            the
                                                                                                                                            aggregate
                                                                                                                                            amount
                                                                                                                                            of
                                                                                                                                            shares
                                                                                                                                            sold
                                                                                                                                            in
                                                                                                                                            this
                                                                                                                                            offering.
                                                                                                                                            As
                                                                                                                                            of
                                                                                                                                            March
                                                                                                                                            31,
                                                                                                                                            2012,
                                                                                                                                            we
                                                                                                                                            had
                                                                                                                                            paid
                                                                                                                                            aggregate
                                                                                                                                            commissions
                                                                                                                                            of
                                                                                                                                            $49,070.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have used and intend
to use such proceeds as follows: (i) fund the payment of the dividends on the Series A Preferred Stock, (ii) fund anticipated
holding company expenses over the next 12 months, including debt service and (iii) provide the balance, if any, as additional
capital to the Bank so that it may meet the capital levels required under the Action Plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If less than all of
the shares offered are subscribed for, we will have less funds available for the uses contemplated above.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>&nbsp;</B></P>

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<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: left"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>DETERMINATION
OF OFFERING PRICE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our Series A Preferred
Stock is a new issue for which there is no existing market. <FONT STYLE="color: black">The offering price has been determined
by management and our board of directors. In establishing the offering price, management and the board of directors considered
various factors that they deemed relevant, including among other things:</FONT></P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD>our current financial
                                                                                                            condition and operating
                                                                                                            performance as presented
                                                                                                            in our financial statements;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD>our regulatory
                                                                                                            status;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD>the market value
                                                                                                            of our Common Stock;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD>the number of
                                                                                                            shares sought to be
                                                                                                            issued;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD>the amount sought
                                                                                                            to be raised;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD>the conversion
                                                                                                            price and conversion
                                                                                                            rate;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD>the anticipated
                                                                                                            impact of the offering
                                                                                                            on the market price
                                                                                                            of our Common Stock;
                                                                                                            and</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD>market factors
                                                                                                            and considerations
                                                                                                            based upon similar
                                                                                                            equity issuances by
                                                                                                            other issuers.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">NONE OF THE BOARD
OF DIRECTORS OR MANAGEMENT HAS EXPRESSED AN OPINION OR HAS MADE ANY RECOMMENDATION AS TO WHETHER ANY CURRENT SHAREHOLDER SHOULD
PURCHASE SHARES IN THE OFFERING. ANY DECISION TO INVEST IN THE SERIES A PREFERRED STOCK MUST BE MADE BY EACH INVESTOR BASED UPON
HIS OR HER OWN EVALUATION OF THE OFFERING IN THE CONTEXT OF HIS OR HER BEST INTERESTS. WE WILL NOT SEEK AN OPINION CONCERNING
THE FAIRNESS OF THE OFFERING PRICE FOR ANY PERSON OR PURPOSE.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>&nbsp;</B></P>

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<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: left"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>THE OFFERING</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are offering<FONT STYLE="color: black">
to sell up to 600,000 shares of our Series A Preferred Stock at a price of $25.00 per share. Shares have been made available to
the public through our directors and executive officers and we would make the shares available to the public through any eligible
broker or dealer named in a subscription agreement as having assisted the subscriber in making the investment. </FONT>We do not
intend to sell less than <FONT STYLE="color: black">100 </FONT>shares or more than 100,000 shares to any person, although we reserve
the right to make exceptions in our sole discretion. <FONT STYLE="color: black">Once made, subscriptions may not be revoked by
subscribers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">Shares
of Series A Preferred Stock sold through eligible brokers or dealers will be sold at a price of $25.00 per share and we will pay
a commission equal to 2.0% of </FONT>that amount. As of March 31, 2012, we had paid aggregate commissions of $49,070. Unless extended
or terminated by us in our sole discretion, this offering will terminate December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will conduct the
offering solely on a best efforts, no minimum basis, which means there are no purchase commitments from underwriters and no minimum
number of shares that must be sold in the offering in order to accept subscriptions and close the offering. With respect to shares
offered, all funds will be placed in a segregated account at the Bank pending our acceptance of the associated subscriptions.
Accordingly, we may raise less than <FONT STYLE="color: black">$15,000,000 </FONT>in the offering and the funds from any subscriptions
we accept will be immediately available to us. As soon as practicable after the acceptance of any subscription, we will cause
to be sent certificates for shares of <FONT STYLE="color: black">Series A Preferred Stock </FONT>representing the subscriptions
accepted by us. If the offering is not completed, or if any part of your subscription is not accepted, your funds will be returned,
without interest, as soon as practicable. We reserve the right to amend or terminate the offering at any time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>How to Subscribe</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each investor who
desires to purchase Series A Preferred Stock in the offering should:</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">complete,
                                                                                                            date and sign the
                                                                                                            subscription agreement,
                                                                                                            including the Form
                                                                                                            W-9, accompanying
                                                                                                            this prospectus;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">make
                                                                                                            payment by personal
                                                                                                            check, bank or cashier&rsquo;s
                                                                                                            check, or wire transfer
                                                                                                            payable to Cornerstone
                                                                                                            Bancshares, Inc.,
                                                                                                            in the amount of $25.00
                                                                                                            for each share subscribed
                                                                                                            for in the offering;
                                                                                                            and</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">transmit
                                                                                                            the completed subscription
                                                                                                            agreement, together
                                                                                                            with payment in full
                                                                                                            for all shares subscribed
                                                                                                            for (unless payment
                                                                                                            is made separately
                                                                                                            by wire transfer),
                                                                                                            by mail, hand delivery
                                                                                                            or overnight or express
                                                                                                            courier service, to:</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Cornerstone Bancshares, Inc.<BR>
835 Georgia Avenue<BR>
Chattanooga, Tennessee 37402</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If payment of the
subscription price is to be made by wire transfer, the following wire instructions should be used:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Cornerstone Community Bank<BR>
ABA: 061304363<BR>
FBO Cornerstone Bancshares, Inc.<BR>
Acct: 143036803</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Your completed subscription
agreement, together with payment in full for the number of shares for which you wish to subscribe in this offering, must be received
by us prior to our termination of the offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">DELIVERY TO AN ADDRESS
OR IN A MANNER OTHER THAN THOSE INDICATED ABOVE DOES NOT CONSTITUTE GOOD DELIVERY TO US.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If the amount you
send with your subscription is insufficient to purchase the number of shares that you indicate are being subscribed for, or if
you do not specify the number of shares to be purchased, then we will treat your subscription as one to purchase shares to the
full extent of the payment sent.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">FAILURE TO INCLUDE
THE FULL OFFERING PRICE WITH YOUR SUBSCRIPTION AGREEMENT MAY CAUSE US TO REJECT YOUR SUBSCRIPTION.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The method of delivery
of subscription agreements and payment of the offering price will be at your election and risk. If you send your subscription
by mail, we recommend that you use registered mail, return receipt requested, and that you allow a sufficient number of days to
ensure delivery and clearance of payment prior to the termination date. You will be required to pay the additional postage costs
relating to registered mail.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will decide all
questions concerning the timing, validity, form and eligibility of subscription agreements received and our decisions will be
final and binding. We may, in our sole discretion, waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as we may determine, or reject the purported subscription. Subscription agreements will not be deemed
to have been received or accepted until all irregularities have been waived or cured within such time as we determine in our sole
discretion. We will not be under any duty to give a subscriber notice of any defect or irregularity in the submission of subscription
agreements or incur any liability for failure to give such notification.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">SUBSCRIPTIONS FOR
SERIES A PREFERRED STOCK MAY NOT BE REVOKED BY SUBSCRIBERS.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Purchases By Directors, Executive Officers and Others</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of March 31, 2012,
our directors and executive officers, including their affiliates, beneficially owned approximately 17.85%<B> </B>of the outstanding
shares of our Common Stock. <FONT STYLE="color: black">We contemplate that all of our directors and a majority of our executive
officers will subscribe for shares of Series A Preferred Stock in this offering, but we presently do not know how many shares
they intend to purchase.</FONT> However, as of March 31, 2012, they had purchased 29,120 shares as a group. Each director and
executive officer who purchases <FONT STYLE="color: black">shares in this offering has purchased and will purchase with the intent
of holding the shares as an investment.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Regulatory Limitation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will not be required
to issue shares of Series A Preferred Stock in the offering to any person who, in our judgment, would be required to obtain prior
clearance or approval from any state or federal bank regulatory authority to own or control such shares if such clearance or approval
has not been obtained or any required waiting period has not expired prior to our termination of the offering. In our sole discretion,
we may conditionally accept subscriptions where the required regulatory approvals have not been received, in which case all funds
received in payment of the offering price will remain in a segregated account pending the receipt of the required regulatory approvals.
If we conditionally accept a subscription pending regulatory approval, and if any required regulatory approval is not received
prior to the termination of this offering, you will not receive any shares in the offering and you will receive a refund of your
payment of the offering price as soon as practicable by mail. You will not receive any interest on your subscription funds while
they are on deposit with the Bank and any refund will be without interest. Our determination as to whether clearance or approval
is required will be final and binding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Nonqualified States or Foreign Countries</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have made a reasonable
effort to comply with the securities laws of all states in the United States in which current shareholders reside. We will not
provide subscription materials to any person who resides in any foreign country or in any state of the United States if we determine
that compliance with the securities laws of such country or state would be impracticable, and we will not accept any subscriptions
from subscribers located in those states or countries.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="margin: 0"></P>
<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>MARKET PRICE
OF OUR COMMON STOCK<BR>
AND RELATED SHAREHOLDER MATTERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Market Information and Dividends </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On March 31, 2012 Cornerstone
had 6,500,396 shares of common stock outstanding. Cornerstone&rsquo;s common stock is quoted on the OTC Bulletin Board under the
symbol &ldquo;CSBQ&rdquo; but is not listed on a national securities exchange. There are ten market makers who provide a market
for Cornerstone&rsquo;s common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>TABLE 1</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="margin-left: 0.5in; border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="9" NOWRAP STYLE="text-align: center">High and Low Common Stock Share Price for Cornerstone</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Cash Dividends <BR>Paid Per Share</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: justify; padding-bottom: 1pt"></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">Low</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid">High</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify"><B><U>2012 Fiscal Year</U></B>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 64%; text-align: justify">First Quarter</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1.30</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2.50</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Second Quarter (through June 11, 2012)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.65</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.50</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-decoration: underline; text-align: justify">2011 Fiscal Year</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">First Quarter</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.50</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Second Quarter</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.90</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.55</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Third Quarter</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.01</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.20</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Fourth Quarter</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.85</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.50</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-decoration: underline; text-align: justify">2010 Fiscal Year</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">First Quarter</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Second Quarter</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Third Quarter</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.35</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Fourth Quarter</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.58</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">There were 425,369 shares of our Series
A Convertible Preferred Stock outstanding as of March 31, 2012. Table 2 presents information relating to dividends paid on the
Series A Convertible Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>TABLE 2</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><U>Series A Convertible Preferred Stock Dividend Payments</U></B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Record Date</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Date Payable</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount <BR>Per Share</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; text-align: center">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 22%; text-align: center">December 31, 2011</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 22%; text-align: center; padding-left: 10pt">May 30, 2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">0.625</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center; padding-left: 10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center">2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">March 31, 2011</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center; padding-left: 10pt">September 28, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.625</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center"></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">June 30, 2011</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center; padding-left: 10pt">November 29, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.625</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center"></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">September 30, 2011</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center; padding-left: 10pt">February 28, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.625</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center; padding-left: 10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center">2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">October 15, 2010</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center; padding-left: 10pt">November 15, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.625</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center"></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">December 31, 2010</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center; padding-left: 10pt">May 25, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.625</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;<B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>PLAN OF DISTRIBUTION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our executive officers
and directors have and will contact potential investors by correspondence informing them that we are conducting an offering of
securities pursuant to the terms of a prospectus. The correspondence will direct any person interested in purchasing shares of
Series A Preferred Stock offered in the offering to contact us to learn more about the offering. With respect to any person who
contacts us, we will offer securities for sale by the delivery of a copy of this prospectus and a subscription agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to any
shares not sold to Offerees, we intend to approach FINRA-registered brokers and dealers (although we intend to exclude banks that
are our competitors) and invite them to offer shares of Series A Preferred Stock for sale to the public. We have not at this time
invited any such brokers or dealers to offer shares of our Series A Preferred Stock. We have not at this time made a determination
of which brokers and dealers we would invite to offer shares of our Series A Preferred Stock or on which terms such invitations
will be made other than that we have determined that we would pay a commission equal to 2.0%.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>OUR BUSINESS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cornerstone Bancshares,
Inc. was incorporated on September 19, 1983 under the laws of the State of Tennessee. We are a bank holding company registered
under the Bank Holding Company Act of 1956, as amended, and were formerly known as East Ridge Bancshares, Inc. We are headquartered
in Chattanooga, Tennessee, and have one wholly-owned subsidiary: Cornerstone Community Bank, a Tennessee banking corporation, which
resulted from the merger of The Bank of East Ridge and Cornerstone Community Bank effective October 15, 1997.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Cornerstone Bancshares, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Company&rsquo;s
primary activity is, and is expected to remain for the foreseeable future, the ownership and operation of the Bank. As a bank holding
company, we intend to facilitate the Bank&rsquo;s ability to serve its customers&rsquo; requirements for financial services. The
holding company structure also provides flexibility for expansion through the possible acquisition of other financial institutions
and the provision of additional banking-related services, as well as certain non-banking services, which a traditional commercial
bank may not provide under present laws. The holding company structure also affords additional flexibility in terms of capital
formation and financing opportunities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Cornerstone Community Bank</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank is a Tennessee-chartered
commercial bank established in 1985 which has its principal executive offices in Chattanooga, Tennessee. The principal business
of the Bank consists of attracting deposits from the general public and investing those funds, together with funds generated from
operations and from principal and interest payments on loans, primarily in commercial loans, commercial and residential real estate
loans, consumer loans and residential and commercial construction loans. Funds not invested in the loan portfolio are invested
by the Bank primarily in obligations of the U.S. Government, U.S. Government agencies, various states and their political subdivisions.
In addition to deposits, sources of funds for the Bank loans and other investments include amortization and prepayment of loans,
sales of loans or participations in loans, sales of its investment securities and borrowings from other financial institutions.
The principal sources of income for the Bank are interest and fees collected on loans, fees collected on deposit accounts and interest
and dividends collected on other investments. The principal expenses of the Bank are interest paid on deposits, employee compensation
and benefits, office expenses and other overhead expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank has five full-service
banking offices located in Hamilton County, Tennessee. In 2007, the Bank established two loan production offices (&ldquo;LPO&rdquo;).
The first LPO is located in Dalton, Georgia, and has expanded the Bank&rsquo;s presence in North Georgia. In September 2009, the
Bank closed the second LPO, which was located in Knoxville, Tennessee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank owned and
operated a subsidiary, Eagle Financial, Inc. (Eagle), a finance and factoring company. On December 1, 2011, the Bank elected to
transfer the operations, assets and liabilities of Eagle into the Bank. The transfer allowed the Bank to combine the operations
of Eagle with the Bank&rsquo;s asset based lending department. As a result, the Bank formed Eagle Financial a division of Cornerstone
Community Bank. The Bank maintains the existence of this subsidiary in an inactive status.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Employees</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of December 31,
2011, we had 109 full-time equivalent employees. The employees are not represented by a collective bargaining unit. We believe
that our relationship with our employees is good.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Competition</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">All phases of our banking
activities are highly competitive. The Bank competes actively with 29 commercial banks, as well as finance companies, credit unions
and other financial institutions located in its service area, which includes Hamilton County, Tennessee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank&rsquo;s deposits
totaled approximately $314 million as of December&nbsp;31, 2011. The deposit base represents approximately 4% of the deposit base
in the Chattanooga, Tennessee Metropolitan Statistical Area (MSA). Three major regional banks represent approximately 60% of the
deposits in the Chattanooga, Tennessee MSA. These larger financial institutions have greater resources, higher lending limits than
the Bank, and each of the three institutions has over 20 branches in the Chattanooga, Tennessee MSA. There are also several credit
unions located in Hamilton County, Tennessee. Credit unions are not subject to the same income tax structure as commercial banks.
This advantage enables credit unions to offer competitive rates to potential customers. The Bank also faces competition in certain
areas of its business from mortgage banking companies, consumer finance companies, insurance companies, money market mutual funds
and investment banking firms, some of which are not subject to the same degree of regulation as the Bank.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank competes for
deposits principally by offering depositors a variety of deposit programs with competitive interest rates, quality service and
convenient locations and hours. The Bank focuses its resources to seek out and attract small business relationships and take advantage
of its ability to provide flexible service that meets the needs of this customer class. We feel this market niche is the most promising
business area for the future growth of the Bank.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Properties</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our principal offices
are located at 835 Georgia Avenue, Chattanooga, Tennessee 37402. In addition, the Bank operates five full-service branches and
one loan production office that are located at:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 90%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 30%; text-align: justify">Banking Branches</TD>
    <TD STYLE="width: 70%; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">4154 Ringgold Road</FONT>, East Ridge, Tennessee (owned by the Bank)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">5319 Highway 153, Hixson, Tennessee (owned by the Bank)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">2280 Gunbarrel Road</FONT>, Chattanooga, Tennessee (owned by the Bank)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">8966 Old Lee Highway</FONT>, Ooltewah, Tennessee (owned by the Bank)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">835 Georgia Avenue</FONT>, Chattanooga, Tennessee (leased by the Bank)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD NOWRAP STYLE="text-align: justify">Loan Production Office&nbsp;&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">202 West Crawford Street</FONT>, Dalton, Georgia (leased by the Bank)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Georgia Avenue
facility located in downtown Chattanooga, Tennessee serves as a branch location for the Bank&rsquo;s customers as well as our executive
offices. The Bank also owns a vacant building and lot at 103 S. Campbell Station Road Knoxville, Tennessee which is currently for
sale. We lease and operate a service center to facilitate all of our noncustomer contact functions located at 6401 Lee Corners,
Suite 119, Chattanooga, Tennessee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Supervision and Regulation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a bank holding company
within the meaning of the Bank Holding Company Act of 1956, as amended (the &ldquo;Act&rdquo;), we are registered with and regulated
by the Federal Reserve. We are required to file with the Federal Reserve annual reports and such additional information as the
Federal Reserve may require pursuant to the Act. The Federal Reserve may also make examinations of us and the Bank. We are also
required to comply with the rules and regulations of the Commission under federal securities laws.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a Tennessee-chartered
commercial bank, the Bank is subject to the supervision and regulation of the Tennessee Department of Financial Institutions. In
addition, the Bank&rsquo;s deposit accounts are insured up to applicable limits by the Deposit Insurance Fund of the FDIC and consequently,
the Bank is also subject to regulation and supervision by the FDIC. The Bank is not a member of the Federal Reserve System.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Federal and state banking
laws and regulations govern all areas of our operations, including reserves, loans, mortgages, capital, issuance of securities,
payment of dividends and establishment of branches. Federal and state banking agencies also have the general authority to limit
the dividends paid by insured banks if such payments are deemed to constitute an unsafe or unsound banking practice. The TDFI,
FDIC and Federal Reserve have the authority to impose penalties, initiate civil and administrative actions and take other steps
intended to prevent banks from engaging in unsafe or unsound practices.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>FDIC Insurance of Deposit Accounts</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Deposits of the Bank
are insured by the FDIC to a maximum of $250,000 for each insured depositor through the DIF. As an insurer, the FDIC issues regulations,
conducts examinations and generally supervises the operations of its insured institutions (institutions insured by the FDIC hereinafter
are referred to as &ldquo;insured institutions&rdquo;). Any insured institution which does not operate in accordance with or conform
to FDIC regulations, policies and directives, may be sanctioned for non-compliance. For example, proceedings may be instituted
against an insured institution if the institution or any director, officer or employee thereof engages in unsafe and unsound practices,
is operating in an unsafe or unsound condition, or has violated any applicable law, regulation, rule, order or condition imposed
by the FDIC. If insurance of accounts is terminated by the FDIC, the deposits in the institution will continue to be insured by
the FDIC for a period of two years following the date of termination. The FDIC recommends an annual audit by independent accountants
and also periodically makes its own examinations of insured institutions, including the Bank. The FDIC may revalue assets of an
institution, based upon appraisals and other analyses and require establishment of general or specific reserves in amounts equal
to the difference between such reevaluation and the book value of the assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On September 15, 1992,
the FDIC approved final regulations adopting a risk-related deposit insurance system. The risk-related regulations, which became
effective January 1, 1993, resulted in a significant spread between the highest and lowest deposit insurance premiums. Under the
risk-related insurance regulations, each insured depository institution is assigned to one of three risk classifications: &ldquo;well
capitalized,&rdquo; &ldquo;adequately capitalized,&rdquo; or &ldquo;under capitalized.&rdquo; Within each risk classification,
there are three subgroups. Each insured institution is assigned to one of these subgroups within its risk classification based
upon supervisory evaluations submitted to the FDIC by the institution&rsquo;s primary federal regulator. The FDIC may terminate
its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Subsequent to the enactment
of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (&ldquo;FIRREA&rdquo;), the FDIC issued risk-based bank
capital guidelines which went into effect in stages through 1992. In accordance with the FDIC&rsquo;s risk-based standards, an
institution&rsquo;s assets and off-balance sheet activities are categorized into one of four risk categories, with either a 0%,
20%, 50%, or 100% amount of capital to be held against these assets. In addition, the guidelines divide capital instruments into
Tier 1 (core) capital and Tier 2 (supplementary) capital. The risk-based capital adequacy guidelines require that (i) Tier 1 capital
equal or exceed 4.0% of risk-weighted assets; (ii) Tier 2 capital may not exceed 100% of Tier 1 capital, although certain Tier
2 capital elements are subject to additional limitations; (iii) assets and off-balance sheet items must be weighted according to
risk; and (iv) the total capital to risk-weighted assets ratio must be at least 8.0%. The FDIC&rsquo;s current leverage capital
requirement requires banks receiving the highest regulatory rating based upon the FDIC&rsquo;s routine examination process, to
maintain Tier 1 capital equal to 3.0% of the bank&rsquo;s total assets. The FDIC may determine that an insured institution needs
to maintain a higher capital level based on the institution&rsquo;s particular risk profile. When determining an insured institution&rsquo;s
minimum capital level, the FDIC will consider whether the financial history or condition, managerial resources, the future earnings
prospects, significant risks from concentrations of credit or nontraditional activities, excessive interest rate risk exposure,
or a significant volume of criticized assets poses a risk to the insured institution&rsquo;s capital adequacy.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Certain provisions
of the Federal Reserve Act, made applicable to the Bank by Section 18(j) of the Federal Deposit Insurance Act (&ldquo;FDIA&rdquo;)
(12&nbsp;U.S.C.&nbsp;&sect;1828(j)) and administered with respect to the Bank by the FDIC, establish standards for the terms of,
limit the amount of, and establish collateral requirements with respect to any loans or extensions of credit to, and investments
in, affiliates by the Bank as well as set arms-length criteria for such transactions and for certain other transactions (including
payment by the Bank for services) between the Bank and its affiliates. In addition, related provisions of the Federal Reserve Act
and the Federal Reserve regulations (also administered with respect to the Bank by the FDIC) limit the amounts of, and establish
required procedures and credit standards with respect to, loans and other extensions of credit to officers, directors and principal
shareholders of the Bank and to related interests of such persons.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The FDIC may impose
sanctions on any insured bank that does not operate in accordance with FDIC regulations, policies and directives. Proceedings may
be instituted against any insured bank or any director, officer or employee of the bank that is believed by the FDIC to be engaged
in unsafe or unsound practices, including violation of applicable laws and regulations. The FDIC is also empowered to assess civil
penalties against companies or individuals who violate certain federal statutes, orders or regulations. In addition, the FDIC has
the authority to terminate insurance of accounts, after notice and hearing, upon a finding by the FDIC that the insured institution
is or has engaged in any unsafe or unsound practice that has not been corrected, or is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule or order of, or condition imposed by, the FDIC. Neither Cornerstone
nor the Bank knows of any past or current practice, condition or violation that might lead to termination of its deposit insurance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Although the Bank is
not a member of the Federal Reserve System, it is subject to Federal Reserve regulations that require the Bank to maintain reserves
against its transaction accounts (primarily checking accounts). Because reserves generally must be maintained in cash or in non-interest
bearing accounts, the effect of the reserve requirements is to increase the Bank&rsquo;s cost of funds. The Federal Reserve regulations
currently require that average daily reserves be maintained against transaction accounts in the amount of 3% of the aggregate of
such net transaction accounts up to $52.6 million, plus 10% of the total in excess of $52.6 million.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>State of Tennessee Supervision and
Regulation</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a commercial bank
chartered and regulated by the TDFI, the Bank is subject to various state laws and regulations which limit the amount that can
be loaned to a single borrower and the borrower&rsquo;s related interests, the types of permissible investments, and geographic
and new product expansion, among other things. The Bank must submit an application to, and receive the approval of, the TDFI before
opening a new branch office or merging with another financial institution. The Commissioner of the TDFI has the authority to enforce
state laws and regulations by ordering a director, officer or employee of the Bank to cease and desist from violating a law or
regulation or from engaging in unsafe or unsound banking practices.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Tennessee</FONT>
law contains limitations on the interest rates that may be charged on various types of loans and restrictions on the nature and
amount of loans that may be granted and on the type of investments which may be made. The operations of banks are also affected
by various consumer laws and regulations, including those relating to equal credit opportunity and regulation of consumer lending
practices. All Tennessee banks, including the Bank, must become and remain insured under the FDIA.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">State banks are subject
to regulation by the TDFI with regard to capital requirements and the payment of dividends. Tennessee has adopted the provisions
of the Federal Reserve&rsquo;s Regulation O with respect to restrictions on loans and other extensions of credit to bank &ldquo;insiders&rdquo;.
Further, under Tennessee law, state banks are prohibited from lending to any one person, firm or corporation amounts more than
fifteen percent (15%) of the bank&rsquo;s equity capital accounts, except (i) in the case of certain loans secured by negotiable
title documents covering readily marketable nonperishable staples, or (ii) with the prior approval of the bank&rsquo;s board of
directors or finance committee (however titled), the bank may make a loan to any person, firm or corporation of up to twenty-five
percent (25%) of its equity capital accounts. Tennessee law requires that dividends be paid only from retained earnings (or undivided
profits) except that dividends may be paid from capital surplus with the prior, written consent of the TDFI. Tennessee laws regulating
banks require certain charges against and transfers from an institution&rsquo;s undivided profits account before undivided profits
can be made available for the payment of dividends.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Federal Supervision and Regulation</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are regularly examined
by the Federal Reserve, and the Bank is supervised and examined by the FDIC. We are required to file with the Federal Reserve annual
reports and other information regarding our business operations and the business operations of the Bank. Approval of the Federal
Reserve is required before we may acquire, directly or indirectly, ownership or control of the voting shares of any bank, if, after
such acquisition, we would own or control, directly or indirectly, more than 5% of the voting stock of the bank. In addition, pursuant
to the provisions of the Act and the regulations promulgated thereunder, we may only engage in, or own or control companies that
engage in, activities deemed by the Federal Reserve to be so closely related to banking as to be a proper incident thereto.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We and the Bank are
&ldquo;affiliated&rdquo; within the meaning of the Act. Certain provisions of the Act establish standards for the terms of, limit
the amount of, and establish collateral requirements with respect to, any loans or extensions of credit to, and investments in,
affiliates by the Bank, as well as set arms-length criteria for such transactions and for certain other transactions (including
payment by the Bank for services under any contract) between the Bank and its affiliates. In addition, related provisions of the
Act and the regulations promulgated under the Act limit the amounts of, and establish required procedures and credit standards
with respect to, loans and other extensions of credit to officers, directors, and principal shareholders of the Bank, our Company
and any other subsidiary of our Company, and to related interests of such persons.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under Section 106(b)
of the 1970 Amendments to the Act (12 U.S.C. &sect; 1972), the Bank is prohibited from extending credit, selling or leasing property
or furnishing any service to any customer on the condition or requirement that the customer (i) obtain any additional property,
service or credit from our Company, the Bank (other than a loan, discount, deposit, or trust service) or any subsidiary of our
Company; (ii) refrain from obtaining any property, credit or service from any competitor of our Company, the Bank or any subsidiary
of our Company; or (iii) provide any credit, property or service to our Company, the Bank (other than those related to and usually
provided in connection with a loan, discount, deposit or trust service) or any subsidiary of our Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Most bank holding companies
are required to give the Federal Reserve prior written notice of any purchase or redemption of their outstanding equity securities
if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases
or redemptions during the preceding 12 months, is equal to 10% or more of the bank holding company&rsquo;s consolidated net worth.
The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal constitutes an unsafe or unsound
practice that would violate any law, regulation, Federal Reserve order or directive or any condition imposed by, or written agreement
with, the Federal Reserve. The prior notice requirement does not apply to certain &ldquo;well-capitalized&rdquo; bank holding companies
that meet specified criteria.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In November 1985, the
Federal Reserve adopted its Policy Statement on Cash Dividends Not Fully Covered by Earnings. The Policy Statement sets forth various
guidelines that the Federal Reserve believes that a bank holding company should follow in establishing its dividend policy. In
general, the Federal Reserve stated that bank holding companies should not pay dividends except out of current earnings and unless
the prospective rate of earnings retention by the holding company appears consistent with its capital needs, asset quality and
overall financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-weight: normal">A
bank or bank holding company that is deemed to be in &ldquo;troubled condition&rdquo; or that is operating under a formal supervisory
action may not, without the prior consent of its primary federal regulator, make a &ldquo;golden parachute&rdquo; payment. By letter
dated March 30, 2010, the Federal Reserve Bank has notified us that we are in &ldquo;troubled condition&rdquo; as a result of the
Bank&rsquo;s condition. The purposes of the law and the regulations promulgated thereunder include safeguarding the assets of financial
institutions and limiting rewards to institution-affiliated parties who may have contributed to the institution&rsquo;s condition.
An &ldquo;institution-affiliated party&rdquo; includes any officer, director, employee and controlling stockholder, as well as
others who participate in the affairs of a financial institution. Under the FDIC&rsquo;s regulations, a &ldquo;golden parachute&rdquo;
payment means any payment in the nature of compensation or an agreement to make such payment for the benefit of any current or
former institution-affiliated party of an insured depository institution or its holding company that meets three criteria. First,
the payment or agreement must be contingent upon the termination of the institution-affiliated party&rsquo;s employment or association.
Second, the payment or agreement is received on or after, or made in contemplation of, among other things, a termination when the
institution or holding company is in a &ldquo;troubled condition&rdquo; under the regulations of the applicable banking agency.
Third, the payment or agreement must be payable to an institution-affiliated party who is terminated when the institution or holding
company meets certain specific conditions, including being subject to a determination that it is in a troubled condition.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Legislation Affecting the Company
and the Bank</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following information
describes certain statutory and regulatory provisions affecting the Company and the Bank and is qualified in its entirety by reference
to such statutory and regulatory provisions. In addition, the financial institutions industry is currently subject to a number
of legislative initiatives, and, as such, statutory and regulatory provisions may change.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>FIRREA and FDICIA</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Far-reaching legislation,
including FIRREA and the Federal Deposit Insurance Corporation Improvement Act of 1991 (&ldquo;FDICIA&rdquo;), have for years impacted
the business of banking. FIRREA primarily affected the regulation of savings institutions rather than the regulation of commercial
banks and bank holding companies like the Bank and the Company, but did include provisions affecting deposit insurance premiums,
acquisitions of thrifts by banks and bank holding companies, liability of commonly controlled depository institutions, receivership
and conservatorship rights and procedures and substantially increased penalties for violations of banking statutes, regulations
and orders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">FDICIA resulted in
extensive changes to the federal banking laws. The primary purpose of FDICIA was to authorize additional borrowings by the FDIC
in order to assist in the resolution of failed and failing financial institutions. However, the law also instituted certain changes
to the supervisory process and contained various provisions affecting the operations of banks and bank holding companies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The additional supervisory
powers and regulations mandated by FDICIA, include a &ldquo;prompt corrective action&rdquo; program based upon five regulatory
zones for banks, in which all banks are placed largely based on their capital positions. Regulators are permitted to take increasingly
harsh action as a bank&rsquo;s financial condition declines. Regulators are also empowered to place in receivership or require
the sale of a bank to another depository institution when a bank&rsquo;s capital leverage ratio reaches two percent (2%). Better
capitalized institutions are generally subject to less onerous regulation and supervision than banks with lesser amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective action provisions of the FDICIA, which place financial institutions
in the following five categories based upon capitalization ratios: (1) a &ldquo;well capitalized&rdquo; institution has a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based ratio of at least 6% and a leverage ratio of at least 5%; (2) an
&ldquo;adequately capitalized&rdquo; institution has a total risk-based ratio of at least 8%, a Tier 1 risk-based ratio of at least
4% and a leverage ratio of at least 4%; (3) an &ldquo;undercapitalized&rdquo; institution has a total risk-based capital ratio
of under 8%, a Tier 1 risk-based capital ratio of under 4% or a leverage ratio of under 4%; (4) a &ldquo;significantly undercapitalized&rdquo;
institution has a total risk-based capital ratio of under 6%, a Tier 1 risk-based ratio of under 3% or a leverage ratio of under
3%; and (5) a &ldquo;critically undercapitalized&rdquo; institution has a leverage ratio of 2% or less. Institutions in any of
the three undercapitalized categories would be prohibited from declaring dividends or making capital distributions. The proposed
regulations also establish procedures for &ldquo;downgrading&rdquo; an institution to a lower capital category based on supervisory
factors other than capital. Various other sections of the FDICIA impose substantial audit and reporting requirements and increase
the role of independent accountants and outside directors. Set forth below is a list containing certain significant provisions
of the FDICIA:</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">annual on-site examinations by regulators (except for smaller, well-capitalized banks with high
management ratings, which must be examined every 18 months);</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">mandated annual independent audits by independent public accountants and an independent audit committee
of outside directors for institutions with more than $500,000,000 in assets;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">new uniform disclosure requirements for interest rates and terms of deposit accounts;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">a requirement that the FDIC establish a risk-based deposit insurance assessment system;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">authorization for the FDIC to impose one or more special assessments on its insured banks to recapitalize
the Bank Insurance Fund (now called the Deposit Insurance Fund);</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">a requirement that each institution submit to its primary regulators an annual report on its financial
condition and management, which report will be available to the public;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">a ban on the acceptance of brokered deposits except by well capitalized institutions and by adequately
capitalized institutions with the permission of the FDIC and the regulation of the brokered deposit market by the FDIC;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">restrictions on the activities engaged in by state banks and their subsidiaries as principal, including
insurance underwriting, to the same activities permissible for national banks and their subsidiaries unless the state bank is well
capitalized and a determination is made by the FDIC that the activities do not pose a significant risk to the insurance fund;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">a review by each regulatory agency of accounting principles applicable to reports or statements
required to be filed with federal banking agencies and a mandate to devise uniform requirements for all such filings;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">the institution by each regulatory agency of noncapital safety and soundness standards for each
institution it regulates which cover (1) internal controls, (2) loan documentation, (3) credit underwriting, (4) interest rate
exposure, (5) asset growth, (6) compensation, fees and benefits paid to employees, officers and directors, (7) operational and
managerial standards, and (8) asset quality, earnings and stock valuation standards for preserving a minimum ratio of market value
to book value for publicly traded shares (if feasible);</TD></TR></TABLE>

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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">uniform regulations regarding real estate lending; and</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">a review by each regulatory agency of the risk-based capital rules to ensure they take into account
adequate interest rate risk, concentration of credit risk, and the risks of non-traditional activities.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>Gramm-Leach-Bliley Act</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The activities permissible
to us were substantially expanded by the Gramm-Leach-Bliley Act (the &ldquo;Gramm Act&rdquo;). The Gramm Act repeals the anti-affiliation
provisions of the Glass-Steagall Act to permit the common ownership of commercial banks, investment banks and insurance companies.
The Gramm Act amended the Act to permit a financial holding company to engage in any activity and acquire and retain any company
that the Federal Reserve determines to be (i) financial in nature or incidental to such financial activity, or (ii) complementary
to a financial activity and that does not pose a substantial risk to the safety and soundness of depository institutions or the
financial system generally. The Gramm Act also modifies current law relating to financial privacy and community reinvestment. The
new financial privacy provisions generally prohibit financial institutions, including us, from disclosing nonpublic personal financial
information to third parties unless customers have the opportunity to &ldquo;opt out&rdquo; of the disclosure.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>Temporary Liquidity Guarantee Program</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On November 21, 2008,
the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program (&ldquo;TLGP&rdquo;).
The TLGP was announced by the FDIC on October 14, 2008, preceded by the determination of systemic risk by the U.S. Treasury, as
an initiative to counter the system-wide crisis in the nation&rsquo;s financial sector. Under the TLGP, the FDIC will (i) guarantee,
through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions
and (ii) provide unlimited FDIC deposit insurance coverage for noninterest bearing transaction deposit accounts, Negotiable Order
of Withdrawal Accounts (commonly known as NOW accounts) paying less than 0.5% interest per annum and Interest on Lawyers Trust
Accounts (commonly known as IOLTA) held at participating FDIC-insured institutions through December 31, 2009. Such unlimited insurance
coverage expired and was not extended under the Dodd-Frank Act (defined below). The $250,000 deposit insurance coverage limit was
scheduled to return to $100,000 on January&nbsp;1, 2010, but was extended by congressional action until December&nbsp;31, 2012
and the NOW and IOLTA accounts are subject to such $250,000 insurance coverage limit. Coverage under the TLG Program was available
for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100
basis points per annum, depending on the initial maturity of the debt. The fee assessment for deposit insurance coverage is 10
basis points per quarter on amounts in covered accounts exceeding $250,000. The Bank elected to participate in the unlimited deposit
insurance coverage for noninterest bearing transaction deposit accounts, but declined to participate in the senior unsecured debt
guarantee coverage.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>The Dodd-Frank Act</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">On
July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the &ldquo;Dodd-Frank
Act&rdquo;). The impact of the Dodd-Frank Act on the financial services industry will be broad, with enhanced regulatory oversight
and compliance, including, among other things,</FONT> (i) enhanced resolution authority of troubled and failing banks and their
holding companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes
to assessments to be paid to the FDIC for federal deposit insurance; and (v) numerous other provisions designed to improve supervision
and oversight of, and strengthening safety and soundness for, the financial services sector. In addition, the Dodd-Frank Act established
a new framework for systemic risk and oversight in the industry which <FONT STYLE="color: black">has resulted and will continue
to result in sweeping changes in the regulation of financial institutions aimed at strengthening safety and soundness for the financial
services sector. A summary of certain provisions of the Dodd-Frank Act is set forth below:</FONT></P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increased
Capital Standards and Enhanced Supervision</I>. The federal banking agencies are required to establish minimum leverage and risk-based
capital requirements for banks and bank holding companies. These new standards will be no lower than current regulatory capital
and leverage standards applicable to insured depository institutions and may, in fact, be higher when established by the agencies.
The Dodd-Frank Act also increases regulatory oversight, supervision and examination of banks, bank holding companies and their
respective subsidiaries by the appropriate regulatory agency.</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Federal
Deposit Insurance</I>. The Dodd-Frank Act makes permanent the $250,000 deposit insurance limit for insured deposits and provides
unlimited federal deposit insurance on non-interest bearing transaction accounts at all insured depository institutions until December
31, 2012. The Dodd-Frank Act also changes the assessment base for federal deposit insurance from the amount of insured deposits
to consolidated assets less tangible equity, eliminates the ceiling on the size of the DIF and increases the floor of the size
of the DIF.</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Consumer Financial Protection Bureau (&ldquo;Bureau&rdquo;)</I>. The Dodd-Frank Act centralizes responsibility for consumer financial
protection by creating a new agency, the Bureau, responsible for implementing, examining and, for large financial institutions,
enforcing compliance with federal consumer financial laws. The Bureau will have broad rulemaking, supervisory and enforcement authority
over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit
cards, and contains provisions on mortgage-related matters such as, steering incentives, determinations as to borrower&rsquo;s
ability to repay and prepayment penalties. On July 31, 2011 the Dodd-Frank Act transferred the responsibility for implementation
of a wide variety of existing consumer protection rules and regulations to the Bureau. In addition, the Dodd-Frank Act tasks the
Bureau with implementation of many new consumer protection initiatives required by that law. While the exact impact of these future
changes is unknown, the Bank expects that it will incur additional expense related to the implementation of those rules. Another
provision of the Dodd-Frank Act, commonly known as the Durbin Amendment, became effective October 1, 2011. The Durbin Amendment
limits interchange fees payable on debit card transactions for financial institutions with less than $10 billion in assets. While
the Durbin Amendment does not directly apply to the Bank, competitive market forces related to the reduction mandated by the Durbin
Amendment may result in a decrease in revenue from interchange fees for smaller financial institutions. Because the Bank has under
$10 billion in total assets, however, the FDIC will still continue to examine it at the federal level for compliance with such
laws.</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
on Demand Deposit Accounts</I>. The Dodd-Frank Act repeals the prohibition on the payment of interest on demand deposit accounts
effective one year after the date of enactment, thereby permitting depository institutions to pay interest on business checking
and other accounts.</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage
Reform</I>. The Dodd-Frank Act provides for mortgage reform addressing a customer&rsquo;s ability to repay, restricts variable-rate
lending by requiring the ability to repay to be determined for variable rate loans by using the maximum rate that will apply during
the first five years of a variable-rate loan term, and makes more loans subject to requirement for higher-cost loans, new disclosures
and certain other restrictions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>Future Legislation</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Legislation is regularly
introduced in both the United States Congress and the Tennessee General Assembly that contains wide-ranging proposals for altering
the structures, regulations and competitive relationships of the nation&rsquo;s financial institutions. Such legislation may change
banking statutes and our operating environment in substantial and unpredictable ways and could increase or decrease the cost of
doing business, limit or expand permissible activities or affect the competitive balance, depending upon whether any of this potential
legislation will be enacted and, if enacted, the effect that it or any implementing regulations would have on our financial condition
or results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Our board of directors
is comprised of ten directors, all of whom were elected at our annual meeting of shareholders held on April 26, 2012 to serve for
a one year term and until their successors are elected and qualify. The directors of the Company are also the directors of the
Bank. All of our executive officers serve at the discretion of the board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Directors </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The names and ages,
as of March 31, 2012, of our current directors, a brief description of their principal occupation and business experience, and
certain other information are set forth below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 19%; font-weight: bold; padding-bottom: 1pt; border-bottom: Black 1pt solid"><B>Name</B></TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 5%; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Age</B></TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 74%; font-weight: bold; text-align: center; padding-bottom: 1pt; border-bottom: Black 1pt solid"><B>Principal Occupation and Qualifications</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>B. Kenneth Driver</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">76</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Vice Chairman and Co-Chief Executive Officer of Fillauer Companies, Inc., a Chattanooga based prosthetic manufacturer, since 1914. He previously served as President and Chief Operations Officer of Fillauer Companies, Inc. from 1994 to 2007. Since 2007 to present he has served as the Vice Chairman and Vice CEO of the Fillauer Companies. He has been a director of the Company since 1997. Mr. Driver has extensive experience in the matters involved in running a large public company, has served in several capacities from CFO to President and has expertise in finance and accounting, corporate governance, employee matters, and mergers and acquisitions.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Karl Fillauer</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">64</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Chairman and CEO of Fillauer Companies, Inc., a Chattanooga based prosthetic manufacturer since 1914. He has been a director of the Company since 1997. Mr. Fillauer brings significant executive management experience and insight to the Board and is proficient in matters relating to finance and accounting, corporate governance, employee matters, and mergers and acquisitions.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>David G. Fussell</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">65</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Interim Chief Investment Officer (CIO) of Unum Group, a leading worldwide provider of employee benefits insurance. Mr. Fussell was employed by Unum Group and its predecessors for 42 years, including as its Senior Vice President of Investments from 2000 to 2004. <FONT STYLE="color: black"> He has been a director of the Company since January 2009. A</FONT>s the CIO of a large public company, Mr. Fussell acquired extensive experience in matters relating to finance and accounting, corporate governance, employee matters, mergers and acquisitions, risk assessment, civic affairs, and government relations. His investment background adds material depth to the Company&rsquo;s investment management and risk oversight process. In addition, he also serves on the board of several non-profit organizations.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Nathaniel F. Hughes</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">53</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">President of the Company and the Bank since November 2009. He previously served as President and Chief Financial Officer of the Company and President and Chief Operating Officer of the Bank from June 2004 to November 2009. Prior to this time, Mr. Hughes served as President and Chief Financial Officer of the Company and the Bank from April 2003 to June 2004, and as Executive Vice President and Chief Financial Officer of the Company and the Bank from February 1999 to April 2003. Mr. Hughes has been a director of the Company since April 2003. He has over 25 years experience in the banking and financial services industry, including expertise in finance and accounting. Mr. Hughes possesses extensive knowledge of the Company&rsquo;s business and regulatory environment, including matters affecting public companies. As chief executive, he is intimately involved in the Company&rsquo;s strategic vision and direction and interacts with key executives and constituents within and outside the organization. He also serves on the board of several non-profit organizations.</TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 19%; padding-bottom: 1pt; border-bottom: Black 1pt solid">&nbsp;<B>Name</B></TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: center; width: 5%; border-bottom: Black 1pt solid">&nbsp; <B>Age</B></TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: center; width: 74%; padding-bottom: 1pt; border-bottom: Black 1pt solid"><B>&nbsp;Principal
    Occupation and Qualifications</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Lawrence D. Levine</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">82</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Retired insurance executive since 2002. Prior to 2002, he was President of Financial Management Corp., a Chattanooga based insurance and financial management company, for over twenty years. He has been a director of the Company since 1997. As a former small business risk management consultant, Mr. Levine brings an extensive amount of experience concerning the small business market and risk management. In addition, his background assists the Company in human resources management. He also serves on the board of several non-profit organizations.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Frank S. McDonald</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">60</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">President of FMA Architects, PLLC, a Chattanooga based architectural firm, for more than twenty-five years. He has been a director of the Company since September 2005. Mr. McDonald&rsquo;s extensive experience in the development and real estate industry assists the Bank&rsquo;s loan origination process and credit risk management. In addition, he has vast experience in board governance and has served as Chairman of several non-profit organizations.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Doyce G. Payne, M.D.</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">61</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Dr. Payne practiced obstetrics and gynecology in the Chattanooga area for more than ten years prior to his retirement in 2004. He has been a director of the Company since 1997. As a resident of Chattanooga, his knowledge of the Chattanooga market fits well with the Company&rsquo;s strategy of focusing on its core banking franchise in Hamilton County. He also serves on the boards of several non-profit organizations.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Wesley M. Welborn</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">53</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">Chairman of the Board of Directors of the Company and the Bank since November 2009. Mr. Welborn also has served as President of Welborn &amp; Associates, Inc., a Chattanooga based consulting firm specializing in transportation logistics, for more than ten years. He has been a director of the Company since September 2005. Mr. Welborn has served on the boards of numerous trucking companies and associations. In addition, he served on the board of a publicly traded bank for many years and for two terms as a director of the Federal Reserve Bank of Atlanta&rsquo;s Birmingham Branch. </FONT>He also serves on the boards of several non-profit organizations.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Billy O. Wiggins</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">69</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">President of Checks, Inc., a Chattanooga based specialty check printing company, for more than ten years. He has been a director of the Company since 1997. Mr. Wiggins has expertise in retailing and wholesaling and extensive experience in the matters involved in running a large company, including finance and accounting, corporate governance, employee matters, and mergers and acquisitions.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Marsha Yessick</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">64</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Owner of Yessick&rsquo;s Design Center, a Chattanooga based interior design company, for more than thirty years and a current member of the American Society of Interior Designers. She has been a director of the Company since 1997. As the founder and operator of several businesses, Ms. Yessick has developed significant experience in managing and operating businesses of varying sizes. In addition, her background assists the Company in human resources management.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Executive Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The following individuals
are our executive officers who are not also directors. Except where designated by an asterisk (*) in the table below (indicating
an officer title for both the Company and the Bank), officer titles are only for the Bank.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 25%; font-weight: bold; text-align: justify; padding-bottom: 1pt; border-bottom: Black 1pt solid"><B>Name</B></TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 7%; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Age</B></TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 50%; font-weight: bold; text-align: justify; padding-bottom: 1pt; border-bottom: Black 1pt solid"><B>Principal Occupation</B></TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 12%; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Since</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">Robert B. Watson</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">54</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Executive Vice President, Senior Loan Officer</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">2002</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">Gary W. Petty, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">37</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Senior Vice President, Chief Financial Officer*</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">2000</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">Anthony W. Ray, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">42</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Senior Vice President, Chief Risk Officer</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">2007</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal; text-transform: none">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="text-transform: none"><B>RECENT
DEVELOPMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Set forth below is
a summary of key developments over the past three years that have led to us to conduct this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Asset Quality Deterioration and Covenant
Considerations Under the Company Loan </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As a result of negative
developments over the past few years in the capital and credit markets generally and in the local areas in which we operate particularly,
we have experienced significant declines in our asset quality. Resultant loan losses and related provision expenses greatly reduced
our earnings in 2007 and 2008, and led to a net loss of $8.2 million in 2009 and a net loss of $4.7 million in 2010. Coupled with
our continued payments of cash dividends throughout 2007 and 2008 and the first two quarters of 2009, these losses caused material
deterioration in the Bank&rsquo;s capital levels. To assist the Bank in maintaining regulatory capital levels, we drew funds under
our line of credit facility with Silverton Bank, N.A. to fund contributions to the Bank&rsquo;s capital during 2007 and 2008. In
March 2009, the line of credit was reworked into two holding company loans (a revolving line of credit and a term loan). However,
due to the continuing decline in our financial condition during 2009, we were unable to maintain compliance with certain financial
covenants contained in the credit facility agreement relating to these holding company loans. In May 2009, Silverton Bank, N.A.
was closed by the <FONT STYLE="color: black">Office of the Comptroller of the Currency, and the FDIC, which was named receiver,
formed Silverton Bridge Bank, N.A. to take over its operations. The FDIC subsequently notified us that our holding company loans
could be sold in the open market. </FONT>In January 2010, the loans were renewed and Cornerstone received a waiver regarding previous
covenant violations through December 31, 2009 and they had an aggregate outstanding balance of approximately $5.25 million as of
May 31, 2010. <FONT STYLE="color: black">Because we did not receive further waivers, our independent registered public accounting
firm stated in its opinion with regard to our 2009 financial statements substantial doubt about our ability to continue as a going
concern.</FONT> However, on March 29, 2011, Cornerstone received an additional waiver regarding all previous covenant violations
in existence through December 31, 2010 and a waiver of any covenant violation that occurs through December 31, 2011. In consideration
for such additional waivers, Cornerstone has agreed to, among other things, pay in full the outstanding principal balance in the
amount of $750,000 of one of the two outstanding notes. On March 28, 2012 we received an additional waiver of covenant compliance
thresholds for 2012, conditioned upon the following: (1) we will continue to provide covenant compliance certificates to the Lender,
(2) the Bank will limits its dividend payments to amounts necessary to service the term loan and line of credit and to pay income
taxes, and (3) we paid a processing fee of $25,000. Therefore, as of April 1, 2012, Cornerstone is subject to only one outstanding
holding company loan and <FONT STYLE="color: black">our auditors have issued an unqualified opinion with regard to our 2011 financial
statements without a going concern consideration</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Regulatory Actions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On April 2, 2010, the
Bank entered into a Stipulation to the Issuance of a Consent Order (the &ldquo;Stipulation&rdquo;) with the FDIC. Pursuant to the
Stipulation, the Bank has consented, without admitting or denying any charges of unsafe or unsound banking practices or violations
of law or regulations, to the issuance of a Consent Order (the &ldquo;Order&rdquo;) by the FDIC, also effective as of April 2,
2010. On April 8, 2010, the Bank also executed a written agreement (the &ldquo;Agreement&rdquo;) with the TDFI.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Order and the Agreement
(collectively, the &ldquo;Action Plans&rdquo;) contain substantially similar terms and are based on the findings of the FDIC and
TDFI during their joint examination of the Bank commenced on October 8, 2009 (the &ldquo;Examination&rdquo;), as disclosed in the
Joint Report of Examination (the &ldquo;Report&rdquo;). The Order and the Agreement represent agreements between the Bank, on the
one hand, and the FDIC and the TDFI, respectively, on the other hand, as to areas of the Bank&rsquo;s operations that warrant improvement
and present plans for making those improvements. The Action Plans impose no fines or penalties on the Bank.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under the terms of
each Action Plan, the Bank cannot declare or pay cash dividends without the prior written consent of certain officials of the FDIC
and the TDFI (the &ldquo;Joint Officials&rdquo;). In addition, the Bank is restricted from extending additional credit to certain
borrowers whose existing credit has been classified as &ldquo;loss,&rdquo; &ldquo;doubtful&rdquo; or &ldquo;substandard&rdquo;
or has been charged off the books of the Bank and, in each case, is uncollected. The Action Plans further require, at varying times
following their respective effective dates, the Bank (or its board of directors, as appropriate) to (i) establish a committee comprised
of a majority of non-employee directors to oversee the Bank&rsquo;s compliance with the Action Plans; (ii) prepare and implement
a written capital plan to increase the Bank&rsquo;s Tier I Capital and achieve and maintain specified capital ratios, containing
a contingency plan (including a plan to sell or merge the Bank) for implementation upon written notice from the Joint Officials
in certain events; (iii) retain a bank consultant to develop a written management and staffing plan for implementation by the Bank;
(iv) develop and implement specified policies and/or procedures addressing interest rate risk, appraisal weaknesses and credit
underwriting and loan administration deficiencies; (v) develop and implement a written plan addressing liquidity and related measures
and objectives; (vi) eliminate certain assets classified as &ldquo;loss&rdquo; by the FDIC or the TDFI; (vii) formulate and implement
certain written plans, including an annual profit plan and budget, a comprehensive strategic plan, a plan to reduce certain impaired
assets identified during the Examination, and a plan for the reduction and collection of delinquent loans; (viii) implement a system
of monitoring loan documentation exceptions on an ongoing basis and implement procedures designed to reduce their future occurrence;
and (ix) eliminate and/or correct the deficiencies and technical exceptions, violations of law and regulation and contraventions
of policy noted in the Report. The Agreement would further require the Bank to develop and implement a written plan for the continued
administration of its IT risk management practices and controls.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank is required
to provide written progress reports to the Joint Officials on a quarterly basis until such time as the requirements of the Action
Plans have been accomplished and the FDIC has released the Bank in writing from such obligation. The Order and the Agreement will
remain in effect until modified or terminated by the FDIC or the TDFI, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank is in substantial
compliance with the terms of the Action Plans. The Bank has provided quarterly written progress reports to the Joint Officials.
The status of the Bank&rsquo;s compliance with the specific actions required by the Action Plans is discussed in further detail
below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank&rsquo;s board
of directors established a Consent Order Compliance Committee (the &ldquo;Committee&rdquo;) comprised of a majority of non-employee
directors to oversee the Bank&rsquo;s compliance with the Action Plans. The Committee&rsquo;s first meeting was held in May, 2010.
The Committee has met monthly since that time and intends to meet monthly until the Bank&rsquo;s responsibilities and obligations
under the Action Plans have been fulfilled.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank has prepared
and is implementing a capital plan. In furtherance of such capital plan, Cornerstone commenced this offering of Series A Preferred
Stock in June, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank engaged an
outside consultant to perform a management and staffing plan. The consultant submitted its findings and recommendations to the
Bank&rsquo;s board of directors, the FDIC and the TDFI. The Bank&rsquo;s board of directors submitted its management plan to the
Joint Officials in April 2011. After discussing the management plan with the Joint Officials the Bank began implementing its new
management plan. Highlights of the management plan include a reorganization of the Bank&rsquo;s internal loan review and credit
departments. The Bank&rsquo;s loan review department was assigned to the Bank&rsquo;s risk management department to achieve greater
independence. The Bank also assigned additional responsibilities to the Bank&rsquo;s new Chief Credit Officer with respect to the
credit department and the organization&rsquo;s underwriting process. Next, the human resources assigned to the Bank&rsquo;s collection
department were reviewed. After the review, management concluded that additional personnel were needed to assist the Bank in collecting
and resolving problem loans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank enhanced its
liquidity policy to include additional liquidity measurements and a revised liquidity contingency funding plan. In addition to
the policy updates, the Bank engaged an outside consultant to perform quarterly liquidity analysis for the Bank&rsquo;s Asset&ndash;Liability
Committee&rsquo;s (&ldquo;ALCO&rdquo;) review. The Bank&rsquo;s board of directors has established liquidity goals and is monitors
these levels on a quarterly basis. The September 30, 2011 report was received and reviewed during the November 2011 ALCO meeting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank engaged an
outside consultant to perform quarterly interest rate risk modeling for the Bank&rsquo;s ALCO committee&rsquo;s review. The Bank&rsquo;s
board of directors has established interest rate sensitivity goals and is monitoring these levels on a quarterly basis. The September
30, 2011 report was received and reviewed during the November 2011 ALCO meeting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank prepared budgets
for its 2011 and 2012 fiscal years and submitted the budgets to the FDIC for review.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank prepared a
strategic plan and submitted such strategic plan to the FDIC for review. One of the primary components of the strategic plan was
to reduce the Bank&rsquo;s average assets. By the fourth quarter of 2011, the Bank had lowered its average assets to approximately
$417 million compared to approximately $450 million as of fourth quarter 2010. The primary decrease in average assets was the reduction
in Bank securities. A bank&rsquo;s average assets are included in the calculation of its regulatory capital ratios. The reduction
in average assets, along with the holding company&rsquo;s fourth quarter 2011 capital injection of $4.5 million, allowed the Bank
to achieve the regulatory capital ratios as outlined in the Action Plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank has prepared
a reduction of delinquencies action plan. The Bank has submitted this plan to the Joint Officials. Important aspects of the delinquency
action plan include a prohibition against an extension of credit for the payment of interest on delinquent loans, a requirement
to establish specific collection procedures to be instituted at various stages of a borrower&rsquo;s delinquency and specific reporting
requirements informing members of management and the board of directors about existing past due levels.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In addition, the Bank
has charged off all loans classified by the Joint Officials as &ldquo;loss.&rdquo; The Bank maintains a tracking report that it
submits to the Joint Officials periodically. Finally, the Bank&rsquo;s board of directors has created a Loan Review Committee to
review the asset quality, concentrations and problem credits within the Bank&rsquo;s loan portfolio.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank has addressed
all violations and contraventions of policy and has either corrected or is in the process of correcting each such violation or
contravention.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank has implemented
a technical exception tracking system in order to monitor technical exceptions. In addition, the Bank has drafted and implemented
new procedures aimed at reducing technical exceptions noted by regulators during their examinations of the Bank.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank has not paid
common stock dividends since the inception of the Action Plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Bank is actively
monitoring and is not aware of any new extensions of credit to prohibited classified borrowers as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Management and the
Board have carefully considered the impact of the Action Plans on the Bank&rsquo;s current and future operations. Areas that have
received additional attention as a result of the Action Plans include the Bank&rsquo;s liquidity position, overall balance sheet
structure, capital and earnings. The Bank has considered the impact of deposit interest rate restrictions that may impair the Bank&rsquo;s
ability to raise local certificates of deposit. Management has placed an emphasis on increasing local deposits, reducing its non-core
liabilities and establishing a liquidity contingency plan to address potential problems. The Bank&rsquo;s overall balance sheet
structure has also been considered. The reduction in assets has impacted the Bank&rsquo;s earning assets and therefore the Bank&rsquo;s
net interest income. To offset this reduction the Bank has reduced its cost of funds as well as its non-interest expense over the
last two years. One of the primary impacts of the Order and the Agreement is the need for additional capital. Cornerstone has incurred
additional time and expense to generate this Series A Preferred Stock offering. The Series A Preferred Stock has an annual ten
percent return which will require additional earnings from the Bank to meet the annual dividend requirement. The Bank&rsquo;s earnings
have been impacted negatively due to the recent regulatory criticism. One example of the negative impact on earnings is the increased
FDIC insurance premiums have been incurred and will continue to be at an elevated level until the Bank&rsquo;s overall condition
improves.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="margin: 0"></P>
<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Noncompliance with
the Action Plans could subject the Bank to an array of penalties, ranging from civil money penalties to a termination of the Bank&rsquo;s
deposit insurance for more egregious violations of applicable bank rules and regulations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Cornerstone received
a letter dated March 30, 2010 from its primary banking regulator, the FRBA. The letter directs Cornerstone to obtain the FRBA&rsquo;s
written approval before Cornerstone (i) incurs any indebtedness; (ii) declares or pays any dividends; (iii) redeems any corporate
stock; or (iv) makes any other payment representing a reduction in its capital, except for the payment of normal and routine operating
expenses. As noted above, Cornerstone has received FRBA&rsquo;s approval for dividends with respect to the Preferred Shares. The
letter notes that the condition of the Bank has caused Cornerstone to be in &ldquo;troubled condition&rdquo; under Regulation Y.
As a result, notice to the FRBA is required before Cornerstone undertakes any changes in senior executive management or directorships,
and approval of the FRBA (with the written concurrence of the FDIC) must be obtained before Cornerstone grants or enters into any
agreement to provide a golden parachute or severance payment. To date, Cornerstone is in compliance with the requirements of the
FRBA letter.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">To date the most significant
impact of the FRBA&rsquo;s letter relates to the payment of dividends on the Series A Preferred Stock. However, Cornerstone has
been able to consistently raise additional capital and the company generated positive earnings during 2011. These two elements
coupled with the Bank&rsquo;s stabilization of asset quality have, in Cornerstone&rsquo;s estimation, led to the approval of the
Preferred Shares dividend payments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In light of the foregoing
developments, we are conducting this offering to raise the capital necessary to: (i)&nbsp;fund the payment of dividends on the
Series A Preferred Stock, (ii) fund anticipated holding company expenses, including debt service, and (iii) provide the balance,
if any, as additional capital to the Bank so that it may meet the capital levels required under the Action Plans. See &ldquo;USE
OF PROCEEDS.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center">DESCRIPTION
OF THE SERIES A PREFERRED STOCK</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This section summarizes
all material features of the Series A Preferred Stock. The terms of the Series A Preferred Stock will include those stated in an
amendment to our charter, which is filed as an exhibit to this registration statement filed with the Commission of which this prospectus
is a part. The following summary of the terms and provisions of the Series A Preferred Stock does not purport to be complete and
is qualified in its entirety by reference to the pertinent sections of our charter, as will be amended effective immediately prior
to the closing of the offering, including the amendment to the charter for the Series A Preferred Stock. You should read our charter,
including the amendment, for a more complete understanding of the terms and provisions of the Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>General</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">Our
charter authorizes the issuance of up to 2,000,000 shares of preferred stock</FONT>, in any number of classes and series within
classes and having the preferences, limitations and relative rights as may be determined from time to time by the board of directors<FONT STYLE="color: black">.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">When issued, the Series
A Preferred Stock will constitute a single series of our preferred stock, consisting of 600,000 shares, no par value, having a
liquidation preference of (i) $25.00 per share (the &ldquo;Original Issue Price&rdquo; and subject to adjustment as provided herein)
and (ii) the amount of all accumulated and unpaid dividends. The holders of the Series A Preferred Stock will have no preemptive
rights. All of the shares of the Series A Preferred Stock, when issued and paid for, will be validly issued, fully paid and non-assessable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may, from time to
time, without notice to or consent from holders of the Series A Preferred Stock, create and issue Junior Stock (defined below).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Ranking</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Series A Preferred
Stock will, with respect to dividend rights and rights upon our liquidation, winding-up or dissolution, rank:</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">senior to our Common Stock and any other class or series of capital stock established after the
issue date, the terms of which do not expressly provide that such class or series ranks senior to or on a parity with the Series
A Preferred Stock as to dividend rights or rights upon our liquidation, winding-up or dissolution (collectively referred to as
&ldquo;Junior Stock&rdquo;);</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">on a parity with any class or series of capital stock established after the issue date by our board
of directors, the terms of which expressly provide that such class or series will rank on a parity with the Series A Preferred
Stock as to dividend rights or rights upon our liquidation, winding-up or dissolution; and</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">junior to any class or series of capital stock or series of preferred stock established after the
issue date by our board of directors, the terms of which expressly provide that such class or series will rank senior to the Series
A Preferred Stock as to dividend rights or rights upon our liquidation, winding-up or dissolution.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The rights of the holders
of Series A Preferred Stock will be subordinate to the rights of our general creditors, including depositors. See also &ldquo;RISK
FACTORS &mdash; The Series A Preferred Stock is subordinated to our obligations to creditors and will rank junior to all of our
and our subsidiaries&rsquo; liabilities in the event of bankruptcy, liquidation or the winding-up of assets.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If the Bank becomes
subject to federal conservatorship or receivership, the Company would likely suffer a complete loss of the value of its ownership
interest in the Bank. In that event, the Company may elect to cease operations and liquidate or seek bankruptcy protection, in
which case it is unlikely that there would be assets available to holders of the capital stock of the Company, including for the
payment of amounts due on the Series A Preferred Stock then outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Dividends</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Dividends on the Series
A Preferred Stock will be payable quarterly in arrears, if, as and when authorized and declared by our board of directors out of
legally available funds, on a cumulative basis on the $25.00 per share Original Issue Price, at an annual rate equal to 10% (&ldquo;Applicable
Dividend Rate&rdquo;). Subject to the foregoing, dividends will accumulate from the Initial Dividend Commencement Date (as defined
below) and shall be payable in arrears on the 15th day of February, May, August and November of each year (each, a &ldquo;Dividend
Payment Date&rdquo;) that immediately follows the end of the Dividend Period (as defined below) to which such dividends relate.
Each dividend will be payable to holders of record as they appear on our stock register on the applicable record date, which shall
be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by our board of directors
that is not more than 60 days nor less than 10 days prior to such Dividend Payment Date (each, a &ldquo;Dividend Record Date&rdquo;).
Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day. Each period
from and including the first day of February, May, August and November (each, a &ldquo;Dividend Commencement Date&rdquo;), which
for each share of Series A Preferred Stock will commence with the Initial Dividend Commencement Date for such share, to but excluding
the next following Dividend Commencement Date is herein referred to as a &ldquo;Dividend Period.&rdquo; The &ldquo;Initial Dividend
Commencement Date&rdquo; with respect to any share of Series A Preferred Stock will be the Dividend Commencement Date immediately
following the date on which such share was issued;<I> </I>provided, however, that for any shares of Designated Preferred Stock
purchased prior to September 1, 2010, the Initial Dividend Commencement Date shall be August 1, 2010. Therefore, for any shares
of Series A Preferred Stock that are issued on or before August 31, 2010, dividends will accumulate from August 1, 2010 and will
be payable on November 15, 2010. Dividends payable for each Dividend Period will be computed on the basis of a 360-day year consisting
of twelve 30-day months. If a scheduled Dividend Payment Date falls on a day that is not a business day, the dividend will be paid
on the next business day as if it were paid on the scheduled Dividend Payment Date, and no interest or other amount will accrue
on the dividend so payable for the period from and after that Dividend Payment Date to the date the dividend is paid. The term
&ldquo;business day&rdquo; means any day that is not Saturday or Sunday and that, in the State of Tennessee, is not a day on which
banking institutions generally are authorized or obligated by law or executive order to be closed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Dividend Restrictions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">Dividends
on the Series A Preferred Stock will be cumulative. </FONT>So long as any share of Series A Preferred Stock remains outstanding,
no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock, and no Common Stock
or Junior Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by us or any of our
subsidiaries, unless, in either case, all accumulated and unpaid dividends for all past Dividend Periods, including the latest
completed Dividend Period, on all outstanding shares of Series A Preferred Stock have been or are contemporaneously declared and
paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders
of shares of Series A Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions,
purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee
benefit plan in the ordinary course of business and consistent with past practice; (ii)&nbsp;the acquisition by us or any of our
subsidiaries of record ownership in Junior Stock for the beneficial ownership of any other persons (other than us or any of our
subsidiaries), including as trustees or custodians; and (iii) the exchange or conversion of Junior Stock for or into other Junior
Stock solely to the extent required pursuant to binding contractual agreements entered into prior to the date on which shares of
Series A Preferred Stock are first issued or any subsequent agreement for the accelerated exercise, settlement or exchange thereof
for Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Subject to the foregoing,
and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by our board of directors
may be declared and paid on any of our securities, including Common Stock and other Junior Stock, from time to time out of any
funds legally available for such payment, and holders of Series A Preferred Stock shall not be entitled to participate in any such
dividends.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Redemption</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">The
shares of Series A Preferred Stock will be redeemable at our option and, with the prior approval of the Federal Reserve, if required,
in whole or in part, at any time </FONT>after July 31, 2015<FONT STYLE="color: black">, out of funds legally available for payment,
at the cash redemption price of $25.00 per share of Series A Preferred Stock, plus declared and unpaid dividends, if any, from
any and all Dividend Payment Dates preceding the date fixed for redemption.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If fewer than all of
the outstanding shares of Series A Preferred Stock are to be redeemed, we will select those to be redeemed <I>pro rata</I> or in
any other manner as our board of directors may determine to be fair and equitable. Subject to the preceding paragraph, our board
of directors shall have the full power and authority to prescribe the terms and conditions upon which shares of Series A Preferred
shall be redeemed from time to time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">On and after the date
fixed for redemption, provided that the redemption price has been paid or provided for, dividends shall cease to accumulate or
be declared on all shares of the Series A Preferred Stock so called for redemption. These shares will no longer be deemed to be
outstanding, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only
the right of holders thereof to receive the amount payable on such redemption, without interest.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Shares of Series A
Preferred Stock that are redeemed, repurchased or otherwise acquired by us shall revert to authorized but unissued shares of preferred
stock of the Company (provided that any such cancelled shares of Series A Preferred Stock may be reissued only as shares of any
series of preferred stock other than Series A Preferred Stock).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If we redeem any shares
of Series A Preferred Stock, notice of redemption will be given by first-class mail, postage prepaid, mailed not less than 30 days
nor more than 60 days before the redemption date, to the holders of record of the shares of Series A Preferred Stock to be redeemed
as their addresses appear on our stock register. Each such notice of redemption shall state: (1) the redemption date; (2) the number
of shares of Series A Preferred Stock to be redeemed; (3) the redemption price; and (4) the place or places where certificates
for such shares are to be surrendered for payment of the redemption price.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Notwithstanding the
foregoing, if shares of Series A Preferred Stock are issued in book-entry form through The Depository Trust Company or any other
similar facility, notice of redemption may be given to the holders of Series A Preferred Stock at such time and in any manner permitted
by such facility.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Optional Conversion Rights</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each share of the Series
A Preferred Stock may be converted at any time, at the option of the holder, into shares of fully paid and non-assessable shares
of our Common Stock at a rate of five (5) shares of Common Stock for each share of Series A Preferred Stock which is converted
(which reflects an initial conversion price of $5.00 per share of Common Stock, subject to adjustment as provided in &ldquo;&mdash;
Adjustments to the Conversion Price&rdquo; below), plus cash in lieu of fractional shares. Any adjustment to the conversion price
will result in a corresponding adjustment to the conversion rate. To the extent the initial conversion price (or subsequent adjusted
conversion price) is increased, you will receive a corresponding decrease in the number of shares of our Common Stock upon conversion,
and to the extent the initial conversion price (or subsequent adjusted conversion price) is decreased, you will receive a corresponding
increase in the number of shares of our Common Stock upon conversion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In order to exercise
the right to convert shares of Series A Preferred Stock into shares of Common Stock pursuant to such an optional conversion, a
holder of Series A Preferred Stock must (i) provide written notice to us that the holder elects to convert the same and setting
forth the number of shares of Series A Preferred Stock to be converted and the name or names in which the holder wishes the certificate
or certificates for shares of Common Stock to be issued; and (ii) surrender to us the certificate or certificates therefor, duly
endorsed for transfer to us (if we so require), at the principal office of our company or of any transfer agent for the Series
A Preferred Stock. Upon receipt of such notification and surrender (the &ldquo;Optional Conversion Date&rdquo;), we will, as soon
as practicable thereafter, issue and deliver at such office to such holder a certificate or certificates for the number of whole
shares of Common Stock to which such holder will be entitled and a check or checks payable to such holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of Common Stock and the amount of all accumulated but
unpaid dividends per share on the shares of Series A Preferred Stock so converted. Any such optional conversion will be deemed
to have been made immediately prior to the close of business on the Optional Conversion Date relating thereto. If fewer than all
the shares of Series A Preferred Stock represented by a certificate surrendered for conversion are converted, we will issue and
deliver to the holder thereof a new certificate representing the unconverted shares without charge to such holder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any accumulated but
unpaid dividends payable on shares of Series A Preferred Stock that are converted on an Optional Conversion Date or a Mandatory
Conversion Date (as defined below), which occurs subsequent to the record date for a Dividend Period shall be paid to the holder
of record of the converted shares on (but not before) the Dividend Payment Date relating to such record date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Mandatory Conversion Rights</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We may, at our option,
at any time on or after (but at no time before) July 31, 2015, cause some or all of the Series A Preferred Stock at the time outstanding
to be mandatorily converted into fully paid and non-assessable shares of Common Stock at the conversion rate in effect on the Mandatory
Conversion Date (hereinafter defined) if the Closing Price (hereinafter defined) of each share of Common Stock equals or exceeds
150% of the then applicable Conversion Price on each of the 30 consecutive trading days immediately preceding the date we give
notice of such mandatory conversion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If we elect to cause
less than all of the shares of Series A Preferred Stock to be converted, the shares to be converted will be selected either <I>pro
rata</I> or in such manner as our board of directors may determine to be fair and equitable. Subject to the paragraph above, our
board of directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series A Preferred
Stock shall be converted from time to time pursuant to a mandatory conversion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In order to exercise
the right to convert shares of Series A Preferred Stock into shares of Common Stock pursuant to such a mandatory conversion, we
must provide written notice, containing the information required below, to each holder of Series A Preferred Stock subject to such
mandatory conversion that we elect to convert the same. The date of a mandatory conversion will be a date selected by us (the &ldquo;Mandatory
Conversion Date&rdquo;) and will be no more than 20 days and not less than 10 days after the date on which we deliver the notice
of mandatory conversion relating thereto. In addition to any information required by applicable law or regulation, the notice of
mandatory conversion must state: (i) the Mandatory Conversion Date; (ii) the number of shares of Series A Preferred Stock to be
converted; (iii) the number of shares of Common Stock to be issued upon conversion of each share of Series A Preferred Stock; and
(iv) the Closing Price and the Conversion Price of each share of Common Stock and Series A Preferred Stock, respectively, on each
of the 30 consecutive Trading Days immediately preceding the date we give notice of mandatory conversion. Effective immediately
prior to the close of business on a Mandatory Conversion Date, the shares of Series A Preferred Stock subject to such conversion
will automatically convert to shares of Common Stock. On the Mandatory Conversion Date, holders of shares of Series A Preferred
Stock so converted will be obligated to deliver to us at our principal office (or at such other office as we may designate by notice
to such holders) during our normal business hours, the certificate or certificates for the shares so converted, duly endorsed for
transfer to us (if we so require). As soon as practicable thereafter, we will issue and deliver to each such holder a certificate
or certificates for the number of whole shares of Common Stock to which such holder shall be entitled and a check or checks payable
to such holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock and
the amount of all accumulated but unpaid dividends per share on the shares of Series A Preferred Stock so converted. Until such
time as a holder of shares of Series A Preferred Stock shall surrender such holder&rsquo;s certificate(s) therefor, such certificate(s)
shall be deemed to represent the shares of Common Stock to which such holder shall be entitled upon the surrender thereof. A mandatory
conversion will be deemed to have been made immediately prior to the close of business on the Mandatory Conversion Date relating
thereto. If fewer than all the shares of Series A Preferred Stock represented by a certificate surrendered for conversion are converted,
we will issue and deliver to the holder thereof a new certificate representing the unconverted shares without charge to such holder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&ldquo;Closing Price&rdquo;
of any security on any determination date means (i) if the security is primarily traded on the New York Stock Exchange or the Nasdaq
Stock Market, closing sale price or, if no closing sale price is reported, the last reported sale price of the security on that
date as reported by such exchange, (ii) if the security is primarily traded on any other U.S. national or regional securities exchange,
the closing sale price or, if no closing sale price is reported, the last reported sale price of the security on that date as reported
in composite transactions for the exchange on which the security is traded, or (iii) if the security is not listed on any such
exchange, the last quoted bid price for the security on that date in the over-the-counter market as reported by the OTCBB, Pink
OTC Markets or other similar organization, or, if that bid price is not available or if the security is not otherwise publicly
traded, the market price of the security on that date as determined in good faith by our board of directors and set forth in a
written resolution of our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">A
&ldquo;trading day&rdquo; is</FONT>, with respect to any security that is publicly traded, any day on which the exchange, market
or system on which the security is traded is open for the transaction of business and the security is not suspended from trading
at the close of business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Adjustments to the Conversion Price</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The conversion price
will be subject to adjustment if, after the issue date, any of the following events occur:</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">we subdivide or combine our Common Stock;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">we subdivide or combine our Series A Preferred Stock; or</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">we reclassify, exchange or substitute the Common Stock issuable upon conversion into the same or
different number of shares of any other class or classes of capital stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to the
first bullet point, in the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock
dividend or otherwise) into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such
subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding
shares of Common Stock shall be combined into a lesser number of shares of Common Stock, the Conversion Price in effect immediately
prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to the
second bullet point, in the event the outstanding shares of Series A Preferred Stock shall be subdivided (by stock split, by payment
of a stock dividend or otherwise) into a greater number of shares of Series A Preferred Stock, the Applicable Dividend Rate, Original
Issue Price and Liquidation Preference (hereinafter defined) of the Series A Preferred Stock in effect immediately prior to such
subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding
shares of Series A Preferred Stock shall be combined into a lesser number of shares of Series A Preferred Stock, the Applicable
Dividend Rate, Original Issue Price and Liquidation Preference of the Series A Preferred Stock in effect immediately prior to such
combination shall, concurrently with the effectiveness of such combination, be proportionately increased.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">With respect to the
third bullet point, if the Common Stock issuable upon conversion of Series A Preferred Stock shall be changed into the same or
a different number of shares of any other class or classes of capital stock, whether by capital reorganization, reclassification
or others (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number
of shares of Common Stock which the holders would otherwise have been entitled to receive, each holder of Series A Preferred Stock
shall have the right thereafter to convert such shares of Series A Preferred Stock into a number of shares of such other class
or classes of capital stock which a holder of the number of shares of Common Stock deliverable upon conversion of Series A Preferred
Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject
to further adjustment as provided herein with respect to such other shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Upon the occurrence
of each adjustment or readjustment of the Conversion Price, we, at our expense, will promptly compute such adjustment or readjustment
in accordance with the terms set forth in our charter and furnish to each holder of Series A Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. Upon
written request of any holder of Series A Preferred Stock, at any time, we will provide a certificate setting forth (i) adjustments
and readjustments, (ii) the Conversion Price at the time in effect, (iii) the number of shares of Common Stock and amount, if any,
of other property which at the time would be received upon the conversion of Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any downward adjustment
of the Conversion Price of the Series A Preferred Stock may be waived by the consent or vote of the holders of at least a majority
of the outstanding shares of such Series A Preferred Stock either before or after the issuance causing the adjustment. Any such
waiver shall bind all future holders of shares of Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Fractional Shares</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No fractional shares
of our Common Stock will be issued to holders of the Series A Preferred Stock upon conversion. In lieu of any fractional share
to which the holder would otherwise be entitled, we shall pay cash equal to the product of such fraction multiplied by the Market
Value (as defined in the amendment to our charter relating to the Series A Preferred Stock) of one share of Common Stock on the
date of conversion. For such purpose, all shares of Series A Preferred Stock held by each holder of Series A Preferred Stock shall
be aggregated, and any resulting fractional share of Common Stock shall be paid in cash.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Common Stock Rights</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Reference is made to
the &ldquo;Description of Other Capital Stock&rdquo; for a description of the rights of holders of Common Stock to be delivered
upon conversion of the Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Sinking Fund Provisions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">There are no sinking
fund provisions with respect to our Series A Preferred Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Liquidation Rights</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event that we
voluntarily or involuntarily liquidate, dissolve or wind up, the holders of Series A Preferred Stock at the time outstanding will
be entitled to receive for each share of Series A Preferred Stock, out of our assets or proceeds thereof (whether capital or surplus)
available for distribution to our shareholders, subject to the rights of our creditors, before any distribution of such assets
or proceeds is made to or set aside for the holders of Common Stock and other Junior Stock as to such distribution, payment in
full in an amount equal to the sum of (i) $25.00 per share of Series A Preferred Stock and (ii) the amount of any accumulated and
unpaid dividends, whether or not declared, to the date of payment (such amounts collectively, the &ldquo;Liquidation Preference&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event that our
assets available for distribution to shareholders upon any liquidation, dissolution or winding-up of our affairs, whether voluntary
or involuntary, are not sufficient to pay in full the amounts payable with respect to all outstanding shares of the Series A Preferred
Stock, the holders of Series A Preferred Stock will share in any distribution of our assets in proportion to the full respective
liquidating distributions to which they would otherwise be respectively entitled.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">If the Liquidation
Preference has been paid in full to all holders of Series A Preferred Stock, the holders of our other capital stock will be entitled
to receive all our remaining assets (or proceeds thereof) according to their respective rights and preferences. In other words,
a holder of Series A Preferred Stock will not be entitled to participate twice, but rather only as a holder of Series A Preferred
Stock or, in respect of shares of Series A Preferred Stock that have been converted to shares of Common Stock, as a holder of Common
Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">For such purposes,
our consolidation or merger with or into any other corporation or entity, including a merger or consolidation in which the holders
of Series A Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash,
securities or other property) of all or substantially all of our assets, shall not constitute a liquidation, dissolution or winding
up.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"><B>Voting</B></FONT><B><FONT STYLE="color: black">
Rights</FONT></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The holders of our
Series A Preferred Stock will have no voting rights, except as required by Tennessee law.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Miscellaneous</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We will at all times
reserve and keep available out of the authorized and unissued shares of our Common Stock, solely for the purpose of effecting the
conversion of the shares of Series A Preferred Stock, such number of our shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all then outstanding shares of Series A Preferred Stock; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series
A Preferred Stock, we will take such corporate action as may, in the opinion of our counsel, be necessary to increase our authorized
but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>DESCRIPTION
OF OTHER CAPITAL STOCK</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>General</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are currently authorized
to issue (i) 20,000,000 shares of Common Stock, $1.00 par value per share, and (ii) 2,000,000 shares of preferred stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">As of March 31, 2012,
there were issued and outstanding 6,500,396 shares of Common Stock<FONT STYLE="color: black"> and 425,369 shares of Designated
Series A Preferred Stock.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">All shares<FONT STYLE="color: black">
of Common Stock have equal voting, </FONT>liquidation and dividend rights. All shares of Common Stock now outstanding are fully
paid for and non-assessable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The common stock is
quoted on the OTCBB under the symbol CSBQ, but it is not listed on a national securities exchange.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><B><I>Voting Rights</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Each holder of Common
Stock is entitled to one vote per share held on any matter submitted to a vote of shareholders. There are no cumulative voting
rights in the election of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><B><I>Dividends</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The holders of outstanding
shares of our Common Stock are entitled to receive dividends out of legally available funds at such times and in such amounts as
our board of directors may from time to time determine. Our ability to pay dividends will be dependent on our earnings and financial
condition and subject to certain restrictions imposed by state and federal laws.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">No dividend will be
declared or paid during any calendar year on the Common Stock unless and until there has been paid in full (or set aside for purposes
of such payment) to the holders of our Series A Preferred Stock accumulated and unpaid dividends on such shares of Series A Preferred
Stock through the date on which we propose to pay the cash dividend on the Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><B><I>No Preemptive or Conversion
Rights</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Holders of shares of
our Common Stock do not have preemptive rights to purchase additional shares of our Common Stock and have no conversion or redemption
rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><B><I>Liquidation Rights</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event of our
liquidation, dissolution or winding-up, the holders of our Common Stock shall be entitled to receive ratably, in cash or in kind,
our assets legally available for distribution remaining after payment or provision for payment of our debts and liabilities and
distributions or provision for distributions to holders of our Series A Preferred Stock and any other preferred stock that may
be issued and outstanding having preference over the Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Anti-takeover Provisions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Some provisions of
our charter and bylaws and the Tennessee Business Corporation Act may be considered to have anti-takeover effects which may hinder
or prevent a tender offer, proxy contest or other attempted takeover that shareholders may consider to be in their best interest.
Those provisions may allow our board of directors to defend against an attempted transaction that might otherwise result in payment
of a premium over the market price of our Common Stock. We describe some of these provisions below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"><I>Special
Shareholder Meetings</I></FONT>. Our bylaws provide that special meetings of shareholders may be called by a majority of our board
of directors, our president, the Commissioner of Financial Institutions and the Federal Deposit Insurance Corporation. However,
in order for our shareholders to call a special meeting, we must receive a written notice from the holders of at least ten percent
or more of our outstanding shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black"><I>Number
of Directors; Vacancies</I></FONT>. Our bylaws provide that the board of directors must consist of between nine (9) and fifteen
(15) members. We currently have ten (10) directors, and<FONT STYLE="color: black"> our bylaws provide that the board of directors
may increase the number of directors up to the maximum number of fifteen (15) without shareholder approval. Our bylaws also provide
that all vacancies on our board may be filled by a majority of the remaining directors unless such vacancy was the result of a
director being removed by the shareholders at any regular or special meetings of the shareholders.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"><I>Bylaw
Amendments</I></FONT>. Our bylaws provide that the bylaws may be altered, modified, amended or repealed, except for the sections
related to duties, term of office and indemnification of directors, at any regular or special meeting of our board of directors
where a quorum is present with a three-fourth&rsquo;s vote.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>VALIDITY
OF THE SECURITIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The validity of the
securities offered under this prospectus has been passed upon for us by Miller &amp; Martin PLLC. Certain members of Miller &amp;
Martin PLLC hold shares of our Common Stock and our Series A Preferred Stock<FONT STYLE="color: black">.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>EXPERTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The consolidated financial
statements incorporated by reference in this prospectus and elsewhere in the registration statement have been incorporated by reference
in reliance upon the report of Hazlett, Lewis &amp; Bieter, PLLC, an independent registered public accounting firm, upon the authority
of said firm as experts in accounting and auditing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><FONT STYLE="font-weight: normal">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>WHERE TO
FIND MORE INFORMATION ABOUT US</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We are subject to the
information requirements of the Exchange Act, and in accordance therewith file annual, quarterly and current reports, proxy statements
and other information with the Commission. Such reports, proxy statements and other information may be read and copied at the Commission&rsquo;s
Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information may be obtained on the operation of the Public Reference
Room by calling the Commission at 1-800-SEC-0330. Copies of such materials may also be obtained at prescribed rates by writing
to the Public Reference Section of the Commission at 100 F Street, N.E., Washington, DC 20549. Such reports, proxy statements and
other information, as well as those of other registrants that file electronically with the Commission, are also contained on the
website maintained by the Commission at www.sec.gov.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">We have filed with
the Commission a registration statement on Form S-1, of which this prospectus is a part, registering the securities that we may
offer under this prospectus. As permitted by the Commission&rsquo;s rules, this prospectus does not contain all the information
required to be set forth in the registration statement or filed as exhibits and schedules to the registration statement. Whenever
a reference is made in this prospectus or any prospectus supplement, if applicable, to any contract or other document of ours,
you should refer to the exhibits that are a part of the registration statement for a copy of the referenced contract or document.
Statements contained in this prospectus concerning the provisions of any such documents are necessarily summaries of those documents,
and each statement is qualified in its entirety by reference to the copy of the document filed with the Commission. For further
information with respect to our company and the securities offered by this prospectus, we refer you to the registration statement,
exhibits and schedules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">A copy of any of the
documents referred to above will be furnished, without charge, by writing to us at 835 Georgia Avenue, Chattanooga, Tennessee 37402,
Attention: Charlotte Lindeman. In addition, we maintain a corporate website, www.cscbank.com. We make available through our website,
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Commission. This reference to our website is for the convenience of investors as
required by the Commission and shall not be deemed to incorporate any information on the website into this registration statement,
prospectus and any prospectus supplement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-transform: uppercase; text-align: center"><B>DOCUMENTS
INCORPORATED BY REFERENCE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Commission allows
us to &ldquo;incorporate by reference&rdquo; into this prospectus the information in other documents we file with the Commission,
which means that we can disclose important information to you by referring you to those documents filed separately with the Commission.
The information we incorporate by reference is an important part of this prospectus. We incorporate by reference the following
documents, all of which we have previously filed with the Commission:</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Our Current Reports on Form 8-K filed with the Commission on March 30, 2012, May 2, 2012, May 24,
2012, and May 25, 2012;</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Commission
on March 29, 2012; and</TD></TR></TABLE>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;</P>

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">
<TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012, filed with the
                                                                                                            Commission on May 9, 2012.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.25in">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font: 10pt Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Our Proxy Statement for the 2012 Annual Meeting of Shareholders on Schedule 14A filed with the
Commission on March 29, 2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Any statement contained
in a document that is incorporated by reference will be modified or superseded for all purposes to the extent that a statement
contained in this prospectus modifies or is contrary to that previous statement. Any statement so modified or superseded will not
be deemed a part of this prospectus except as so modified or superseded. Notwithstanding the foregoing, we are not incorporating
any document or information deemed to have been furnished and not filed in accordance with Commission rules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">You may request a copy
of any of these filings at no cost by writing or telephoning us at Cornerstone Bancshares, Inc., 835 Georgia Avenue, Chattanooga,
Tennessee 37402, Attention: Charlotte Lindeman, (423) 385-3000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B><U>PART II &ndash; INFORMATION NOT REQUIRED
IN PROSPECTUS</U></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -1in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0in"></TD><TD STYLE="width: 0.75in; text-align: left"><B>Item&nbsp;13.</B></TD><TD STYLE="text-align: justify"><B>Other Expenses of Issuance and Distribution.</B></TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;The expenses
relating to the registration of the securities will be borne by the registrant. Such expenses, other than the SEC registration
fee, are estimated to be as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 60%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 82%; text-align: left">SEC registration fee</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">1,070</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Legal fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">130,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounting fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Printing and distributions expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Miscellaneous</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">206,070</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -1in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0in"></TD><TD STYLE="width: 0.75in; text-align: left"><B>Item&nbsp;14.</B></TD><TD STYLE="text-align: justify"><B>Indemnification of Directors and Officers.</B></TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;The Tennessee
Business Corporation Act, or the TBCA, provides that a corporation may indemnify any of its directors and officers against liability
incurred in connection with a proceeding if (i)&nbsp;the director or officer acted in good faith, (ii)&nbsp;in the case of conduct
in his or her official capacity with the corporation, the director or officer reasonably believed such conduct was in the corporation&rsquo;s
best interest, (iii)&nbsp;in all other cases, the director or officer reasonably believed that his or her conduct was not opposed
to the best interest of the corporation, and (iv)&nbsp;in connection with any criminal proceeding, the director or officer had
no reasonable cause to believe that his or her conduct was unlawful. In actions brought by or in the right of the corporation,
however, the TBCA provides that no indemnification may be made if the director or officer was adjudged to be liable to the corporation.
The TBCA also provides that in connection with any proceeding charging improper personal benefit to a director or officer, no
indemnification may be made if such director or officer is adjudged liable on the basis that personal benefit was improperly received
by such director or officer. Unless limited by the corporation&rsquo;s charter, in cases where the director or officer is wholly
successful, on the merits or otherwise, in the defense of any proceeding instigated because of his or her status as an officer
or director of a corporation, the TBCA mandates that the corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. The TBCA provides that a court of competent jurisdiction, upon application, may order that a director
or officer be indemnified for reasonable expenses if, in view of all relevant circumstances, the court determines that such individual
is fairly and reasonably entitled to indemnification, notwithstanding the fact that (i)&nbsp;such officer or director was adjudged
liable to the corporation in a proceeding by or in right of the corporation, (ii)&nbsp;such director or officer was adjudged liable
on the basis that personal benefit was improperly received by such director or officer, or (iii)&nbsp;such director or officer
breached his or her duty of care to the corporation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under its charter,
the registrant has the power to indemnify its directors, officers, employees and agents (each, an &ldquo;indemnitee&rdquo;) to
the fullest extent permitted by the TBCA and its bylaws. The registrant is obligated to indemnify permitted indemnitees only if
all of the following conditions are met: (i)&nbsp;the board of directors determines in writing that the indemnitee acted in good
faith and in the registrant&rsquo;s best interest; (ii)&nbsp;the board of directors determines that the payment will not materially
affect the registrant&rsquo;s safety and soundness; (iii)&nbsp;the payment does not fall within a prohibited indemnification under
state or federal law or regulation; and (iv)&nbsp;the indemnitee agrees in writing to reimburse the registrant, to the extent not
covered by permissible insurance, for payments made in the event that an administrative action brought by a state or federal banking
regulator results in a final order or settlement in which the indemnitee is assessed a civil money penalty, is removed or prohibited
from banking or is required, under a final order, to cease any action or take any affirmative action. If any provision of the registrant&rsquo;s
charter is found to be in conflict with any state or federal banking laws or regulations or the TBCA, the provisions of governing
law and regulation shall govern the conduct of the registrant&rsquo;s business and board governance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Under its bylaws, the
registrant is obligated to indemnify each person who was or is made a party or is threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that
he or she is or was a director, officer or employee of the registrant or is or was serving at the request of the registrant as
a director, officer, or employee of another corporation or enterprise to the fullest extent authorized by the TBCA against all
expense, liability and loss reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer or employee and shall inure to the benefit of the indemnitee&rsquo;s
heirs, executors and administrators; provided, however, that, except as provided with respect to proceedings to enforce rights
to indemnification, the registrant shall indemnify only if such proceeding (or part thereof) was authorized by the board of directors
of the registrant. The foregoing right to indemnification is a contract right and includes the right to be paid by the registrant
the expenses incurred in defending any such proceeding in advance of its final disposition, but only if the registrant receives
an undertaking by or on behalf of such indemnitee to repay all amounts so advanced if it is ultimately determined by final, non-appealable
judicial decision that such indemnitee is not entitled to be indemnified for such expenses under the bylaws or otherwise. The registrant
may, to the extent authorized from time to time by its board of directors, grant rights to indemnification and to the advancement
of expenses to any agent of the registrant to the fullest extent of the bylaw provisions with respect to the indemnification of
and advancement of expenses to directors, officers and employees of the registrant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The rights to indemnification
and to the advancement of expenses conferred under the bylaws are not exclusive of any other right which any person may have or
hereafter acquire under the registrant&rsquo;s bylaws, any statute, agreement, vote of shareholders or disinterested directors
or otherwise.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -1in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0in"></TD><TD STYLE="width: 0.75in; text-align: left"><B>Item&nbsp;15.</B></TD><TD STYLE="text-align: justify"><B>Recent Sales of Unregistered Securities.</B></TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">None.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -1in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0in"></TD><TD STYLE="width: 0.75in; text-align: left"><B>Item&nbsp;16.</B></TD><TD STYLE="text-align: justify"><B>Exhibits and Financial Statement Schedules.</B></TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">(a)</FONT></TD><TD STYLE="text-align: justify">Exhibits</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Exhibit Number</B></TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: justify; border-bottom: Black 1pt solid"><B>Description</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 10%; text-align: right">3.1</TD>
    <TD STYLE="width: 7%">&nbsp;</TD>
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 80%; text-align: justify">Amended and Restated Charter of the registrant, as amended (incorporated by reference to Exhibit 3.1 of the registrant&rsquo;s Form 10-Q/A filed on May 5, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">3. 2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Articles of Amendment to the Amended and Restated Charter of the registrant (incorporated by reference to Exhibit 3.1 of the registrant&rsquo;s Form 8-K filed on May 5, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">3.3</TD>
    <TD>**</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Form of Articles of Amendment to the Amended and Restated Charter of the registrant establishing the Series A Preferred Stock.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">3.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Amended and Restated Bylaws of the registrant</FONT> (incorporated by reference to Exhibit 3.2 of the registrant&rsquo;s Form 10-KSB filed on March 24, 2004).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">4.1</TD>
    <TD>**</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Form of Series A Preferred Stock Certificate.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">5.1</TD>
    <TD>**</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Opinion of Miller &amp; Martin PLLC.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">Cornerstone Bancshares, Inc. Statutory and Nonstatutory Stock Option Plan</FONT> (incorporated by reference to Exhibit 10.1 of the registrant&rsquo;s Registration Statement on Form S-1 filed on February 4, 2000, as amended (File No. 333-96185)).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">Cornerstone Bancshares, Inc. 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 of the registrant&rsquo;s </FONT>Registration Statement on Form S-8 filed on March 5, 2004 (File No. 333-113314)<FONT STYLE="color: black">).</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: black">Cornerstone Bancshares, Inc. 2004 Non-Employee Director Compensation Plan (incorporated by reference to</FONT> Exhibit 99.3 of the registrant&rsquo;s Registration Statement on Form S-8 filed on March 5, 2004 (File No. 333-113314)<FONT STYLE="color: black">).</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Cornerstone Community Bank Employee Stock Ownership Plan (incorporated by reference to Exhibit 10.1 of the registrant&rsquo;s Form 8-K filed on July 19, 2005). </TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Stipulation to the Issuance of a Consent order dated April 2, 2010 between Cornerstone Community Bank and a representative of the Legal Division of the Federal Deposit and Insurance Corporation (FDIC-10-037b), incorporated by reference to Exhibit 10.1 of the registrant&rsquo;s Form 8-K file on April 8, 2010.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Consent Order dated April 2, 2010 issued by the Federal Deposit and Insurance Corporation (FDIC-10-037b), incorporated by reference to Exhibit 10.2 to the registrant&rsquo;s Form 8-K filed on April 8, 2010.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.7</TD>
    <TD>*</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Waiver agreement dated March 28, 2012 between the registrant and Midland Loan Services.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">21.1</TD>
    <TD>**</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Subsidiaries of the registrant.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">23.1</TD>
    <TD>*</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Consent of Hazlett, Lewis &amp; Bieter, PLLC.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">23.2</TD>
    <TD>**</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Consent of Miller &amp; Martin PLLC (included in Exhibit&nbsp;5.1).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">24.1</TD>
    <TD>**</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Power of Attorney (included on signature page of the registration statement filed on May 7, 2010).</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">24.2</TD>
    <TD>**</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Power of Attorney</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">&nbsp;*</TD>
    <TD></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Filed herewith</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">*&nbsp;</TD>
    <TD>*</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: justify">Previously filed</TD></TR>
</TABLE>
<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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<P STYLE="margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in; text-align: left">(b)</TD><TD STYLE="text-align: justify">Financial Statement Schedules</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">The registrant has not
provided any financial statement schedules because the information called for is not required or is shown either in the financial
statements or the notes thereto.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -1in"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0in"></TD><TD STYLE="width: 0.75in; text-align: left"><B>Item&nbsp;17.</B></TD><TD STYLE="text-align: justify"><B>Undertakings.</B></TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The undersigned registrant
hereby undertakes:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(1)&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To file, during
any period in which offers or sales are being made, a post-effective amendment to this registration statement:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 1in">(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#9;To include
any prospectus required by section 10(a)(3) of the Securities Act of 1933;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 1in">(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#9;&#9;To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the &ldquo;Calculation of Registration Fee&rdquo; table in the effective registration statement;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 1in">(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#9;&nbsp;To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(2)&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;That, for the
purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial <I>bona fide</I> offering thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(3)&#9;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#9;To remove from
registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Insofar as indemnification
for liabilities arising under the Securities Act of 1933 (the &ldquo;Securities Act&rdquo;) may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SIGNATURES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the
requirements of the Securities Act of 1933, the registrant has duly caused this amendment no. 2  to the registration
statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chattanooga, State of
Tennessee, on June 14, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">CORNERSTONE BANCSHARES, INC.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%">&nbsp;</TD>
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 46%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>By:</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid">/s/ Nathaniel F. Hughes</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Nathaniel F. Hughes</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>President </TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>(principal executive officer)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">Pursuant
to the requirements of the Securities Act of 1933, this amendment no. 2 to the registration statement has been signed by the following
persons in the capacities and on the dates indicated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in; background-color: white">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; border-collapse: collapse; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"><B>Signature</B></FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"><B>Title</B></FONT></TD>
    <TD STYLE="font-weight: bold; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"><B>Date</B></FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">/s/Wesley
    M. Welborn*</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Chairman of Board of
    Directors and Director</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Wesley M. Welborn</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">/s/
    Gary W. Petty, Jr.</FONT></TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Senior Vice President and Chief Financial
    Officer</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Gary W. Petty, Jr.</FONT></TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">(principal financial officer, and principal
    accounting officer)</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">*</FONT></TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Director</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">B. Kenneth Driver</FONT></TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Director</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Karl Fillauer</FONT></TD>
    <TD STYLE="text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">*</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Director</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">David G. Fussell</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">*</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Director</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Lawrence D. Levine</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">*</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Director</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Frank S. McDonald</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">*</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Director</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Doyce G. Payne, M.D.</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">/s/
    Nathaniel F. Hughes</FONT></TD>
    <TD><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">President and Director (principal executive
    officer)</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Nathaniel F. Hughes</FONT></TD>
    <TD><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Director</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Billy O. Wiggins</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">*</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Director</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Marsha Yessick</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left; width: 5%"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">* By: </FONT></TD>
    <TD STYLE="text-align: left; width: 24%; border-bottom: Black 1pt solid"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">/s/
    Wesley M. Welborn</FONT></TD>
    <TD STYLE="font-size: 10pt; width: 2%"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; width: 49%; text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center; width: 2%"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center; width: 18%"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">June 14, 2012</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left"></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Wesley M. Welborn&nbsp;</FONT></TD>
    <TD><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left"></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Attorney-in-fact&nbsp;</FONT></TD>
    <TD><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></TD></TR>
</TABLE>
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<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>2
<FILENAME>v316046_ex10-7.htm
<DESCRIPTION>EXHIBIT 10.7
<TEXT>
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<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.65pt"><FONT STYLE="color: Black">March 28, 2012</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.65pt"><FONT STYLE="color: Black">VIA EMAIL</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.2pt"><FONT STYLE="color: Black">Cornerstone Community
Bank</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.65pt"><FONT STYLE="color: Black">640 I Lee Highway Suite
119</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.2pt; color: #565656"><FONT STYLE="color: Black">Chattanooga,37421</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.2pt; color: #565656"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 244.4pt 0pt 19.65pt"><FONT STYLE="color: Black">Attention: Gary
Petty, Chief Financial Officer-SVP</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 244.4pt 0pt 19.65pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.5in; text-align: left"><FONT STYLE="color: Black">RE:</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="color: Black">Cornerstone Bancshares,
Inc. (&quot;Borrower&quot;)</FONT></TD>
</TR>     <TR STYLE="vertical-align: top; text-align: justify">
<TD>&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: justify">Midland Nos. 030281914 &amp; 030281915 (&quot;Loans&quot;) </TD></TR>
<TR STYLE="vertical-align: top; text-align: justify">
<TD>&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: justify">Current Principal Balance: $2,61
0,000&nbsp;&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 244.4pt 0pt 19.65pt"><FONT STYLE="color: Black"></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.65pt; color: #414141"><FONT STYLE="color: Black">Dear
Gary:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 3.2pt 0pt 19.65pt"><FONT STYLE="color: Black">Midland Loan Services,
a division of PNC Bank, N.A.(&quot;Midland&quot;) is the Servicer for the FDIC as receiver for Silverton Bank, N.A. (&quot;Lender&quot;)
of the above-referenced loan.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 2.85pt 0pt 19.2pt"><FONT STYLE="color: Black">Please be advised
that the Lender has agreed to provide a one year waiver of the covenant compliance thresholds for 2012. The one year covenant
waiver is conditional upon the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in; text-align: left"><FONT STYLE="color: Black">I.</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="color: Black">The Borrower will continue
to submit quarterly Covenant Compliance Certificates to the </FONT>Receivership.</TD>
</TR></TABLE>

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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in; text-align: left"><FONT STYLE="color: Black">2.</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="color: Black">Cornerstone Community Bank
will agree to limit its dividend payments to amounts necessary to service the subject loan and pay income taxes.</FONT></TD>
</TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 6pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in; text-align: left"><FONT STYLE="color: Black">3.</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="color: Black">The
Borrower wi ll pay a processing fee equal to $25,000.</FONT></TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.2pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.2pt"><FONT STYLE="color: Black">We trust that this meets
with your satisfaction.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.2pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.2pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

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<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt"><FONT STYLE="color: Black">Very truly yours,&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 35%; padding-right: -1pt; font-size: 10pt"><FONT STYLE="color: Black">MIDLAND LOAN SERVICES</FONT></TD>
    <TD STYLE="width: 62%"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-top: 0.95pt; font-size: 10pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt; color: #414141; border-bottom: Black 1pt solid"><FONT STYLE="color: Black">/s/
    Scott Dunkely</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt"><FONT STYLE="color: Black">Scott Dunkley</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt"><FONT STYLE="color: Black">A VP Asset Management</FONT></TD>
    <TD>&nbsp;</TD></TR>
</TABLE>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.2pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 19.2pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;&nbsp;</FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 5.95pt"><FONT STYLE="color: Black">Cornerstone</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.4pt"><FONT STYLE="color: Black">312912011 Waiver Letter</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.4pt; color: #666666"><FONT STYLE="color: Black">Page 2</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;&nbsp;</FONT></P>

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    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt"><FONT STYLE="color: Black">AGREED AND ACCEPTED BY:&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt"><FONT STYLE="color: Black">Cornerstone Bancshares, Inc.</FONT></TD>
    <TD STYLE="width: 62%"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-top: 0.95pt; font-size: 10pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-size: 10pt; color: Black">By&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt; border-bottom: Black 1pt solid">/s/ Gary W. Petty, Jr.<FONT STYLE="color: Black"><U STYLE="text-decoration: none"></U></FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt">Name: &nbsp;Gary W.
Petty, Jr.</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt">Title: &nbsp;&nbsp;&nbsp;Chief Financial
Officer</TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: -1pt; font-size: 10pt">Date: &nbsp;&nbsp;&nbsp;March 28, 2012</TD>
    <TD></TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;&nbsp;</FONT></P>

<P STYLE="margin: 0">&nbsp;</P>

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<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>3
<FILENAME>v316046_ex23-1.htm
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
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<P STYLE="margin: 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">EXHIBIT 23.1</P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="text-transform: uppercase"><B>&nbsp;</B></FONT></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="text-transform: uppercase"><B>Consent
of Independent Registered Public Accounting Firm</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We consent to the incorporation by reference
in this Post-Effective Amendment No. 2 to Registration Statement (No. 333-166625) on Form S-1 of Cornerstone Bancshares, Inc. and
subsidiary of our report dated March&nbsp;29, 2012, relating to our audits of the consolidated financial statements included in
its Annual Report on Form&nbsp;10-K incorporated by reference in the Prospectus, which is a part of such Post-Effective Amendment
No.&nbsp;2 to Registration Statement on Form S-1.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We also consent to the reference of our firm under the caption
&ldquo;Experts&rdquo; included in such Prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>/s/ HAZLETT, LEWIS &amp; BIETER, PLLC</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Chattanooga</FONT>,
Tennessee</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>June 14, 2012</B></P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin-top: 0; text-align: center; margin-bottom: 0">Exhibit 23.1</P>


<P STYLE="margin: 0"></P>

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