SecProbe.io

August 10, 2011
 Via Email

Gary W. Petty, Jr. Senior Vice President and Chief Financial Officer Cornerstone Bancshares, Inc. 835 Georgia Avenue Chattanooga, TN  37402
Re: Cornerstone Bancshares, Inc.
  Form 10-K for Fiscal Year Ended December 31, 2010
Filed March 31, 2011 Form 10-Q for Fiscal Quarter Ended March 31, 2011  Filed May 16, 2011  File No. 000-30497

Dear Mr. Petty:
 We have reviewed your filing and have the following comments.  In some of our
comments, we may ask you to provide us with  information so we may better understand your
disclosure.
 Please respond to this letter within ten business days by amending your filing, by
providing the requested information, or by advi sing us when you will provide the requested
response.  Where we have requested changes in  future filings, please include a draft of your
proposed disclosures that clearly identifies new or revised disclosu res.  If you do not believe our
comments apply to your facts and circumstances or  do not believe an amendment is appropriate,
please tell us why in your response.
 After reviewing any amendment to your filing and the information you provide in
response to these comments, including the draf t of your proposed disclosures, we may have
additional comments.

Form 10-K for Fiscal Year Ended December 31, 2010

 General

 1. Please file the Item 5.07 Form 8-K identif ying the voting results of your 2011 annual
meeting for the election of directors.
2. Please revise future filings to discuss in greater detail the formal agreements with your
financial regulators.  In particular, provi de a summary of all provisions, current
compliance with each provision, management’s view of the material impact on future

Gary W. Petty, Jr. Cornerstone Bancshares, Inc. August 10, 2011 Page 2

 operations relating to the actions taken in re sponse to the formal agreements and the
potential consequences if there is a fa ilure to comply with the agreements.
            Item 1. Business

 Supervision and Regulation, page 5

 3. We note that you received a letter from the Federal Reserve Bank of Atlanta dated March
30, 2010 which requires the FRBA’s written appr oval prior to taking certain actions.  To
the extent this letter is  still in effect, please revise your future annual and periodic reports
to disclose the letter’s terms and any materi al effect the FRBA’s requirements have had
on your operations.
 Item 7. Management’s Discussion and Analys is of Financial Condition and Results of
Operations
 General

 4. Please expand your future filings to presen t a discussion of the company’s critical
accounting estimates.

5. Please expand your future filings to address the following:

 Provide the disclosure required by Item III(B ) of Guide III with regard to the amount
of loans due after one year that have predet ermined interest rates and have floating or
adjustable interest rates;

 Provide the disclosure required by Item  III(C)(1) of Guide III with regard to
nonaccrual, past due and restru ctured loans for 5 years;

 Provide the disclosure required by Item V(D) of Guide III with regard to the maturity
of certificates of deposit in amounts of $100,000 or more; and

 Disclose the information required by Item VII(1) weighted average interest rate
thereon and (2) the maximum amount of borrowings outstanding at any month-end
during each reported period of Guide III with regard to short-term borrowings.

Gary W. Petty, Jr. Cornerstone Bancshares, Inc. August 10, 2011 Page 3

 Item 8. Financial Statements and Supplementary Data

 Notes to the Consolidated Financial Statements

 Note 5 – Loans and Allowance for Loan Losses, pages 60-64

 6. We note that you have presented some of  the disclosures required by ASU 2010-20
outside the financial statements particul arly pursuant to ASC 310-10-50-11B(a)(3) and
(d).  Please expand future filings to include  the disclosures in th e body of the financial
statements or the notes to the financial statements.
7. Please tell us and expand future filings to provide by portfolio segment a description of
the company’s accounting policy and methodolo gy used to estimate the allowance for
credit losses pursuant to ASC 310-10-50-11B(a) and a desc ription of the policy for
charging off uncollectable financing receiv ables pursuant to ASC 310-10-50-11B(b).

8. Please expand your future filings to provide, as of the date of each statement of financial
position presented, the recorded investment in impaired loans by class of financing
receivable for the information pursuan t to ASC 310-10-50-15(a)(3) and (b).

9. Please expand your future filings to  revi se the disclosure pursuant to ASC 310-10-50-
29(b) to present the recorded investment in financing receivables by credit quality
indicator and for each credit qua lity indicator, the date or range of dates in which the
information was updated for that credit quality indicator pursuant to ASC 310-10-50-29(c).
Item 10. Directors, Executive O fficers and Corporate Governance

 10. Please tell us why you have not provided th e information required by Item 401(b) of
Regulation S-K, and related disclosures.
 Exhibits

 General

 11. Please amend your Form 10-K to file as exhib its the consent order issued by the Federal
Deposit Insurance Corporation on April 2, 2010 and the written agreement entered into
with the Tennessee Department of Financial Institutions on April 8, 2010 (unless a public
filing of the latter agreement is prohibited, in which case please advise ).  We note that the
written agreement with the Tennessee Department  of Financial Institutions was not filed
as an exhibit to the Form 8-K filed April 14, 2010 or any subsequent filings.  Please
advise.

Gary W. Petty, Jr. Cornerstone Bancshares, Inc. August 10, 2011 Page 4

 Exhibit 32

 12. We note that the certifications pursuant to Section 906 of the Sarbanes-Oxley Act are not
dated.  Please amend the Form 10-K and include dated certifications.  Confirm that future
certifications will be dated.
 Form 10-Q for Fiscal Quarter Ended March 31, 2011

 Item 4. Controls and Procedures

 13. This disclosure appears to reflect the conc lusion of your principal executive officer.
Please confirm, if accurate, that this disclo sure also reflects the conclusion of your
principal financial officer.  Revise future filings accordingly.  Refer to Item 307 of
Regulation S-K.

We urge all persons who are responsible for th e accuracy and adequacy of the disclosure
in the filing to be certain that the filing include s the information the Securities Exchange Act of
1934 and all applicable Exchange Act rules requir e.  Since the company and its management are
in possession of all facts relating to a company’s disclosure, they are responsible for the accuracy
and adequacy of the disclosures they have made.

 In responding to our comments, please provi de a written statement from the company
acknowledging that:
 the company is responsible for the adequacy an d accuracy of the disclo sure in the filing;

 staff comments or changes to disclosure in response to staff comments do not foreclose
the Commission from taking any action with respect to the filing; and

 the company may not assert staff comments as  a defense in any proceeding initiated by
the Commission or any person under the federa l securities laws of  the United States.

You may contact Chris Harley  at (202) 551-3695 or Hugh West at (202) 551-3872 if you
have questions regarding comments on the financ ial statements and related matters.  Please
contact David Lin at (202) 551-3552 or me at (202) 551-3583 with any other questions.

Sincerely,
   /s/ Matt S. McNair
Matt S. McNair  Attorney-Adviser