SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant / /
Filed by a party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12

CORNERSTONE BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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CORNERSTONE BANCSHARES, INC.
5319 Highway 153
Chattanooga, Tennessee 37343

NOTICE OF MEETING OF SHAREHOLDERS

TO BE HELD ON APRIL 19, 2001

Notice is hereby given that the Annual Meeting of Shareholders (the
"Shareholders Meeting") of Cornerstone Bancshares, Inc., a Tennessee
corporation and bank holding company registered under the Bank Holding
Company Act 1956, as amended (the "Company") will be held at the Gunbarrel
branch of the Company located at 2280 Gunbarrel Road, Chattanooga, Tennessee,
on April 19, 2001, beginning at 6:00 p.m. local time, for the following
purposes:

1. ELECT DIRECTORS. To elect thirteen (13) individuals to the Board of
Directors as directors.

2. APPROVAL OF ACCOUNTING FIRM. To ratify the appointment of Hazlett,
Lewis & Bieter, PLLC as independent auditors of the Company for fiscal year
ending December 31, 2001; and

3. OTHER BUSINESS. To transact such other or further business as may
properly come before the Shareholders Meeting or any adjournment or
postponement thereof.

Information regarding the matters to be acted upon at the Annual Meeting
is contained in the Proxy Statement attached to this Notice.

Only shareholders of record at the close of business on February 26,
2001 are entitled to notice of, and to vote at, the Shareholders Meeting or
any adjournment(s) thereof.

All shareholders, whether or not they expect to attend the Shareholders
Meeting in person, are requested to complete, date, sign and return the
enclosed proxy in the accompanying envelope. The proxy may be revoked by the
person executing the proxy at any time before it is exercised by filing with
the President of the Company an instrument of revocation or a duly executed
proxy bearing a later date, or by electing to vote in person at the
Shareholders Meeting.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Earl A. Marler, Jr.

Chattanooga, Tennessee Earl A. Marler, Jr.
March 19, 2001 Chairman of the Board of Directors

YOU ARE ENCOURAGED TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU ARE UNABLE
TO ATTEND THE ANNUAL MEETING, THE BOARD OF DIRECTORS REQUESTS THAT, AT YOUR
EARLIEST CONVENIENCE, YOU PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED REPLY ENVELOPE, WHICH NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES.

CORNERSTONE BANCSHARES, INC.
5319 Highway 153
Chattanooga, Tennessee 37343

March 19, 2001

Dear Shareholder,

I am pleased to invite you to attend our 2001 Annual Meeting of
Shareholders, which will be held at 6:00 p.m., on April 19, 2001, at the
Gunbarrel branch of the Company located at 2280 Gunbarrel Road, Chattanooga,
Tennessee.

As discussed in the accompanying proxy statement, you will be asked at
the Annual Meeting to elect the Board of Directors and to re-appoint
Cornerstone Bancshares' auditors.

Your vote is important. Whether or not you are able to attend, it is
important that your shares be represented at the meeting. Accordingly, please
sign, date and return the enclosed proxy card at your earliest convenience.

Thank you for your cooperation.

Yours Sincerely,

/s/ Gregory B. Jones

Gregory B. Jones
President and
Chief Executive Officer

PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
OF
CORNERSTONE BANCSHARES, INC.
TO BE HELD ON
APRIL 19, 2001

INTRODUCTION

SOLICITATION OF PROXIES

This Proxy Statement is being furnished to the Shareholders of
Cornerstone Bancshares, Inc. (the "Company") in connection with the solicitation
of proxies by the Board of Directors of the Company (the "Board") from holders
of the outstanding shares of the $1.00 par value Common Stock of the Company
("Common Stock") for use at the Meeting of Shareholders of the Company to be
held at the Company's Gunbarrel branch located at 2280 Gunbarrel Road,
Chattanooga, Tennessee, on Thursday, April 19, 2001, and at any adjournment or
postponement thereof ("Shareholders Meeting"). The Shareholders Meeting is being
held to (i) elect thirteen (13) directors of the Company; (ii) approve the
employment of the Company's outside auditing firm; and (iii) transact such other
or further business as may properly come before the Shareholders Meeting and any
adjournment or postponement thereof. The Board of the Company knows of no other
business that will be presented for consideration at the Shareholders Meeting
other than the matters described in this Proxy Statement. This Proxy Statement
is dated March 19, 2001, and it and the accompanying notice and form of proxy
are first being mailed to the Shareholders of the Company on March 19, 2001. All
costs of preparing, printing, assembling and mailing the form of proxy and the
material used in the solicitation will be paid by the Company. This Proxy
Statement is first being mailed to shareholders on or about March 19, 2001.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The Board has fixed the close of business on February 26, 2001 as the
record date for the determination of shareholders entitled to notice of, and to
vote at, the Shareholders Meeting. Each share of the Company's common stock
without par value ("Common Stock") is entitled to one vote. As of February 26,
2001 there were issued and outstanding 1,174,579 shares of Common Stock.

Set forth below is information, as of February 26, 2001, with respect
to beneficial ownership by (a) each person who is known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (b) each
director and nominee, (c) the chief executive officer and the four most highly
compensated executive officers for the previous fiscal year and (d) all
directors and executive officers of the Company as a group:

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Name and Address of Amount and Nature of Percent of Outstanding
Beneficial Owner Description Beneficial Ownership Common Stock (1)
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DIRECTORS AND NOMINEES
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Ramesh V. Amin Director 70,001 (2) 5.95%
5319 Highway 153
Chattanooga, Tennessee 37343
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Randy Brooks Director 29,746 (2) 2.53%
5319 Highway 153
Chattanooga, Tennessee 37343
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B. Kenneth Driver Director 25,186 (2)(4) 2.14%
5319 Highway 153
Chattanooga, Tennessee 37343
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Karl Filauer Director 33,190 (2)(5) 2.82%
5319 Highway 153
Chattanooga, Tennessee 37343
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Gregory B. Jones Director, President 23,794 (3)(6) 2.04%
5319 Highway 153 & Chief Executive
Chattanooga, Tennessee 37343 Officer
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James H. Large Director 39,670 (2)(7) 3.37%
5319 Highway 153
Chattanooga, Tennessee 37343
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Lawrence D. Levin Director 17,500 (2) 1.49%
5319 Highway 153
Chattanooga, Tennessee 37343
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Russell W. Lloyd Director 33,290 (2)(8) 2.83%
5319 Highway 153
Chattanooga, Tennessee 37343
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Earl A. Marler, Jr. Director 37,065 (2)(9) 3.15%
5319 Highway 153
Chattanooga, Tennessee 37343
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Doyce G. Payne, M.D. Director 41,315 (2)(10) 3.51%
5319 Highway 153
Chattanooga, Tennessee 37343
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Turner Smith Director 30,000 (2) 2.55%
5319 Highway 153
Chattanooga, Tennessee 37343
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Billy O. Wiggins Director 48,044 (2)(11) 4.08%
5319 Highway 153
Chattanooga, Tennessee 37343
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Marsha Yessick Director 26,000 (2) 2.21%
5319 Highway 153
Chattanooga, Tennessee 37343
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CERTAIN EXECUTIVE OFFICERS
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Nathaniel F. Hughes Executive Vice President 19,150 (3)(12) 1.64%
5319 Highway 153 & Chief Financial
Chattanooga, Tennessee 37343 Officer
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Jerry D. Lee Executive Vice President 22,200 (13) 1.72%
5319 Highway 153 & Senior Loan Officer
Chattanooga, Tennessee 37343
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All directors and executive 494,151 38.03%
officers as a group (15) persons
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Notes

(1) Unless otherwise indicated, beneficial ownership consists of sole voting
and investing power based on 1,166,129 shares issued and outstanding on
December 31, 2000. Options to purchase 130,000 shares are exercisable or
become exercisable within 60 days of December 31, 2000. Such shares are
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares owned by each person to whom a portion of such options
relate, but are not deemed to be outstanding for the purpose of computing
the percentage owned by any other person.

(2) Includes 10,000 shares issuable within the next 60 days upon exercise of
options issued pursuant to the 1996 Cornerstone Statutory-Nonstatutory
Stock Option Plan.

(3) Includes 1,650 shares issuable within the next 60 days upon exercise of
options issued pursuant to the 1996 Cornerstone Statutory-Nonstatutory
Stock Option Plan.

(4) Includes 15,186 shares held jointly with Mr. Driver's spouse.

(5) Includes 23,190 shares held jointly with Mr. Fillauer's spouse.

(6) Includes 4,194 shares held jointly with Mr. Jones' spouse, and 1,400
shares held in an IRA account by Mr. Jones' spouse.

(7) Includes 4,300 shares held jointly with Mr. Large's spouse, 1.600 shares
held by Mr. Large's spouse and 22,170 shares held by Key James Brick
Company trust PSP.

(8) Includes 20,000 shares held jointly with Mr. Lloyd's spouse and 100 shares
held as custodian for grandchild.

(9) Includes 27,065 shares held jointly with Mr. Marler's spouse.

(10) Includes 10,690 shares held jointly with Dr. Payne's spouse and 2,626
shares held as custodian for a child.

(11) Includes 6,190 shares held jointly with Mr. Wiggins' spouse, 7,500 shares
jointly held with Mr. Wiggins' spouse and mother and 3,000 shares held as
custodian for a child.

(12) Includes 5,000 shares held jointly with Mr. Hughes' wife.

(13) Includes 8,000 shares held jointly with Mr. Lee's wife, 8,500 shares in
spouse's name and 200 shares held as custodian for a child.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under federal securities laws, the Company's directors, executive
officers and 10% or more shareholders are required to report, within specified
monthly due dates, their initial ownership in the Company's Common Stock and all
subsequent acquisitions, dispositions or other transfers of beneficial interests
therein, if and to the extent reportable events occur which require reporting by
such due dates. Based solely on representations and information provided to the
Company by the persons required to make such filings, the Company believes that
all filing requirements were complied with during the last fiscal year.

REVOCABILITY OF PROXY

Granting a proxy does not preclude the right of the person giving the
proxy to vote in person, and a person may revoke his or her proxy at any time
before it has been exercised, by giving written notice to the President of the
Company, by delivering a later dated proxy or by voting in person at the
Shareholders Meeting.

QUORUM; VOTING

The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock which are entitled to vote is necessary
to constitute a quorum at the Shareholders Meeting. If a quorum is not present
or represented at the Shareholders Meeting, the shareholders entitled to vote,
whether present in person or represented by proxy, have the power to adjourn the
Shareholders Meeting from time to time, without notice other than announcement
at the Shareholders Meeting, until a quorum is present or represented. At any
such adjourned Shareholders Meeting at which a quorum is present or represented,
any business may be transacted that might have been transacted at the
Shareholders Meeting as originally noticed.

On all matters submitted to a vote of the shareholders at the
Shareholders Meeting or any adjournment(s) thereof, each shareholder will be
entitled to one vote for each share of Common Stock owned of record at the close
of business on February 26, 2001. There will be no cumulative voting.

ACTION TO BE TAKEN UNDER THE PROXY

Proxies in the accompanying form that are properly executed and
returned will be voted at the Shareholders Meeting and any adjournment(s)
thereof in accordance with the directions on such proxies. If no directions are
specified, such proxies will be voted (a) "FOR" the election of the thirteen
(13) persons specified as nominees for directors of the Company; (b) "FOR" the
ratification of the appointment of Hazlett, Lewis & Bieter, PLLC as independent
auditors; and (c) in the best judgment of the persons named in the enclosed
proxy in connection with the transaction of such other business as may properly
come before the Shareholders Meeting or any adjournment(s) thereof. Should any
director nominee named herein become unable or unwilling to serve if elected, it
is intended that the proxies will be voted for the election, in his or her
stead, of such other person as the Board may recommend.

The Board has no reason to believe that any of the nominees will be
unable or unwilling to serve if elected. The Board knows of no other matters of
business to be presented for consideration at the Shareholders Meeting. If,
however, any other matters properly come before the Shareholders Meeting or any
adjournment(s) thereof, it is the intention of the persons named in the enclosed
proxy to vote such proxy in accordance with their best judgment on any such
matters. The persons named in the enclosed proxy may also, if they deem it
advisable, vote such proxy to adjourn the Shareholders Meeting from time to
time.

PROPOSAL I: ELECTION OF DIRECTORS
GENERAL

Pursuant to the bylaws, as amended, of the Company, the Board has set
the number of directors of the Company to be between nine and fifteen members.
The Board has named Ramesh V. Amin, Randy Brooks, B. Kenneth Driver, Karl
Fillauer, Gregory B. Jones, James H. Large, Lawrence D. Levine, Russell W.
Lloyd, Earl A. Marler, Jr., Doyce G. Payne, M.D., Turner Smith, Billy O. Wiggins
and Marsha Yessick to stand for election as directors at the Shareholder's
Meeting. Should any one or more of these nominees become unable to serve for any
reason, or choose not to serve, the Board may designate a substitute nominee or
nominees (in which event the persons named in the enclosed proxy card will vote
all valid proxy cards for the election of such substitute nominee or nominees),
allow the vacancy or vacancies to remain open until a suitable candidate or
candidates are located or by resolution provide for a lesser number of
directors.

Each director elected at the Shareholders Meeting will serve until the
next Annual Meeting of Shareholders and until his or her successor has been duly
elected and qualified or until his or her earlier resignation or removal.
Directors will be elected by a plurality of the votes cast.

INFORMATION ABOUT NOMINEES

Set forth below with respect to the directors and nominees for director
of the Company is information regarding their business experience during the
past five years and other information.

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NAME AGE PRINCIPAL OCCUPATION
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Ramesh V. Amin 54 President of American Plastics, a Chattanooga based producer of plastic
consumer products. He has been a director of the Company since 1997 and of
the Bank since 1996.
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Randy Brooks 48 President of R.K. Haskew & Co., Inc., a Chattanooga based manufacturing
company. He has been a director of the Company since 1997 and of the Bank
since 1996.
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B. Kenneth Driver 65 President & Chief Operating Officer of Fillauer, Inc., a Chattanooga based
prosthetic manufacturer. He has been a director of the Company since 1997
and of the Bank since 1996.
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Karl Fillauer 53 Chairman of Fillauer, Inc., a Chattanooga based prosthetic manufacturer. He
has been a director of the Company since 1997 and of the Bank since 1996.
- ------------------------------------------------------------------------------------------------------------
Gregory B. Jones 48 President & Chief Executive Officer of the Company and the Bank since 1999.
He has been a director of the Company and the Bank since 1999.
- ---------------------------------------------------------------------------------------------------------------------

James H. Large 57 President of Key-James Brick & Supply Company, Inc., a Chattanooga based
supplier of building supplies. He has been a director of the Company since
1997 and of the Bank since 1996.
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Lawrence D. Levine 71 President of Financial Management Corp., a Chattanooga based insurance and
financial management company. He has been a director of the Company since
1997 and of the Bank since 1996.
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Russell W. Lloyd 60 President of MPL Construction Company, a Chattanooga based commercial
building construction company. He has been a director of the Company since
1997 and of the Bank since 1996.
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Earl A. Marler, Jr. 64 Chairman of the Board of the Company since 1997 and of the Bank since 1996.
He served as Chief Executive Officer of the Company from 1997 to 1998, and
of the Bank from 1996 to 1998. He has been a director of the Company since
1997 and of the Bank since 1996.
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Doyce G. Payne, M.D. 50 Physician of obstetrics and gynecology in the Chattanooga area. He has been
a director of the Company since 1997 and of the Bank since 1996.
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Turner Smith 60 Director of Southeast Energy Services, Inc., a Chattanooga based consulting
company to the construction industry. He has been a director of the Company
since 1997 and of the Bank since 1996.
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Bill O. Wiggins 58 President of Checks, Inc., a Chattanooga based specialty check printing
company. He has been a director of the Company since 1997 and of the Bank
since 1996.
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Marsha Yessick 53 Owner of Yessick's Design Center, a Chattanooga based interior design
company, and owner of Yessica's a local manufacturer of various interior
design products. She has been a director of the Company since 1997 and of
the Bank since 1996.
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EXECUTIVE OFFICERS
- ------------------------------------------------------------------------------------------------------------
Nathaniel F. Hughes 42 Executive Vice President & Chief Financial Officer of the Company and the
Bank since February 1999.
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Jerry D. Lee 39 Executive Vice President & Senior Loan Officer of the Bank since April 1999.
- ------------------------------------------------------------------------------------------------------------

THE BOARD OF DIRECTORS RECOMMENDS THAT COMPANY SHAREHOLDERS VOTE FOR APPROVAL OF
THE ELECTION OF THE FOREGOING NOMINEES AS DIRECTORS OF THE COMPANY.

PROPOSAL TWO

APPROVAL OF INDEPENDENT ACCOUNTANTS

The Board, upon recommendation of the Audit Committee, has appointed
Hazlett, Lewis & Bieter, PLLC ("HLB"), independent certified public auditors for
the Company and its subsidiary for the current year ending December 31, 2001,
subject to ratification by the shareholders. HLB has served as independent
auditors for the Company since 1997 and the Bank since 1996. HLB has advised the
Company that neither the firm nor any of its partners have any direct or
material interest in the Company and its subsidiary except as auditors and
independent certified public accountants of the Company and its subsidiary.

A representative of HLB will be present at the Shareholder's Meeting
and will be given the opportunity to make a statement on behalf of the firm if
he so desires. A representative of HLB is also expected to respond to
appropriate questions from the shareholders.

The affirmative vote of the holders of shares representing a majority
of the votes represented at the Shareholder's Meeting, at which a quorum is
present, is required to ratify the appointment of HLB as independent auditors.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF HAZLETT, LEWIS & BIETER, PLLC AS INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2001.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

Under rules established by the Securities and Exchange Commission (the
"SEC"), the Company is required to provide certain data and information
regarding the compensation and benefits provided to its chief executive officer
and other executive officers, including the four other most highly compensated
executive officers who receive more than $100,000 in annual compensation (the
"Executive Officers"). The disclosure requirements for the Executive Officers
include the use of tables and a report explaining the rationale and
considerations that led to fundamental executive compensation decisions
affecting these individuals. The Human Resource committee has prepared the
following report for inclusion in this Proxy Statement in response to such
requirements.

The Human Resource Committee either approves or recommends to the Board
payment amounts and award levels for Executive Officers of the Company and its
subsidiary. The report reflects the Company's philosophy as endorsed by the
Company's Board and the Human Resource Committee and resulting actions taken by
the Company for the reporting periods shown in the compensation tables
supporting the report.

HUMAN RESOURCE COMMITTEE COMPENSATION REPORT

GENERAL

The Human Resource Committee is composed of four independent,
non-employee directors who have no "interlocking" relationships as defined by
the SEC. The Human Resource Committee fully supports the Company's philosophy
that the relationship between pay and individual performance is the cornerstone
of the salary administration program, and the reward of consistent, superior
performance is equally important to the control of salary expense in the
management of the Company's operating overhead. Pay for performance relating to
Executive Officer compensation comprises: base pay, annual cash incentives and
long term non-cash incentives. The administration of Executive Officer
compensation in these areas is based not only on individual performance and
contributions, but also on total Company performance relative to profitability
and shareholder interests. The Human Resource Committee makes recommendations to
the Board with a view to: (i) ensuring that a competitive and fair total
compensation package is provided the directors, officers and employees in order
to recruit and retain quality personnel; (ii) ensuring that written performance
evaluations are made not less frequently than annually; and, (iii) periodically
reviewing and revising salary ranges and total compensation programs for
directors, officers and employees.

BASE SALARY AND INCREASES

In establishing Executive Officer salaries and increases, the Human
Resource Committee considers individual annual performance and the relationship
of total compensation to the defined salary market. The decision to increase
base pay is recommended by the chief executive officer and approved by the Human
Resource Committee using performance results documented and measured annually.
Information regarding salaries paid by other financial institutions is obtained
and is used in the decision process to ensure competitiveness with the Company's
peers and competitors.

The Company's philosophy is to provide base pay competitive with other
banks and bank holding companies of similar size in the southeast.

EXECUTIVE OFFICER PAY

The Human Resource Committee formally reviews the compensation paid to
the Executive Officers in January each year. Changes in base salary and the
awarding of cash incentives are based on overall financial performance and
profitability related to objectives stated in the Company's strategic
performance plan and the initiatives taken to direct the Company. Salary
information is gathered and used in formulating recommendations regarding
changes in the chief executive officer's compensation to ensure that the chief
executive officer's total compensation is comparable with industry peers. The
Board makes the final approval.

After a review of market information, the Human Resource Committee
established Mr. Jones' base salary for the year 2000 at $129,600. This salary
level represents an 8% increase or $9,600 from the year 1999 base salary. This
salary level reflects an appropriate compensation level based in part on his
past accomplishments with the Company.

ANNUAL CASH INCENTIVES

From time to time the Company uses annual cash incentives for specific
short-term results. For the year 2000 the Company did not use any plan for cash
incentives.

LONG-TERM INCENTIVES

The Company and its shareholders have previously approved the 1996
Cornerstone Statutory and Nonstatutory Stock Option Plan, and 55,000 shares of
Company stock have been reserved for issue under this plan as employee incentive
stock options. In 2000 the Human Resource Committee issued stock options to
purchase 5,500 shares of Company stock at an exercise price of $13.00 per share
to Mr. Jones as an additional long-term incentive. See "Stock Option Grants in
2000."

EMPLOYMENT AND SEVERANCE CONTRACTS

The Company has issued "Executive Agreements" to key Executive
Officers, including Mr. Jones. This agreement, among other things, provides Mr.
Jones, under certain circumstances, with two years of salary and immediate
vesting of any unexercised stock options in the event the Company or the Bank
experiences a change in ownership related to a merger, sale or acquisition. The
agreement expires in 2002, unless extended by the Board. If the Company or the
Bank does not experience a change in ownership, then there are no benefits paid
or accrued to Mr. Jones.

$1 MILLION DEDUCTION LIMIT

At this time the Company does not appear to be at risk of losing
deductions under the $1 million deduction limit on executive pay established
under Section 162(iii) of the Internal Revenue Code of 1986. As a result, the
Company has not established a policy regarding this limit.

SUMMARY

In summary the Company's overall executive compensation program is
designed to reward managers for individual, Company and share-value performance.
The executive compensation program incorporates a shareholder point of view in
several different ways and contains significant protections for shareholders.
The Human Resource Committee monitors the various program guidelines and may
adjust these as it deems appropriate. The Human Resource Committee believes that
the compensation of the Company's officers and employees, including the
Executive Officers, is reasonable and competitive with compensation paid by
other financial institutions of similar size. The Company's total personnel
expense, as a percentage of average assets was 1.96% on December 31, 2000.

This concludes the report of the Human Resource Committee.

James H. Large Lawrence D. Levine Earl Marler, Jr. Billy O. Wiggins
Marsha Yessick

COMPENSATION TABLE

The table below sets forth certain elements of compensation for the
named executive officer of the Company and the Bank for the periods indicated.

SUMMARY COMPENSATION TABLE
-----------------------------------------------------
LONG TERM (1) COMPENSATION
-------------------------------------------------
ANNUAL COMPENSATION Restricted Securities
-------------------------------------- Stock Underlying All Other
Name and Salary Bonus Awards Options/SAR's Compensation
Principal Position Year ( $ ) ( $ ) ( $ ) ( # ) (2) ( $ ) (3)
- ----------------------------------------------------------------------------------------------------------------------------

Gregory B. Jones 2000 $ 129,000 $ 0 0 5,500 $7,200
President & CEO 1999 120,000 0 0 5,500 7,125
Company and Bank 1998 0 0 0 0 0

- --------------------------------
(1) The Company maintains a "1996 Cornerstone Statutory and Nonstatutory Stock
Option Plan" which was approved by the shareholders in 1996. There were no
shares of restricted stock held by any executive officers on December 31,
2000.

(2) Options acquired pursuant to option grants must generally be held at least
two years before partial vesting is possible. The Company does not grant
SAR's.

(3) Includes the Company's 2000 match for 401(K), and $5,400 in Bank Board
director's fees.

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

The following table contains information about option awards made to
the named executive officer during the Company's fiscal year ended December 31,
2000.

STOCK OPTION GRANTS IN 2000
--------------------------------------------------------------------
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
Number of % of Total ASSUMED ANNUAL RATES OF
Securities Options/SAR's STOCK PRICE APPRECIATION FOR
Underlying Granted to Exercise or THE OPTION TERM (4)
Options/SAR's Employees in Base Price Expiration ------------------------------------
Name Granted (#)(1) Fiscal Year ($/share)(2) Date (3) 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------------------------

Gregory B. Jones 5,500 27.92% $ 13.00 03/01/10 $ 44,966 $ 113,953

- ---------------------------
(1) These options are granted under the "1996 Cornerstone Statutory and
Nonstatutory Stock Option Plan".

(2) These options were granted at fair market value at the time of the grant,
are generally 100% exercisable after five years of the grant, with a
vesting schedule of 30% the third year, 60% the fourth year and 100% the
fifth year.

(3) These options could expire earlier in certain situations.

(4) The potential realizable value of the options granted in 2000 to the
Executive Officer named above was calculated by multiplying those options
by the excess of (a) the assumed market value at March 1, 2010 of common
stock if the estimated market value of common stock were to increase 5% or
10% in each year of the option's 10-year term over (b) the base price
shown. This calculation does not take into account any taxes or other
expenses, which might be owed. The 5% and 10% appreciation rates are set
forth in the SEC rules and no representation is made that the common stock
will appreciate at those assumed rates or at all.

AGGREGATED OPTION
EXERCISES IN 2000 AND DECEMBER 31, 2000 OPTION VALUES

Number of Securities Number of Securities Underlying
Underlying Options Value Unexercised Options as of Value of Unexercisable, In-the
Exercised Realized 12/31/00 ( # ) Money Options at 12/31/00 ($)
---------------------------------------------------------------------
Name ( # ) ( $ ) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------

Gregory B. Jones 0 $ 0 0 11,000 $ 0 $ 0

- ---------------------------------

(1) Shares acquired pursuant to option grant must generally be held five years
for 100% vestment, with a vesting schedule of 30% the third year, 60% the
fourth year and 100% the fifth year.

(2) Value is calculated as the difference between the estimated price of a
share of common stock on December 31, 2000 ($13.00 per share) and the
exercise price of the options. No value is reported if the exercise price
of the options exceeded, or equal to, the estimated market price of a share
of common stock on December 31, 2000.

401(k) PLAN

The Company has a 401(k) plan covering employees meeting certain age
requirements. The plan is structured such that employees can contribute to the
plan on a tax-deductible basis and have their contributions invested in various
investment funds offered under the plan. The plan permits, but does not require,
the Company to make an employer matching contribution during the plan year.
Employer contributions, which represent 25% of the first 6% of an employee's
salary contributed to the plan, totaled $12,849 in 2000.

1996 CORNERSTONE STATUTORY AND NONSTATUTORY STOCK OPTION PLAN

The Company established the 1996 Cornerstone Statutory and Nonstatutory
Stock Option Plan (the "Plan") during 1996 as a long-term incentive for eligible
employees and directors. The total number of shares that may be issued under the
plan may not exceed 205,000. Of such shares, 55,000 may be incentive stock
options and the remaining 150,000 shares of stock may be nonqualified stock
options. The persons eligible to receive incentive stock options under the plan
are key Company employees and officers selected by the Human Resource Committee
of the Board. Persons designated by the Committee who are eligible to receive
nonqualified options need not be employees of the Company and generally will be
non-employee directors of the Company. The options are issued at the market
value of the Company's stock and are exercisable upon issue. The term of all
options issued under the Plan are for 10 years.

EMPLOYMENT AGREEMENTS

The Company has entered into "Executive Agreements" with three members
of senior management: Gregory B. Jones, President and CEO; Jerry D. Lee,
Executive Vice President & Senior Lender; and, Frank Hughes, Executive Vice
President & CFO. The agreements are in effect for a period of three years and
will expire on March 2, 2002, unless extended by the Board.

Each agreement contains change-in-control provisions requiring a
potential successor to negotiate with the employee as a condition to
acquisition. The final employment agreement between the successor entity and the
employee must be for a period of at least two years with a similar compensation
package. If the employee is terminated, he must receive all compensation due at
that time plus two years base salary. In addition all unexercised incentive
stock options will become 100% vested. If such termination payment is made to
the employee, he will agree not to engage in any business or activity within the
Chattanooga Standard Metropolitan Statistical Area, which is directly or
indirectly in competition with the successor entity.

INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES

The Company Board of Directors held 5 meetings during 2000 and all of
the directors attended at least 75% of the aggregate total number of meetings of
the Board and meetings of the Board committees on which they served, except Mr.
Turner Smith who attended 60% and Mr. Amin who attended 53%. The Company has
five standing committees: the Executive and Strategic Planning Committee, the
Audit Committee, the Asset/Liability Management Committee, the Human Resource
Committee and the Nominating Committee. These committees advise on policy
origination and plan administrative strategy and assure policy compliance
through management reporting from areas under their supervision. These same five
committees also serve the Company's only bank subsidiary, Cornerstone Community
Bank (the "Bank"). In addition, the Bank has a Directors Loan Committee and a
Compliance/Community Reinvestment Act ("CRA") Committee.

The Executive and Strategic Planning Committee assesses the Company's
financial and marketing plans and promotes the interests of the Company, its
shareholders and communities. It is authorized to generally take actions on
behalf of the Board between meetings of the Board. Information from various
management committees is reviewed and measured against planned benchmarks with
action plans and responsibilities being assigned by the committee. Mr. Brooks,
Mr. Driver, Mr. Marler, Dr. Payne and Mr. Wiggins constitute the members of this
committee for both the Company and the Bank. This committee held 13 meetings for
the Company and the Bank during 2000.

The Audit Committee recommends annually to the Board the firm to be
engaged as independent auditors for the Company for the next fiscal year. It
also reviews the plan for the audit engagement, reviews financial statements,
reviews plans and results of internal auditing, generally reviews financial
reporting procedures, reviews reports of the regulatory authorities, reviews the
compliance with internal controls required by the Federal Deposit Insurance
Corporation Improvement Act and periodically reports to the Board. Mr. Levine,
Mr. Lloyd, Dr. Payne, and Mr. Large constitute the members of this committee.
This committee held 5 meetings for the Company and the Bank during 2000.

The Asset/Liability Management Committee oversees and reviews the
Company's investment portfolio, risk management process and interest risk
positions. The members of this committee are Mr. Driver, Mr. Marler, Dr. Payne
and Mr. Wiggins. This committee held 12 meetings for the Company and the Bank
during 2000.

The Human Resource Committee makes recommendations to the Board with
respect to the compensation of executive officers and employees of the Company
and the Bank. The Company's Human Resource committee administers the 401-K and
the 1996 Cornerstone Statutory and Nonstatutory Stock Option Plan. In addition
the Committee oversees the Company's employee benefit and salary administration
functions. Mr. Large, Mr. Levine, Mr. Marler, Mr. Wiggins and Ms. Yessick
constitute the members of this committee. This committee held 5 meetings for the
Company and the Bank during 2000.

The Nominating Committee provides written criteria to be used as a
guideline in selecting and reviewing candidates for nomination to the Board.
This committee develops and maintains a list of potential candidates for the
Board and provides an educational program for new members to the Board. This
committee reviews the performance and contribution of outside members of the
Board and determines the need for any corporate officer to be considered a
candidate for nomination. Mr. Fillauer, Mr. Levine, Mr. Marler and Dr. Payne
constitute the members of this committee. This committee did not hold a meeting
in 2000.

COMPENSATION OF DIRECTORS

The Directors of the Company are not compensated for their attendance
at Company Board meetings or Company committee meetings. Each Director received
$450 for each Bank Board meeting. Each nonemployee Director also received $75
for each Bank committee meeting attended. Total Director fees paid by the Bank
for services rendered on behalf of the Bank in 2000 was $87,225.

AUDIT COMMITTEE REPORT

IDENTIFICATION OF MEMBERS AND FUNCTIONS OF COMMITTEE

The Audit Committee of the Company's Board of Directors is currently
composed of four non-employee directors: (1) Russell W. Lloyd, (2) Lawrence D.
Levine, (3) Doyce G. Payne, and (4) James H. Large. Messrs. Lloyd, Levine, Payne
and Large are "independent directors" as defined by Rule 4200(a)(14) of the
National Association of Securities Dealers' listing standards.

COMMITTEE CHARTER

The Board of Directors has adopted a written charter for the Audit
Committee, which is included as an appendix to this Proxy Statement. In
accordance with its written charter, the Audit Committee assists the Board in
fulfilling its responsibility for overseeing the accounting, auditing and
financial reporting processes of the Company. The Audit Committee met five (5)
times in fiscal year 2000. Prior to the release of quarterly reports in fiscal
year 2000, the Audit Committee or a member of the Committee also reviewed and
discussed the interim financial information contained therein with Hazlett,
Lewis & Bieter, PLLC ("HLB").

AUDITOR INDEPENDENCE

The Audit Committee received from HLB written disclosures and a letter
regarding its independence as required by Independence Standards Board Standard
No. 1, describing all relationships between the auditors and the Company that
might bear on the auditors' independence, and discussed this information with
HLB. The Audit Committee specifically considered the provision of information
technology services or other non-audit services by HLB and concluded that the
nature and scope of such services provided to the Company did not compromise
HLB's independence. The Audit Committee also reviewed and discussed with
management and with HLB the quality and adequacy of the Company's internal
controls. The Audit Committee also reviewed with HLB and financial management of
the Company the audit plans, audit scope and audit procedures. The discussions
with HLB also included the matters required by generally accepted auditing
standards, including those described in Statement on Auditing Standards No. 61,
as amended.

AUDIT FEES

The aggregate fees billed for professional services rendered by HLB for
the audit of the Company's annual financial statements for the fiscal year ended
December 31, 2000 and the reviews of the financial statements included in the
Company's Form's 10-Q for fiscal year 2000 were $35,950.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

The aggregate fees billed for financial information systems design and
implementation services rendered by HLB for fiscal year 2000 were $ 0.

ALL OTHER FEES

The aggregate fees billed for services rendered by HLB, other than fees
for the audit and financial information systems design and implementation, for
fiscal year 2000, were $4,650.

REVIEW OF AUDITED FINANCIAL STATEMENTS

The Audit Committee has reviewed the audited financial statements of
the Company as of and for the fiscal year ended December 31, 2000 and has
discussed the audited financial statements with management and with HLB. Based
on all of the foregoing reviews and discussions with management and HLB, the
Audit Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, to be filed with the SEC.

The foregoing report is submitted by the Audit Committee, consisting
of:

Doyce Payne Russell Lloyd Lawrence Levine Jim Large

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Various Company directors, executive officers and their affiliates,
including corporations and firms of which they are officers or in which they
and/or their families have an ownership interest, are customers of Company and
its subsidiary. These persons, corporations and firms have had transactions in
the ordinary course of business with the Company and its subsidiary, including
borrowings, all of which, in the opinion of management, were on substantially
the same terms including interest rates and collateral as those prevailing at
the time for comparable transactions with unaffiliated persons and did not
involve more than the normal risk of collectibility or present other unfavorable
features. The Company and its subsidiary expect to have such transactions on
similar terms with directors, executive officers and their affiliates in the
future. The aggregate amount of loans outstanding by Cornerstone Community Bank
to directors, executive officers and related parties as of December 31, 2000 was
approximately $1,464,578 which represented 11.81% of the Company's consolidated
shareholders' equity on that date.

VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS

Other than Ramesh V. Amin the Company is not aware of any "person" (as
defined by the SEC) who is the "beneficial owner" of more than 5% of the
outstanding shares of the Company's common stock, as of December 31, 2000.

SECURITY OWNERSHIP OF BENEFICIAL OWNERS OF GREATER THAN 5%
OF THE COMPANY'S COMMON STOCK

NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------ ---------------------------- --------------------------- ----------------------------

Common Ramesh V. Amin 70,001(1) 5.44%
3155 Cypress Pond Pass
Duluth, GA 30097

- ----------------------------
(1) Includes 10,000 shares issuable within the next 60 days upon exercise of
options issued pursuant to the 1996 Cornerstone Statutory and Nonstatutory
Stock Option Plan.

SHAREHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING

Proposals of shareholders of the Company intended to be presented at
the 2002 Annual Meeting of Shareholders must be received by the Company at its
principal executive offices on or before December 31, 2001. Proposals received
before the deadline will be included in the Company's Proxy Statement and Proxy
relating to the 2002 Annual Meeting of Shareholders. Only proper proposals which
are timely received will be included in the Proxy Statement and Proxy.

ANNUAL REPORT ON FORM 10-KSB

A copy of the Company's Annual Report on Form 10-KSB is being mailed
with this proxy statement to each shareholder of record.

OTHER MATTERS

The Board of the Company does not know of any matters to be brought
before the Shareholders Meeting other than those described in this Proxy
Statement. If any other matters properly come before the Shareholders Meeting,
the persons named as proxies in the enclosed form of proxy and acting thereunder
will vote on such matters in accordance with the recommendation of the Board.

THE DIRECTORS AND OFFICERS OF
CORNERSTONE
BANCSHARES, INC.
CORDIALLY INVITE YOU TO ATTEND OUR
ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, APRIL 19, 2001, 6:00 P.M. EDT
CORNERSTONE COMMUNITY BANK
2280 GUNBARREL ROAD
CHATTANOOGA, TENNESSEE

IMPORTANT
PLEASE COMPLETE BOTH SIDES OF THE PROXY CARD, SIGN, DATE,
DETACH AND RETURN IN THE ENCLOSED ENVELOPE.

DETACH PROXY CARD HERE DETACH ATTENDANCE CARD HERE AND MAIL WITH PROXY CARD
- -----------------------------------------------------------------------------------------------------------------------------------

SAID PROXIES WILL VOTE ON THE PROPOSALS SET FORTH IN THE NOTICE OF MEETING
AND PROXY STATEMENT AS SPECIFIED ON THIS CARD. IF A VOTE IS NOT SPECIFIED
SAID PROXIES WILL VOTE IN FAVOR OF THE ELECTION OF THE THIRTEEN DIRECTORS OF
THE COMPANY LISTED IN THE PROXY STATEMENT, AND THE APPROVAL OF THE OUTSIDE
AUDITING FIRM. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE ANNUAL MEETING,
SAID PROXIES WILL VOTE ON SUCH MATTERS IN ACCORDANCE WITH THE RECOMMENDATIONS
OF THE BOARD OF DIRECTORS.

DATED:__________________________

_________________________________

_________________________________
(PLEASE SIGN HERE)

PLEASE SIGN YOUR NAME AS IT APPEARS ABOVE. IF EXECUTED BY A CORPORATION, A DULY
AUTHORIZED OFFICER SHOULD SIGN. EXECUTORS, ADMINISTRATORS, ATTORNEYS, GUARDIANS
AND TRUSTEES, SHOULD SO INDICATE WHEN SIGNING. IF SHARES ARE HELD JOINTLY, AT
LEAST ONE HOLDER MUST SIGN.

- -----------------------------------------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE CORPORATION THE EXPENSE OF FURTHER REQUESTS FOR PROXIES TO
ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED, POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
- -----------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------
REVOCABLE PROXY CORNERSTONE BANCSHARES, INC.

The undersigned hereby appoints Mr. Gregory B. Jones or Mr. Earl Marler, Jr., or either of
them, with individual power of substitution, proxies to vote all shares of Common Stock of
Cornerstone Bancshares, Inc. (the "Company") which the undersigned is entitled to vote at
the Shareholders Meeting to be held on, April 19, 2001, beginning at 6:00 p.m. local time,
and at any adjournment or postponement thereof. THE DIRECTORS RECOMMEND THAT ANY SHAREHOLDER
DESIRING TO REVOKE HIS OR HER PROXY AND VOTE IN PERSON AT THE SHAREHOLDERS MEETING ARRIVE AT
THE MEETING LOCATION BY 6:00 P.M. LOCAL TIME TO FACILITATE CONFIRMATION OF NUMBER OF SHARES
ELIGIBLE TO VOTE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR
DIRECTOR AND FOR EACH OF THE OTHER PROPOSALS.

FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN

I. Election of Directors: Ramesh V. Amin / / / / / / James H. Large / / / / / / Turner Smith / / / / / /
Randy Brooks / / / / / / Lawrence D. Billy O.
Levin / / / / / / Wiggins / / / / / /
B. Kenneth Driver/ / / / / / Russell W. Lloyd / / / / / / Marsha
Karl Filauer / / / / / / Earl A. Marler, Jr./ / / / / / Yessick / / / / / /

Gregory B. Jones / / / / / / Doyce G. Payne,
M.D. / / / / / /

II. To approve the engagement of Hazlett, Lewis & Bieter, Certified Public Accountants as the Company's
independent auditing firm.

/ / FOR / / AGAINST / / ABSTAIN

/ / Please mark here with a (X) if you intend to attend the Sharholders Meeting.

(Continued and to be signed on the other side)