Cornerstone Bancorp, Inc. Reports Net Earnings for Fiscal Year Ended December 31, 2002.

Business Editors

STAMFORD, Conn.--(BUSINESS WIRE)--Jan. 28, 2003

Jay M. Forgotson, President and CEO of Cornerstone Bancorp, Inc. (AMEX: CBN) (the "Bancorp") reports consolidated earnings for the Bancorp and its single subsidiary, Cornerstone Bank (the "Bank").

2002 proved to be another challenging year as the low interest rate environment that began in 2001 continued through the current year. In spite of the low rates the Bancorp was able to produce loan, deposit, and earnings growth consistent with its strategic plan. Non-interest income has begun to make an important contribution to profitability. Enhanced market penetration in 2002 on SBA loans and mortgage loans has produced premium income on the sale of these loans in the secondary market.

Net earnings for the fiscal year ended December 31, 2002 were $1,820,000, a 21.3% increase compared to net earnings of $1,500,000 in 2001. Net earnings for the three-month period ended December 31, 2002 were $413,000, a 21.8% increase compared to fourth quarter earnings in 2001 of $339,000. Net income for the fiscal year ended December 31, 2002 represented $1.46 earnings per diluted share, compared to $1.24 earnings per diluted share in 2001.

The asset side of the balance sheet was highlighted by an increase of 22.0% in net loans to $128,719,000 at December 31, 2002 compared to $105,539,000 at December 31, 2001. Deposits increased by 18.5% to $183,021,000 at December 31, 2002 compared to $154,473,000 at December 31, 2001. Total assets on a year-to-year basis increased to $209,667,000 at December 31, 2002 compared to $181,517,000 a year ago, an increase of 15.5%. Loan growth was fueled by a loan officer calling program and an increased awareness of our loan products through advertising, primarily on television. Deposit promotions in the new Westport branch generated long term certificates of deposit. Additional short term deposits were generated bankwide as customers moved funds out of the stock market.

On November 19, 2002, the Board of Directors declared a quarterly cash dividend of $0.1125 per share. The dividend was paid on January 15, 2003 to stockholders of record as of the close of business on December 31, 2002.

Mr. Forgotson emphasized that he is pleased with the Bancorp's financial results as well as the progress made on its strategic plan in 2002. He stated, "Expenses were controlled despite an increase in the number of employees. The most significant increases in staffing were made in those areas in which we expect continued growth that will contribute to overall profitability." He also commented on Cornerstone Bancorp's common stock performance for the year. He stated, "The year-end price of the Bancorp's stock rose from $14.36 on December 31, 2001 to $17.00 on December 31, 2002, an 18.4% increase under continuing pressured market conditions." The December 31, 2001 price is adjusted to reflect the 10% stock dividend in June 2002.

The Bancorp continues to pay a quarterly cash dividend dating back to its first dividend in February 1995 when it was listed on the American Stock Exchange. The Bancorp paid out 34% of prior year's earnings in 2002. As an additional incentive for shareholders, the Bancorp issued a 10% stock dividend in June 2002 which added over 115,000 shares. Shareholders were paid cash dividends on the new shares as well.

Norman H. Reader, Chairman of Cornerstone Bank, reiterated the efforts of the Bank to produce good core deposits and loans. He said, "Our focus has always been on taking care of the needs of the communities we serve and it shows in the percentage of loans and deposits we maintain in our own backyard. We are staffed with seasoned bankers starting in our network of branches to our backroom operations. It is with this family of employees that we deliver the highest grade of customer service."

James P. Jakubek, President and CEO of Cornerstone Bank, looked at the past year as having established a new base for profitability. He said, "The added non-interest income, coupled with the fact that the Bank is in a positive interest rate gap position, should produce added income in a rising rate environment. And, as always, we will continue to manage expenses carefully."

In Connecticut, Cornerstone Bank operates from three full service locations in Stamford, a full service location in Greenwich, a full service location and a business development office in Norwalk, a full service location in Westport and four limited service mobile branches. The Bancorp's common stock is traded on the American Stock Exchange under the symbol CBN.

Year Ended December 31,                2002                  2001
                                   ------------          ------------
Total Interest Income              $ 11,568,000          $ 11,702,000
Net Interest Income                   8,478,000             7,869,000
Provision for Loan Losses               363,000                91,000
Non-interest Income                   2,060,000               945,000
Non-interest Expense                  7,240,000             6,253,000
Income Before Taxes                   2,935,000             2,470,000
Income Tax Expense                    1,115,000               970,000
Net Income                            1,820,000             1,500,000
Basic Earnings Per Share                   1.51                  1.27
Diluted Earnings Per Share                 1.46                  1.24


Three Months Ended December 31,        2002                  2001
                                   ------------          ------------
Total Interest Income              $  2,887,000          $  2,833,000
Net Interest Income                   2,117,000             1,926,000
Provision for Loan Losses               133,000               (39,000)
Non-interest Income                     679,000               244,000
Non-interest Expense                  1,997,000             1,643,000
Income Before Taxes                     666,000               566,000
Income Tax Expense                      253,000               227,000
Net Income                              413,000               339,000
Basic Earnings Per Share                   0.34                  0.29
Diluted Earnings Per Share                 0.33                  0.27

The statements contained in this press release that are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Examples of such forward-looking statements include, without limitation, statements regarding expectations for earnings, credit quality, and other financial and business matters. When used in this report, the words "anticipate," "plan," "believe," "estimate," "expect" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. All forward-looking statements involve risks and uncertainties. Actual results may differ materially from those discussed in, or implied by, the forward-looking statements as a result of certain factors, including but not limited to, competitive pressures on loan and deposit product pricing; other actions of competitors; changes in economic conditions; technological changes; the extent and timing of actions of the Federal Reserve Board, including changes in monetary policies and interest rates; customer deposit disintermediation; changes in customers' acceptance of the Bank's products and services; and the extent and timing of legislative and regulatory actions and reforms.

The forward-looking statements contained in this press release speak only as of the date on which such statements are made. By making any forward-looking statements, the Company assumes no duty to update them to reflect new, changing or unanticipated events or circumstances.