Net loans increased $21.5 million, or 8.4% during the nine months ended September 30, 2000, increasing from $254.7 million in December 31, 1999 to $276.2 million on September 30, 2000. For the period, commercial loans increased $6.3 million to $11.8 million at September 30, 2000. Other real estate properties also increased $7.9 million from $52.6 million at December 31, 1999 to $60.5 million at September 30, 2000. These increases were the result of Cornerstone's effort to diversify its portfolio into more commercial type loans. Traditional one-to-four family residential mortgage loans increased $1.3 million to $179.6 at September 30, 2000 from $178.3 million at December 30, 1999. This increase includes the purchase of approximately $11.9 million adjustable rate mortgage loans.

11.

Cash and cash equivalents decreased by $5.1 million to $4.5 million on September 30, 2000, from $9.6 million on December 31, 1999. Cash and cash equivalents consist of cash, checking deposits and federal funds deposited at other financial institutions. The decrease was primarily the result of reducing excess funds maintained over year-end as a year 2000 contingency.

Securities available for sale decreased $2.0 million from $50.4 million at December 31, 1999, to $48.4 million on September 30, 2000. The decline was due to principal repayments on existing mortgage-backed securities available for sale being used to fund loan growth.

Deposits at September 30, 2000 totaled $207.2 million, an increase of $4.8 million, or 2.4% from $202.3 million at December 31, 1999. The increases occurred in demand and NOW accounts where Cornerstone is attempting to grow its retail and commercial checking account relationships and certificates of deposits where the Bank maintains competitive rates. Savings and money market accounts have decreased as depositors move to higher yielding accounts.

FHLB advances at September 30, 2000 totaled $94.3 million, an increase of $12.1 million or 14.7% from $82.2 million at December 31, 1999. The majority of borrowed funds are invested in loans to leverage the Company's excess capital and improve the Company's return on equity over time. Additionally, the Company used advances to better match estimated maturities of larger loan originations and purchases during the period. The new advances are both fixed and variable in nature.

Total shareholders' equity decreased $1.4 million from $43.0 million at December 31, 1999, to $41.6 million at September 30, 2000. This decrease is primarily due to the Company purchasing approximately $2.1 million, or 129,800 shares, of its common stock during the first nine months of 2000.

As of September 30, 2000, the Company had commitments to make $1.0 million of residential loans. It is expected that these loans will be funded within 30 days. The Company also had $4.5 million in commitments to fund loans on residential properties under construction. These commitments are anticipated to be filled within three to six months. Unused commercial lines of credit were $4.4 million and unused home equity lines of credit were $9.6 million. Commitments to originate nonmortgage loans total $0.3 million.

Results of Operations

Operating results of the Company are affected by general economic conditions, monetary and fiscal policies of federal agencies and policies of agencies regulating financial institutions. The Company's cost of funds is influenced by interest rates on competing investments and general market rates of interest. Lending activities are influenced by demand for real estate and other types of loans which, in turn, is affected by the interest rates at which such loans are made, general economic conditions and availability of funds for lending activities.

The Company's net income is primarily dependent on its net interest income (the difference between interest income generated on interest-earning assets and interest expense incurred on interest-bearing liabilities). Net income is also affected by provisions for loan losses, service charges, gains on sale of assets, other income, noninterest expense and income taxes. The Company's net income of $489,000 and $1,378,000 for the three and nine months ended September 30, 2000, represented increases of $110,000 and $148,000 when compared to the same periods in 1999. Basic earnings per share increased $.08 and $.13 per share from $.19 and $.62 per for 1999 to $.27 and $.75 per share for 2000.

12.

Net interest income is the largest component of the Company's income and is affected by the interest rate environment and volume and composition of interest-earning assets and interest-bearing liabilities. Net interest income totaled $2,416,000 and $7,353,000 for the three and nine months ended September 30, 2000, compared to $2,456,000 and $7,346,000 for the same periods in 1999. The Company remains liability sensitive whereby its interest-bearing liabilities will generally reprice more quickly than its interest-earning assets. Therefore, the Company's net interest margin will generally increase in periods of falling interest rates in the market and will decrease in periods of rising interest rates as is currently being experienced. Accordingly, in a rising interest rate environment, the Company may need to increase rates to attract and retain deposits. Since the Company's loans generally mature or reprice over longer time periods than its deposits, the rise in interest rates may not have such an immediate impact on interest-earning assets. This lag could negatively affect net interest income in future periods

Interest and fees on loans totaled $5,584,000 and $15,993,000 for the three and nine months ended September 30, 2000 compared to $4,816,000 and $14,190,000 the three and nine months ended September 30, 1999. The increases were due to the overall increase in the interest rate environment, higher average loan balances, and increased origination of commercial and commercial real estate loans.

Interest and dividends on securities totaled $809,000 and $2,464,000 for the three and nine months ended September 30, 2000, and $867,000 and $2,724,000 for the three and nine months ended September 30, 1999. The decrease was due to principal payments on securities and reinvestment of funds in higher yielding loans.

Interest on deposits totaled $2,698,000 and $7,742,000 for the three and nine months ended September 30, 2000 and $2,424,000 and $7,217,000 for the three and nine months ended September 30, 1999. This increase was due to the overall increase in interest rates resulting in a higher cost to attract and retain both certificates of deposit and money market accounts.

Interest on FHLB advances was $1,438,000 and $3,847,000 for the three and nine months ended September 30, 2000 compared to $969,000 and $2,941,000 for the three and nine months ended September 30, 1999. The increase is due to an increase in borrowings from the FHLB to fund loan growth and to higher rates on advances due to the overall increase in rates.

The Company maintains an allowance for loan losses in an amount which, in management's judgement, is adequate to absorb probable losses in the loan portfolio. While management utilizes its best judgement and information available, ultimate adequacy of the allowance is dependent on a variety of factors, including performance of the Company's loan portfolio, the economy, changes in real estate values and interest rates and the view of the regulatory authorities toward loan classifications. The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level considered adequate to absorb probable losses in the loan portfolio. The amount of the provision is based on management's regular review of the loan portfolio and consideration of such factors as historical loss experience, changes in size and composition of the loan portfolio and specific borrower considerations, including ability of the borrower to repay the loan and the estimated value of the underlying collateral. The provision for loan losses totaled $84,000 and $252,000 for the three and nine months ended September 30, 2000, compared to $74,000 and $182,000 for the three and nine months ended September 30, 1999.

Loan charge-offs were $76,000 and $1,575,000 for the three and nine months ended September 30, 2000 compared to $84,000 and $613,000 for the same periods in 1999. During the nine months ended September 30, 2000, the Company resolved two large problem loans and charged-off portions of two other problem loan relationships. These loans were previously identified and reported as impaired and specific loan loss reserves had been established for them. The two resolved loans included principal

repayments of $366,000 and principal losses of $233,000 against which $209,000 of specific reserves had been established. Based on a lack of current progress in resolving the other two problem loans as well as improved reporting capabilities of the new data processing system installed in March 2000, management charged-off approximately $1,115,000 of loan principal against the allowance. Specific reserves of approximately the same amount had previously been established. The Company continues to actively pursue collection of these two relationships.

Noninterest income totaled $352,000 and $952,000 for the three and nine months ended September 30, 2000 compared to $274,000 and $969,000 for the same periods in 1999. The decrease is primarily due to the rise in interest rates which reduced the volume of loans originated for sale in the secondary market and a gain last year on the sale of loan servicing. Additionally during the three months ended September 30, 2000, the Bank sold its credit card portfolio for a one-time gain of $65,000 and will offer Visa and Mastercard on an agency basis only.

Noninterest expense totaled $1,924,000 and $5,911,000 for the three and nine months ended September 30, 2000 compared to $2,048,000 and $6,176,000 for the same periods in 1999. Noninterest expense is comprised of employee compensation and benefits, occupancy, deposit insurance premiums, state franchise taxes and miscellaneous other expenses. No individual component had a significant change from the same period in 1999.

The Company recently announced its intent to open a new full service branch office. This new office will be located in Centerville, Ohio and is expected to open during the first half of 2001. The branch opening will contribute to an increase in operating expenses.

The change in income tax is primarily attributable to the change in income before income taxes. Income tax expense totaled $271,000 and $764,000, or an effective rate of 35.7%, for the three and nine months ended September 30, 2000, compared to $229,000 and $727,000, or an effective rate of 37.7% and 37.1%, for the three and nine months ended September 30, 1999.

14.

Liquidity

Office of Thrift Supervision ("OTS") regulations presently require Cornerstone Bank to maintain an average daily balance of investments in U.S. Treasury, federal agency obligations and other investments having maturities of five years or less in an amount equal to 4% of the sum of Cornerstone's average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. The liquidity requirement, which may be changed from time to time by the OTS to reflect changing economic conditions, is intended to provide a source of relatively liquid funds on which Cornerstone may rely, if necessary, to fund deposit withdrawals or other short-term funding needs. At September 30, 2000 Cornerstone's regulatory liquidity was 17.56%. At such date, Cornerstone had commitments to originate fixed rate loans totaling $1.0 million. In addition, Cornerstone had $4.5 million in commitments to fund loans on residential properties under construction. Unused commercial lines of credit were $4.4 million and unused home equity lines of credit were $9.6 million. Cornerstone had no commitments to purchase or sell loans. Cornerstone considers it's liquidity and capital reserves sufficient to meet its outstanding short and long-term needs.

Capital Resources

Cornerstone is required by regulations to meet certain minimum capital requirements, which must be generally as stringent as standards established for commercial banks. Current capital requirements call for tangible capital of 1.5% of adjusted total assets, core capital (which, for Cornerstone, consists solely of tangible capital) of 4.0% of adjusted total assets, except for institutions with the highest examination rating and acceptable levels of risk, and risk-based capital (which, for Cornerstone, consists of core capital and general valuation allowances) of 8.0% of risk-weighted assets (assets are weighted at percentage levels ranging from 0% to 100% depending on their relative risk).

The following table summarizes Cornerstone's regulatory capital requirements and actual capital at September 30, 2000.

15.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes in the quantitative and qualitative disclosures about market risk as of September 30, 2000, from that presented in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

16.

Item 1 -       Legal Proceedings

              None

Item 2 -        Changes in Securities and Use of Proceeds

              None

Item 3 -        Defaults Upon Senior Securities

              None

Item 4 -       Submission of Matters to a Vote of Security Holders

              None

Item 5 -       Other Information

              None

Item 6 -       Exhibits and Reports on Form 8-K