SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB


                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2004                File Number 333-79543

                               CORNERSTONE BANCORP
                 (Name of Small Business Issuer in its Charter)

       South Carolina                                   57-1077978
(State or Other Jurisdiction of             (IRS Employer Identification Number)
 Incorporation or Organization)

               1670 East Main Street, Easley, South Carolina 29640
                (Address of Principal Executive Office, Zip Code)

         Issuer's Telephone Number, Including Area Code: (864) 306-1444

        Securities Registered Pursuant to Section 12(b) of the Act: None

        Securities Registered Pursuant to Section 12(g) of the Act: None

         Check whether the issuer (1) filed all reports  required to be filed by
Section  13 or 15(d) of the  Exchange  Act  during  the past 12  months  (or for
shorter period that the  Registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ] (Not Applicable)

         The issuer's revenues for its most recent fiscal year were $5,250,945.

         The  aggregate  market  value  of  the  voting  Common  Stock  held  by
non-affiliates on March 1, 2005, was  approximately  $8,855,400 . The issuer has
no  non-voting  common  equity  outstanding.  As of March 1,  2005,  there  were
1,064,656  shares of the Registrant's  Common Stock, no par value,  outstanding.
For purposes of the  foregoing  calculation  only,  all  directors and executive
officers of the Registrant have been deemed affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)  Portions  of the  Registrant's  2004  Annual  Report  to  Shareholders  are
     incorporated by reference into Part II of this Form 10-KSB

Transitional Small Business Disclosure Format (check one):

Yes [ ]  No [X]




<PAGE>



                          10-KSB CROSS REFERENCE INDEX

                                      Part I                                Page
Item 1     Description of Business...........................................  2
Item 2     Description of Property........................................... 10
Item 3     Legal Proceedings ................................................ 10
Item 4     Submission of Matters to a Vote of Security Holders............... 10
                                     Part II
Item 5     Market for Common Equity, Related Stockholder Matters
           and Small Business Issuer
           Repurchases of Equity Securities.................................. 10
Item 6     Management's Discussion and Analysis or Plan of Operation......... 11
Item 7     Financial Statements.............................................. 11
Item 8     Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure..................................... 11
Item 8A    Controls and Procedures........................................... 11
Item 8B    Other Information................................................. 12
                                    Part III
Item 9     Directors and Executive Officers, Promoters and Control
                Persons; Compliance with Section 16(a) of the Exchange Act... 12
Item 10    Executive Compensation............................................ 14
Item 11    Security Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters................... 16
Item 12    Certain Relationships and Related Transactions.................... 17
                                     Part IV
Item 13    Exhibits.......................................................... 18
Item 14    Principal Accountant Fees and Services............................ 18



<PAGE>






                           FORWARD LOOKING STATEMENTS


         Statements  included in this report which are not  historical in nature
are intended to be, and are hereby  identified as "forward  looking  statements"
for  purposes  of the safe  harbor  provided  by Section  21E of the  Securities
Exchange Act of 1934, as amended. Words such as "estimate", "project", "intend",
"expect",  "believe",  "anticipate",  "plan", and similar  expressions  identify
forward-looking  statements.  The Company  cautions readers that forward looking
statements  including  without  limitation,  those relating to the Company's new
offices, future business prospects,  revenues,  working capital, adequacy of the
allowance for loan losses, liquidity, capital needs, interest costs, and income,
are subject to certain risks and  uncertainties  that could cause actual results
to differ from those indicated in the forward looking statements, due to several
important factors herein  identified,  among others, and other risks and factors
identified from time to time in the Company's  reports filed with the Securities
and Exchange Commission.

         These  forward-looking  statements  are based on current  expectations,
estimates  and  projections  about  our  industry,   management's  beliefs,  and
assumptions made by management.  Such information includes,  without limitation,
discussions  as to estimates,  expectations,  beliefs,  plans,  strategies,  and
objectives concerning the Company's future financial and operating  performance.
These  statements  are not guarantees of future  performance  and are subject to
risks, uncertainties and assumptions that are difficult to predict, particularly
in light of the fact that the Company is a  relatively  new company with limited
operating  history.  Therefore,  actual results may differ materially from those
expressed  or  forecasted  in such  forward-looking  statements.  The  risks and
uncertainties include, but are not limited to:

          o    The Company's growth and ability to maintain growth;

          o    governmental monetary and fiscal policies, as well as legislative
               and regulatory  changes;

          o    the effect of interest rate changes on our level and  composition
               of deposits, loan demand and the value of our loan collateral and
               securities;

          o    the  effects of  competition  from other  financial  institutions
               operating in the Company's market areas and elsewhere,  including
               institutions  operating  locally,   regionally,   nationally  and
               internationally;

          o    failure  of  assumptions  underlying  the  establishment  of  the
               allowance  for loan  losses,  including  the value of  collateral
               securing loans; and

          o    loss of consumer  confidence and economic  disruptions  resulting
               from terrorist activities.

         The Company  undertakes no obligation to publicly  update or revise any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.  In light of these risks,  uncertainties,  and assumptions,
the forward-looking events discussed in this report might not occur.

                               WEBSITE REFERENCES

         References  to our website  included in, or  incorporated  by reference
into,  this report are for  information  purposes  only, and are not intended to
incorporate our website by reference into this report.


                                     PART I

Item 1.  Description of Business.

General

         Cornerstone  Bancorp (the  "Company") is a South  Carolina  corporation
incorporated  in 1999. The Company is a bank holding  company with no operations
other than those carried on by its wholly owned subsidiary, Cornerstone National
Bank (the "Bank"). The Bank conducts a general banking business under a national
bank  charter  granted by the Office of the  Comptroller  of the Currency of the
United  States  (the  "OCC")  pursuant to the  National  Bank Act.  The Bank was
organized in 1999. The Bank conducts its activities  from its main office opened


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<PAGE>

in September of 1999, located in Easley, South Carolina and from a branch office
opened in August 2002, located in Greenville, South Carolina.

         The Bank's primary market areas are the city of Easley,  South Carolina
and the  immediately  surrounding  areas of  Pickens  County,  the Berea area of
Greenville  County,  and contiguous  areas.  Pickens County and four neighboring
counties   make   up   the   Greenville-Spartanburg-Anderson,   South   Carolina
Metropolitan Statistical Area (the "Greenville MSA").

         The Bank's business primarily consists of accepting deposits and making
loans.  The Bank seeks deposit  accounts from  households  and businesses in its
primary  market areas by offering a full range of savings  accounts,  retirement
accounts (including Individual Retirement  Accounts),  checking accounts,  money
market accounts,  and time  certificates of deposit.  It also makes  commercial,
real estate and installment loans, primarily on a secured basis, to borrowers in
the Upstate area of South Carolina and makes other authorized investments.  Both
in-house and brokered conventional residential mortgage loans are offered at the
Bank.

         As of December 31, 2004, the Bank employed 31 people.

         The  Bank's  full  service  branch   location   maintains  a  staff  of
approximately  five  experienced  banking  personnel and an experienced  on-site
mortgage lender. The office is located at 45 Farrs Bridge Road in the Berea area
of  Greenville,  South  Carolina.  In  2004,  the  Bank  purchased  property  in
Powdersville,  South Carolina on which to build another  branch.  This branch is
expected to be completed in mid 2005.

Competition

         South Carolina law permits statewide branching by banks and savings and
loan  associations.  Consequently,  many  financial  institutions  have branches
located in several communities. Currently, in addition to the Bank, 9 commercial
banks and 1 savings  institution operate branches in Pickens County. In addition
to the Bank, 22 commercial banks and 3 savings  institutions operate branches in
Greenville County. The principal areas and methods of competition in the banking
industry are the services  offered,  pricing of those services,  the convenience
and  availability  of the  services,  and the degree of  expertise  and personal
manner with which those services are offered.

         The Bank  encounters  strong  competition  from  most of the  financial
institutions in its extended market area. In the conduct of certain areas of its
business, the Bank also competes with credit unions, insurance companies,  money
market  mutual  funds and other  financial  institutions,  some of which are not
subject to the same degree of regulation and  restrictions  as the Bank. Most of
these  competitors have  substantially  greater  resources and lending abilities
than  the  Bank and  offer  certain  services,  such as  international  banking,
investment  banking,  and trust  services,  which  the Bank  does not  presently
provide.

                              SERVICES OF THE BANK

Deposits

         The Bank offers the full range of deposit services typically  available
in most banks and savings and loan  associations,  including  checking accounts,
NOW accounts, and savings and other time deposits of various types, ranging from
daily  money  market  accounts  to  longer-term  certificates  of  deposit.  The
transaction  accounts and time certificates are tailored to the principal market
area  at  rates  competitive  with  those  offered  in the  area.  In  addition,
retirement accounts such as IRA's (Individual  Retirement Accounts) are offered.
All deposit  accounts are insured by the Federal Deposit  Insurance  Corporation
("FDIC") up to the maximum  amount  permitted  by law. The Bank  solicits  these
accounts from  individuals,  businesses,  associations  and  organizations,  and
government  authorities.  Although  the Bank  intends to be  competitive  in its
efforts  to  attract  deposit  accounts,  it does not  aggressively  seek  jumbo
certificates of deposit (certificates in amounts greater than $100,000).

Lending Activities

         The Bank  offers a range of  lending  services,  including,  commercial
loans,  consumer loans,  and real estate mortgage loans.  Consumer loans include
both installment and term loans,  and include loans for  automobiles,  household


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<PAGE>

goods, education,  boats and general personal expenses. During the third quarter
of 2001, the Bank opened a residential  mortgage loan  department  with a highly
experienced  staff qualified to make virtually any type of residential  mortgage
loan. These loans are sold by the Bank upon origination in most cases.

         To address the risks inherent in making loans,  management maintains an
allowance  for loan losses based on, among other  things,  an  evaluation of the
Bank's  loan  loss  experience,   management's  experience  at  other  financial
institutions in the market area, the amount of past due and nonperforming loans,
current  and  anticipated  economic  changes  and the  values  of  certain  loan
collateral.  Based upon such factors,  management makes various  assumptions and
judgments about the ultimate  collectibility  of the loan portfolio and provides
an  allowance  for  potential  loan  losses  based  upon  a  percentage  of  the
outstanding  balances and specific  loans.  However,  because  there are certain
risks  that  cannot  be  precisely  quantified,  management's  judgment  of  the
allowance is necessarily approximate and imprecise. The adequacy and methodology
of the  allowance  for loan  losses is subject  to  regulatory  examination  and
compared to a peer group of financial institutions identified by the regulators.

Real Estate Loans

         One of the primary  components  of the Bank's loan  portfolio  is loans
secured by first or second  mortgages on residential and commercial real estate.
These loans generally consist of commercial real estate loans,  construction and
development  loans and residential  real estate loans (including home equity and
second mortgage  loans).  Interest rates may be fixed or adjustable and the Bank
frequently  charges an origination  fee. The Bank seeks to manage credit risk in
the  commercial  real estate  portfolio by emphasizing  loans on  owner-occupied
office  and retail  buildings  where the  loan-to-value  ratio,  established  by
independent  appraisals,  does not exceed 80%. The loan-to-value ratio for first
and second mortgage loans and for  construction  loans generally does not exceed
80%.  In  addition,  the Bank  generally  requires  personal  guarantees  of the
principal owners of the property.

         The principal  economic risk associated with all loans,  including real
estate loans, is the creditworthiness of the Bank's borrowers.  The ability of a
borrower to repay a real estate loan depends upon a number of economic  factors,
including employment levels and fluctuations in the value of real estate. In the
case of a real estate  construction  loan, there is generally no income from the
underlying property during the construction period, and the developer's personal
obligations  under  the  loan  are  typically  limited.  Each of  these  factors
increases the risk of  nonpayment by the borrower.  In the case of a real estate
purchase  loan,  the  borrower may be unable to repay the loan at the end of the
loan  term and thus may be  forced to  refinance  the loan at a higher  interest
rate,  or,  in  certain  cases,  the  borrower  may  default  as a result of its
inability to refinance the loan.  In either case,  the risk of nonpayment by the
borrower is increased.

         The Bank also  faces  additional  credit  risks to the  extent  that it
engages in making  adjustable  rate mortgage loans  ("ARMs").  In the case of an
ARM, as interest rates increase, the borrower's required payments increase, thus
increasing  the  potential  for default.  The  marketability  of all real estate
loans,  including  ARMs, is also generally  affected by the prevailing  level of
interest rates.

Commercial Loans

         The Bank  makes  loans for  commercial  purposes  in  various  lines of
business.  Commercial loans include both secured and unsecured loans for working
capital  (including  inventory and  receivables),  loans for business  expansion
(including acquisition of real estate and improvements), and loans for purchases
of equipment and  machinery.  Equipment  loans are typically  made for a term of
five  years or less at  either  fixed or  variable  rates,  with the loan  fully
amortized over the term and secured by the financed  equipment.  Working capital
loans  typically  have terms not exceeding  one year and are usually  secured by
accounts  receivable,  inventory or personal guarantees of the principals of the
business.  Commercial loans vary greatly  depending upon the  circumstances  and
loan terms are  structured  on a  case-by-case  basis to better  serve  customer
needs.

         The risks  associated  with  commercial  loans vary with many  economic
factors, including the economy in the Easley/Pickens/Greenville County area. The
well-established  banks  in  the  Easley/Pickens/Greenville   County  area  make
proportionately  more loans to medium- to large-sized  businesses than the Bank.
Many  of the  Bank's  commercial  loans  are  made  to  small-  to  medium-sized
businesses,  which are typically smaller, have shorter operating histories,  and
less  sophisticated  record keeping systems than larger  entities.  As a result,
these  smaller  entities  may be less  able to  withstand  adverse  competitive,
economic and financial  conditions than larger borrowers.  In addition,  because
payments on loans secured by  commercial  property  generally  depend to a large
degree on the results of operations and management of the properties,  repayment
of such loans may be subject,  to a greater extent than other loans,  to adverse
conditions in the real estate market or the economy.



                                       4
<PAGE>

Consumer Loans

         The Bank  makes a variety  of loans to  individuals  for  personal  and
household purposes,  including secured and unsecured installment and term loans,
home equity loans and lines of credit and  unsecured  revolving  lines of credit
such as credit  cards.  The  secured  installment  and term  loans to  consumers
generally  consist  of  loans  to  purchase  automobiles,   boats,  recreational
vehicles,  mobile homes and household furnishings,  with the collateral for each
loan being the purchased  property.  The  underwriting  criteria for home equity
loans and lines of credit  are  generally  the same as  applied by the Bank when
making a first  mortgage  loan,  as  described  above,  and home equity lines of
credit  typically expire 15 years or less after  origination,  unless renewed or
extended.

         Consumer  loans  generally  involve  more credit risks than other loans
because of the type and nature of the  underlying  collateral  or because of the
absence  of any  collateral.  Consumer  loan  repayments  are  dependent  on the
borrower's  continuing  financial  stability  and  are  likely  to be  adversely
affected by job loss,  divorce and  illness.  Furthermore,  the  application  of
various  federal and state laws,  including  federal  and state  bankruptcy  and
insolvency  laws,  may limit the amount  which can be recovered on such loans in
the case of default. In most cases, any repossessed  collateral will not provide
an adequate  source of repayment of the outstanding  loan balance.  Although the
underwriting  process for consumer  loans  includes a comparison of the value of
the security,  if any, to the proposed loan amount,  the Bank cannot predict the
extent to which the  borrower's  ability to pay, and the value of the  security,
will be affected by prevailing economic and other conditions.

Other Services

         The  Bank  participates  in a  regional  network  of  automated  teller
machines  that may be used by Bank  customers  in major  cities  throughout  the
Southeast. The Bank offers both VISA and MasterCard brands of bankcards together
with  related  lines of credit.  The lines of credit  may be used for  overdraft
protection as well as pre-authorized credit for personal purchases and expenses.
The Bank also provides  travelers  checks,  direct deposit of payroll and social
security  checks,  and  automatic  drafts  for  various  accounts,  but does not
currently provide  international or trust banking  services.  The Bank offers an
Internet   banking   product   accessible  via  the  Bank's  custom  website  at
www.cornerstonenationalbank.com.  The interactive  banking  product  includes an
electronic bill payment service that allows  customers to make scheduled  and/or
recurring bill payments electronically.  The Bank also offers merchant and other
business related services to its commercial customers.


Asset and Liability Management

         The primary  earning  assets of the Bank consist of the loan  portfolio
and investment  portfolio.  Efforts are made  generally to match  maturities and
rates of loans and the  investment  portfolio  with those of deposits,  although
exact  matching  is  not  possible.   The  majority  of  the  Bank's  securities
investments  are in  marketable  obligations  of the United  States  government,
federal  agencies and state and  municipal  governments,  generally  with varied
maturities.

         Long-term loans are priced primarily to be interest-rate sensitive with
only a small portion of the Bank's  portfolio of long-term loans at fixed rates.
Such  fixed-rate  loans  generally  do not have  maturities  longer than fifteen
years, except in exceptional cases.

         Deposit accounts represent the majority of the liabilities of the Bank.
These include transaction  accounts,  time deposits and certificates of deposit.
The maturities of the majority of  interest-sensitive  accounts are 12 months or
less.

Additional Information

         For  additional  information  about the business of the Company and the
Bank, see Item 6-"Management's Discussion and Analysis or Plan of Operation."




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<PAGE>


                           SUPERVISION AND REGULATION

         Bank  holding  companies  and banks  are  extensively  regulated  under
federal and state law. To the extent that the  following  information  describes
statutory  and  regulatory  provisions,  it is  qualified  in  its  entirety  by
reference to such  statutes and  regulations.  Any change in  applicable  law or
regulation  may have a material  effect on the  business  of the Company and the
Bank.

General

         As a bank holding  company under the Bank Holding Company Act ("BHCA"),
the  Company  obtained  the  approval of the Board of  Governors  of the Federal
Reserve System (the "Federal Reserve") to acquire the Bank and is subject to the
regulations of the Federal Reserve. Under the BHCA, the Company's activities and
those of its subsidiaries are limited to banking, managing or controlling banks,
furnishing  services to or performing  services for its subsidiaries or engaging
in any other  activity  which the Federal  Reserve  determines  to be so closely
related to banking or managing or controlling  banks as to be a proper  incident
thereto. The Company may engage in a broader range of activities if it becomes a
"financial  holding company"  pursuant to the  Gramm-Leach-Bliley  Act, which is
described below under the caption  "Gramm-Leach-Bliley Act"." The BHCA prohibits
the Company  from  acquiring  direct or indirect  control of more than 5% of the
outstanding  voting stock or substantially all of the assets of any bank or from
merging or  consolidating  with  another  bank  holding  company  without  prior
approval of the Federal  Reserve.  Additionally,  the BHCA prohibits the Company
from engaging in or from  acquiring  ownership or control of more than 5% of the
outstanding voting stock of any company engaged in a non-banking business unless
such business is determined by the Federal  Reserve to be so closely  related to
banking as to be properly  incident  thereto.  The BHCA generally does not place
territorial   restrictions  on  the  activities  of  such  non-banking   related
activities.

         The Company is also subject to limited  regulation  and  supervision by
the South Carolina State Board of Financial Institutions.

Obligations of the Company to its Subsidiary Bank

         A number of obligations  and  restrictions  are imposed on bank holding
companies  and their  depository  institution  subsidiaries  by Federal  law and
regulatory  policy that are designed to reduce  potential  loss  exposure to the
depositors of such  depository  institutions  and to the FDIC insurance funds in
the event the depository  institution  is in danger of becoming  insolvent or is
insolvent.  For example, under the policy of the Federal Reserve, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository  institutions and to commit resources to support such institutions in
circumstances  where it might not do so absent such  policy.  In  addition,  the
"cross-guarantee"  provisions of the Federal  Deposit  Insurance Act, as amended
("FDIA"),  require  insured  depository  institutions  under  common  control to
reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings  Association  Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF")
of the  FDIC  as a  result  of the  default  of a  commonly  controlled  insured
depository  institution or for any assistance provided by the FDIC to a commonly
controlled  insured  depository  institution in danger of default.  The FDIC may
decline to enforce the cross-guarantee provisions if it determines that a waiver
is in the best  interest  of the SAIF or the BIF or both.  The FDIC's  claim for
damages  is  superior  to  claims  of  shareholders  of the  insured  depository
institution  or its holding  company but is subordinate to claims of depositors,
secured  creditors and holders of subordinated  debt (other than  affiliates) of
the commonly controlled insured depository institutions.

         The FDIA also provides that amounts  received from the  liquidation  or
other resolution of any insured  depository  institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit  liabilities of
the  institution  prior to payment  of any other  general  or  unsecured  senior
liability,   subordinated  liability,  general  creditor  or  shareholder.  This
provision gives depositors a preference over general and subordinated  creditors
and  shareholders  in the event a receiver is appointed to distribute the assets
of the Bank.

         Any capital  loans by a bank holding  company to any of its  subsidiary
banks are  subordinate  in right of payment  to  deposits  and to certain  other
indebtedness of such subsidiary  bank. In the event of a bank holding  company's
bankruptcy,  any  commitment  by the bank  holding  company  to a  federal  bank
regulatory  agency to maintain the capital of a subsidiary  bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.



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<PAGE>

Capital Adequacy Guidelines for Bank Holding Companies and National Banks

         The various federal bank regulators,  including the Federal Reserve and
the OCC have adopted  risk-based and leverage  capital  adequacy  guidelines for
assessing bank holding company and bank capital adequacy. These standards define
what qualifies as capital and establish minimum capital standards in relation to
assets and  off-balance  sheet  exposures,  as  adjusted  for credit  risks.  In
addition,  the OCC may establish  individual minimum capital  requirements for a
national bank that are different from the general requirements.

         Failure  to meet  capital  requirements  could  subject  the  Bank to a
variety of enforcement remedies,  including the termination of deposit insurance
by the FDIC and a prohibition on the taking of brokered deposits.

         The risk-based  capital  standards of both the Federal  Reserve and the
OCC explicitly identify  concentrations of credit risk and the risk arising from
non-traditional  activities, as well as an institution's ability to manage these
risks,  as  important  factors  to be taken  into  account  by the  agencies  in
assessing an institution's overall capital adequacy. The capital guidelines also
provide that an institution's exposure to a decline in the economic value of its
capital due to changes in interest rates should be considered by the agencies as
a factor in evaluating a bank's capital  adequacy.  The Federal Reserve also has
issued additional  capital  guidelines for bank holding companies that engage in
certain trading activities.

         The Bank exceeded all applicable  capital  requirements at December 31,
2004.  The Company is not  currently  subject to separate  capital  requirements
because the Federal Reserve applies its guidelines on a bank-only basis for bank
holding companies with less than $150 million in consolidated assets.

Payment of Dividends

         The  Company is a legal  entity  separate  and  distinct  from its bank
subsidiary.  Most of the  revenues of the  Company  are  expected to result from
dividends  paid to the Company by the Bank.  There are statutory and  regulatory
requirements  applicable  to the payment of dividends by the Bank to the Company
as well as by the Company to its  shareholders.  The Company does not anticipate
that it will pay cash dividends in the near future.

Certain Transactions by the Company with its Affiliates

         Federal  law   regulates   transactions   among  the  Company  and  its
affiliates,  including  the  amount of bank loans to or  investments  in nonbank
affiliates  and the  amount  of  advances  to third  parties  collateralized  by
securities of an affiliate.  Further,  a bank holding company and its affiliates
are prohibited  from engaging in certain tie-in  arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.

FDIC Insurance Assessments

         Because the Bank's deposits are insured by the BIF, the Bank is subject
to insurance assessments imposed by the FDIC. Currently, the assessments imposed
on all FDIC deposits for deposit insurance have an effective rate ranging from 0
to 27 basis points per $100 of insured deposits,  depending on the institution's
capital position and other supervisory factors. In addition, the Bank is subject
to an  assessment  to  pay a pro  rata  portion  of  the  interest  due  on  the
obligations issued by the Financing Corporation ("FICO"). The FICO assessment is
adjusted  quarterly to reflect changes in the assessment bases of the respective
funds based on quarterly Call Report and Thrift Financial Report submissions.

Regulation of the Bank

         The Bank is subject to the National Bank Act and the regulations of the
OCC as well as to  examination  by the OCC.  The Bank is also subject to various
other state and federal laws and  regulations,  including state usury laws, laws
relating  to  fiduciaries,  consumer  credit  laws and laws  relating  to branch
banking.  The Bank's loan  operations  are subject to certain  federal  consumer
credit laws and regulations promulgated thereunder,  including,  but not limited
to: the federal  Truth-In-Lending  Act, governing disclosures of credit terms to
consumer  borrowers;  the Home  Mortgage  Disclosure  Act,  requiring  financial
institutions to provide certain  information  concerning their mortgage lending;


                                       7
<PAGE>

the  Equal  Credit  Opportunity  Act  and  the  Fair  Housing  Act,  prohibiting
discrimination on the basis of certain  prohibited  factors in extending credit;
the Fair Credit Reporting Act, governing the use and provision of information to
credit  reporting  agencies;  the Bank Secrecy Act,  dealing  with,  among other
things,  the  reporting  of  certain  currency  transactions;  and the Fair Debt
Collection Act, governing the manner in which consumer debts may be collected by
collection agencies. The deposit operations of the Bank are subject to the Truth
in  Savings  Act,  requiring  certain  disclosures  about  rates paid on savings
accounts;  the Expedited Funds  Availability Act, which deals with disclosure of
the availability of funds deposited in accounts and the collection and return of
checks by banks;  the Right to Financial  Privacy Act,  which  imposes a duty to
maintain  certain   confidentiality  of  consumer  financial  records,  and  the
Electronic  Funds Transfer Act and  regulations  promulgated  thereunder,  which
govern  automatic   deposits  to  and  withdrawals  from  deposit  accounts  and
customers'  rights and  liabilities  arising  from the use of  automated  teller
machines and other electronic banking services.

         The  Bank  is  also  subject  to  the  requirements  of  the  Community
Reinvestment  Act (the  "CRA").  The CRA imposes on  financial  institutions  an
affirmative  and  ongoing  obligation  to meet the credit  needs of their  local
communities,  including low- and moderate-income neighborhoods,  consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers,  acquisitions
and applications to open a branch or facility.

Other Safety and Soundness Regulations

         Prompt  Corrective  Action.  The federal  banking  agencies  have broad
powers under  current  federal law to take prompt  corrective  action to resolve
problems of insured depository institutions.  The extent of these powers depends
upon whether the  institutions in question are "well  capitalized,"  "adequately
capitalized,"    "undercapitalized,"    "significantly    undercapitalized"   or
"critically undercapitalized."

         A bank that is "undercapitalized"  becomes subject to provisions of the
FDIA:   restricting  payment  of  capital  distributions  and  management  fees;
requiring the FDIC to monitor the condition of the bank; requiring submission by
the bank of a capital  restoration  plan;  restricting  the growth of the bank's
assets and requiring prior approval of certain expansion proposals.  A bank that
is  "significantly   undercapitalized"   is  also  subject  to  restrictions  on
compensation  paid  to  senior  management  of  the  bank,  and a bank  that  is
"critically   undercapitalized"  is  further  subject  to  restrictions  on  the
activities of the bank and restrictions on payments of subordinated  debt of the
bank.  The  purpose  of these  provisions  is to  require  banks  with less than
adequate  capital to act quickly to restore  their  capital and to have the FDIC
move  promptly  to take over  banks  that are  unwilling  or unable to take such
steps.

         Brokered Deposits.  Under current FDIC regulations,  "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept  brokered  deposits  with a waiver  from the FDIC  (subject  to
certain  restrictions on payment of rates), while  "undercapitalized"  banks may
not accept brokered deposits.

Interstate Banking

         Under the Riegle-Neal  Interstate Banking and Branching  Efficiency Act
of 1994 the Company and any other  adequately  capitalized  bank holding company
located in South  Carolina can acquire a bank located in any other state,  and a
bank  holding  company  located  outside  South  Carolina  can acquire any South
Carolina-based  bank, in either case subject to certain  deposit  percentage and
other restrictions.  Unless prohibited by state law, adequately  capitalized and
managed bank holding  companies are permitted to  consolidate  their  multistate
bank operations into a single bank subsidiary and to branch  interstate  through
acquisitions. De novo branching by an out-of-state bank is permitted only if the
laws of the host state expressly permit it. The authority of a bank to establish
and operate  branches within a state continue to be subject to applicable  state
branching laws. South Carolina law permits such interstate  branching but not de
novo branching by an out-of-state bank.

Gramm-Leach-Bliley Act

         The  Gramm-Leach-Bliley  Act,  which  makes it easier for  affiliations
between banks,  securities firms and insurance companies to take place,  removes
Depression-era barriers that had separated banks and securities firms, and seeks
to protect the privacy of consumers' financial information.

         Under  provisions of the act and regulations  adopted by the applicable
regulators,  banks,  securities  firms  and  insurance  companies  are  able  to
structure  new  affiliations  through a holding  company  structure or through a
financial subsidiary. The legislation creates a new type of bank holding company


                                       8
<PAGE>

called a "financial  holding  company" which has powers much more extensive than
those of standard holding companies.  These expanded powers include authority to
engage in "financial activities," which are activities that are (1) financial in
nature;  (2)  incidental  to  activities  that are  financial in nature;  or (3)
complementary  to a  financial  activity  and that do not  impose  a safety  and
soundness risk. Significantly,  the permitted financial activities for financial
holding  companies include authority to engage in merchant banking and insurance
activities,  including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well managed, well capitalized
and  have  received  a  rating  of   "satisfactory"   on  their  last  Community
Reinvestment Act examination.

         The  legislation  also  creates  another  new type of  entity  called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities,  including real
estate development or investment,  insurance or annuity underwriting,  insurance
portfolio  investing and merchant  banking,  are reserved for financial  holding
companies.  A bank's  investment  in a financial  subsidiary  affects the way in
which the bank calculates its regulatory capital, and the assets and liabilities
of financial  subsidiaries  may not be consolidated  with those of the bank. The
bank must also be certain that its risk  management  procedures  are adequate to
protect it from  financial and  operational  risks created both by itself and by
any financial subsidiary.  Further, the bank must establish policies to maintain
the separate corporate  identities of the bank and its financial  subsidiary and
to prevent each from becoming liable for the obligations of the other.

         The Act also  establishes  the  concept  of  "functional  supervision,"
meaning that  similar  activities  should be  regulated  by the same  regulator.
Accordingly,  the Act spells out the regulatory authority of the bank regulatory
agencies,  the Securities and Exchange Commission and state insurance regulators
so that each type of activity is  supervised by a regulator  with  corresponding
expertise.  The Federal  Reserve Board is intended to be an umbrella  supervisor
with the  authority  to  require a bank  holding  company or  financial  holding
company  or any  subsidiary  of  either  to  file  reports  as to its  financial
condition,  risk management  systems,  transactions with depository  institution
subsidiaries  and  affiliates,  and compliance  with any federal law that it has
authority to enforce.

         Although the Act reaffirms that states are the regulators for insurance
activities  of  all  persons,  including  federally  chartered  banks,  the  Act
prohibits  states from preventing  depository  institutions and their affiliates
from conducting insurance activities.

         The Act also  establishes  a minimum  federal  standard  of  privacy to
protect the confidentiality of a consumer's  personal financial  information and
gives the consumer the power to choose how personal financial information may be
used by  financial  institutions.  The privacy  provisions  of the Act have been
implemented by adoption of regulations by various Federal agencies.

         The Act and the  regulations  adopted  pursuant  to the Act  create new
opportunities  for the Company to offer  expanded  services to  customers in the
future,  though  the  Company  has not yet  determined  what the  nature  of the
expanded  services  might be or when the Company might find it feasible to offer
them. The Act has increased competition from larger financial  institutions that
are  currently  more  capable  than  the  Company  of  taking  advantage  of the
opportunity  to  provide a  broader  range of  services.  However,  the  Company
continues to believe that its commitment to providing high quality, personalized
service to customers will permit it to remain competitive in its market area.

Sarbanes-Oxley Act of 2002

         The  Sarbanes-Oxley  Act was  signed  into  law on July 30,  2002,  and
mandated  extensive reforms and requirements for public  companies.  The SEC has
adopted   extensive  new  regulations   pursuant  to  the  requirements  of  the
Sarbanes-Oxley  Act. The  Sarbanes-Oxley  Act and the SEC's new regulations have
increased  the  Company's  cost of  doing  business,  particularly  its fees for
internal  and  external  audit  services  and  legal  services,  and the law and
regulations  are  expected to continue to do so.  However,  the Company does not
believe that it will be affected by  Sarbanes-Oxley  and the new SEC regulations
in ways that are materially different or more onerous than those of other public
companies of similar size and in similar businesses.




                                       9
<PAGE>


Legislative Proposals

         Proposed legislation,  which could significantly affect the business of
banking, is introduced in Congress from time to time.  Management of the Company
cannot predict the future course of such  legislative  proposals or their impact
on the Company and the Bank should they be adopted.

Fiscal and Monetary Policy

         Banking  is  a  business   that  depends   largely  on  interest   rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other  borrowings,  and the interest  received by a bank on
its loans and  securities  holdings,  constitutes  the major portion of a bank's
earnings.  Thus, the earnings and growth of the Company and the Bank are subject
to the influence of economic  conditions  generally,  both domestic and foreign,
and also to the  monetary  and  fiscal  policies  of the  United  States and its
agencies,  particularly the Federal Reserve.  The Federal Reserve  regulates the
supply of money through various means,  including open-market dealings in United
States government  securities,  the discount rate at which banks may borrow from
the Federal Reserve,  and the reserve  requirements on deposits.  The nature and
timing of any changes in such  policies  and their impact on the Company and the
Bank cannot be predicted.

Item 2.  Description of Property.

         The Company owns 1.83 acres of land at 1670 East Main Street in Easley,
South  Carolina  where its main office is located.  The Company  also owns 6.772
acres  of land on the 40  block  of  Farrs  Bridge  Road  in the  Berea  area of
Greenville,  South Carolina where its branch office is located.  Both properties
are  considered  to be well suited for the Company's  purposes.  During 2004 the
Bank  purchased  land for an  additional  branch office in  Powdersville,  South
Carolina.  The cost of the branch is expected to be  approximately  $1.0 million
and the building is expected to be completed in mid-2005.

Item 3.  Legal Proceedings.

         The  Company  may  from  time  to  time be a  party  to  various  legal
proceedings  arising in the ordinary  course of business,  but management of the
Company  is not aware of any  pending or  threatened  litigation  or  unasserted
claims or assessments that are expected to result in losses,  if any, that would
be material to the Company's business and operations.

Item 4.  Submission of Matters to Vote of Security Holders.

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of 2004.

                                     PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
Issuer Repurchases of Equity Securities.

         Although  the common  stock of the  Company  may be traded from time to
time on an individual  basis,  no  established  trading market has developed and
none is expected to develop in the foreseeable  future.  The common stock is not
listed on any exchange nor is it traded on the NASDAQ  National  Market  System,
nor are there any market  makers known to  management.  During the past calendar
year,  management was aware of a number of  transactions  in which the Company's
common stock traded  between $12.50 and $13.00 per share (prior to and following
the  10%  stock  dividend  declared  in  2004).  However,   management  has  not
ascertained that these transactions were the result of arm's length negotiations
between the parties, and because of the limited number of shares involved, these
prices may not be indicative of the market value of the common stock.

         As of March 1, 2005, there were  approximately 501 holders of record of
the  Company's  common  stock,  excluding  individual  participants  in security
position listings.

         The Company  has never paid any cash  dividends,  and to  maintain  its
capital,  does not expect to pay cash dividends in the near future. The dividend
policy of the Company is subject to the discretion of the Board of Directors and


                                       10
<PAGE>

depends upon a number of factors, including earnings, financial conditions, cash
needs  and  general  business  conditions,  as  well  as  applicable  regulatory
considerations.  Because the Company has no  operations  other than those of the
Bank and only has limited income of its own, the Company would rely on dividends
from the Bank as its principal source of cash to pay cash dividends.

         Each national banking  association is required by federal law to obtain
the prior  approval of the OCC for the payment of  dividends if the total of all
dividends  declared  by the  board of  directors  of such  bank in any year will
exceed the total of (i) such bank's net profits (as defined and  interpreted  by
regulation)  for that year plus (ii) the  retained  net  profits (as defined and
interpreted  by  regulation)  for the  preceding  two years,  less any  required
transfers to surplus. In addition,  national banks can only pay dividends to the
extent that retained net profits (including the portion  transferred to surplus)
exceed bad debts (as defined by regulation).

         The  payment  of  dividends  by the  Company  and the  Bank may also be
affected  or limited by other  factors,  such as the  requirements  to  maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion of
the applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which,  depending on the
financial  condition of the Bank, could include the payment of dividends),  such
authority may require, after notice and hearing, that such bank cease and desist
from such practice.  The OCC has indicated that paying  dividends that deplete a
national  bank's  capital  base to an  inadequate  level  would be an unsafe and
unsound banking practice.  The Federal Reserve, the OCC and the FDIC have issued
policy  statements,  which provide that bank holding companies and insured banks
should generally only pay cash dividends out of current operating earnings.

         The information  required by Item 201(d) of Regulation S-B is set forth
in Item 11 hereof.

         The Company has not in the past three  years sold any  securities  that
were not registered under the Securities Act of 1933.

         No  disclosure  is  required  pursuant  to Item 703 of  Regulation  S-B
because the Company does not have a class of equity securities  registered under
Section 12 of the Securities Exchange Act of 1934.


Item 6.  Management's Discussion and Analysis or Plan of Operation.

         The information  contained under the caption  "Management's  Discussion
and  Analysis  of  Financial  Condition  and Results of  Operations"  on pages 2
through 16 of the  Company's  Annual Report to  Shareholders  for the year ended
December 31, 2004 is incorporated herein by reference.

Item 7.  Financial Statements.

         The Consolidated  Financial  Statements and notes thereto and Report of
Independent  Certified  Accountants  contained  on  pages 17  through  37 of the
Company's Annual Report to Shareholders for the year ended December 31, 2004 are
incorporated herein by reference.

Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure.

         Not Applicable.

Item 8A.  Controls and Procedures.

         Based on the evaluation required by 17 C.F.R. Section  240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17  C.F.R.  Sections  240.13a-15(e)  and  240.15d-15(e)),  the  Company's  chief
executive  officer and chief financial  officer concluded that such controls and
procedures,  as of the end of the  year  covered  by this  annual  report,  were
effective.

         No disclosure is required under 17 C.F.R. Section 228.308.




                                       11
<PAGE>


Item 8B.  Other Information

         No  information  was  required to be  disclosed in a report on Form 8-K
during the fourth quarter of 2004 that was not disclosed.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

Directors

         The table shows,  as to each director,  his name,  age,  positions held
with the Company and principal occupation for the past five years and the period
during  which he served as a director of the  Company.  Directors of the Company
serve until the annual meeting of  shareholders  for the year indicated or until
their successors are elected and qualify.

<TABLE>
<CAPTION>

NAME                           AGE                  PRINCIPAL OCCUPATION                    DIRECTOR SINCE
----                           ---                  --------------------                    --------------

         Nominees for the Board of Directors whose terms of office will continue
until the Annual Meeting of Shareholders of the Company in 2008 are:

<S>                            <C>   <C>                                                         <C>
Ben L. Garvin                  60    President of Cornerstone National Bank since 2001;          2001
                                     Secretary and Treasurer of the Company since 2003;
                                     Senior Vice President of Central Carolina Bank,
                                     1983-2001

J. Bruce Gaston                48    Gaston and Gaston, C.P.A.'s, P.A.                           1999

S. Ervin Hendricks, Jr.        62    President and Co-owner, Nu-Life Environmental,              1999
                                     Inc., Easley, SC; President and Owner of Advance
                                     Machine Works since 1995.


Members  of the Board of  Directors  whose  terms of office  continue  until the
Annual Meeting of Shareholders of the Company in 2007 are:

J. Rodger Anthony              59    President and Chief Executive Officer of the                1999
                                     Company since 1999; Chairman and Chief Executive
                                     Officer of the Bank since 1999; Chief Executive
                                     Officer, First National Bank of Pickens County,
                                     Easley, SC, 1996 to 1998

Walter L. Brooks               77    President, G&B Enterprises, Liberty, SC (egg                1999
                                     production)

T. Edward Childress, III       59    Registered pharmacist and long-term care facility           1999
                                     owner; Shareholder of Health Management Resources,
                                     Inc.; Chairman Cornerstone Bancorp since 1999

         Members of the Board of Directors  whose terms of office continue until
the Annual Meeting of Shareholders of the Company in 2006 are:

Joe E. Hooper                  66    President, Pride Mechanical and Fabrication                 1999
                                     Company, Inc.

Robert R. Spearman             65    Surveyor/Retired                                            1999

John M. Warren, Jr., M.D.      55    Physician, Easley OB-GYN Associates, P.A.                   1999

George I. Wike, Jr.            60    Investor; retired Optometrist                               1999
</TABLE>



                                       12
<PAGE>


Executive Officers

         The names and positions with the Company of each  executive  officer of
the Company are as follows:

J. Rodger Anthony               President and Chief Executive Officer

Jennifer M. Champagne           Chief Financial Officer

         The age and  business  experience  of Mr.  Anthony  are set forth above
under  "-Directors."  Mrs.  Champagne (age 37) is a Certified Public Accountant,
and joined the Company in October 2002 as its Chief Financial Officer.  Prior to
joining the  Company,  Mrs.  Champagne  worked as a Senior  Manager with Elliott
Davis,  LLC from  August  2000 to October  2002.  Prior to her  employment  with
Elliott  Davis,  Mrs.  Champagne  worked as Senior Vice President of Finance for
HomeGold,  Inc. from March 1998 to June 2000.  None of the  principal  executive
officers  or any  directors  are  related by blood,  marriage or adoption in the
degree of first cousin or closer.

Audit Committee Financial Expert

         The Company's  board of directors has determined  that the Company does
not have an "audit committee  financial expert," as that term is defined by Item
401(e) of Regulation S-B promulgated by the Securities and Exchange  Commission,
serving on its audit committee.  The Company's audit committee is a committee of
directors who are elected by the  shareholders  and who are  independent  of the
Company and its  management.  After reviewing the experience and training of all
of the  Company's  independent  directors,  the board of directors has concluded
that  no  independent  director  meets  the  SEC's  very  demanding  definition.
Therefore, it would be necessary to find a qualified individual willing to serve
as both a  director  and  member of the  audit  committee  and have that  person
elected  by the  shareholders  in order to have an  "audit  committee  financial
expert" serving on the Company's audit committee.  The Company's audit committee
is,  however,  authorized to use  consultants  to provide  financial  accounting
expertise in any instance where members of the committee believe such assistance
would be useful. Accordingly, the Company does not believe that it needs to have
an "audit committee financial expert" on its audit committee.

Code of Ethics

         The  Company  has  adopted a code of ethics  (as  defined  by 17 C.F.R.
228.406) that applies to its principal executive officer and principal financial
officer.  The Company will provide a copy of the code of ethics, free of charge,
to any person upon written  request to Jennifer M.  Champagne,  Chief  Financial
Officer,  Cornerstone  Bancorp,  1670 East Main Street,  Easley,  South Carolina
29640.




                                       13
<PAGE>


Item 10. Executive Compensation.

         The following table sets forth the  remuneration  paid during the years
ended  December 31, 2004,  2003 and 2002 to the Chief  Executive  Officer of the
Company and the President of the Bank. No other principal officer of the Company
or the Bank was paid remuneration in excess of $100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                Annual Compensation (1)        Long Term Compensation Awards
                                                -----------------------        -----------------------------
                                                                               Number of
                                                                              Securities
                                                                              Underlying
                                                                                Options           All Other
Name and Principal Position            Year     Salary         Bonus            Awarded        Compensation (2)
                                       ----     ------         -----            -------        ----------------

<S>                                    <C>     <C>           <C>                <C>                <C>
J. Rodger Anthony, President and       2004    $135,200      $     -            2,640              $ 3,887
Chief Executive Officer                2003    $130,000      $ 5,592              -                $ 4,027
                                       2002    $125,000      $ 4,228              -                $ 3,750

Ben L. Garvin, President               2004    $113,500      $     -            2,640              $ 3,265
Cornerstone National Bank              2003    $109,200      $ 4,697              -                $ 3,383
                                       2002    $105,000      $ 3,552              -                $ 3,150
</TABLE>
---------------------
(1)  Perquisites  and personal  benefits did not exceed the lesser of $50,000 or
     10% of salary plus bonus payments.
(2)  Contributions  by the Bank to the  Bank's  Simple IRA Plan on behalf of Mr.
     Anthony and Mr. Garvin.

                            ORGANIZERS' STOCK OPTIONS

         On  December  14,  1999,  the Board of  Directors  of the  Company,  in
consideration  of the  time and  efforts  of the  directors  of the  Company  in
organizing the Company and its subsidiary  bank and each  director's  personally
guaranteeing a portion of the organizational  expenses,  granted options to each
director to purchase up to 4,000 shares of the common stock of the Company for a
purchase  price of $10.00  per  share,  which was the price at which the  common
stock was sold to the public in 1999.  The options became  exercisable  for each
director  one-third  each year  beginning  on  December  14,  2000 and expire on
December 14, 2009,  unless they terminate sooner as the result of the director's
ceasing to be a director of the  Company,  in which case the options  expire six
months after the holder ceases to be a director.  As described in Note 17 to the
Consolidated  Financial  Statements  of the  Company,  the  Company's  Board  of
Directors  declared 10 percent stock  dividends to shareholders of record on May
11,  2004,  March 17,  2003 and April  30,  2002.  The  Company's  stock  option
agreements  provide for  appropriate  adjustments  of the number of  outstanding
stock  options  in  the  event  of  stock  dividends  and  other  similar  stock
transactions.  The agreements also provide for the aggregate consideration to be
paid upon  exercise of the options to be  proportionately  adjusted  following a
stock  dividend.  Therefore,  at  December  31,  2004,  each  of the  organizing
directors  held options to purchase 5,324 shares with an exercise price of $7.51
per share.

                             2003 STOCK OPTION PLAN

         In 2003  shareholders  of the Company  approved a stock option plan for
the benefit of employees  and  directors of the Company  ("the 2003 Plan").  The
2003 Plan reserved  125,000 shares of common stock for issuance upon exercise of
options.  During 2004  options to purchase  18,000  shares of common  stock were
granted  under the 2003 Plan.  The options vest over a three year period and are
exercisable  for a period of ten years at the estimated fair market value on the
date of grant,  which was $12.50 per share.  As of December 31, 2004 none of the
options granted in 2004 were vested. The Board of Directors declared a 10% stock
dividend in May 2004, which increased the number of shares reserved for issuance
under the 2003 Plan to  137,500,  increased  the  number  of shares  subject  to
outstanding  options  under the 2003  Plan to 19,800  shares,  and  reduced  the
purchase price to $11.36 per share, all in accordance with the provisions of the
2003 Plan.




                                       14
<PAGE>


                        OPTION GRANTS IN LAST FISCAL YEAR

         The following table presents  information about options granted in 2004
to the persons named in the Summary Compensation Table at December 31, 2004.

<TABLE>
<CAPTION>
                          Number of Securities     % of Total Options
                           Underlying Options    Granted to Employees
          Name                   Granted                in 2004             Exercise Price         Expiration Date
          ----                   -------                -------             --------------         ---------------
<S>                               <C>                    <C>                    <C>                     <C>
J. Rodger Anthony                 2,640                  28.6%                  $11.36                  2014
Ben L. Garvin                     2,640                  28.6%                  $11.36                  2014
</TABLE>

         These  options vest over a three year period  beginning in 2005 and are
exercisable for ten years from the date of grant.

          OPTION EXERCISES AND YEAR END OPTIONS OUTSTANDING AND VALUES

         The  following  table  presents  information  about options held by the
persons named in the Summary Compensation Table at December 31, 2004.

<TABLE>
<CAPTION>
                                                          Number of Securities                Value of Unexercised
                                                         Underlying Unexercised                   In-the-Money
                                                            Options 12/31/04                   Options 12/31/03(1)
                        Shares Acquired     Value           ----------------                   -------------------
Name                      on Exercise     Realized     Exercisable    Unexercisable      Exercisable       Unexercisable
                          -----------     --------     -----------    -------------      -----------       -------------

<S>                            <C>           <C>          <C>             <C>             <C>                 <C>
J. Rodger Anthony              -             $ -          5,324           2,640           $ 29,229            $ 4,330
Ben L. Garvin                  -             $ -              -           2,640           $      -            $ 4,330
</TABLE>
---------------
(1) Based on exercise prices of $7.51 per share for the 1999 Organizers Plan and
$11.36  (after  adjustment  for the 2004 stock  dividend)  for the 2003 Plan and
assuming  that the fair market value of the  Company's  common stock on December
31, 2004 was $13.00 per share.


Change of Control Agreements

         The  Company  has entered  into  Change of Control  Agreements  with J.
Rodger Anthony,  its President and Chief Executive  Officer,  and Ben L. Garvin,
President of the Bank and Corporate  Secretary of the Company (each  referred to
as an  "Executive").  The  agreements  provide  that,  if there is a "change  of
control" of the Company within five years of the date of the agreements, and the
Executive  terminates his employment with the Company or the Company  terminates
his employment  within six months of such change of control,  the Executive will
be entitled to a lump sum  payment  equal to a multiple of his annual  salary in
effect at the date of termination.  The agreements automatically renew each year
unless,  30 days  prior to an annual  anniversary  date,  notice is given by the
Company that the  agreements  will not renew. A "change of control" is deemed to
occur  under the  agreements  if either  (i) voting  control  of the  Company is
acquired, directly or indirectly, by any person or group acting in concert, (ii)
the Company is merged  with or into any other  entity and the Company is not the
surviving  entity of the merger,  (iii) voting  control of any subsidiary of the
Company by which  subsidiary  Executive  is  principally  employed is  acquired,
directly or  indirectly,  by any person or group acting in concert,  or (iv) any
subsidiary of the Company by which  Executive is principally  employed is merged
with or into another  entity  which is not also a subsidiary  of the Company and
such subsidiary is not the surviving entity of the merger.

         The  foregoing is merely a summary of the Change of Control  Agreements
and is not intended to create any rights in any person,  and is qualified in its
entirety by reference to such agreements.


Compensation of Directors

         Directors  are not  paid  for  service  as  directors  of the  Company.
However,  the  directors  of the Company also serve as directors of the Bank and
receive fees for meetings of the Bank Board of Directors and committee  meetings
of the Bank Board.  The Bank paid  directors  $400.00 per board meeting in 2004,


                                       15
<PAGE>

except  Mr.  Childress,  who was  paid  $500.00  per  board  meeting  due to his
additional duties as Chairman of the Company's board. Directors were paid $50.00
for each committee meeting  attended.  Total director fees were $58,100 in 2004.
For 2005,  the Board of  Directors  has  increased  monthly  directors'  fees to
$500.00 per meeting,  and  increased  the fee for the Chairman of the  Company's
board to  $600.00.  Committee  fees have been  increased  to $100.00 per meeting
attended in person,  and decreased to $25.00 per meeting  attended by telephone.
See also  "Organizers  Stock Options" above for information  about stock options
granted to the Company's original directors.

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters.

       The number of shares owned and the percentage of outstanding common stock
such  number  represents  at March 1,  2005,  for all  directors  and  executive
officers of the Company and for all persons who are currently  beneficial owners
of 5% or more of the Company's common stock is set forth below.

<TABLE>
<CAPTION>
Name (and Address of 5% Owners)                       Number of Shares                   % of Outstanding
                                                   Beneficially Owned (1)                  Common Stock
-------------------------------------------    --------------------------------   -------------------------------
<S>                                                        <C>                                <C>
J. Rodger Anthony                                           45,254                             4.07%
Walter L. Brooks (2)                                        14,374                             1.29
Jennifer M. Champagne                                          332                              .03
T. Edward Childress, III                                   105,149                             9.45
    101 McAlister Lake Drive
    Easley, South Carolina 29642
Ben L. Garvin                                               12,830                             1.15
J. Bruce Gaston                                             25,289                             2.27
S. Ervin Hendricks, Jr.                                     43,257                             3.89
Joe E. Hooper                                               51,909                             4.67
Robert R. Spearman                                           9,317                              .84
John M. Warren, Jr., M.D.                                   18,634                             1.67
George I. Wike, Jr.                                        105,149                             9.45
    28 Mandarin Circle
    Taylors, SC
All directors and executive                                -------                            -----
officers as a group (11 persons)                           431,494                            38.78%
</TABLE>
--------------------
(1)  Includes for each individual,  except Mr. Garvin and Ms.  Champagne,  5,324
     vested  stock  options  that are  currently  exercisable.  Options that are
     neither currently exercisable nor exercisable within 60 days are omitted.
(2)  Includes  6,655  shares  owned by a  partnership  in which Mr.  Brooks is a
     partner.

Except as otherwise  indicated,  to the knowledge of management,  all shares are
owned directly with sole voting power.




                                       16
<PAGE>


                      Equity Compensation Plan Information

         The  following  table sets forth  information  as of December  31, 2004
about all of the Company's compensation plans (including individual compensation
arrangements)  under which equity  securities of the Company are  authorized for
issuance.

<TABLE>
<CAPTION>
                            Number of securities                                      Number of securities remaining
                             to be issued upon            Weighted-average            available for future issuance
                                exercise of               exercise price of          under equity compensation plans
                            outstanding options,        outstanding options,         (excluding securities reflected
Plan Category               warrants and rights          warrants and rights                  in column (a))
-------------               -------------------          -------------------         --------------------------------
                                    (a)                          (b)                               (c)
<S>                                <C>                         <C>                               <C>
Equity compensation
plans approved by
security holders                   19,800                      $11.36                            117,700

Equity compensation
plans not approved by
security holders                   47,916                      $ 7.51                                  -
                                   ------                                                        -------

Total                              67,716                      $ 8.64                            117,700
                                   ======                                                        =======
</TABLE>


         The equity  securities  under plans not  approved  by security  holders
shown in the table are stock options  granted to directors  pursuant to the 1999
Organizers  Agreements.  The equity securities in the table under plans approved
by security  holders shown in the table are stock  options  granted to employees
and directors pursuant to the 2003 Stock Option Plan. Further  information about
the options is set forth in Item 10 under  "Organizers' Stock Options" and "2003
Stock Option Plan".

Item 12. Certain Relationships and Related Transactions.

         Extensions of Credit. The Bank, in the ordinary course of its business,
makes loans to and has other  transactions with directors,  officers,  principal
shareholders,  and their  associates.  Loans are made on substantially  the same
terms,  including  rates and  collateral,  as those  prevailing  at the time for
comparable  transactions  with other  persons and do not  involve  more than the
normal risk of collectibility or present other  unfavorable  features.  The Bank
expects  to  continue  to enter  into  transactions  in the  ordinary  course of
business on similar terms with directors,  officers, principal stockholders, and
their  associates.  The  aggregate  dollar amount of such loans  outstanding  at
December 31, 2004 was $4.5 million.  During 2004, $3.6 million of new loans were
made and repayments totaled $2.9 million.

         Organizers  Options.  See the  discussion  in Item 10 under the caption
"ORGANIZERS' STOCK OPTIONS."





                                       17
<PAGE>


Item 13. Exhibits

(a)      Description of Exhibits.

Exhibit No.      Description
3.1              Articles of Incorporation of Registrant (1)
3.2              Bylaws of Registrant (1)
10               Change of Control Agreements (2)
10.1             Form of Option Agreements (3)
10.2             Cornerstone Bancorp 2003 Stock Option Plan (4)
10.3             Information  about  increases  in director  fees and  executive
                 compensation  (Incorporated  by  reference  to Form  8-K  filed
                 February 17, 2005)
13               Portions of 2003 Annual Report to Shareholders  incorporated by
                 reference into this Form 10-KSB
21               Subsidiaries of Registrant
31-1             Rule 15d-14(a) Certifications
31-2             Rule 15d-14(a) Certifications
32               Section 1350 Certifications
-----------------
(1)  Incorporated  by  reference  to  Registration  Statement  on Form SB-2 (No.
     333-79543).
(2)  Incorporated  by  reference  to  Quarterly  Report on Form  10-QSB  for the
     quarter ended June 30, 2004.
(3)  Incorporated  by  reference  to Annual  Report on Form  10-KSB for the year
     ended December 31, 1999.
(4)  Incorporated  by  reference  to  Quarterly  Report on Form  10-QSB  for the
     quarter ended June 30, 2003.


Item 14.  Principal Accountant Fees and Services

                  Set  forth  below is  information  about  fees  billed  by the
         Company's   independent   auditors  for  audit  services   rendered  in
         connection with the consolidated  financial  statements and reports for
         the years  ended  December  31, 2004 and 2003,  and for other  services
         rendered  during such years,  on behalf of the Company and the Bank, as
         well as all  out-of-pocket  expenses  incurred in connection with these
         services, which have been billed to the Company.

         (1)  Audit Fees

                  Audit  fees  include  fees  billed for  professional  services
         rendered  for  the  audit  of  the  Company's   consolidated  financial
         statements and review of the interim condensed  consolidated  financial
         statements  included  in  quarterly  reports,  and  services  that  are
         normally  provided by the Company's  independent  auditor in connection
         with  statutory  and  regulatory  filings  or  engagements,  and attest
         services,  except those not required by statute or regulation.  For the
         years ended  December 31, 2003 and 2004,  respectively,  Elliott Davis,
         LLC billed, or expects to bill, the Company an aggregate of $25,300 and
         $26,240 for audit fees.

         (2)  Audit-Related Fees

                  Audit-related  fees  include  fees  billed for  assurance  and
         related services that are reasonably  related to the performance of the
         audit or review of the Company's  consolidated financial statements and
         are not reported under "Audit Fees".  Elliott  Davis,  LLC did not bill
         the Company for audit-related fees in 2004 or 2003.

         (3)  Tax Fees

                  Tax fees include fees for tax compliance/preparation and other
         tax  services.  Tax  compliance/preparation  include  fees  billed  for
         professional  services related to federal,  state and international tax
         compliance.  Other tax services  include fees billed for filing of Form
         5500 for the Company's  Section 125 Flexible  Spending  Account benefit
         plan.  For each of the years ended  December  31, 2003 and 2004 Elliott
         Davis,  LLC  billed  the  Company an  aggregate  of $3,200 and  $3,605,
         respectively, for tax fees.



                                       18
<PAGE>

         (4)  All Other Fees

                  All other fees include fees for all other  services other than
         those reported above.  Elliott Davis,  LLC did not bill the Company for
         any other fees.

                  In making its decision to appoint  Elliott  Davis,  LLC as the
         Company's  independent auditors for the fiscal year ending December 31,
         2005, the Audit Committee  considered whether services other than audit
         and  audit-related  services  provided by that firm are compatible with
         maintaining the independence of Elliott Davis, LLC.

         (5) Audit Committee  Pre-Approval  of Audit and  Permissible  Non-Audit
         Services of Independent Auditors

                  The Audit  Committee  pre-approves  all  audit  and  permitted
         non-audit  services  (including the fees and terms thereof) provided by
         the independent  auditors,  subject to possible limited  exceptions for
         non-audit services described in Section 10A of the Securities  Exchange
         Act of  1934,  which  are  approved  by the  Audit  Committee  prior to
         completion  of the audit.  The  Committee  may  delegate to one or more
         designated  members of the Committee the authority to pre-approve audit
         and permissible non-audit services, provided such pre-approval decision
         is presented to the full Committee at its next scheduled meeting. Prior
         to  the  performance  of any  services  by  the  Company's  independent
         auditors,  executive management requests an estimate of the fees and an
         outline of the proposed  services.  The estimated fees are submitted in
         advance to the audit  committee via letter  directly from Elliott Davis
         to the chairman of the Audit Committee.  At its next scheduled meeting,
         the Audit Committee  approves the estimated fees and services  expected
         to be provided and advises management of their decision.





                                       19
<PAGE>


         SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  the  registrant  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                   Cornerstone Bancorp


March 18, 2005                     By: s/J. Rodger Anthony
                                      ------------------------------------------
                                         J. Rodger Anthony
                                         President and Chief Executive Officer

                                   By: s/Jennifer M. Champagne
                                      ------------------------------------------
                                         Jennifer M. Champagne
                                         Chief Financial Officer
                                         (Principal Financial and Principal
                                          Accounting Officer)

         In  accordance  with the Exchange Act this Report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated:

Signature                         Title                          Date
---------                         -----                          ----

s/J. Rodger Anthony
--------------------------        President, Chief Executive     March  18, 2005
J. Rodger Anthony                 Officer, Director

s/Walter L. Brooks
--------------------------        Director                       March  18, 2005
Walter L. Brooks

s/T. Edward Childress, III
--------------------------        Director                       March  18, 2005
T. Edward Childress, III

s/Ben L. Garvin
--------------------------        Director                       March  18, 2005
Ben L. Garvin

s/J. Bruce Gaston
--------------------------        Director                       March  18, 2005
J. Bruce Gaston

s/S. Ervin Hendricks, Jr.
--------------------------        Director                       March  18, 2005
S. Ervin Hendricks, Jr.

s/Joe E. Hooper
--------------------------        Director                       March  18, 2005
Joe E. Hooper

s/Robert R. Spearman
--------------------------        Director                       March  18, 2005
Robert R. Spearman

s/John M. Warren, Jr., M.D.
--------------------------        Director                       March  18, 2005
John M. Warren, Jr., M.D.

s/George I. Wike, Jr.
--------------------------        Director                       March  18, 2005
George I. Wike, Jr.

                                       20
<PAGE>


Supplemental  Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Exchange Act by Non-reporting Issuers

         The registrant  plans to furnish annual reports and proxy  materials to
security  holders  subsequent to the filing of this Form 10-KSB and will furnish
copies of such material to the Commission when it is sent to security holders.


Exhibit Index

Exhibit No.      Description
3.1              Articles of Incorporation of Registrant (1)
3.2              Bylaws of Registrant (1)
10               Change of Control Agreements (2)
10.1             Form of Option Agreements (3)
10.2             Cornerstone Bancorp 2003 Stock Option Plan (4)
10.3             Information  about  increases  in director  fees and  executive
                 compensation  (Incorporated  by  reference  to Form  8-K  filed
                 February 17, 2005)
13               Portions of 2003 Annual Report to Shareholders  incorporated by
                 reference into this Form 10-KSB
21               Subsidiaries of Registrant
31-1             Rule 15d-14(a) Certifications
31-2             Rule 15d-14(a) Certifications
32               Section 1350 Certifications
-----------------
(1)  Incorporated  by  reference  to  Registration  Statement  on Form SB-2 (No.
     333-79543).
(2)  Incorporated  by  reference  to  Quarterly  Report on Form  10-QSB  for the
     quarter ended June 30, 2004.
(3)  Incorporated  by  reference  to Annual  Report on Form  10-KSB for the year
     ended December 31, 1999.
(4)  Incorporated  by  reference  to  Quarterly  Report on Form  10-QSB  for the
     quarter ended June 30, 2003.



                                       21