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                       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, 2003             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  as to  proxy
statement.)

         The issuer's revenues for its most recent fiscal year were $4,418,066.

         The  aggregate  market  value  of  the  voting  Common  Stock  held  by
non-affiliates on March 1, 2004, was approximately $7,196,200. The issuer has no
non-voting  common equity  outstanding.  As of March 1, 2004, there were 967,968
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 2003 Annual Report to Shareholders - Part II

Transitional Small Business Disclosure Format (check one):

Yes [ ]  No [X]


<PAGE>


                          10-KSB CROSS REFERENCE INDEX

<TABLE>
<CAPTION>
                                                          Part I                                                                Page

<S>                <C>                                                                                                           <C>
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

                                                         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.................................................................................        13
Item 11            Security Ownership of Certain Beneficial Owners and
                        Management and Related Stockholder Matters........................................................        15
Item 12            Certain Relationships and Related Transactions.........................................................        16
                                                          Part IV
Item 13            Exhibits and Reports on Form 8-K.......................................................................        16
Item 14            Principal Accountant Fees and Services.................................................................        16
</TABLE>



<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.

                                     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
in September of 1999, located in Easley, South Carolina and from a branch office
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 MSA was the nation's
52nd  largest  metro area in 1999.  The  official  2002  population  estimate is
987,855  residents,  with projections for having a 1  million-person  population
count by 2010.  Over 90% of those employed were in  non-agricultural  employment
with over 50% of those  employed  in  manufacturing,  trades,  and  professional
business sectors.

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<PAGE>

         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 of South  Carolina  and makes  other  authorized  investments.  Both
in-house and conventional residential mortgage loans are offered at the Bank. As
of December 31, 2003, the Bank employed 30 people.

         In August 2002,  Cornerstone National Bank opened a full service branch
location. The branch 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 Greenville, South Carolina.

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, 21 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) and does
not generally seek brokered deposit accounts.

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
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


                                       3
<PAGE>

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.

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


                                       4
<PAGE>

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."

                           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


                                       5
<PAGE>

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.

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.



                                       6
<PAGE>

         The risk-based  capital standards of both the Federal Reserve Board 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 Company and the Bank exceeded all applicable  capital  requirements
at December 31, 2003.

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.  However,  because  legislation
enacted in 1996  requires  that  insured  deposits 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 limitations of 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;  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


                                       7
<PAGE>

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 was amended,  effective  July 1, 1996,  to
permit 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,  was
adopted on November 12, 1999. The Act 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
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


                                       8
<PAGE>

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.

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.

                                       9
<PAGE>

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  purchased  6.772
acres of land on the 40 block of Farrs Bridge Road in Berea,  South  Carolina on
which it  constructed  a permanent  branch  office that opened  during the third
quarter  of  2002.   The  cost  of  building  and   furnishing  the  office  was
approximately $1.3 million. Both properties are considered to be well suited for
the Company's purposes.

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 2003.

                                     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 at $12.50 per share. 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, 2004, there were  approximately 488 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
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


                                       10
<PAGE>

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.

         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, 2003 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  39 of the
Company's Annual Report to Shareholders for the year ended December 31, 2003 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 the effectiveness
of such  controls  and  procedures,  as of the end of the year  covered  by this
annual report, was adequate.

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




                                       11
<PAGE>


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

Members of the Board of  Directors  whose terms will  continue  until the Annual
Meeting of  Shareholders  of the Company in 2004 (also nominees for the Board of
Directors  for  terms  of  office  to  continue  until  the  Annual  Meeting  of
Shareholders of the Company in 2007) are:

<S>                            <C>   <C>                                                         <C>
J. Rodger Anthony              58    President and Chief Executive Officer of the                1999
                                     Company, since 1999; Chief Executive Officer,
                                     First National Bank of Pickens County, Easley, SC,
                                     1996 to 1998

Walter L. Brooks               76    President, G&B Enterprises, Liberty, SC (egg                1999
                                     production)

T. Edward Childress, III       58    Registered Pharmacist and Long-term care facility           1999
                                     owner

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

Joe E. Hooper                  66    President, Pride Mechanical & Fabrication Company,          1999
                                     Inc.
                                                                                                 1999
Robert R. Spearman             64    Surveyor/Retired
                                                                                                 1999
John M. Warren, Jr., M.D.      53    Physician
                                                                                                 1999
George I. Wike, Jr.            59    Investor

Members of the Board of  Directors  whose terms will  continue  until the Annual
Meeting of Shareholders of the Company in 2005 are:

Ben L. Garvin                  59    President of Cornerstone National Bank, Since
                                     2001; Senior Vice President Central Carolina Bank,          2001
                                     1983 - 2001
                                                                                                 1999
J. Bruce Gaston                47    Certified Public Accountant
                                                                                                 1999
S. Ervin Hendricks, Jr.        61    President, Nu-Life Environmental, Inc., Easley, SC
</TABLE>

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



                                       12
<PAGE>

         The age and  business  experience  of Mr.  Anthony  are set forth above
under  "-Directors."  Mrs.  Champagne (age 36) 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.  Neither the  principal  executive
officers  nor 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.

Item 10. Executive Compensation.

         The following table sets forth the  remuneration  paid during the years
ended  December 31, 2003,  2002 and 2001 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>
                                                                                    Number of
                                                                                   Securities
                                                  Annual Compensation (1)          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             2003    $130,000        $5,592            -               $4,027
Chief Executive Officer                      2002    $125,000        $4,228            -               $3,750
                                             2001    $115,000        $3,779            -               $3,563

Ben L. Garvin                                2003    $109,200        $4,697            -               $3,383
President, Cornerstone National Bank         2002    $105,000        $3,552            -               $3,150
                                             2001    $100,000        $    -            -               $2,319
</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


                                       13
<PAGE>

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 become  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 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, 2003,  each of the  organizing  directors  held options to purchase
4,840 shares with an exercise price of $8.26 per share.

          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, 2002. No options
were granted to or exercised by Mr.  Anthony  during the year ended December 31,
2002.  Mr.  Garvin does not have any stock options and is omitted from the table
below.

<TABLE>
<CAPTION>
                                                          Number of Securities                Value of Unexercised
                                                         Underlying Unexercised                   In-the-Money
                                                            Options 12/31/03                   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              -             $ -          4,840             -              $20,522              $ -
</TABLE>

---------------
(1)  Based on  exercise  prices of $8.26 per  share and  assuming  that the fair
     market value of the Company's  common stock on December 31, 2003 was $12.50
     per share.

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 Company and the Bank paid total director fees of $50,050
in 2003. See also "Organizers  Stock Options" above for information  about stock
options granted to the Company's original directors.




                                       14
<PAGE>


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,  2003,  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                                           41,140                             4.25%
Walter L. Brooks (2)                                        13,068                             1.35
Jennifer M. Champagne                                          302                              .03
T. Edward Childress, III                                    95,590                             9.88
    101 McAlister Lake Drive
    Easley, South Carolina 29642
Ben L. Garvin                                               11,664                             1.20
J. Bruce Gaston                                             22,990                             2.38
S. Ervin Hendricks, Jr.                                     39,325                             4.06
Joe E. Hooper                                               47,190                             4.88
Robert R. Spearman                                           8,470                              .88
John M. Warren, Jr., M.D.                                   16,940                             1.75
George I. Wike, Jr.                                         95,590                             9.88
    28 Mandarin Circle
    Taylors, SC
All directors and executive                                _______                            _____
officers as a group (11 persons)                           392,269                            40.52%
</TABLE>
--------------------
(1)  Includes for each director,  except Mr. Garvin,  4,840 vested stock options
     that are currently exercisable.
(2)  Includes  6,050  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.

                      Equity Compensation Plan Information

         The  following  table sets forth  information  as of December  31, 2002
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)
Equity compensation
plans approved by
<S>                                <C>                         <C>                                <C>
security holders                     -                            -                                 -

Equity compensation
plans not approved by
security holders                   43,560                      $ 8.26                             4,840
                                   ------                                                         -----

Total                              43,560                      $ 8.26                             4,840
                                   ======                                                         =====
</TABLE>

         The equity  securities  shown in the table are stock options granted to
directors.  Information  about  the  options  is set  forth  in  Item  10  under
"Organizers' Stock Options".

                                       15
<PAGE>

Item 12. Certain Relationships and Related Transactions.

         Extensions  of  Credit.  The  Company,  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 Company
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, 2003 was $3.7 million.  During 2003, $3.8 million of new loans were
made and repayments totaled $1.6 million.

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

         Real Estate.  During 1999, the Company  purchased the land for its main
office from one of its directors, Mr. Hendicks, at a cost of $450,000, which was
less than the appraised  value.  For a portion of 1999,  the Company also leased
temporary office space from Mr. Hendricks. Total rental payments were $4,500.

Item 13. Exhibits and Reports on Form 8-K.

(a)      Description of Exhibits.

Exhibit No.      Description
3.1              Articles of Incorporation of Registrant (1)
3.2              Bylaws of Registrant (1)
10.1             Form of Option Agreements (2)
10.2             2003 Cornerstone Bancorp Stock Option Plan(3)
13               Portions of 2003 Annual Report to Shareholders incorporated by
                 reference into this Form 10-KSB
21               Subsidiaries of Registrant (2)
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 Annual  Report on Form  10-KSB for the year
     ended December 31, 1999.
(3)  Incorporated  by  reference  to  Quarterly  Report on Form  10-QSB  for the
     quarter ended June 30, 2003.

(b)      Reports on Form 8-K.

         No reports on Form 8-K were filed during the fourth quarter of 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, 2003 and 2002,  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


                                       16
<PAGE>

         services,  except those not required by statute or regulation.  For the
         years ended  December 31, 2002 and 2003,  respectively,  Elliott Davis,
         LLC billed or expects to bill the Company an  aggregate  of $18,600 and
         $22,000 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 2003.  For a portion  of 2002
         Elliott  Davis,  LLC billed the  company  for  certain  internal  audit
         related services in the amount of approximately  $5,400. As of June 30,
         2003, Elliott Davis, LLC no longer performs internal audit services for
         the Company.

         (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, 2002 and 2003 Elliott
         Davis, LLC billed the Company an aggregate of $3,200 for tax fees.

         (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,
         2004, 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 and Finance Committee Pre-Approval of Audit and  Permissible
              Non-Audit Services of Independent Auditors

                  (i) 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.





                                       17
<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 25, 2004                 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:
<TABLE>
<CAPTION>
Signature                                Title                                              Date

<S>                                      <C>                                                <C>
s/J. Rodger Anthony
--------------------------               President, Chief Executive Officer, Director       March  25, 2004
J. Rodger Anthony

s/Walter L. Brooks
--------------------------               Director                                           March  25, 2004
Walter L. Brooks

s/T. Edward Childress, III
---------------------------              Director                                           March  25, 2004
T. Edward Childress, III

s/Ben L. Garvin
--------------------------               Director                                           March  25, 2004
Ben L. Garvin

s/J. Bruce Gaston
--------------------------               Director                                           March  25, 2004
J. Bruce Gaston


--------------------------               Director                                           March  25, 2004
S. Ervin Hendricks, Jr.

s/Joe E. Hooper
--------------------------               Director                                           March  25, 2004
Joe E. Hooper

s/Robert R. Spearman
--------------------------               Director                                           March  25, 2004
Robert R. Spearman

s/John M. Warren, Jr., M.D.
--------------------------               Director                                           March  25, 2004
John M. Warren, Jr., M.D.

s/George I. Wike, Jr.
--------------------------               Director                                           March  25, 2004
George I. Wike, Jr.
</TABLE>




                                       18
<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.

                                       19
<PAGE>

Exhibits

Exhibit No.     Description
3.1             Articles of Incorporation of Registrant (1)
3.2             Bylaws of Registrant (1)
10.1            Form of Option Agreements (2)
10.2            2003 Cornerstone Bancorp Stock Option Plan(3)
13              Portions of 2003 Annual Report to Shareholders incorporated by
                reference into this Form 10-KSB
21              Subsidiaries of Registrant (2)
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 Annual  Report on Form  10-KSB for the year
     ended December 31, 1999.
(3)  Incorporated by reference to Quarterly Report on Form10-QSB for the quarter
     ended June 30, 2003.



                                       20