8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)		January 23, 2008
CORNERSTONE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Tennessee	000-30497			62-1175427
(State or other jurisdiction of incorporation)	(Commission File Number)			(I.R.S. Employer Identification No.)
835 Georgia Avenue, Chattanooga, Tennessee				37343
(Address of principal executive offices)				(Zip Code)
Registrant’s telephone number, including area code			(423) 385-3000
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02.Results of Operations and Financial Condition

On January 18, 2008, the Registrant issued a press release reporting earnings results for the fiscal quarter ended December 31, 2007.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits

99.1 Press release dated January 18, 2008 reporting earnings results for the fiscal quarter ended December 31, 2007.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CORNERSTONE BANCSHARES, INC. (Registrant)
Date: January 23, 2007	By:	/s/ Nathaniel F. Hughes
		Nathaniel F. Hughes, President and Chief Operating Officer

EX-99.1

Cornerstone Bancshares, Inc. Announces 4th Quarter 2007 Financial Results on January 18, 2008

HIXSON, Tenn., Jan. 18 /PRNewswire-FirstCall/ -- Cornerstone Bancshares, Inc. (OTC Bulletin Board: CSBQ) today announced the following:

Cornerstone Bancshares, Inc. saw its 4th quarter earnings increase to $1.16 million or $0.18 a share from 3rd quarter 2007 of $559 thousand or $.09 per share. Year to date Cornerstone made $4.93 million or $0.76 a share a decrease of 15.4% over 2006's earnings per share of $0.90. Earning assets increased 21.3% up to $416 million lead by the Bank's loan portfolio which finished the quarter with an average 4th quarter balance of $378 million, an increase of 27.9% over the same period in 2006. This scheduled growth offset expected net interest income compression given the recent flatness of the yield curve and the high cost of funds relative to current loan rates. The net interest margin decreased from 5.80% during the last three months of 2006 to 4.64% for the last quarter of 2007. During the quarter the Bank settled an interest contract dispute in the amount of $316 thousand. The additional expense reduced the net interest margin by 30 basis points for the quarter. Without this one time charge the net interest margin would have been 4.94%. This expense reduced the 4th quarter and annual earnings by $113 thousand after taxes.

Currently, Cornerstone has 6.4 million shares outstanding and expects earnings per share to increase to a range of $.86 to $.96 per share in 2008. This increase represents an improvement over 2007 earnings ranging from of 13.2% to 26.3%. During 2007 Cornerstone opened a Loan Production Office in Knoxville, TN and created a new line of business servicing the electronic payments needs of payroll processors across the country. The Bank presently services eleven (11) processors and plans on growing the business to twenty (20) processors during 2008.

The asset quality improved slightly during the last quarter in 2007 as non-performing loans as a percentage of average total loans remained at 0.18%, while past due loans as a percentage of total loans increased to 1.14%. The Bank had net charge offs of $279 thousand during the fourth quarter and $957 thousand year to date, while providing $3.9 million to the loan loss allowance year to date. The large provision was created to fully fund the loan loss allowance for the loan growth realized during 2007 and provide $2.7 million for one credit with an alleged fraud that is operating under a forbearance agreement.

Cornerstone Bancshares, Inc. is a one-bank holding company serving the Chattanooga, Tennessee MSA with 5 branches and one loan production office in Dalton, GA and one loan production office in Knoxville, TN and $450 million in assets specializing in business financial services.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which contains a safe harbor for forward-looking statements. The Company relies on this safe harbor in making such disclosures. The statements are based on management's current beliefs and assumptions about expectations, estimates, strategies and projections. These statements are not guarantees of future performance or results and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

CORNERSTONE BANCSHARES, INC.

Selected Financial Information

as of December 31, 2007

(in thousands)

	Three Months Ending December 31
EARNINGS SUMMARY		2007		2006	% Change
Interest income	$	8,877	$	7,936	11.9	%
Interest expense		4,026		2,931	37.4	%
Net interest income		4,851		5,005	-3.1	%
Provision for loan loss		709		49	1346.7	%
Net interest income after provision		4,143		4,956	-16.4	%
Noninterest income		461		370	24.7	%
Noninterest expense		2,811		3,297	-14.7	%
Pretax income		1,793		2,029	-11.6	%
Income taxes		635		582	9.0	%
Net income	$	1,158	$	1,447	-19.9	%
Earnings per common share	$	0.18	$	0.22	-19.2	%
Weighted average common shares
outstanding (1)		6,445,663		6,505,405

	Year-to-Date Ending December 31
EARNINGS SUMMARY		2007		2006	% Change
Interest income	$	34,784	$	29,165	19.3	%
Interest expense		14,414		10,306	39.9	%
Net interest income		20,370		18,859	8.0	%
Provision for loan loss		3,909		1,107	253.1	%
Net interest income after provision		16,461		17,752	-7.3	%
Noninterest income		1,695		1,861	-8.9	%
Noninterest expense		10,926		10,473	4.3	%
Pretax income		7,230		9,140	-20.9	%
Income taxes		2,296		3,328	-31.0	%
Net income	$	4,934	$	5,812	-15.1	%
Earnings per common share	$	0.76	$	0.90	-15.4	%
Weighted average common shares
outstanding (1)		6,499,205		6,479,441

	Three Months Ending December 31
AVERAGE BALANCE SHEET SUMMARY		2007		2006	% Change
Loans, net of unearned income	$	378,173	$	295,787	27.9	%
Investment securities & Other		37,779		47,095	-19.8	%
Earning assets		415,952		342,882	21.3	%
Total assets		434,992		362,059	20.1	%
Noninterest bearing deposits		43,761		39,773	10.0	%
Interest bearing transaction deposits		94,720		96,763	-2.1	%
Certificates of deposit		189,264		140,064	35.1	%
Total deposits		327,745		276,600	18.5	%
Other interest bearing liabilities		64,146		44,922	42.8	%
Shareholder's equity		41,259		38,131	8.2	%

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	Year-to-Date Ending December 31
AVERAGE BALANCE SHEET SUMMARY		2007		2006	% Change
Loans, net of unearned income	$	353,278	$	284,105	24.3	%
Investment securities & Other		38,433		40,904	-6.0	%
Earning assets		391,711		325,009	20.5	%
Total assets		413,043		344,741	19.8	%
Noninterest bearing deposits		41,503		37,056	12.0	%
Interest bearing transaction deposits		92,135		93,178	-1.1	%
Certificates of deposit		168,670		132,465	27.3	%
Total deposits		302,308		262,699	15.1	%
Other interest bearing liabilities		67,759		44,019	53.9	%
Shareholder's equity		40,737		35,728	14.0	%

	Three Months Ending December 31						Year-to-Date Ending December 31
SELECTED RATIOS		2007			2006			2007		2006
Average equity to
average assets		9.48	%		10.53	%		9.86	%	10.36	%
Average net loans to
average total assets		86.94	%		81.70	%		85.53	%	82.41	%
Return on average assets		1.06	%		1.59	%		1.19	%	1.69	%
Return on average total equity		11.14	%		15.18	%		12.11	%	16.27	%
Actual Equity on December 31,	$	40,389,850		$	38,055,477
Actual # shares outstanding on
December 31		6,369,718			6,503,318
Book value per common share (1)	$	6.34		$	5.85

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