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)   July 17, 2006

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.)

5319 Highway 153, 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 July 14, 2006, the Registrant issued a press release reporting earnings results for the fiscal quarter ended June 30, 2006.

Item 9.01           Financial Statements and Exhibits.

(d)          Exhibits

99.1        Press release dated July 14, 2006 reporting earnings results for the fiscal quarter ended June 30, 2006.

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:  July 17, 2006
	By:	\s\  Nathaniel F. Hughes
		Nathaniel F. Hughes,
		President and Chief Operating Officer

EX-99.1

Exhibit 99.1

Cornerstone Bancshares, Inc. Announces 2nd Quarter 2006 Financial Results

          HIXSON, Tenn., July 14 /PRNewswire-FirstCall/ -- Cornerstone Bancshares, Inc. (OTC Bulletin Board: CSBQ) today announced the following:

          Cornerstone Bancshares, Inc. saw its 2nd quarter earnings increase to $1.46 million or $.45 a share and $2.82 million year to date, an increase of 60.8% while book earnings per share increased to $.87 versus $.59, an increase of 47.5%.  The earnings growth was the result of continued balance sheet growth and core deposit growth coupled with an increase in Cornerstone’s net interest margin to 5.89%.  Leading the growth in deposits were certificates of deposit which on average grew 33.7% over the same period in 2005.  The Bank experienced continued exceptional loan growth as the loan portfolio finished the quarter with an average 2nd quarter balance of $281 million, up 23.2% over the same period in 2005.  The loan growth was concentrated in the business sector especially in asset based and commercial real estate lending as more customers choose customer service and went with a local organization that partnered with its customers.  Asset growth followed in line with loan growth as the Bank averaged $338 million in assets for the 2nd quarter of 2006 up from $279 million during the 2nd quarter of 2005 an increase of 21.0%.  The elevated net interest margin is due to increased number of participated loan servicing fees and a timing difference between the Bank’s repricing of assets and liabilities.

          Due to the above mentioned performance Cornerstone’s Board announces an updated earnings projection for nominal EPS during 2006.  EPS guidance has been increased from $1.62 per share to $1.75 per share.

          The asset quality improved slightly and remained at the superior level during the first half of 2006 as non-performing assets as a percentage of average total loans decreased to 0.36%.  The Bank had net charge offs of $82 thousand during the second quarter and $113 thousand year to date, while providing $853 thousand 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 from the first two quarters of 2006, and as a result Cornerstone was able to maintain a 1.52% allowance for possible loan losses compared to average loans.

          Cornerstone Bancshares, Inc. 2nd quarter 2006 earnings of $1.46 million represent a 60.4% increase over the 2nd quarter in 2005 earnings of $912 thousand.  Earnings per share for the 2nd quarter 2006 were $0.45 compared to $0.30 per share for the 2nd quarter of 2005.

          Cornerstone Bancshares, Inc. is a one-bank holding company serving the Chattanooga, Tennessee MSA with 5 branches and $340 million in assets specializing in business financial services.

CORNERSTONE BANCSHARES, INC.
Selected Financial Information
as of June 30, 2006
(in thousands)

	Three Months Ending June 30				% Change
EARNINGS SUMMARY	2006		2005
Interest income	$	7,184	$	4,844		48.31	%
Interest expense		2,438		1,427		70.85	%
Net interest income		4,746		3,417		38.89	%
Provision for loan loss		475		340		39.71	%
Net interest income after provision		4,271		3,077		38.80	%
Noninterest income		668		271		146.49	%
Noninterest expense		2,541		1,857		36.83	%
Pretax income		2,398		1,491		60.83	%
Income taxes		935		579		61.49	%
Net income	$	1,463	$	912		60.42	%
Earnings per common share	$	0.45	$	0.30		50.00	%
Weighted average common shares outstanding		3,241,674		3,028,037

	Year-to-Date Ending June 30				% Change
EARNINGS SUMMARY	2006		2005
Interest income	$	13,695	$	9,166		49.41	%
Interest expense		4,594		2,563		79.24	%
Net interest income		9,101		6,603		37.83	%
Provision for loan loss		853		550		55.09	%
Net interest income after provision		8,248		6,053		36.26	%
Noninterest income		1,102		489		125.36	%
Noninterest expense		4,784		3,677		30.11	%
Pretax income		4,566		2,865		59.37	%
Income taxes		1,748		1,113		57.05	%
Net income	$	2,818	$	1,752		60.84	%
Earnings per common share	$	0.87	$	0.59		47.46	%
Weighted average common shares outstanding		3,228,545		2,988,038

	Three Months Ending June 30				% Change
AVERAGE BALANCE SHEET SUMMARY	2006		2005
Loans, net of unearned income		281,321	$	228,367		23.19	%
Investment securities & Other		37,045		34,945		6.01	%
Earning assets		318,366		263,312		20.91	%
Total assets		338,399		279,585		21.04	%
Noninterest bearing deposits		36,032		32,720		10.12	%
Interest bearing transaction deposits		96,915		81,977		18.22	%
Certificates of deposit		124,507		98,588		26.29	%
Total deposits		257,454		213,285		20.71	%
Other interest bearing liabilities		43,796		36,805		18.99	%
Shareholder’s equity		34,870		27,768		25.58	%

	Year-to-Date Ending June 30				% Change
AVERAGE BALANCE SHEET SUMMARY	2006		2005
Loans, net of unearned income	$	276,512	$	219,567		25.94	%
Investment securities & Other		36,443		32,547		11.97	%
Earning assets		312,955		252,114		24.13	%
Total assets		333,511		268,102		24.40	%
Noninterest bearing deposits		36,336		33,082		9.84	%
Interest bearing transaction deposits		91,944		75,474		21.82	%
Certificates of deposit		126,723		94,750		33.74	%
Total deposits		255,003		203,306		25.43	%
Other interest bearing liabilities		42,194		36,414		15.87	%
Shareholder’s equity		34,183		26,768		27.70	%

	Three Months Ending June 30						Year-to-Date Ending June 30
SELECTED RATIOS	2006			2005			2006			2005
Average equity to average assets		10.30	%		9.93	%		10.25	%		9.98	%
Average net loans to average total assets		83.13	%		81.68	%		82.91	%		81.90	%
Return on average assets		1.73	%		1.30	%		0.84	%		0.65	%
Return on average total equity		16.78	%		13.14	%		8.24	%		6.55	%
Actual Equity on June 30,	$	35,153,346		$	28,386,936
Actual # shares outstanding on June 30,		3,243,453			3,051,334
Book value per common share	$	10.84		$	9.30

SOURCE  Cornerstone Bancshares, Inc.
          -0-                                                     07/14/2006
          /CONTACT:  Frank Hughes, President & COO of Cornerstone Bancshares, Inc.,
+1-423-385-3009/
          /Web site:  http://www.cscbank.com /