Cornerstone Bancshares Inc. of Chattanooga, Tenn., said Wednesday that a recently discovered problem with a commercial loan forced it to restate its fourth-quarter results.
Instead of the profit of $1.6 million, or 18 cents a share, that it announced Jan. 18, the $450 million-asset company said it lost $2.9 million, or 45 cents a share.
Cornerstone said the revision came about because of "an apparent customer misuse of funds" that it spotted this month. Because the misuse happened last year, accounting guidelines required the company to realize the loss in 2007.
Greg Jones, Cornerstone's chairman and chief executive, said in an interview that the problem was isolated to a single non-real-estate commercial loan. He declined to provide any further details, citing an ongoing investigation.
"We are very early in the discovery phase of the investigation," Mr. Jones said. "In the meantime, we are basically going to review all of our lending standards to be sure this doesn't happen again."
The company said it added $6.5 million before taxes to its loan-loss provision in case the loan has to be charged off.
Its fourth-quarter provision was $7.9 million, versus $49,000 for the fourth quarter of 2006.
The loan problem wiped out 81% of Cornerstone's previously stated earnings for the full year. The company said its 2007 net income was $871,000 instead of the $4.93 million it announced earlier.
Mr. Jones said the problem would not affect 2008 earnings.
Cornerstones's stock fell 4.5% Wednesday on news of the revised earnings, to close at $9.55 a share.
