Colonial BancGroup Inc. of Montgomery, Ala., has joined the parade of banking companies restating years of earnings to correct their accounting for derivatives.
The $21 billion-asset company said Thursday that it had restated earnings for the full years 2002 through 2004 and for the first three quarters of 2005 to reflect a change in its accounting for brokered certificates of deposits and junior subordinated debt.
The restatements raised 2002 earnings per share, by 9%, but reduced the 2003 and 2004 figures - by 3%, to $1.16, and 2%, to $1.31. Eight percent adjustments were announced for the 2005 quarters: down in the first, to 34 cents; up in the second, to 41 cents; and down again in the third, to 36 cents. For the 15 quarters, the restatements increased earnings by a total of $431,000.
On Wednesday another Alabama banking company, Compass Bancshares Inc. of Birmingham, restated earnings from 2002 through 2004 and for the first three quarters of both 2004 and 2005. And late last year South Financial Group Inc. of Greenville, S.C., and Center Financial Corp. of Los Angeles also restated several years of earnings in connection with the issue.
In each case, the financial impact was relatively small when viewed cumulatively rather than by year. For example, at Compass, the restatement reduced earnings by a total of $600,000.
"I don't think it's that big a deal, because it doesn't change anyone's future," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP. However, he said "it creates some noise and comparability issues."
Christopher Marinac of FIG Partners LLC said the restatements lowered the net interest margins of the companies involved, but they also created "a slight benefit" to capital. "I'm not overly alarmed" by the Colonial restatements, he said.
Both analysts expect similar restatements, also tied to Financial Accounting Standard 133, which governs how companies account for derivatives. The standard lets them use hedge accounting if they show that a hedging relationship is effective in offsetting changes in fair value or cash flows for the risk hedged.
Donna Fisher, the director of tax and accounting for the American Bankers Association, said last week that auditors are now reversing course, telling some clients that they do not qualify for hedge accounting. She said she was "not surprised" to see a jump in restatements tied to the accounting rule and predicted more in 2006.
"FASB 133 is extremely complex," Ms. Fisher said. "It's a very frustrating thing for our industry."
On Thursday, Colonial's shareholders appeared to take the news in stride. The company's shares slipped 0.21%, to $24.
