Only seven days after announcing April 17 that it would adopt a new accounting standard to restructure its balance sheet, Frontier Financial Corp. in Everett, Wash., reversed its decision.

It is one of a handful of community banking companies to rescind early adoption of the controversial Financial Accounting Statement 159, after regulators offered a belated interpretation of how it should be applied and frowned on using it to avoid restructuring charges.

Unlike some others, the $3.3 billion-asset Frontier avoided a painful earnings restatement, because it reversed the adoption before reporting first-quarter results April 24.

John Dickson, Frontier's president and chief executive officer, said that the reversal was embarrassing, even though his company did get out of FAS 159 without a restatement.

"I'm disappointed and frustrated with the accounting industry and their related regulatory bodies," Mr. Dickson said. "It is unfortunate the interpretation was not released until after many companies had elected early adoption."

Boardwalk Bancorp Inc. in Linwood, N.J., suffered far more earnings trouble than Frontier for adopting and then rescinding FAS 159. The $453 million-asset parent of Boardwalk Bank said Friday that it would revise its first-quarter results to a net loss of $664,000, because it is discarding the new accounting standard.

Last month it reported a profit of $647,000, or 15 cents a share, after conducting a balance-sheet restructuring under the standard.

But investors seem unconcerned about all the FAS 159-related earnings havoc at Boardwalk and other companies. Boardwalk's stock held steady Friday, and none of the other companies that announced restructuring charges after rescinding the standard had their stocks fall appreciably.

Observers say investors realize the restructurings ultimately will benefit the companies, regardless of the accounting.

The Financial Accounting Standards Board released FAS 159, "The Fair Value Option for Financial Assets and Liabilities," on Feb. 15. The standard, which is meant to promote the use of fair-value accounting, will take effect for most banking companies Jan. 1, but they also could elect for early adoption within 120 days of the start of their current fiscal year.

Some initial interpretations of the standard suggested that public companies could jettison low-yield assets and high-cost liabilities with little or no effect on earnings. Those interpretations had investment bankers encouraging margin-squeezed bankers to adopt the standard this spring, as a way to restructure their balance sheets without recognizing any losses in earnings.

Dozens did just that, selling off low-yielding securities and buying higher-yielding ones to give their net interest margins an immediate boost.

Banking regulators and the FASB have not formally objected to the standard's use for restructurings. But after an initial silence, the Securities and Exchange Commission began to make its position clearer last month.

To the dismay of some early adopters, that position appears to be far less permissive than they had counted on for their restructurings.

After conferring with the SEC, the newly opened Center for Audit Quality, an arm of the American Institute of Certified Public Accountants, advised auditors last month not to go along with such restructurings. The center said that companies seeking to avoid losses after restructuring their balance sheets were violating the "spirit" of the standard.

Soon after, a handful of banking companies, including the $2.4 billion-asset Seacoast Banking Corp. of Florida in Stuart, the $1.3 billion-asset First United Corp. in Oakland, Md., and the $368 million-asset Britton & Koontz Capital Corp. in Natchez, Miss., announced they had reversed adoption of the standard and recognized restructuring charges. (Those companies did not return calls seeking comment.)

Mike Heflin, executive vice president of the portfolio strategies group at First Horizon National Corp.'s FTN Financial Capital Markets in Memphis, said that despite the charges, none of their stocks got punished severely, because the restructurings make sense. "In the long run, the companies are going to reduce their interest rate risk and/or make more money, and that's going to build shareholder value," he said.

After discarding FAS 159, Frontier went ahead with its restructuring anyway, announcing it would take a $2.5 million hit to its second-quarter earnings to do so. Selling about $48 million of securities would result in a pretax loss of $1 million, and prepaying $60 million of Federal Home Loan bank advances would force it to take a $1.5 million pretax charge, the company said.

However, Frontier also reinvested in higher-yielding securities and borrowed more Home Loan bank money at lower yields. It said those moves are expected to add $1.1 million to its annual pretax income — enough to compensate for the restructuring charges within two years.

Its stock moved only slightly in response. And that's as it should be, said Jeff Ruis, an analyst at D.A. Davidson & Co. in Portland, Ore.

"It was just a shifting around of certain assets and liabilities, and however they account for them, it's not a huge impact," he said.

According to Mr. Dickson, the ultimate benefit of Frontier's restructuring will be roughly the same with or without the new standard. Had his company not rescinded FAS 159, its net interest margin would have increased by 5.3 basis points immediately, rather than by the third quarter.

Still, he said that Frontier would have preferred to wait until after reporting first-quarter earnings to announce the restructuring.

Because of the pressing deadline for making a decision about FAS 159, Mr. Dickson said that his company had to announce the reversal on the same day as its earnings, detracting from its positive results. Frontier's net income rose 13.6% from a year earlier, to $17.5 million, on strong loan growth, despite continued margin compression.

Sydney Garmong, an executive in the financial institutions group at the auditing firm Crowe, Chizek & Co., said that the fallout around the interpretations of FAS 159 is an "interesting test case" of principle-based standards. The FASB is seeking to simplify the accounting of complex transactions, but principle-based standards may leave too much room for multiple interpretations — particularly disconcerting for an industry that is used to more rules-based standards, Ms. Garmong said.

"The question of the day is whether or not principle-based standards will work," she said. "I think the way to go is to have a principle-based standard, but then have some implementing guidance, so people have some idea about what is an appropriate application and what is not."

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