Community Reclassifies Securities Loss; Restates First Quarter Results
18 Juin 2007 - 2:13PM
PR Newswire (US)
HARRISBURG, Pa., June 18 /PRNewswire-FirstCall/ -- Community Banks,
Inc. ("Community") (NASDAQ:CMTY) announced that it will revise its
earnings for the first quarter of 2007 based on a final Securities
and Exchange Commission (SEC) interpretation of a new accounting
standard. The interpretation related to Community's early adoption
of Statement of Financial Accounting Standards No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities" (SFAS
No. 159), which was released amid some uncertainty in February of
2007. The revision will not affect other previously issued
financial statements and will have no adverse impact on future
periods. On April 18, 2007, Community reported operating results
for the first three months of 2007, reflecting net income of $9.6
million and earnings per share of $0.41. In that original earnings
release, Community described its accounting treatment of the
effects of an investment portfolio restructuring, which included a
$3.1 million reduction (net of tax) in opening retained earnings.
As a result of the SEC's subsequent interpretation, Community will
reclassify the effect of the restructuring as a charge to first
quarter earnings. This reclassification will result in revised net
income of $6.6 million and revised earnings per share of $0.28 for
the first quarter of 2007. There will be no material adjustment to
either beginning or ending shareholders' equity from amounts
previously reported. Due, in part, to the timing of its release,
SFAS No. 159 had been a source of significant confusion and
controversy within the banking industry. The new standard was
released on February 15, 2007, but permitted early adoption
retroactive to January 1, 2007. The decision to early adopt was
required to be made before April 30, 2007, but before the issuance
of any interim financial statements. Unfortunately, the unusually
compressed timeframe between the issuance of the Standard, the
deadline for early adoption, and the timing of the release of first
quarter operating results contributed to limited regulatory
guidance and some misinterpretation with respect to its
application. Utilizing the best information available, Community
consulted with its outside advisors and originally concluded that
the charges associated with its investment portfolio restructuring
qualified under the early adoption provisions of the Standard.
Community then timely filed its quarterly earnings report on Form
10-Q with the SEC on May 10, 2007, utilizing those early adoption
provisions. After a subsequent review of Community's filings, the
SEC contacted officials at the Company requesting a more detailed
explanation for Community's rationale for early adoption. After an
evaluation of Community's position, the SEC staff advised the
Company that its treatment of its investment portfolio
restructuring was inconsistent with the SEC's interpretation of the
intent of FAS No. 159 and was, therefore, not considered a
substantive adoption. As a result of the discussions with the SEC
staff, Community reached the decision to restate its first quarter
2007 earnings and will file a revised Form 10-Q reflecting the
required changes. This revised report is expected to be filed no
later than June 25, 2007. Accordingly, the previously issued
earnings release and financial statements for the three months
ended March 31, 2007, as included in Community's Form 10-Q filed on
May 10, 2007, should no longer be relied upon. "Although the
decision to reverse the application of SFAS No. 159 impacts the
results for the first quarter of 2007, the sale of lower yielding
investment securities and the subsequent reinvestment into higher
yielding securities is a prudent business decision, particularly in
this current period of uncertain interest rates and a flat U.S.
Treasury yield curve," said Eddie L. Dunklebarger, President &
CEO. Mr. Dunklebarger continued, "These transactions, commonly
known throughout the industry as balance sheet restructurings, will
actually add approximately $1 million to net interest income
(pre-tax) in 2007 and $1.4 million (pre-tax) on an annualized
basis. Even so, we were disappointed we were unable to implement
SFAS No. 159 in the manner previously disclosed in our earnings
press release dated April 18, 2007, and reflected in our Form 10-Q
issued May 10, 2007." On May 1, 2007, Community announced that it
had reached an agreement to merge with Susquehanna Bancshares, Inc.
("Susquehanna"). Under the terms of the agreement, Susquehanna will
acquire Community in a stock and cash transaction valued at
approximately $860 million. The transaction will consolidate the
companies' presence in southeastern Pennsylvania and the Mid-
Atlantic region, particularly in the attractive York and Lancaster
markets. The combined company will have over $12 billion in assets
and approximately $2 billion in market capitalization, making it
the 45th largest bank holding company in the United States. The
transaction is expected to close before the end of the year. The
change to Community's first quarter results as a result of the
SEC's recent interpretation will have no effect on the merger.
Susquehanna will file a registration statement on Form S-4
containing a joint proxy statement addressed to Susquehanna's and
Community's shareholders and a prospectus for the Susquehanna stock
to be offered in the Merger with the Securities and Exchange
Commission. A definitive proxy statement will be sent to both
Susquehanna's and Community's shareholders seeking their approval
of the Merger. Investors and shareholders are urged to read the
registration statement carefully when it becomes available, because
it will contain important information about the Merger. Investors
and shareholders may obtain a free copy of the registration
statement, when it becomes available, and other documents filed
with, or furnished to, the SEC by Susquehanna or Community at the
SEC's website at http://www.sec.gov/. Copies of the registration
statement and other documents filed by Susquehanna or Community
with the SEC may also be obtained for free from Susquehanna by
directing a written request to Susquehanna Bancshares, Inc., 26
North Cedar Street, Lititz, PA 17543, Attention: Abram G. Koser,
Vice President - Investor Relations or from Community by directing
a written request to Community Banks, Inc., 777 East Park Drive,
Harrisburg, PA 17111, Attention: Patricia E. Hoch. This press
release contains "forward looking" information as defined by the
Private Securities Litigation Reform Act of 1995, which is based on
Community's current expectations, estimates, and projections about
future events and financial trends affecting the financial
condition of its business. These statements are not historical
facts or guarantees of future performance, events, or results. Such
statements involve potential risks and uncertainties and,
accordingly, actual performance results may differ materially.
Community undertakes no obligation to publicly update or revise
forward looking information, whether as a result of new, updated
information, future events or otherwise. DATASOURCE: Community
Banks, Inc. CONTACT: Donald F. Holt, EVP, CFO of Community Banks,
Inc., +1-717-920-5801, or Fax, +1-717-920-1683 Web site:
http://www.communitybanks.com/
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