SEC Company Response from FIRST COMMONWEALTH FINANCIAL (FCF) — Aug 17, 2009
FIRST COMMONWEALTH FINANCIAL CORP /PA/ (FCF) (CIK 0000712537)
Date: Aug. 17, 2009 · CIK: 0000712537 · Accession: 0001193125-09-176818
AI Filing Summary & Sentiment
Referenced dates: July 15, 2009, June 2, 2009
Letter
United States Securities and Division of Corporation Finance Filed February 26, 2009 Form 10-Q for the Quarterly Period Ended March 31, 2009 Filed May 7, 2009 File No. 1-11138
Dear Mr. Volley:
First Commonwealth Financial Corporation (the “Company,” “we,” “our” or “us”) has received your letter dated July 15, 2009 containing comments on the Company’s above referenced Annual Report on Form 10-K, filed by the Company with the Securities and Exchange Commission (the “Commission”) on February 26, 2009. This letter responds to each of the comments set forth in your letter.
For convenience of reference, we have set forth your comments in bold below, with the Company’s response following each comment.
Financial Statements
Note 7 – Impairment of Investment Securities, page 12
1. We note your response to comment 6 in your letter dated June 2, 2009. It appears that the subsequent events related to BankAtlantic and Imperial Capital Bancorp, Inc. are type 1 subsequent events that provide additional evidence with respect
United States Securities and
Exchange Commission
August 17, 2009
Page
to conditions that existed at the date of the balance sheet and should have been included in your other-than-temporary impairment analysis at December 31, 2008. These events are consistent with the example in paragraph .04 of AU Section 560 related to a loss on an uncollectible trade account receivable as a result of a customer’s deteriorating financial condition leading to bankruptcy subsequent to the balance-sheet date. Please tell us the effect on your December 31, 2008 and March 31, 2009 financial statements if you had included these events in your other-than-temporary impairment analysis as of December 31, 2008. If you believe the effect is material, please amend your filings and restate your financial statements to correct for this error. If you believe the effect is not material and a restatement is not required, please provide us with your SAB 99 materiality analysis.
We have carefully considered the Staff’s comments regarding the subsequent events relating to Imperial Capital Bancorp (“ICB”) and BankAtlantic Bancorp (“BankAtlantic”). We will first address the classification of these events as type 1 or type 2 subsequent events under AU Section 560 and then address the materiality of the effect of including these events in our financial statements as of December 31, 2008 and March 31, 2009.
Subsequent Event Classification
At the outset, we wish to highlight that the subsequent events relating to ICB and the subsequent event relating to BankAtlantic are fundamentally different and therefore require separate analysis and discussion.
ICB Subsequent Event. On March 3, 2009, we learned that ICB had disclosed on February 17, 2009 that the Federal Deposit Insurance Corporation and the California Department of Financial Institutions had imposed a Cease and Desist Order against ICB’s bank subsidiary, Imperial Capital Bank (the “Order”). Among other stipulations, the Order prohibited the Bank from paying cash dividends without the prior consent of its regulators. Concurrently with the Order, ICB received notice from the Federal Reserve Bank of San Francisco, its regulator as a bank holding company, that designated ICB to be in “troubled condition” and prohibited ICB from paying cash dividends, including interest payments on its trust preferred securities.
We concur with the Staff’s position that these events relating to ICB constituted type 1 subsequent events, because the conditions which led to the subsequent events, namely a weakened and deteriorating financial condition, existed at December 31, 2008. To this end, we note that the total risk-based capital ratios of ICB and its bank subsidiary were below the “well capitalized” thresholds at December 31, 2008, which can trigger regulatory intervention, and the financial condition of ICB had deteriorated dramatically from the third to the fourth quarter of 2008, as evidenced by a net loss of $6.66 per share in the fourth quarter of 2008
United States Securities and
Exchange Commission
August 17, 2009
Page
that was driven primarily by a 500% increase in the provision for credit losses from the third quarter to the fourth quarter of 2008. Had we adjusted our analysis for the effect of this subsequent event, we would have assigned a 100% probability of default to ICB. Our assessment of the materiality of this change is described below under “Materiality Analysis” and in our SAB 99 materiality analysis which are attached as Exhibits A and B.
BankAtlantic Subsequent Event. BankAtlantic disclosed and we became aware on February 20, 2009, that it had “elected to defer regularly scheduled interest payments” on the company’s trust preferred securities. The disclosure did not state any company-specific reasons for the deferral, but instead attributed the decision to the “challenging economic environment” and the company’s desire to “preserve liquidity in this environment.” The disclosure did not indicate how long the deferral would last but indicated that BankAtlantic had filed an application to participate in the U.S. Treasury’s Capital Purchase Plan (“CPP”) and stated: “In the event we receive approval to participate in the CPP and choose to do so, we expect that we would end the deferral period using existing funds of the Company to pay all accrued amounts on the [trust preferred securities]” (emphasis added).
Based on our analysis of the limited information that BankAtlantic disclosed about its deferral decision and the financial information that was available to us at the time we filed our Annual Report, we concluded that the announcement was not indicative of conditions that existed as of December 31, 2008. Rather, we concluded that the decision to defer was made as a precautionary measure to preserve liquidity in the face of great uncertainty over future economic conditions. This conclusion is supported by the following factors:
1. BankAtlantic’s financial information as of December 31, 2008 showed that its capital was stable despite having incurred significant losses during 2008.
a. BankAtlantic’s risk based capital levels as of December 31, 2008 were unchanged from December 31, 2007 and exceeded well-capitalized status.
12/31/08
12/31/07
Regulatory Minimum
Well Capitalized Minimum
Total Capital Ratio
11.63%
11.63%
8.0%
10.00%
Tier I Capital Ratio
9.85%
9.85%
4.0%
6.00%
United States Securities and
Exchange Commission
August 17, 2009
Page
b. At December 31, 2008, BankAtlantic’s risk based capital levels were comparable to those of its peers.
Bank Atlantic
Peers (1)
Total Capital Ratio
11.63%
11.63%
Tier I Capital Ratio
9.85%
10.00%
(1) Source: SNL Southeast Thrift Peer Group
c. The losses reported by BankAtlantic in the fourth quarter of 2008, unlike those reported by ICB, were driven primarily by non-cash impairment charges. For the fourth quarter of 2008, BankAtlantic reported a net loss of $156.6 million for the quarter which included non-cash charges of $129.6 million, comprised of goodwill impairment and a non-cash deferred tax asset valuation allowance. In its earnings release, BankAtlantic described this loss as follows:
“While reflected in the fourth quarter’s earnings, the goodwill impairment and the deferred tax asset allowance have no impact on ongoing operations and did not affect BankAtlantic’s regulatory capital, well-capitalized status, cash or liquidity.”
The fact that these losses did not affect the cash position, liquidity or capital of BankAtlantic, supported our determination that BankAtlantic’s decision to exercise its option to defer future interest payments on its trust preferred securities was not the culmination of a weak or deteriorating financial condition that existed at December 31, 2008.
2. BankAtlantic’s liquidity position was not deteriorating at December 31, 2008, but rather had improved significantly from September 30, 2008 levels due to proactive measures taken during the fourth quarter. This conclusion was supported by the following factors:
a. BankAtlantic highlighted its improved liquidity position in its fourth quarter earnings release, as follows: “During the fourth quarter of 2008, BankAtlantic proactively reduced its period-end Federal Home Loan Bank (‘FHLB’) borrowings from the third quarter by $501.0 million, or 34.0%, and reduced its ratio of total borrowings to deposits plus borrowings from 30.0% to 25.9%. Further, BankAtlantic’s brokered deposit balances at December 31, 2008 represented only 4.0% of assets, an amount we believe to be significantly below other Florida financial institutions.”
United States Securities and
Exchange Commission
August 17, 2009
Page
b. BankAtlantic’s improving liquidity position was further evidenced by a $32.3 million or 105% increase in Net Cash Provided by Operating Activities as indicated in BankAtlantic’s Consolidated Statement of Cash Flows filed with its September 30, 2008 Form 10-Q (the most recent cash flow statement available at the time we filed our Annual Report).
c. As of December 31, 2008, as well as February 26, 2009, the date First Commonwealth filed its Annual Report on Form 10-K, BankAtlantic had timely made all scheduled interest payments on its trust preferred debt. This includes payments that were due and collected in January 2009.
d. When describing its application for the CPP, BankAtlantic indicated that it expected to end the deferral of interest on its trust preferred securities if the application was approved by using “existing funds of the Company to pay all accrued amounts on the Securities.” This, in our view, demonstrated that BankAtlantic had adequate liquidity to service its trust preferred interest payments at December 31, 2008, even without receiving a CPP investment.
We assigned significant weight to this evidence of BankAtlantic’s improving liquidity position in our subsequent event analysis, because preservation of liquidity was the stated purpose for BankAtlantic’s decision to defer interest payments on its trust preferred securities. The fact that BankAtlantic had adequate liquidity at December 31, 2008 supported our conclusion that the decision to defer was made as a precaution against future risks and not the culmination of conditions that existed at December 31, 2008.
In conclusion, based on all the information that was available to us at the time we filed our Annual Report, we determined the BankAtlantic announcement was a type 2 subsequent event that would not result in adjustments of the December 31, 2008 financial statements because the decision on the part of BankAtlantic reflected a new condition that would be concurrently evaluated, rather than a condition that existed at December 31, 2008. Specifically, the deferral decision was part of an effort to preserve liquidity in the face of economic uncertainty. Liquidity decisions are often driven by circumstances that develop suddenly, such as bank runs or strong negative moods and perceptions by customers and the public at large. To this end, it is worth noting that the deferral announcement was made approximately 10 trading days prior to the bottom of the stock market and was likely influenced by the extreme negative mood that pervaded at that time. During this period, the stock market was declining precipitously, the pace of bank failures was accelerating and many economists and commentators were predicting an economic depression. It is our judgment that this extreme negative mood, which arose subsequent to December 31, 2008, caused BankAtlantic’s management to evaluate its options to preserve liquidity and ultimately drove the company’s deferral decision.
United States Securities and
Exchange Commission
August 17, 2009
Page
After reaching our conclusion and before filing our 2008 Form 10-K, a summary of our review of the BankAtlantic deferral announcement was provided to our auditors, KPMG LLP, for their review. Upon review, KPMG’s national office agreed with our conclusion that the deferral by BankAtlantic constituted a type 2 subsequent event.
Materiality Analysis
While it is our judgment it was appropriate to characterize BankAtlantic’s announcement as a type 2 subsequent event, even if we had characterized the announcement as a type 1 subsequent event, our analysis indicates it would not had been material to our financial results. Incorporating both the ICB and BankAtlantic events as type 1 subsequent events would have reduced our 2008 net income by $2.621 million and would have only a negligible impact on our capital ratios at December 31, 2008, reducing the Total Risk Based Capital Ratio by one basis point while other risk based capital ratios would be unchanged. Given the extreme volatility of bank earnings and the significant focus on capital in the current environment, we believe investors would assign greater importance to the impact of the adjustment on our capital ratios than to the impact on net income. Accordingly, after considering all relevant quantitative and qualitative factors in accordance with SAB 99, we concluded that the impact of considering this announcement in our impairment analysis as of December 31, 2008 would not have been material. Our SAB 99 analysis accompanies this letter and is briefly summarized below.
In the December 31, 2008 valuation reports of our trust preferred securities, BankAtlantic was assigned a 6% probability of default. Although we normally assign a 100% probability of default to issuers that defer interest payments, we believe the unique nature of BankAtlantic’s deferral announcement would have merited a lower probability of default had we adjusted our impairment analysis for their announcement. As noted above, BankAtlantic disclosed at the time of its deferral that it had filed an application to participate in the CPP and if that application was approved, it “expected” to end the deferral period and pay accrued interest on its trust preferred securities. While this statement was phrased as an “expectation,” we determined that BankAtlantic would have been required to end the deferral period in order to pay dividends on its CPP preferred stock due to the structural seniority of the trust preferred securities, which are reflected as subordinated debt in the capital structure. Therefore, we concluded that BankAtlantic would in fact end the deferral period if it participated in the CPP.
United States Securities and
Exchange Commission
August 17, 2009
Page
As a result of the above considerations, there was uncertainty at the time we filed our Annual Report over whether BankAtlantic would actually defer its next scheduled interest payment. As such, we would have assessed the likelihood of approval of BankAtlantic’s CPP application when determining the appropriate probability of default for BankAtlantic at December 31, 2008, consistent with our impairment assessment process. Therefore we considered the probability of deferral was the inverse of the probability of BankAtlantic receiving approval to participate in the CPP.
To assess this probability, we compared BankAtlantic’s financial condition as of December 31, 2008 to that of similar banks that had received approval to participate in the CPP. The table below shows three institutions of similar size, asset quality and capital pos
Show Raw Text
CORRESP
1
filename1.htm
Correspondence
First Commonwealth
Financial Corporation
Executive Offices
Old Courthouse Square
22 North Sixth Street
Indiana, Pennsylvania 15701-0400
724.349.7220 Phone
724.464.1112 Fax
www.fcbanking.com
August 17, 2009
By EDGAR
Mr. Michael C. Volley
United States Securities and
Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Mail Stop 4561
RE:
First Commonwealth Financial Corporation
Form 10-K for
Fiscal Year Ended December 31, 2008
Filed February 26, 2009
Form 10-Q for the Quarterly Period Ended March 31, 2009
Filed May 7, 2009
File No. 1-11138
Dear Mr. Volley:
First Commonwealth Financial Corporation (the “Company,” “we,” “our” or “us”) has received your letter dated
July 15, 2009 containing comments on the Company’s above referenced Annual Report on Form 10-K, filed by the Company with the Securities and Exchange Commission (the “Commission”) on February 26, 2009. This letter responds
to each of the comments set forth in your letter.
For convenience of reference, we have set forth your comments in bold below, with the
Company’s response following each comment.
Financial Statements
Note 7 – Impairment of Investment Securities, page 12
1. We note your response to comment 6 in your
letter dated June 2, 2009. It appears that the subsequent events related to BankAtlantic and Imperial Capital Bancorp, Inc. are type 1 subsequent events that provide additional evidence with respect
United States Securities and
Exchange Commission
August 17, 2009
Page
2
to conditions that existed at the date of the balance sheet and should have been included in your other-than-temporary impairment analysis at
December 31, 2008. These events are consistent with the example in paragraph .04 of AU Section 560 related to a loss on an uncollectible trade account receivable as a result of a customer’s deteriorating financial condition leading to
bankruptcy subsequent to the balance-sheet date. Please tell us the effect on your December 31, 2008 and March 31, 2009 financial statements if you had included these events in your other-than-temporary impairment analysis as of
December 31, 2008. If you believe the effect is material, please amend your filings and restate your financial statements to correct for this error. If you believe the effect is not material and a restatement is not required, please provide us
with your SAB 99 materiality analysis.
We have carefully considered the Staff’s comments regarding the subsequent events relating
to Imperial Capital Bancorp (“ICB”) and BankAtlantic Bancorp (“BankAtlantic”). We will first address the classification of these events as type 1 or type 2 subsequent events under AU Section 560 and then address the
materiality of the effect of including these events in our financial statements as of December 31, 2008 and March 31, 2009.
Subsequent Event
Classification
At the outset, we wish to highlight that the subsequent events relating to ICB and the subsequent event relating to
BankAtlantic are fundamentally different and therefore require separate analysis and discussion.
ICB Subsequent Event. On
March 3, 2009, we learned that ICB had disclosed on February 17, 2009 that the Federal Deposit Insurance Corporation and the California Department of Financial Institutions had imposed a Cease and Desist Order against ICB’s bank
subsidiary, Imperial Capital Bank (the “Order”). Among other stipulations, the Order prohibited the Bank from paying cash dividends without the prior consent of its regulators. Concurrently with the Order, ICB received notice from the
Federal Reserve Bank of San Francisco, its regulator as a bank holding company, that designated ICB to be in “troubled condition” and prohibited ICB from paying cash dividends, including interest payments on its trust preferred securities.
We concur with the Staff’s position that these events relating to ICB constituted type 1 subsequent events, because the conditions
which led to the subsequent events, namely a weakened and deteriorating financial condition, existed at December 31, 2008. To this end, we note that the total risk-based capital ratios of ICB and its bank subsidiary were below the “well
capitalized” thresholds at December 31, 2008, which can trigger regulatory intervention, and the financial condition of ICB had deteriorated dramatically from the third to the fourth quarter of 2008, as evidenced by a net loss of $6.66 per
share in the fourth quarter of 2008
United States Securities and
Exchange Commission
August 17, 2009
Page
3
that was driven primarily by a 500% increase in the provision for credit losses from the third quarter to the fourth quarter of 2008. Had we adjusted our
analysis for the effect of this subsequent event, we would have assigned a 100% probability of default to ICB. Our assessment of the materiality of this change is described below under “Materiality Analysis” and in our SAB 99 materiality
analysis which are attached as Exhibits A and B.
BankAtlantic Subsequent Event. BankAtlantic disclosed and we became aware on
February 20, 2009, that it had “elected to defer regularly scheduled interest payments” on the company’s trust preferred securities. The disclosure did not state any company-specific reasons for the deferral, but instead
attributed the decision to the “challenging economic environment” and the company’s desire to “preserve liquidity in this environment.” The disclosure did not indicate how long the deferral would last but indicated that
BankAtlantic had filed an application to participate in the U.S. Treasury’s Capital Purchase Plan (“CPP”) and stated: “In the event we receive approval to participate in the CPP and choose to do so, we expect that we would end
the deferral period using existing funds of the Company to pay all accrued amounts on the [trust preferred securities]” (emphasis added).
Based on our analysis of the limited information that BankAtlantic disclosed about its deferral decision and the financial information that was available to us at the time we filed our Annual Report, we concluded that the announcement was
not indicative of conditions that existed as of December 31, 2008. Rather, we concluded that the decision to defer was made as a precautionary measure to preserve liquidity in the face of great uncertainty over future economic conditions. This
conclusion is supported by the following factors:
1.
BankAtlantic’s financial information as of December 31, 2008 showed that its capital was stable despite having incurred significant losses during 2008.
a.
BankAtlantic’s risk based capital levels as of December 31, 2008 were unchanged from December 31, 2007 and exceeded well-capitalized status.
12/31/08
12/31/07
Regulatory
Minimum
Well
Capitalized
Minimum
Total Capital Ratio
11.63%
11.63%
8.0%
10.00%
Tier I Capital Ratio
9.85%
9.85%
4.0%
6.00%
United States Securities and
Exchange Commission
August 17, 2009
Page
4
b.
At December 31, 2008, BankAtlantic’s risk based capital levels were comparable to those of its peers.
Bank
Atlantic
Peers (1)
Total Capital Ratio
11.63%
11.63%
Tier I Capital Ratio
9.85%
10.00%
(1) Source: SNL Southeast Thrift Peer Group
c.
The losses reported by BankAtlantic in the fourth quarter of 2008, unlike those reported by ICB, were driven primarily by non-cash impairment charges. For the fourth quarter of
2008, BankAtlantic reported a net loss of $156.6 million for the quarter which included non-cash charges of $129.6 million, comprised of goodwill impairment and a non-cash deferred tax asset valuation allowance. In its earnings release, BankAtlantic
described this loss as follows:
“While reflected in the fourth quarter’s earnings, the goodwill impairment and the
deferred tax asset allowance have no impact on ongoing operations and did not affect BankAtlantic’s regulatory capital, well-capitalized status, cash or liquidity.”
The fact that these losses did not affect the cash position, liquidity or capital of BankAtlantic, supported our determination that BankAtlantic’s
decision to exercise its option to defer future interest payments on its trust preferred securities was not the culmination of a weak or deteriorating financial condition that existed at December 31, 2008.
2.
BankAtlantic’s liquidity position was not deteriorating at December 31, 2008, but rather had improved significantly from September 30, 2008 levels due to proactive
measures taken during the fourth quarter. This conclusion was supported by the following factors:
a.
BankAtlantic highlighted its improved liquidity position in its fourth quarter earnings release, as follows: “During the fourth quarter of 2008, BankAtlantic proactively
reduced its period-end Federal Home Loan Bank (‘FHLB’) borrowings from the third quarter by $501.0 million, or 34.0%, and reduced its ratio of total borrowings to deposits plus borrowings from 30.0% to 25.9%. Further, BankAtlantic’s
brokered deposit balances at December 31, 2008 represented only 4.0% of assets, an amount we believe to be significantly below other Florida financial institutions.”
United States Securities and
Exchange Commission
August 17, 2009
Page
5
b.
BankAtlantic’s improving liquidity position was further evidenced by a $32.3 million or 105% increase in Net Cash Provided by Operating Activities as indicated in
BankAtlantic’s Consolidated Statement of Cash Flows filed with its September 30, 2008 Form 10-Q (the most recent cash flow statement available at the time we filed our Annual Report).
c.
As of December 31, 2008, as well as February 26, 2009, the date First Commonwealth filed its Annual Report on Form 10-K, BankAtlantic had timely made all scheduled
interest payments on its trust preferred debt. This includes payments that were due and collected in January 2009.
d.
When describing its application for the CPP, BankAtlantic indicated that it expected to end the deferral of interest on its trust preferred securities if the application was
approved by using “existing funds of the Company to pay all accrued amounts on the Securities.” This, in our view, demonstrated that BankAtlantic had adequate liquidity to service its trust preferred interest payments at December 31,
2008, even without receiving a CPP investment.
We assigned significant weight to this evidence of BankAtlantic’s
improving liquidity position in our subsequent event analysis, because preservation of liquidity was the stated purpose for BankAtlantic’s decision to defer interest payments on its trust preferred securities. The fact that BankAtlantic had
adequate liquidity at December 31, 2008 supported our conclusion that the decision to defer was made as a precaution against future risks and not the culmination of conditions that existed at December 31, 2008.
In conclusion, based on all the information that was available to us at the time we filed our Annual Report, we determined the BankAtlantic announcement
was a type 2 subsequent event that would not result in adjustments of the December 31, 2008 financial statements because the decision on the part of BankAtlantic reflected a new condition that would be concurrently evaluated, rather than a
condition that existed at December 31, 2008. Specifically, the deferral decision was part of an effort to preserve liquidity in the face of economic uncertainty. Liquidity decisions are often driven by circumstances that develop suddenly, such
as bank runs or strong negative moods and perceptions by customers and the public at large. To this end, it is worth noting that the deferral announcement was made approximately 10 trading days prior to the bottom of the stock market and was likely
influenced by the extreme negative mood that pervaded at that time. During this period, the stock market was declining precipitously, the pace of bank failures was accelerating and many economists and commentators were predicting an economic
depression. It is our judgment that this extreme negative mood, which arose subsequent to December 31, 2008, caused BankAtlantic’s management to evaluate its options to preserve liquidity and ultimately drove the company’s deferral
decision.
United States Securities and
Exchange Commission
August 17, 2009
Page
6
After reaching our conclusion and before filing our 2008 Form 10-K, a summary of our review of the
BankAtlantic deferral announcement was provided to our auditors, KPMG LLP, for their review. Upon review, KPMG’s national office agreed with our conclusion that the deferral by BankAtlantic constituted a type 2 subsequent event.
Materiality Analysis
While it is our judgment it was
appropriate to characterize BankAtlantic’s announcement as a type 2 subsequent event, even if we had characterized the announcement as a type 1 subsequent event, our analysis indicates it would not had been material to our financial results.
Incorporating both the ICB and BankAtlantic events as type 1 subsequent events would have reduced our 2008 net income by $2.621 million and would have only a negligible impact on our capital ratios at December 31, 2008, reducing the Total Risk
Based Capital Ratio by one basis point while other risk based capital ratios would be unchanged. Given the extreme volatility of bank earnings and the significant focus on capital in the current environment, we believe investors would assign greater
importance to the impact of the adjustment on our capital ratios than to the impact on net income. Accordingly, after considering all relevant quantitative and qualitative factors in accordance with SAB 99, we concluded that the impact of
considering this announcement in our impairment analysis as of December 31, 2008 would not have been material. Our SAB 99 analysis accompanies this letter and is briefly summarized below.
In the December 31, 2008 valuation reports of our trust preferred securities, BankAtlantic was assigned a 6% probability of default. Although we
normally assign a 100% probability of default to issuers that defer interest payments, we believe the unique nature of BankAtlantic’s deferral announcement would have merited a lower probability of default had we adjusted our impairment
analysis for their announcement. As noted above, BankAtlantic disclosed at the time of its deferral that it had filed an application to participate in the CPP and if that application was approved, it “expected” to end the deferral period
and pay accrued interest on its trust preferred securities. While this statement was phrased as an “expectation,” we determined that BankAtlantic would have been required to end the deferral period in order to pay dividends on its CPP
preferred stock due to the structural seniority of the trust preferred securities, which are reflected as subordinated debt in the capital structure. Therefore, we concluded that BankAtlantic would in fact end the deferral period if it participated
in the CPP.
United States Securities and
Exchange Commission
August 17, 2009
Page
7
As a result of the above considerations, there was uncertainty at the time we filed our Annual Report
over whether BankAtlantic would actually defer its next scheduled interest payment. As such, we would have assessed the likelihood of approval of BankAtlantic’s CPP application when determining the appropriate probability of default for
BankAtlantic at December 31, 2008, consistent with our impairment assessment process. Therefore we considered the probability of deferral was the inverse of the probability of BankAtlantic receiving approval to participate in the CPP.
To assess this probability, we compared BankAtlantic’s financial condition as of December 31, 2008 to that of similar banks that
had received approval to participate in the CPP. The table below shows three institutions of similar size, asset quality and capital pos