SEC Company Response from SHORE BANCSHARES INC (SHBI) (CIK 0001035092) (SHBI) — Oct 14, 2014
SHORE BANCSHARES INC (SHBI) (CIK 0001035092)
Date: Oct. 14, 2014 · CIK: 0001035092 · Accession: 0001144204-14-061125
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-22345
Referenced dates: September 29, 2014
Letter
800 17th Street, NW, Suite 1100 | Washington, DC 20006 | T 202.955.3000 | F 202.955.5564
Holland & Knight LLP | www.hklaw.com
Kevin M. Houlihan
(202) 469-5269
kevin.houlihan@hklaw.com
October 14, 2014
Via EDGAR
Mr. Todd K. Schiffman
Assistant Director
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Shore Bancshares, Inc. Form 10-K for the fiscal year ended December 31, 2013 Filed March 20, 2014 (File No. 000-22345)
On behalf of Shore Bancshares, Inc. (the “Company”), this letter responds to comments made by the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in the Staff’s letter, dated September 29, 2014 (the “Comment Letter”), regarding the Company’s Form 10-K for the fiscal year ended December 31, 2013 that the Company filed with the Commission on March 20, 2014 (the “Form 10-K”).
Set forth below are the Company’s responses to the Staff’s comments provided in the Comment Letter. For your convenience, the numbered paragraphs of this letter correspond to the numbered paragraphs of the Comment Letter. To assist your review, we have retyped the text of the Staff’s comments in bold text below.
Form 10-K for the fiscal year ended December 31, 2013
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies – Loans, page 56
1. Please provide us with and revise future filings to include the following as it relates to your troubled debt restructurings (TDRs):
· A description of how you identify loans to be restructured;
Anchorage | Atlanta | Austin | Boston | Chicago | Dallas | Fort Lauderdale | Jacksonville | Lakeland | Los Angeles | Miami | New York Northern Virginia | Orlando | Portland | San Francisco | Tallahassee | Tampa | Washington, D.C. | West Palm Beach
Mr. Todd K. Schiffman
October 14, 2014
Page 2
RESPONSE:
Past due, transitional, special mention and adversely classified loans are monitored on a regular basis. Loans are identified to be restructured when signs of impairment arise such as borrower interest rate reduction request, slowness to pay, or when an inability to repay becomes evident. The terms being offered are evaluated to determine if they are more liberal than those that would be indicated by policy or industry standards for similar, untroubled credits. In those situations where the terms or the interest rates are considered to be more favorable than industry standards or the current underwriting guidelines of the Company’s banking subsidiaries, the loan is classified as a TDR.
· The total amount of loans classified as TDRs at each period end separately identifying, by loan type, both those on accrual and non-accrual status, as well as any associated charge-offs during the period and any valuation allowance at period end;
Mr. Todd K. Schiffman
October 14, 2014
Page 3
RESPONSE:
The following table is provided in response this comment.
Shore Bancshares, Inc.
TDR Analysis
(Dollars in Thousands)
12/31/2012 New Disbursements
Transfers 9/30/2013
12/31/2013 Related
Loan Type TDR Balance TDRs (Payments) Charge Offs in/(out)* Loan Sale Payoffs TDR Balance Allowance
For the year ended December 31, 2013
Accruing TDRs
Construction $ 27,335 $ 95 $ 228 $ (13,557 ) $ (3,521 ) $ (7,908 ) $ (1,052 ) $ 1,620 $ 1
Residential Real Estate 7,017 10,433 (86 ) (632 ) (1,755 ) (395 )
14,582
Commercial Real Estate 17,880 1,738 (39 ) (2,108 ) (410 ) (7,162 ) (108 ) 9,791
Commercial - (26 ) - - - - -
Consumer - - - - - - - - -
Total $ 52,353 $ 12,266 $ 77 $ (16,297 ) $ (5,686 ) $ (15,465 ) $ (1,160 ) $ 26,088 $ 67
Nonaccrual TDRs
Construction $ 1,448 $ - $ (64 ) $ (639 ) $ 3,521 $ (57 ) $ (648 ) $ 3,561 $ 3
Residential Real Estate 2,169 (90 ) (1,253 ) 1,755 (759 ) (196 ) 1,884
Commercial Real Estate 2,970 - (276 ) (866 ) - (1,522 )
Commercial - - - - - - - - -
Consumer - (1 ) - - - - -
Total $ 6,614 $ 258 $ (431 ) $ (2,758 ) $ 5,686 $ (816 ) $ (2,366 ) $ 6,187 $ 107
Total TDRs $ 58,967 $ 12,524 $ (354 ) $ (19,055 ) $ - $ (16,281 ) $ (3,526 ) $ 32,275 $ 174
12/31/2011 New Disbursements
Transfers 9/30/2013
12/31/2012 Related
Loan Type TDR Balance TDRs (Payments) Charge Offs in/(out)* Loan Sale Payoffs TDR Balance Allowance
For the year ended December 31, 2012
Accruing TDRs
Construction $ 11,781 $ 16,378 $ 13 $ (171 ) $ (666 ) $ - $ - $ 27,335 $ -
Residential Real Estate 3,792 4,769 (59 ) (53 ) (1,025 ) - (407 ) 7,017 -
Commercial Real Estate 9,566 10,456 (16 ) (84 ) (471 ) - (1,571 ) 17,880 -
Commercial (8 ) - - - - -
Consumer - - - - - - - - -
Total $ 25,208 $ 31,663 $ (70 ) $ (308 ) $ (2,162 ) $ - $ (1,978 ) $ 52,353 $ -
Nonaccrual TDRs
Construction $ 758 $ 919 $ 5 $ (900 ) $ 666 $ - $ - $ 1,448 $ -
Residential Real Estate 6,567 1,499 (28 ) (2,428 ) 1,025 - (4,466 ) 2,169 -
Commercial Real Estate 4,609 (121 ) (1,145 ) - (1,229 ) 2,970 -
Commercial - - - - - - - - -
Consumer - (1 ) - - - - -
Total $ 11,934 $ 2,831 $ (145 ) $ (4,473 ) $ 2,162 $ - $ (5,695 ) $ 6,614 $ -
Total TDRs $ 37,142 $ 34,494 $ (215 ) $ (4,781 ) $ - $ - $ (7,673 ) $ 58,967 $ -
*All transfers in/(out) were transfers from accruing TDRs to nonaccruing TDRs. The TDR classification didn't change.
· For all TDRs that accrue interest at the time the loan is restructured, a description of how you determine that the loan has been restructured so as to be reasonably assured of repayment and performance according to the modified terms, and is supported by a current, well-documented credit assessment of the borrower's financial condition and prospects for repayment under the revised terms;
Mr. Todd K. Schiffman
October 14, 2014
Page 4
RESPONSE:
The Company requires a full and comprehensive review of the borrower’s financial condition and capacity for repayment, realistic assessment of collateral values and the assessment of risk entered into in any workout agreement. Current financial information on the borrower, guarantor, and underlying collateral is analyzed to determine if it supports the ultimate collection of principal and interest. For commercial loans, the cash flows are analyzed, both for the underlying project and globally. For consumer loans, updated salary, credit history and cash flow information is obtained. Current market conditions are also considered. Following a full analysis, the determination of the appropriate loan structure is made.
· A discussion of how you determine whether the borrower has demonstrated repayment performance with modified terms. Specifically disclose how many payments the borrower needs to make before returning a loan to accrual status; and
RESPONSE:
In instances where the loan has been placed on nonaccrual, six consecutive months of timely payments are required prior to returning the loan to accrual status.
· A roll forward of your TDRs for each period presented that will allow for an understanding of the gross movements within these balances at period end, including asset sales such as that in the quarter ended September 30, 2013 or loans that are otherwise removed from TDR classification. To the extent that restructured loans are removed from TDR classification for reasons other than the aforementioned asset sale, please provide us with an analysis that supports your determination to remove these loans.
Mr. Todd K. Schiffman
October 14, 2014
Page 5
RESPONSE:
The following table is provided in response this comment.
Shore Bancshares, Inc.
TDR Analysis
(Dollars in Thousands)
12/31/2012 New Disbursements
Transfers 9/30/2013
12/31/2013 Related
Loan Type TDR Balance TDRs (Payments) Charge Offs in/(out)* Loan Sale Payoffs TDR Balance Allowance
For the year ended December 31, 2013
Accruing TDRs
Construction $ 27,335 $ 95 $ 228 $ (13,557 ) $ (3,521 ) $ (7,908 ) $ (1,052 ) $ 1,620 $ 1
Residential Real Estate 7,017 10,433 (86 ) (632 ) (1,755 ) (395 )
14,582
Commercial Real Estate 17,880 1,738 (39 ) (2,108 ) (410 ) (7,162 ) (108 ) 9,791
Commercial - (26 ) - - - - -
Consumer - - - - - - - - -
Total $ 52,353 $ 12,266 $ 77 $ (16,297 ) $ (5,686 ) $ (15,465 ) $ (1,160 ) $ 26,088 $ 67
Nonaccrual TDRs
Construction $ 1,448 $ - $ (64 ) $ (639 ) $ 3,521 $ (57 ) $ (648 ) $ 3,561 $ 3
Residential Real Estate 2,169 (90 ) (1,253 ) 1,755 (759 ) (196 ) 1,884
Commercial Real Estate 2,970 - (276 ) (866 ) - (1,522 )
Commercial - - - - - - - - -
Consumer - (1 ) - - - - -
Total $ 6,614 $ 258 $ (431 ) $ (2,758 ) $ 5,686 $ (816 ) $ (2,366 ) $ 6,187 $ 107
Total TDRs $ 58,967 $ 12,524 $ (354 ) $ (19,055 ) $ - $ (16,281 ) $ (3,526 ) $ 32,275 $ 174
12/31/2011 New Disbursements
Transfers 9/30/2013
12/31/2012 Related
Loan Type TDR Balance TDRs (Payments) Charge Offs in/(out)* Loan Sale Payoffs TDR Balance Allowance
For the year ended December 31, 2012
Accruing TDRs
Construction $ 11,781 $ 16,378 $ 13 $ (171 ) $ (666 ) $ - $ - $ 27,335 $ -
Residential Real Estate 3,792 4,769 (59 ) (53 ) (1,025 ) - (407 ) 7,017 -
Commercial Real Estate 9,566 10,456 (16 ) (84 ) (471 ) - (1,571 ) 17,880 -
Commercial (8 ) - - - - -
Consumer - - - - - - - - -
Total $ 25,208 $ 31,663 $ (70 ) $ (308 ) $ (2,162 ) $ - $ (1,978 ) $ 52,353 $ -
Nonaccrual TDRs
Construction $ 758 $ 919 $ 5 $ (900 ) $ 666 $ - $ - $ 1,448 $ -
Residential Real Estate 6,567 1,499 (28 ) (2,428 ) 1,025 - (4,466 ) 2,169 -
Commercial Real Estate 4,609 (121 ) (1,145 ) - (1,229 ) 2,970 -
Commercial - - - - - - - - -
Consumer - (1 ) - - - - -
Total $ 11,934 $ 2,831 $ (145 ) $ (4,473 ) $ 2,162 $ - $ (5,695 ) $ 6,614 $ -
Total TDRs $ 37,142 $ 34,494 $ (215 ) $ (4,781 ) $ - $ - $ (7,673 ) $ 58,967 $ -
*All transfers in/(out) were transfers from accruing TDRs to nonaccruing TDRs. The TDR classification didn't change.
The foregoing responses will be included in future filings.
Mr. Todd K. Schiffman
October 14, 2014
Page 6
Note 14. Income Taxes, page 74
2. We note your disclosure on page 75 there was no valuation allowance for deferred tax assets at December 31, 2013 and 2012 as management believes that it is more likely than not that all of the deferred tax assets will be realized because they were supported by the expected generation of a sufficient level of future taxable income from operations and tax planning strategies. We also note your disclosure on page 19 describing your understanding that the determination of whether or not a valuation allowance is necessary is difficult and requires judgment, particularly when there is significant negative evidence such as recurring net losses in prior periods and an accumulated deficit. Please provide us with a robust analysis detailing both the positive and negative evidence considered, and how each piece of evidence was weighted, to overcome the significant negative evidence, and in particular the fact that you were in a three year cumulative loss position of approximately $33.9 million at December 31, 2013, in determining that there was no valuation allowance necessary as of December 31, 2013.
RESPONSE:
The Company performed a detailed and deliberate analysis about the future realization of all deferred tax assets (“DTA”) as of December 31, 2013. The following summarizes both the qualitative and quantitative analysis performed by the Company:
While the Company reported GAAP losses of $897 thousand and $1.7 million for the years ended December 31, 2011 and 2010, respectively, the Company had consolidated taxable income of $1.8 million and $5.8 million for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2013, the Company had only experienced two consecutive years of losses for tax reporting purposes.
Strategic decisions made by management during 2012 and 2013 had significant accounting implications that negatively affected near term operating results for both GAAP and income tax reporting purposes. During 2013, the Company sold certain assets, comprised predominately of non-performing loans, during the third quarter of 2013 (the “Asset Sale”). This resulted in a loss of approximately $20 million that was reflected through higher provision for credit losses. The decision to enter into the Asset Sale was a strategic decision to reduce troubled assets and to position the Company for a return to profitability in the immediate future. The positive effects of the Asset Sale were evidenced by reported fourth quarter 2013 GAAP pre-tax earnings of $1.8 million. If the Asset Sale had not occurred in 2013, management believes the Company would have reported pre-tax earnings of $3.7 million for the year ended December 31, 2013 but the ongoing negative effects of the maintaining and managing the troubled and often non-performing assets would have continued to exert downward pressure on earnings for future periods.
A
Show Raw Text
CORRESP
1
filename1.htm
800 17th Street, NW, Suite 1100 | Washington, DC 20006 | T 202.955.3000
| F 202.955.5564
Holland & Knight LLP | www.hklaw.com
Kevin M. Houlihan
(202) 469-5269
kevin.houlihan@hklaw.com
October 14, 2014
Via EDGAR
Mr. Todd K. Schiffman
Assistant Director
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re:
Shore Bancshares, Inc. Form 10-K for the fiscal year ended December 31, 2013 Filed March 20, 2014 (File No. 000-22345)
On behalf of Shore Bancshares, Inc. (the “Company”),
this letter responds to comments made by the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”)
in the Staff’s letter, dated September 29, 2014 (the “Comment Letter”), regarding the Company’s Form 10-K
for the fiscal year ended December 31, 2013 that the Company filed with the Commission on March 20, 2014 (the “Form 10-K”).
Set forth below are the Company’s responses to the Staff’s
comments provided in the Comment Letter. For your convenience, the numbered paragraphs of this letter correspond to the numbered
paragraphs of the Comment Letter. To assist your review, we have retyped the text of the Staff’s comments in bold text below.
Form 10-K for the fiscal year ended December 31, 2013
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies –
Loans, page 56
1.
Please provide us with and revise future filings to include the following as it relates to your troubled debt restructurings (TDRs):
·
A description of how you identify loans to be restructured;
Anchorage | Atlanta | Austin | Boston | Chicago | Dallas | Fort
Lauderdale | Jacksonville | Lakeland | Los Angeles | Miami | New York Northern Virginia | Orlando | Portland | San Francisco |
Tallahassee | Tampa | Washington, D.C. | West Palm Beach
Mr. Todd K. Schiffman
October 14, 2014
Page 2
RESPONSE:
Past due, transitional, special mention and adversely classified
loans are monitored on a regular basis. Loans are identified to be restructured when signs of impairment arise such as borrower
interest rate reduction request, slowness to pay, or when an inability to repay becomes evident. The terms being offered are evaluated
to determine if they are more liberal than those that would be indicated by policy or industry standards for similar, untroubled
credits. In those situations where the terms or the interest rates are considered to be more favorable than industry standards
or the current underwriting guidelines of the Company’s banking subsidiaries, the loan is classified as a TDR.
·
The total amount of loans classified as TDRs at each period end separately identifying, by loan type, both those on accrual and non-accrual status, as well as any associated charge-offs during the period and any valuation allowance at period end;
Mr. Todd K. Schiffman
October 14, 2014
Page 3
RESPONSE:
The following table is provided in response this comment.
Shore Bancshares, Inc.
TDR Analysis
(Dollars in Thousands)
12/31/2012
New
Disbursements
Transfers
9/30/2013
12/31/2013
Related
Loan Type
TDR Balance
TDRs
(Payments)
Charge Offs
in/(out)*
Loan Sale
Payoffs
TDR Balance
Allowance
For the year ended December 31, 2013
Accruing TDRs
Construction
$ 27,335
$ 95
$ 228
$ (13,557 )
$ (3,521 )
$ (7,908 )
$ (1,052 )
$ 1,620
$ 1
Residential Real Estate
7,017
10,433
(86 )
(632 )
(1,755 )
(395 )
14,582
60
Commercial Real Estate
17,880
1,738
(39 )
(2,108 )
(410 )
(7,162 )
(108 )
9,791
6
Commercial
121
-
(26 )
-
-
-
-
95
-
Consumer
-
-
-
-
-
-
-
-
-
Total
$ 52,353
$ 12,266
$ 77
$ (16,297 )
$ (5,686 )
$ (15,465 )
$ (1,160 )
$ 26,088
$ 67
Nonaccrual TDRs
Construction
$ 1,448
$ -
$ (64 )
$ (639 )
$ 3,521
$ (57 )
$ (648 )
$ 3,561
$ 3
Residential Real Estate
2,169
258
(90 )
(1,253 )
1,755
(759 )
(196 )
1,884
66
Commercial Real Estate
2,970
-
(276 )
(866 )
410
-
(1,522 )
716
38
Commercial
-
-
-
-
-
-
-
-
-
Consumer
27
-
(1 )
-
-
-
-
26
-
Total
$ 6,614
$ 258
$ (431 )
$ (2,758 )
$ 5,686
$ (816 )
$ (2,366 )
$ 6,187
$ 107
Total TDRs
$ 58,967
$ 12,524
$ (354 )
$ (19,055 )
$ -
$ (16,281 )
$ (3,526 )
$ 32,275
$ 174
12/31/2011
New
Disbursements
Transfers
9/30/2013
12/31/2012
Related
Loan Type
TDR Balance
TDRs
(Payments)
Charge Offs
in/(out)*
Loan Sale
Payoffs
TDR Balance
Allowance
For the year ended December 31, 2012
Accruing TDRs
Construction
$ 11,781
$ 16,378
$ 13
$ (171 )
$ (666 )
$ -
$ -
$ 27,335
$ -
Residential Real Estate
3,792
4,769
(59 )
(53 )
(1,025 )
-
(407 )
7,017
-
Commercial Real Estate
9,566
10,456
(16 )
(84 )
(471 )
-
(1,571 )
17,880
-
Commercial
69
60
(8 )
-
-
-
-
121
-
Consumer
-
-
-
-
-
-
-
-
-
Total
$ 25,208
$ 31,663
$ (70 )
$ (308 )
$ (2,162 )
$ -
$ (1,978 )
$ 52,353
$ -
Nonaccrual TDRs
Construction
$ 758
$ 919
$ 5
$ (900 )
$ 666
$ -
$ -
$ 1,448
$ -
Residential Real Estate
6,567
1,499
(28 )
(2,428 )
1,025
-
(4,466 )
2,169
-
Commercial Real Estate
4,609
385
(121 )
(1,145 )
471
-
(1,229 )
2,970
-
Commercial
-
-
-
-
-
-
-
-
-
Consumer
-
28
(1 )
-
-
-
-
27
-
Total
$ 11,934
$ 2,831
$ (145 )
$ (4,473 )
$ 2,162
$ -
$ (5,695 )
$ 6,614
$ -
Total TDRs
$ 37,142
$ 34,494
$ (215 )
$ (4,781 )
$ -
$ -
$ (7,673 )
$ 58,967
$ -
*All transfers in/(out) were transfers from
accruing TDRs to nonaccruing TDRs. The TDR classification didn't change.
·
For all TDRs that accrue interest at the time the loan is restructured, a description of how you determine that the loan has been restructured so as to be reasonably assured of repayment and performance according to the modified terms, and is supported by a current, well-documented credit assessment of the borrower's financial condition and prospects for repayment under the revised terms;
Mr. Todd K. Schiffman
October 14, 2014
Page 4
RESPONSE:
The Company requires a full and comprehensive review of the
borrower’s financial condition and capacity for repayment, realistic assessment of collateral values and the assessment of
risk entered into in any workout agreement. Current financial information on the borrower, guarantor, and underlying collateral
is analyzed to determine if it supports the ultimate collection of principal and interest. For commercial loans, the cash flows
are analyzed, both for the underlying project and globally. For consumer loans, updated salary, credit history and cash flow information
is obtained. Current market conditions are also considered. Following a full analysis, the determination of the appropriate loan
structure is made.
·
A discussion of how you determine whether the borrower has demonstrated repayment performance with modified terms. Specifically disclose how many payments the borrower needs to make before returning a loan to accrual status; and
RESPONSE:
In instances where the loan has been placed on nonaccrual, six
consecutive months of timely payments are required prior to returning the loan to accrual status.
·
A roll forward of your TDRs for each period presented that will allow for an understanding of the gross movements within these balances at period end, including asset sales such as that in the quarter ended September 30, 2013 or loans that are otherwise removed from TDR classification. To the extent that restructured loans are removed from TDR classification for reasons other than the aforementioned asset sale, please provide us with an analysis that supports your determination to remove these loans.
Mr. Todd K. Schiffman
October 14, 2014
Page 5
RESPONSE:
The following table is provided in response this comment.
Shore Bancshares, Inc.
TDR Analysis
(Dollars in Thousands)
12/31/2012
New
Disbursements
Transfers
9/30/2013
12/31/2013
Related
Loan Type
TDR Balance
TDRs
(Payments)
Charge Offs
in/(out)*
Loan Sale
Payoffs
TDR Balance
Allowance
For the year ended December 31, 2013
Accruing TDRs
Construction
$ 27,335
$ 95
$ 228
$ (13,557 )
$ (3,521 )
$ (7,908 )
$ (1,052 )
$ 1,620
$ 1
Residential Real Estate
7,017
10,433
(86 )
(632 )
(1,755 )
(395 )
14,582
60
Commercial Real Estate
17,880
1,738
(39 )
(2,108 )
(410 )
(7,162 )
(108 )
9,791
6
Commercial
121
-
(26 )
-
-
-
-
95
-
Consumer
-
-
-
-
-
-
-
-
-
Total
$ 52,353
$ 12,266
$ 77
$ (16,297 )
$ (5,686 )
$ (15,465 )
$ (1,160 )
$ 26,088
$ 67
Nonaccrual TDRs
Construction
$ 1,448
$ -
$ (64 )
$ (639 )
$ 3,521
$ (57 )
$ (648 )
$ 3,561
$ 3
Residential Real Estate
2,169
258
(90 )
(1,253 )
1,755
(759 )
(196 )
1,884
66
Commercial Real Estate
2,970
-
(276 )
(866 )
410
-
(1,522 )
716
38
Commercial
-
-
-
-
-
-
-
-
-
Consumer
27
-
(1 )
-
-
-
-
26
-
Total
$ 6,614
$ 258
$ (431 )
$ (2,758 )
$ 5,686
$ (816 )
$ (2,366 )
$ 6,187
$ 107
Total TDRs
$ 58,967
$ 12,524
$ (354 )
$ (19,055 )
$ -
$ (16,281 )
$ (3,526 )
$ 32,275
$ 174
12/31/2011
New
Disbursements
Transfers
9/30/2013
12/31/2012
Related
Loan Type
TDR Balance
TDRs
(Payments)
Charge Offs
in/(out)*
Loan Sale
Payoffs
TDR Balance
Allowance
For the year ended December 31, 2012
Accruing TDRs
Construction
$ 11,781
$ 16,378
$ 13
$ (171 )
$ (666 )
$ -
$ -
$ 27,335
$ -
Residential Real Estate
3,792
4,769
(59 )
(53 )
(1,025 )
-
(407 )
7,017
-
Commercial Real Estate
9,566
10,456
(16 )
(84 )
(471 )
-
(1,571 )
17,880
-
Commercial
69
60
(8 )
-
-
-
-
121
-
Consumer
-
-
-
-
-
-
-
-
-
Total
$ 25,208
$ 31,663
$ (70 )
$ (308 )
$ (2,162 )
$ -
$ (1,978 )
$ 52,353
$ -
Nonaccrual TDRs
Construction
$ 758
$ 919
$ 5
$ (900 )
$ 666
$ -
$ -
$ 1,448
$ -
Residential Real Estate
6,567
1,499
(28 )
(2,428 )
1,025
-
(4,466 )
2,169
-
Commercial Real Estate
4,609
385
(121 )
(1,145 )
471
-
(1,229 )
2,970
-
Commercial
-
-
-
-
-
-
-
-
-
Consumer
-
28
(1 )
-
-
-
-
27
-
Total
$ 11,934
$ 2,831
$ (145 )
$ (4,473 )
$ 2,162
$ -
$ (5,695 )
$ 6,614
$ -
Total TDRs
$ 37,142
$ 34,494
$ (215 )
$ (4,781 )
$ -
$ -
$ (7,673 )
$ 58,967
$ -
*All transfers in/(out) were transfers from
accruing TDRs to nonaccruing TDRs. The TDR classification didn't change.
The foregoing responses will be included in future filings.
Mr. Todd K. Schiffman
October 14, 2014
Page 6
Note 14. Income Taxes, page 74
2.
We note your disclosure on page 75 there was no valuation allowance for deferred tax assets at December 31, 2013 and 2012 as management believes that it is more likely than not that all of the deferred tax assets will be realized because they were supported by the expected generation of a sufficient level of future taxable income from operations and tax planning strategies. We also note your disclosure on page 19 describing your understanding that the determination of whether or not a valuation allowance is necessary is difficult and requires judgment, particularly when there is significant negative evidence such as recurring net losses in prior periods and an accumulated deficit. Please provide us with a robust analysis detailing both the positive and negative evidence considered, and how each piece of evidence was weighted, to overcome the significant negative evidence, and in particular the fact that you were in a three year cumulative loss position of approximately $33.9 million at December 31, 2013, in determining that there was no valuation allowance necessary as of December 31, 2013.
RESPONSE:
The Company performed a detailed and deliberate analysis about
the future realization of all deferred tax assets (“DTA”) as of December 31, 2013. The following summarizes both the
qualitative and quantitative analysis performed by the Company:
While the Company reported GAAP losses of $897 thousand and
$1.7 million for the years ended December 31, 2011 and 2010, respectively, the Company had consolidated taxable income of $1.8
million and $5.8 million for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2013, the Company had
only experienced two consecutive years of losses for tax reporting purposes.
Strategic decisions made by management during 2012 and 2013
had significant accounting implications that negatively affected near term operating results for both GAAP and income tax reporting
purposes. During 2013, the Company sold certain assets, comprised predominately of non-performing loans, during the third quarter
of 2013 (the “Asset Sale”). This resulted in a loss of approximately $20 million that was reflected through higher
provision for credit losses. The decision to enter into the Asset Sale was a strategic decision to reduce troubled assets and to
position the Company for a return to profitability in the immediate future. The positive effects of the Asset Sale were evidenced
by reported fourth quarter 2013 GAAP pre-tax earnings of $1.8 million. If the Asset Sale had not occurred in 2013, management believes
the Company would have reported pre-tax earnings of $3.7 million for the year ended December 31, 2013 but the ongoing negative
effects of the maintaining and managing the troubled and often non-performing assets would have continued to exert downward pressure
on earnings for future periods.
A