Alert January 12, 2010

SEC Division of Corporation Finance Makes Available Slides of Staff Presentation Concerning Frequent Areas of Comment on Filings for Community Banks

The SEC made publicly available a series of slides (the “Slides”) that were used in a presentation by Stephanie L. Hunsaker, Associate Chief Accountant of the SEC’s Division of Corporation of Finance (the “Division”) concerning issues that Division staff (the “Staff”) frequently encounter when reviewing SEC filings made on behalf of community banks.  In addition to covering areas of Staff comment, the Slides provide suggestions for enhanced disclosure.

The slides address the following specific areas of Staff frequent comment:

     (1)         Allowance for Loan Losses
     (2)         Troubled Debt Restructurings
     (3)         Other Real Estate Owned
     (4)         Purchased Loans
     (5)         U.S. Treasury Mortgage Modification Programs
     (6)         Securities Impairment
     (7)         Goodwill Impairment
     (8)         Deferred Tax Asset Valuation
     (9)         Fair Value Disclosures
     (10)      TARP Transactions
     (11)      Regulatory Actions or Recommendations
     (12)      FDIC-Assisted Transactions

Below, as examples, are overviews of Ms. Hunsaker’s suggestions for enhanced disclosure in three of these areas.

Allowance for Loan Losses.  With respect to a bank’s allowance for loan losses (“Allowance”), Ms. Hunsaker’s Slides provide suggestions for enhanced disclosure concerning, among other things, (a) allowance methodology; (b) increased levels of charge‑offs; (c) concentrations of credit risk; (d) levels of interest reserves for real estate construction loans; and (e) loans measured for impairment based on collateral value.

Securities Impairment.  Regarding securities impairment, the Slides suggest areas of potential enhanced disclosure concerning trust preferred securities, mortgage-backed securities, equity securities and investments in Federal Home Loan Bank stock.  The Slides also discuss enhanced disclosure for banks’ holdings of all types of securities.

Regulatory Actions.  Ms. Hunsaker’s Slides state that when a bank is subject to a formal bank regulatory agreement, the Staff would expect disclosure that:

     (1)   summarizes all provisions;
     (2)   describes steps taken or to be taken to comply with each provision;
     (3)   describes current compliance with each provision;
     (4)   describes any material impact on future operations; and
     (5)   describes the potential consequences if there is a failure to comply.

Where the bank regulatory agreement is informal, e.g., a memorandum of understanding, the Staff recognizes that the agreement is “not required to be disclosed if prohibited by banking regulations,” but the Slides state that a bank “must disclose actions taken or to be taken if they have a material impact on future operations.”

Ms. Hunsaker notes that the Slides, although reflecting Staff comments on filings for community banks, may also be useful to other financial institutions.