Parkvale Financial Corporation
4220 William Penn Highway
Monroeville, PA 15146
(412) 373-7200
June 8, 2009
Via EDGAR and Overnight Mail
Mr. Christian Windsor, Special Counsel
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop – 4561
100 F Street, N.E.
Washington, DC 20549
Dear Mr. Windsor:
We are in receipt of your correspondence dated May 22, 2009 concerning our Form 10-K for June 30, 2008, File Number 0-17411. The specific comments refer to our Form 10-Q for the Quarterly Period ended March 31, 2009 and our response letter dated May 12, 2009.
Comment 1:We note your response to comment one from our letter dated April 1, 2009. Please provide the following so that we may better understand your impairment analysis.
Explain the basis for the assumptions used, specifically the recovery rate, discount rate, prepayment rate, and the additional deferral and defaults. Include in your response the thought process you considered in selecting the chosen rate as compared to any other considered rates and the substantive reasons supporting this determination.
The assumptions used were based on input from a variety of outside sources (Shay Government Securities, Vining Sparks IBG, Raymond James, Moody’s and First Tennessee) that were performing similar impairment tests on Intex® software. The recovery rate used was 15% (after a 24 month lag), which we view as conservative considering the majority of deferring collateral is voluntary (not in default) and is permitted for up to 5 years under the debt contracts. We are aware of recovery rates being used by other institutions ranging from 10% up to 30%. This was brought to our attention by an FDIC examiner.
The discount rate used was the forward Libor curve that existed at March 31, 2009.
The prepayment assumption begins with no prepayments during the first 5 years as capital is scarce and there are no new pooled trust preferred deals being underwritten. We believe that 2% per annum after 5 years is a reasonable assumption. We are aware that Moody’s model uses zero prepayments through maturity for the reasons stated above. The prepayment speed in our pooled trust preferred portfolio is close to zero. We review this portfolio on a quarterly basis and if prepayment speeds change, adjustments to our analysis will be made in future quarters.
Securities and Exchange Commission
June 8, 2009
Page 2 of 9
We generated 5 scenarios, ranging from 0% to 4% additional deferrals/defaults annually, and felt that 2% was the most realistic for the base case model. Our 3% (V4) and 4% (V5) additional annual deferral/default scenarios are used for stress testing. We considered the most recent quarter end of March 2009 to reflect economic stress that may not be indicative of long term performance. We expect to evaluate these securities on a quarterly basis and we will adjust our assumptions accordingly. First Tennessee currently uses a 1.5% deferral/default rate per annum when evaluating for OTTI on Pretsl issues.
Tell us the actual amount and percentage of deferrals and defaults experienced by the pooled and individual trust preferred securities in total, by individual security, by quarter, and compare these amounts to your assumptions.
The chart below shows the issue date of the pooled and individual trust preferred securities in our portfolio at December 31, 2007, June 30, 2008, December 31, 2008 and March 31, 2009 as well as the percentage of deferrals/defaults for each security. When we divide the number of years the deal has been in existence with the deferral/default percentage, the result were 0.31% at 12/07; 2.27% at 6/08, 3.71% at 12/08 and 4.37% at March 31, 2009. We do not consider the quarters ended December 31, 2008 and March 31, 2009 to be indicative of long term performance under more typical economic conditions. While some years and/or quarters will vary over time, we believe that 2% additional deferral/defaults annually is better to use as an average for modeling purposes because:
| | 1) | | We review these securities quarterly for OTTI and any changes in deferral/default percentages will be reflected in our discounted cash flow analysis assumptions. |
| |
| | 2) | | We do not believe it is practical to use a deferral/default rate not indicative of long term performance because we could potentially be impairing an asset prematurely when it may never become impaired. |
The percentages calculated below include both deferring and defaulted issuers.
TRUST PREFERRED HOLDINGS- Deferral Rate Summary
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Years | | | | | | | | | | |
| | | | | | | | | Since | | | | | | | | | | Annual |
| | | Deal | | Note | | | | Issue | | 12/07 | | 6/08 | | 12/08 | | 3/09 | | Deferral |
| Cusip | | Pooled issues | | Class | | Issue Date | | Date | | % | | % | | % | | % | | Rate |
| 01449CAK6 | | Alesco 8 | | C1 | | 8/4/2005 | | 3.66 | | 0.0% | | 5.3% | | 7.1% | | 10.2% | | 2.8% |
| 01449TAB9 | | Alesco 9 | | A2A | | 12/15/2005 | | 3.29 | | 0.0% | | 6.9% | | 9.9% | | 10.0% | | 3.0% |
| 01449WAD8 | | Alesco 10 | | C1 | | 3/15/2006 | | 3.05 | | 0.8% | | 5.2% | | 8.8% | | 8.8% | | 2.9% |
Securities and Exchange Commission
June 8, 2009
Page 3 of 9
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Years | | | | | | | | | | |
| | | | | | | | | Since | | | | | | | | | | Annual |
| | | Deal | | Note | | | | Issue | | 12/07 | | 6/08 | | 12/08 | | 3/09 | | Deferral |
| Cusip | | Pooled issues | | Class | | Issue Date | | Date | | % | | % | | % | | % | | Rate |
| 01450AAD2 | | Alesco 11 | | C1 | | 6/29/2006 | | 2.76 | | 0.0% | | 3.3% | | 9.5% | | 9.5% | | 3.4% |
| 01450DAE4 | | Alesco 12 | | C1 | | 10/12/2006 | | 2.47 | | 0.0% | | 3.6% | | 7.0% | | 9.2% | | 3.7% |
| 014495AE5 | | Alesco 13 | | C1 | | 11/30/2006 | | 2.33 | | 0.0% | | 5.0% | | 16.6% | | 19.4% | | 8.3% |
| 01450BAD0 | | Alesco 15 | | C1 | | 3/29/2007 | | 2.01 | | 0.0% | | 8.9% | | 10.9% | | 17.5% | | 8.7% |
| 01450GAC1 | | Alesco 16 | | C | | 6/28/2007 | | 1.76 | | 0.0% | | 9.0% | | 9.4% | | 10.4% | | 5.9% |
| 01450NAC6 | | Alesco 17 | | B | | 10/30/2007 | | 1.42 | | 0.0% | | 0.0% | | 8.5% | | 12.2% | | 8.6% |
| 44984SAD8 | | I-PreTSL 3 | | B1 | | 10/29/2003 | | 5.42 | | 4.3% | | 4.5% | | 5.5% | | 5.5% | | 1.0% |
| 74040KAC6 | | PreTSL 2 | | Mezz | | 2/22/2001 | | 8.11 | | 8.7% | | 11.2% | | 13.2% | | 24.0% | | 3.0% |
| 74040XAD6 | | PreTSL 9 | | B2 | | 3/26/2003 | | 6.02 | | 0.0% | | 2.2% | | 6.1% | | 11.7% | | 1.9% |
| 74042DAE6 | | PreTSL 20 | | B | | 12/15/2005 | �� | 3.29 | | 3.9% | | 3.9% | | 5.2% | | 11.8% | | 3.6% |
| 74042QAA5 | | PreTSL 26 | | A1 | | 6/21/2007 | | 1.78 | | 0.0% | | 3.4% | | 10.4% | | 12.9% | | 7.2% |
| 87330WAG2 | | TBRNA 3 | | C1 | | 9/29/2005 | | 3.50 | | 3.6% | | 15.1% | | 20.4% | | 28.0% | | 8.0% |
| 89234NAB6 | | TPREF Fund 2 | | B | | 10/29/2002 | | 6.42 | | 0.0% | | 2.6% | | 7.5% | | 10.1% | | 1.6% |
| 894126AD3 | | Trapeza 4 | | C1 | | 10/21/2003 | | 5.45 | | 0.0% | | 3.0% | | 8.8% | | 17.8% | | 3.3% |
| 89412RAD7 | | Trapeza 5 | | C1 | | 12/18/2003 | | 5.29 | | 0.0% | | 6.1% | | 12.2% | | 15.0% | | 2.8% |
| 894135AN2 | | Trapeza 13 | | D | | 8/15/2007 | | 1.63 | | 0.0% | | 0.0% | | 5.0% | | 6.2% | | 3.8% |
| 894135AS1 | | Trapeza 13 | | E | | 8/15/2007 | | 1.63 | | 0.0% | | 0.0% | | 5.0% | | 6.2% | | 3.8% |
| | | | | | | | | | | | | | | | | | | |
| | | Single Issuer | | | | | | | | | | | | | | | | |
| 066047AA9 | | Bank Of America | | | | 1/15/1997 | | 12.21 | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
| 62874FAA7 | | Nations Bank Cap | | | | 1/15/1997 | | 12.21 | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
| 21869MAA5 | | CoreStates Cap | | | | 2/15/1997 | | 12.13 | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
| 446284AA9 | | Huntington Cap | | | | 6/15/1998 | | 10.80 | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
| 702926AC0 | | Patriot Cap Trust | | | | 6/1/1997 | | 11.84 | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
| 320653AC2 | | First Keystone | | | | 8/15/1997 | | 11.63 | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
| 03074B100 | | Ameriserv | | | | 6/30/1998 | | 10.76 | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
| 31982SAC9 | | First ComWealth | | | | 9/1/1999 | | 9.59 | | 0.0% | | 0.0% | | 0.0% | | 0.0% | | 0.0% |
| 05527K207 | | BBC Cap Trust | | | | 3/31/2002 | | 7.01 | | 0.0% | | 0.0% | | 0.0% | | 100% | | 100% |
The above listings do not reflect the 3 trust preferred holdings written off in March 2009. The holdings were Alesco 15 D; Alesco 16 D and US Capital 6 C. The above listing does include the three securities that were considered partially impaired at March 31, 2009, Taberna 3005-3A, Pretsl 2 and Trapeza 13 Class E.
Please confirm that the discount rate used in the impairment analysis is equal to the current yield used to accrete the beneficial interest, if not, explain how you determined the discount rate.
The discount rate used in the impairment analysis was equal to the current book yield. However, we are not accruing income on securities that are expected to take more than one year to resume cash payments of interest.
Explain how you use the results from different scenarios to determine if temporary impairment (OTTI) should be taken, including but not limited to how many scenarios out of the five need to show an impairment before you actually take an OTTI.
Please refer to Exhibit B that was provided in our correspondence of May 12, 2009, and is also included in this correspondence on page 6. Exhibit B lists the assumptions used and we provided
Securities and Exchange Commission
June 8, 2009
Page 4 of 9
the reasoning for each assumption earlier in this letter. Our base case used for determining other than temporary impairments was Scenario V 3 (2% additional deferrals/defaults per annum for the next 5 years) then zero after. Five different present values of projected cash flow scenarios are shown (V1 to V5) ranging from 0% to 4% additional deferrals/defaults per year. V 4 and V 5 were considered stress tests and not used to determine the OTTI. If there was no impairment, 100% appears as shown under V 3, which indicates under these assumptions we expect to receive 100% of the present value of principal and interest by maturity.
On the bottom of Page 6, 3 of the securities are either zero or close to zero under Scenario V 1, V2 or V 3 so these investments were deemed to by OTTI. All three were not impaired and recorded 100% under V 1, V 2, and V 3 at December 31, 2008. Several others were considered partially impaired (identified as PW on page 6) because the discounted cash flow analysis under V3 indicated we may not receive 100% of principal and interest by maturity.
Comment 2:Please provide a table detailing the following information, as of March 31, 2009, for your trust preferred securities: deal name, single-issuer or pooled, class, book value, fair value, unrealized gain/loss, credit ratings, number of banks in issuance, deferrals and defaults as a percentage of collateral, and excess subordination after taking into account your best estimates of future interest deferrals and defaults.
The following requested schedules of our investments in pooled and individual trust-preferred securities as of March 31, 2009:
Trust Preferred Corporate Securities
As of March 31, 2009
(Dollar amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Pooled | | | | | | | | Unrealized | | | | | | | | | | | | | | |
| | | | | or Single | | Note | | Book | | Fair | | Gain | | | | | | | | # of | | Collateral | | Deferring | | Deferral |
| Cusip | | Deal | | Issuer | | Class | | Value | | Value | | (Loss) | | Moody’s | | S&P | | Fitch | | Issuers | | Balance | | Collateral | | % |
| 01449CAK6 | | Alesco 8 | | Pooled | | C1 | | 5,000 | | 2,718 | | (2,282) | | Ca | | NR | | A | | 81 | | 662,750 | | 67,900 | | 10.2% |
| 01449TAB9 | | Alesco 9 | | Pooled | | A2A | | 4,496 | | 2,828 | | (1,668) | | Ba1 | | BB | | AAA | | 79 | | 651,574 | | 65,000 | | 10.0% |
| 01449WAD8 | | Alesco 10 | | Pooled | | C1 | | 4,322 | | 2,255 | | (2,067) | | Ca | | NR | | A- | | 85 | | 950,000 | | 83,650 | | 8.8% |
| 01450AAD2 | | Alesco 11 | | Pooled | | C1 | | 4,667 | | 2,244 | | (2,423) | | Ca | | NR | | A- | | 72 | | 659,595 | | 62,600 | | 9.5% |
| 01450DAE4 | | Alesco 12 | | Pooled | | C1 | | 4,929 | | 2,511 | | (2,418) | | Ca | | NR | | A- | | 93 | | 662,647 | | 61,000 | | 9.2% |
| 014495AE5 | | Alesco 13 | | Pooled | | C1 | | 3,055 | | 1,376 | | (1,679) | | Ca | | NR | | A- | | 65 | | 500,000 | | 97,000 | | 19.4% |
| 01450BAD0 | | Alesco 15 | | Pooled | | C1 | | 1,676 | | 984 | | (692) | | Ca | | NR | | A- | | 64 | | 667,000 | | 117,000 | | 17.5% |
| 01450GAC1 | | Alesco 16 | | Pooled | | C | | 2,873 | | 1,662 | | (1,211) | | Ca | | NR | | BBB | | 52 | | 500,000 | | 52,000 | | 10.4% |
| 01450NAC6 | | Alesco 17 | | Pooled | | B | | 1,637 | | 1,028 | | (609) | | Ca | | NR | | AA | | 54 | | 400,897 | | 49,000 | | 12.2% |
Securities and Exchange Commission
June 8, 2009
Page 5 of 9
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Pooled | | | | | | | | | | | | Unrealized | | | | | | | | | | | | | | | | | | |
| | | | | or Single | | Note | | Book | | | Fair | | | Gain | | | | | | | | | # of | | Collateral | | | Deferring | | | Deferral | |
| Cusip | | Deal | | Issuer | | Class | | Value | | | Value | | | (Loss) | | | Moody’s | | S&P | | Fitch | | Issuers | | Balance | | | Collateral | | | % | |
| 44984SAD8 | | I-PreTSL 3 | | Pooled | | B1 | | | 4,813 | | | | 3,598 | | | | (1,215 | ) | | B2 | | A- | | A- | | 25 | | | 364,000 | | | | 20,000 | | | | 5.5 | % |
| 74040KAC6 | | PreTSL 2 | | Pooled | | Mezz | | | 1,405 | | | | 1,405 | | | | 0 | | | Ca | | NR | | BBB | | 35 | | | 310,300 | | | | 74,500 | | | | 24.0 | % |
| 74040XAD6 | | PreTSL 9 | | Pooled | | B2 | | | 1,000 | | | | 707 | | | | (293 | ) | | Ca | | NR | | A | | 49 | | | 450,030 | | | | 52,840 | | | | 11.7 | % |
| 74042DAE6 | | PreTSL 20 | | Pooled | | B | | | 3,744 | | | | 2,250 | | | | (1,494 | ) | | Caa3 | | NR | | AA | | 55 | | | 604,154 | | | | 71,000 | | | | 11.8 | % |
| 74042QAA5 | | PreTSL 26 | | Pooled | | A1 | | | 4,463 | | | | 2,518 | | | | (1,945 | ) | | A1 | | BB | | AAA | | 64 | | | 964,200 | | | | 124,000 | | | | 12.9 | % |
| 87330WAG2 | | TBRNA 3 | | Pooled | | C1 | | | 2,868 | | | | 2,868 | | | | 0 | | | NR | | BB+ | | C | | 62 | | | 736,554 | | | | 206,125 | | | | 28.0 | % |
| 89234NAB6 | | TPREF Funding 2 | | Pooled | | B | | | 5,000 | | | | 1,373 | | | | (3,627 | ) | | Caa3 | | NR | | A- | | 34 | | | 345,900 | | | | 35,000 | | | | 10.1 | % |
| 894126AD3 | | Trapeza 4 | | Pooled | | C1 | | | 4,930 | | | | 3,176 | | | | (1,754 | ) | | Ca | | NR | | A | | 49 | | | 392,823 | | | | 70,000 | | | | 17.8 | % |
| 89412RAD7 | | Trapeza 5 | | Pooled | | C1 | | | 4,970 | | | | 3,257 | | | | (1,713 | ) | | Ca | | NR | | A | | 43 | | | 292,617 | | | | 44,000 | | | | 15.0 | % |
| 894135AN2 | | Trapeza 13 | | Pooled | | D | | | 4,611 | | | | 2,627 | | | | (1,984 | ) | | NR | | NR | | BBB | | 63 | | | 750,000 | | | | 46,500 | | | | 6.2 | % |
| 894135AS1 | | Trapeza 13 | | Pooled | | E | | | 1,590 | | | | 1,590 | | | | 0 | | | NR | | NR | | BBB | | 63 | | | 750,000 | | | | 46,500 | | | | 6.2 | % |
| | | Subtotal | | 20 | | | | | 72,049 | | | | 42,975 | | | | (29,074 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 066047AA9 | | Bank Of America | | Single | | N/A | | | 922 | | | | 331 | | | | (591 | ) | | Baa3 | | BB- | | BB | | 1 | | | 922 | | | | 0 | | | | 0.0 | % |
| 62874FAA7 | | Nations Bank Cap | | Single | | N/A | | | 1,966 | | | | 679 | | | | (1,287 | ) | | Baa3 | | BB- | | BB | | 1 | | | 1,966 | | | | 0 | | | | 0.0 | % |
| 21869MAA5 | | CoreStates Cap | | Single | | N/A | | | 2,754 | | | | 1,518 | | | | (1,236 | ) | | A1 | | NR | | AA- | | 1 | | | 2,754 | | | | 0 | | | | 0.0 | % |
| 446284AA9 | | Huntington Cap | | Single | | N/A | | | 441 | | | | 132 | | | | (309 | ) | | Baa1 | | BB- | | BBB+ | | 1 | | | 441 | | | | 0 | | | | 0.0 | % |
| 702926AC0 | | Patriot Cap Trust | | Single | | N/A | | | 1,006 | | | | 1,100 | | | | 94 | | | NR | | NR | | NR | | 1 | | | 1,006 | | | | 0 | | | | 0.0 | % |
| 320653AC2 | | First Keystone | | Single | | N/A | | | 714 | | | | 732 | | | | 18 | | | NR | | NR | | NR | | 1 | | | 714 | | | | 0 | | | | 0.0 | % |
| 03074B100 | | Ameriserv | | Single | | N/A | | | 491 | | | | 370 | | | | (121 | ) | | NR | | NR | | B+ | | 1 | | | 491 | | | | 0 | | | | 0.0 | % |
| 31982SAC9 | | First ComWealth | | Single | | N/A | | | 1,000 | | | | 871 | | | | (129 | ) | | NR | | NR | | BBB- | | 1 | | | 1,000 | | | | 0 | | | | 0.0 | % |
| 05527K207 | | BBC Cap Trust 2 | | Single | | N/A | | | 54 | | | | 54 | | | | 0 | | | NR | | NR | | NR | | 1 | | | 54 | | | | 54 | | | | 100.0 | % |
| | | Subtotal | | 9 | | | | | 9,348 | | | | 5,787 | | | | (3,561 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grand total of Trust Preferred holdings | | | 81,397 | | | | 48,762 | | | | (32,635 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notes: The Deferring Collateral Column includes deferrals that have not paid current interest payments as permitted by the debt instruments and defaults.
The above listings do not include 3 trust preferred holdings written off in March 2009 as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | before writedown | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 01450BAF5 | | Alesco 15 | | Pooled | | D | | 3,000 | | | 0 | | | | (3,000 | ) | | Ca | | NR | | BBB | | 64 | | | 667,000 | | | | 117,000 | | | | 17.5 | % |
| 01450GAE7 | | Alesco 16 | | Pooled | | D | | 1,835 | | | 0 | | | | (1,835 | ) | | Ca | | NR | | C | | 52 | | | 500,000 | | | | 52,000 | | | | 10.4 | % |
| 903428AF7 | | US Capital 6 | | Pooled | | C1 | | 5,000 | | | 0 | | | | (5,000 | ) | | NR | | NR | | BBB | | | | | 523,988 | | | | 133,100 | | | | 25.4 | % |
From the listing above, all of the pooled trust preferred securities were rated below investment grade by at least one of the rating agencies. The pooled listing above shows identical holdings as reported in our May 12 response letter with additional columns of data added. With respect to the matter of excess subordination, the pooled holdings are projected to pay 100% of principal and interest under our base case (V3) scenario and the majority of the securities are also projected to pay 100% of principal and interest under our stress test V5 scenario which assumes 4% additional deferrals/defaults per annum. See Exhibit B, which contains the same information that appeared as an attachment to the May 12 response letter and is included in this letter as well.
Securities and Exchange Commission
June 8, 2009
Page 6 of 9
Exhibit B
TRUST PREFERRED HOLDINGS as of March 31, 2009
Present Value of Cash Flow Analysis Summary
Assumptions:
| 1) | | 15% recovery rate on current deferrals/defaults with 24 month lag |
| |
| 2) | | Forward Libor Curve |
| |
| 3) | | Cash Flows run to maturity |
| |
| 4) | | 2% annual prepays starting March 2014 |
| |
| 5) | | Present value of projected cash flows discounted at book yield
with alternative versions concerning deferrals by issuers |
| |
| | | Scenario V 1 – No additional deferrals/defaults |
| |
| | | Scenario V 2 – 1% additional deferrals/defaults for 5 years then 0% |
| |
| | | Scenario V 3 – 2% additional deferrals/defaults for 5 years then 0% -this scenario is the Base case |
| |
| | | Scenario V 4 – 3% additional deferrals/defaults for 5 years then 0% |
| |
| | | Scenario V 5 – 4% additional deferrals/defaults for 5 years then 0% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Present Value of Projected Cash Flows |
| Cusip | | Deal | | | Par | | | V 1 | | | V 2 | | | V 3 | | | V 4 | | | V 5 |
| 01449CAK6 | | Alesco 8 | | $ | 5,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 92 | % | | | 82 | % |
| 01449TAB9 | | Alesco 9 | | $ | 5,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 01449WAD8 | | Alesco 10 | | $ | 4,549,533 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 97 | % |
| 01450AAD2 | | Alesco 11 | | $ | 4,992,885 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 95 | % | | | 94 | % |
| 01450DAE4 | | Alesco 12 | | $ | 5,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 014495AE5 | | Alesco 13 | | $ | 3,034,201 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 83 | % |
| 01450BAD0 | | Alesco 15 C | | $ | 2,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 75 | % |
| 01450GAC1 | | Alesco 16 C | | $ | 3,200,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 97.57 | % | | | 78.04 | % |
| 01450NAC6 | | Alesco 17 | | $ | 2,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 44984SAD8 | | I-PreTSL 3 | | $ | 5,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 74040KAC6 | | PreTSL 2 PW | | $ | 1,431,628 | | | | 100 | % | | | 96.26 | % | | | 86.55 | % | | | 77.15 | % | | | 67.85 | % |
| 74040XAD6 | | PreTSL 9 | | $ | 1,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 74042DAE6 | | PreTSL 20 | | $ | 3,931,936 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 74042QAA5 | | PreTSL 26 | | $ | 4,925,958 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 87330WAG2 | | TBRNA 3 PW | | $ | 5,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 97.93 | % | | | 67.34 | % |
| 89234NAB6 | | TPREF Fund. 2 | | $ | 5,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 894126AD3 | | Trapeza 4 | | $ | 5,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 88.20 | % |
| 89412RAD7 | | Trapeza 5 | | $ | 5,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 894135AN2 | | Trapeza 13 D | | $ | 5,000,000 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| 894135AS1 | | Trapeza 13 E PW | | $ | 3,071,629 | | | | 100 | % | | | 100 | % | | | 100 | % | | | 69.17 | % | | | 10.05 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Securities written off in March 2009: | | | | | | | | | | | | | | | | | | | | | | | |
| 01450BAF5 | | Alesco 15 D | | $ | 3,000,000 | | | | 100 | % | | | 66.47 | % | | | 30.48 | % | | | 0 | % | | | 0 | % |
| 01450GAE7 | | Alesco 16 D | | $ | 1,817,593 | | | | 100 | % | | | 84.71 | % | | | 37.20 | % | | | 0 | % | | | 0 | % |
| 903428AF7 | | US Captal 6 | | $ | 5,000,000 | | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % |
PW = this investment was partially written down in March 2009
Securities and Exchange Commission
June 8, 2009
Page 7 of 9
Comment 3:Please tell us how much the default percentage would have to increase for you to recognize your first dollar of credit loss.
In addition to the deferral/default percentages shown on the bottom of page 2 and on page 3 under the 3/09 % column, the additional deferrals/defaults necessary to create credit losses are as follows:
A recap of additional defaults that could occur before credit losses are as follows:
TRUST PREFERRED HOLDINGS as of March 31, 2009
| | | | | | | |
| | | | | Offering | | |
| Cusip | | Deal | | Class | | Additional Defaults before Credit Loss |
| 01449CAK6 | | Alesco 8 | | Pooled | | 3% annual defaults for 5 years |
| 01449TAB9 | | Alesco 9 | | Pooled | | Over 4% annual defaults for 5 years |
| 01449WAD8 | | Alesco 10 | | Pooled | | 4% annual defaults for 5 years |
| 01450AAD2 | | Alesco 11 | | Pooled | | 4% annual defaults for 5 years |
| 01450DAE4 | | Alesco 12 | | Pooled | | 3% annual defaults for 5 years |
| 014495AE5 | | Alesco 13 | | Pooled | | 4% annual defaults for 5 years |
| 01450BAD0 | | Alesco 15 C | | Pooled | | 4% annual defaults for 5 years |
| 01450GAC1 | | Alesco 16 C | | Pooled | | 3% annual defaults for 5 years |
| 01450NAC6 | | Alesco 17 | | Pooled | | Over 4% annual defaults for 5 years |
| 44984SAD8 | | I-PreTSL 3 | | Pooled | | Over 4% annual defaults for 5 years |
| 74040KAC6 | | PreTSL 2 | | Pooled | | A |
| 74040XAD6 | | PreTSL 9 | | Pooled | | Over 4% annual defaults for 5 years |
| 74042DAE6 | | PreTSL 20 | | Pooled | | Over % annual defaults for 5 years |
| 74042QAA5 | | PreTSL 26 | | Pooled | | Over 4% annual defaults for 5 years |
| 87330WAG2 | | TBRNA 3 | | Pooled | | A |
| 89234NAB6 | | TPREF Funding 2 | | Pooled | | Over 4% annual defaults for 5 years |
| 894126AD3 | | Trapeza 4 | | Pooled | | 4% annual defaults for 5 years |
| 89412RAD7 | | Trapeza 5 | | Pooled | | Over 4% annual defaults for 5 years |
| 894135AN2 | | Trapeza 13 | | Pooled | | Over 4% annual defaults for 5 years |
| 894135AS1 | | Trapeza 13 | | Pooled | | A |
|
| A — Impairment charge recorded in March 2009 based on anticipated credit loss. |
| | | | | | | |
| The above listings do not include 3 trust preferred holdings written off in March 2009 as follows: |
| | | | | | | |
| 01450BAF5 | | Alesco 15 | | Pooled | | |
| 01450GAE7 | | Alesco 16 | | Pooled | | |
| 903428AF7 | | US Capital 6 | | Pooled | | |
Each of the holdings shown in the charts above has different characteristics. The majority of the investments were originally A rated Class C securities. As a general rule, when deferrals exceed 25%, impairments may be other than temporary and additional deferrals could cause OTTI losses as a lower amount of performing collateral supports the rated securities.
Securities and Exchange Commission
June 8, 2009
Page 8 of 9
Comment 4:In your response to comment three of our letter dated January 25, 2009 you indicated that you would revise future filings to enhance your disclosure. It appears that you included the chart summarizing the non-agency CMO’s, however it does not appear you provided the textual discussion regarding the nature and type of the assets underlying securities or the same level of detail about the credit ratings provided in your March 11, 2009 response in the March 31, 2009Form 10-Q. Please confirm that you will include disclosure similar to that proposed in your Letter dated March 11, 2009 in your June 30, 2009 Form 10K.
It is our intention to include the requested textual discussion as indicated in our March 11 response letter in our June 2009 Form 10-K.
Comment 5:We noted in your response to comment one that four securities, Taberna 2005-3A C1, PreTSL2, Trapeza 13AE, and BBC CAP Trust2, were partially impaired. While we note some reference to certain factors considered in your impairment analysis, please more fully explain, by individual security, how you determined they were partially impaired at March 31, 2009. Please provide us an update on the facts and circumstances surrounding the three pooled securities and one individual trust preferred securities as it relates to their current carrying value, any noted deterioration and/or change in credit ratings. Please also tell us whether you have taken any additional impairment on any of these during this particular quarter.
Please refer to Exhibit B on page 6 of this letter.
Taberna 2005-3A although it passed the base case (V3) discounted cash flow test, reported deferrals/defaults of 28.0% existed at March 31, 2009. Given that the pool is not expected to begin payments again for several years, we felt some impairment was appropriate, thus the write down by $2,132,000 to fair value at March 31, 2009.
PreTSL 2 reported deferrals of 24.0% at March 31, 2009 and also did not record a 100% in the base case (V3) discounted cash flow analysis so it was written down by $218,369 to the fair value of $1,405,200.
Trapeza 13 Class E which also passed the base case (V3) discounted cash flow analysis, represented our only investment in a Class E tranch and was deemed to be OTTI with a charge of $1,481,629 to reduce the carrying value to fair value at March 31, 2009. The fair value is less than the present value of discounted cash flows shown under all scenarios as the deferral percentage of 6.2% was considered low, but the probability of the credit support being insufficient going forward is higher given its Class E tranch status.
In addition, one single issue trust preferred security in BBC Capital Trust 2 was written down to fair value on March 31, 2009 as the issuer deferred interest payments on all preferred offerings during the March 2009 quarter. The extent of the overall debt obligations by Bank Atlantic were considered and we view it unlikely that all debts will be paid in full absent an economic recovery in south Florida.
Securities and Exchange Commission
June 8, 2009
Page 9 of 9
The percentage of issuer deferrals in the above pooled offerings increased in the current quarter and we believe many of the issuers were in a capital retention mode and elected to defer payment as permitted by their debt contracts. Addressing the possibility of additional impairment losses in the June 2009 quarter, the determination of impairment losses is generally not determined until the last few weeks of the quarter based upon the most current performance data provided by the trustee reports.
If you have additional questions or comments concerning this response, please contact me either via phone at 412-373-4817 or e-mail to timothy.rubritz@parkvale.com.
Sincerely,
Timothy G. Rubritz
Vice President, Treasurer and Chief Financial Officer
| | |
| cc: | | Robert J. McCarthy, Jr.
President and Chief Executive Officer |
