20549-0408
October 20, 2004
Philip E. Logan
President
SFSB, Inc.
1614 Churchville Road
Bel Air, Maryland 21015
Re: SFSB, Inc.
Form SB-2, filed September 20, 2004
File Number 333-119128
Dear Mr. Logan:
We have reviewed your Form SB-2 and have the following
comments. Where indicated, we think you should revise your
document
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information we may have
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Prospectus Cover Page
1. Please clarify in the second paragraph that this lack of market
may make it more difficult for purchasers in this offering to sell
their shares.
Summary - page 1
2. You state in the first line that the summary "may not contain
all
the information that is important." Please delete this since the
summary never includes all of the information that is important.
3. Please delete the third sentence of the legend at the top of
the
page. The terms you use need to be clear from the context.
4. Please ensure that the text size you use is easy to read. The
footnote references you currently use are very hard to read.
Slavie Bancorp, MHC - page 1
5. Please disclose here, at the outset, that the officers and
directors of Slavie and SFSB will be the same persons.
Slavie Federal Savings Bank - page 1
6. Expand this disclosure and the related disclosure in the body
of
the text to reflect the historical lending characteristics of the
bank, your current lending plans and the steps you have taken to
make
this change. We note the first several risk factors and the
second
one on page 15. Include, for example:
* percentage of your loan portfolio made up of such loans,
* Your new focus on commercial lending, with quantification, and
* Your historical focus on the Slavic community and any current
similar focus.
Reasons for the Reorganization - page 3
7. Throughout the filing avoid using roman numerals, particularly
for
embedded lists. Use regular numbers, bullet points or another
technique.
How We Determined the Offering Range- page 3
8. In the third paragraph on page 5, the first full paragraph on
page
100 and the cover you indicate using an affirmative resolicitation
in
the event more than 1,339,031 shares are to be sold. Revise the
filing to indicate that if more than this number is sold
purchasers`
funds will be promptly returned. As an alternative, advise us as
to
the authority to use an affirmative resolicitation.
9. Please reverse the order of the 2 tables and related text on
page
4 so that the 45% sale information appears first. In addition,
revise the subsection captions to include the 45% and 100%
figures.
10. Please provide information consistently between the two
tables.
For example, in the first table you do not indicate any period
information for SFSB but you do in the second table. You also
refer
to the "peer group" in the first table and "National mutual
holding
companies" in the second.
After-Market Performance... - page 5
11. Please provide after market performance information so that
investors may easily compare "apples to apples." Please
separately
disclose first step MHC deals from non-first step deals.
Limits on Your Purchase... - page 8
12. Please limit this subjection to purchases by ordinary
investors.
We note the last paragraph in which you discuss the number of
shares
to go to the ESOP. Please consider providing this under separate
subheading. Also disclose where appropriate the number and
percentage of shares to be purchased by officers and directors.
Use of Proceeds - page 11
13. Revise to indicate, in priority order, the anticipated uses of
the proceeds for both the company and the bank. If no specific
uses
have been identified, so state in the filing and disclose the
reason
for the offering. With regard to the possible acquisitions,
identify
the target or state that no plans, arrangements or agreements have
been made. See Item 504 of Regulation S-B. Make similar
disclosures
on page 20 and 21.
Persons who Purchase Stock - page 14
14. Revise to disclose whether or not affiliates can vote on
benefit
plans during the next year and what holders can vote on benefit
plans
thereafter.
Critical Accounting Policies - page 31
15. You disclose on page F-7 that your allowance for loan losses
is
reported at the amount you believe necessary to absorb "losses on
existing loans that may become uncollectible." This seems to
conflict with your disclosure on page 31 that your allowance for
loan
losses represents your best estimate of losses known and inherent
in
the loan portfolio that are both probably and reasonable to
estimate.
Please revise your disclosures to consistently clarify your actual
policy in this area.
Building sources of income - page 33
16. Revise to identify new products and services and state whether
or
not there are any current or contemplate plans, arrangements or
agreements for acquisitions and strategic affiliations.
Comparison of Operating Results for the Periods Ended June 30,
2004
and 2003 - page 38
17. Please revise your disclosures regarding your sale of ground
rents to related parties on page 40 to explain how you determined
the
sales price.
Comparison of Operating Results for the Years Ended December 31,
2003
and 2002 - page 40
18. Please revise your disclosures on page 40 to clarify the facts
and circumstances that led to your Net loss for the period ended
December 31, 2002.
Liquidity and Capital Resources - page 44
19. Please provide a detailed description of your Liquidity and
Capital Resources position to enable the reader to fully
understand
your ability to meet your future obligations for the periods
presented. Refer to Release 33-8350 and please revise to address
each of the following:
* Describe the facts and circumstances that led to the significant
changes in your deposit flows as of December 31, 2002 when
compared
with December 31, 2003 and continued into the subsequent interim
period;
* Explain how the following cash inflows or cash requirements fit
into your overall business plan:
o The anticipated increases of loans to be resold in the secondary
market as referred to on page 33 and extent of your involvement in
loan participation programs;
o Your current heavily fixed-rate loan portfolio as it matures
during
a period of rising interest rates;
o Significant unrealized losses on your Available-for-sale
Investment
securities portfolio and the extent to which you have the intent
and
ability to hold them to recovery or maturity;
o The anticipated borrowings for the employee stock ownership
plan;
o The employee stock option plan and other employee compensation
arrangements;
o The anticipated dividend payments in the near future; and
o Your real estate activity such as the 35% of unoccupied space
owned
by you or your ground rent portfolio, if considered material.
Asset Quality - page 54
20. Please revise to address the following regarding your policies
and procedures for the treatment of loans guaranteed by the
Federal
Housing Administration in your non-accrual and nonperforming
assets:
* We note your disclosures on page 55 regarding your exclusion of
loans guaranteed by the Federal Housing Association from your non-
performing assets data. This treatment is not appropriate since
the
guarantee does not technically relieve an asset`s status as non-
performing. Therefore, please revise your tables on page 56
accordingly.
* To the extent that you have non-performing assets with such
guarantees, we would not object to a separate or parenthetical
quantification of such amounts to identify the amount of federally
guaranteed loans that are included in the aggregate amount of non-
performing assets.
Allowance for Loan Losses - page 58
21. We note your disclosures here on page 58 regarding the three
separate components of your allowance: the specific allowance on
identified problem loans, the general valuation allowance on
certain
identified problem loans, and the general valuation allowance on
the
remainder of the loan portfolio. Please revise to quantify amount
of
the allowance related to each of these three categories. Provide
a
table that addresses each of the balance sheet dates reflected in
your allocation table at the bottom of page 59.
21.1. Waivers of Dividends - page 73
22. Please discuss the practical implications of the planned
Slavie
Bancorp, MHC waiver of dividends. Explain the business reasons
for
this move and the consequences for both the registrant and its
minority shareholders. To the extent material, discuss this
matter
in the MD&A section where you address liquidity or elsewhere, as
appropriate.
Consolidated Financial Statements
Statement of Operations - page F-3
23. Please revise your line item "Loss on sale of ground rents" to
reflect that the amounts reflected therein were sold to related
parties. If not all the loss amounts resulted from sales to
related
parties, present such amounts on separate line items. Refer to
Rule
4-08(k) of Regulation S-X.
Note 1 - Summary of Significant Accounting Policies - page F-6
24. Please revise to address the following in order to more
clearly
describe your accounting policies and procedures pertaining to the
real estate activity in your Consolidated Financial Statements:
* Clearly disclose the line items on which you present your rental
income from the noncancellable operating leases and describe your
revenue recognition policy for such amounts.
* Revise to explain your activity with Ground rent income during
the
periods presented.
* Revise your MD&A to explain why you incurred losses on your
ground
rent business during each of the periods presented. Did the
amounts
in prior periods reflect impairments or actual sales?
25. Please revise Note 1 to disclose your policy for providing for
credit losses associated with certain off-balance-sheet financial
instruments (such as commitments to extend credit, guarantees, and
letters of credit). Refer to paragraph 8.e of SOP 01-6, which
requires that allowances for off-balance-sheet instruments be
reported separately as liabilities and not as part of the
allowance
for loan losses. Disclose the line item in which such allowances
are
reported and quantify the amounts recorded.
Investment securities Available for Sale - F-7
26. As previously described on page 60, please revise to address
the
following to better explain your accounting policy on investments:
* Please revise to clarify when you test for other than temporary
impairment of your investment securities, including your mortgage-
backed securities.
* Describe the methods used to determine whether an impairment has
occurred and to determine the amount of such impairment.
* Revise to identify which of your securities are subject to the
scope and guidance of EITF 99-20. Clearly describe your specific
impairment policies for these securities based on that guidance.
Allowance for Loan Losses - page F-7
27. Please revise your accounting disclosure to clarify when you
test
for impairment on your loan portfolio.
Note 2 - Investment Securities - page F-9
28. Please consider the following on your investment securities:
* Your disclosure appears to assume most of your investment
portfolio
is in an unrealized loss position. Please revise to discuss the
primary factors you used to determine that the losses on these
investment securities were not "other-than-temporary".
* For your Available-for-sale securities that are in an unrealized
loss position, please revise to confirm that you have the intent
and
ability to hold these securities to the earlier of recovery or
maturity.
Note 6 - Loan Receivable - page F-13
29. Please revise to clearly disclose the nature of your "Share
loan"
program as well as in your footnotes and to discuss your
accounting
policies and procedures for these types of loans.
30. We note your disclosure on page 52 regarding your interest in
a
loan participation program as well as your disclosure on page 33
regarding your strategy to sell up to 20% of your fixed rate loan
production. Please revise your footnotes to address the following
in
order to provide clear and comprehensive disclosure of your loan
participations, securitizations and sale transfers during the
periods
presented on your Statements of Operations on page F-3.
* Clearly describe the underlying transactions and specifically
define the extent to which you originate the loans involved, if
any.
Disclose whether you actually originate the full amount and sell
off
the participations or whether you only originate a fraction of the
total.
* Clearly describe your accounting policies and procedures for
loan
participations in a clear and concise manner, and discuss the
accounting treatment for loan transfers, if any. For transactions
where you are getting sale treatment under SFAS 140, please revise
Note 1 to confirm in your disclosure that you meet each of the
criteria required by paragraph 9 of SFAS 140. Disclose each of
those
criteria.
* Disclose the underlying terms and conditions of the loan
participation agreements such as recourse obligations.
* Please provide the disclosures by paragraph 17(e) of SFAS No.
140
for servicing assets and liabilities and paragraphs 13(d) and
A52(b)
of FIN 45 for any recourse obligations. For additional
information,
refer to paragraphs 104-106 and paragraph 13 of SFAS No. 140.
* Please revise your disclosures on page 33 to provide a
comprehensive discussion of the historical status of your
involvement
in loan participations, loan securitizations and sales of loans.
Discuss the extent of your involvement during the periods
presented
on your Statements of Operations on page F-3 and separately
discuss
any significant changes in the extent of your involvement since
the
latest balance sheet date.
* Revise your disclosures on pages 33 and 52 to discuss the
purposes
as well as the effects of such transactions. Discuss the extent
to
which you consider collectibility as a factor in whether a given
loan
will be sold or retained.
* Revise the Liquidity section of your MD&A to discuss the impact
of
such transactions.
Note 10 - Borrowings - page F-18
31. Please revise to discuss the underlying terms and conditions
of
the FHLB advances. Identify the conditions that may trigger a
callable event and clearly discuss how it may affect your terms of
repayment. Please include pertinent facts that may affect your
liquidity and capital resources in your Management`s Discussion
and
Analysis.
Note 11 - 401(k) Plan and Deferred Compensation Agreement - page
F-18
32. Please revise to describe more fully the terms and conditions
of
your deferred compensation agreement to include whether the
liability
was equal to the present value of benefits you expect to provide
to
the former employee. Revise to identify whether the agreement
reflects a defined contribution or defined benefit plan, and
provide
the disclosures appropriate to either type of plan.
Exhibit Index - page II-4
33. For exhibit number 99.2, disclose the practical implications
of
Rule 202 for an ordinary investor and explain how they can obtain
this information.
34. Please supplementally supply us with the appraisal report.
Exhibit 8
35. We note the sentence beginning in the fourth line of the last
paragraph on page 6. Please file the referenced letter of Feldman
Financial Advisors. In addition, please advise us supplementally
on
what basis Ober, Kaler, Grimes & Shriver have relied upon this
opinion in developing the tax opinion.
36. Revise the last paragraph to clearly indicate that the opinion
can be relied upon by all potential investors.
* * * * *
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective responsibilities under the Securities Act of 1933 and
the
Securities Exchange Act of 1934 as they relate to the proposed
public
offering of the securities specified in the above registration
statement. We will act on the request and, pursuant to delegated
authority, grant acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
Direct any questions on accounting matters to Diane San
Pedro
at 202-824-5483, or to Kevin Vaughn, Accounting Branch Chief, at
202-
942-1816. Please direct any other questions to David Lyon at 202-
942-1796, or to me at 202-942-1772.
Sincerely,
Michael Clampitt
Senior Counsel
By fax : Frank C. Bonaventure, Jr.
Fax number 410-547-0699
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SFSB, Inc.
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