July 22, 2005
Mail Stop 4561
By U.S. Mail and facsimile to (864) 442-1641
Ms. Jennifer M. Champagne
Chief Financial Officer
Cornerstone Bancorp
1670 East Main Street
Easley, SC 29640
Re: Cornerstone Bancorp
Form 10-KSB filed March 24, 2005
Form 10-QSB filed May 12, 2005
File No. 333-79543
Dear Ms. Champagne:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and will make no further review of your
documents. Where indicated, we think you should revise your
documents 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 or may not
raise 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.
* * * * * * *
Form 10-KSB filed March 24, 2005
Business
Lending Activities, page 3
1. We note your disclosure in which you state that in most cases,
you
sell residential mortgage loans upon origination. Please revise
your
filing throughout (including balance sheet, cash flows, and
footnotes) to separately identify mortgage loans held for sale.
Please revise your financial statement footnotes to describe your
accounting policies for mortgage loans held for sale. Refer to
paragraphs 28 and 29 of SFAS 65.
2004 Annual Report
Management`s Discussion and Analysis of Financial condition and
Results of Operations, page 2
Other Expenses, page 8
2. We note from your Consolidated Statements of Income on page 19
that during the year ended December 31, 2004, deposit charge-offs
increased approximately $55,000 over the prior year and was the
second largest component of your total increase in noninterest
expense during 2004. Please revise your MD&A to describe what
caused
this increase and if this represents a trend that is likely to
continue in future periods.
Maturity Distribution of Loans, page 10
3. We note that approximately $57 million of your $75 million loan
portfolio is scheduled to mature in one year or less from December
31, 2004. Please tell us how you considered the guidance in Item
III.B, including the related instructions in the preparation of
your
table. Please fully explain how you determined that the majority
of
your loans are properly classified in the one year or less table.
For example, we are unclear whether these are demand loans, loans
with rollover features or have other terms and conditions which
lead
you to this classification. Please also revise your presentation
if
your maturity classifications are not correct.
Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies and
Activities,
page 22
4. Please revise Note 1 to describe your accounting policies
regarding loan and commitment fees for both loans held for
investment
and loans held for sale. Refer to paragraphs 20-25 of SFAS 65.
Your
revised footnotes should also specifically address how you comply
with paragraphs 5 and 18-22 of SFAS 91.
5. Please revise Note 1 to clarify whether you retain the
servicing
rights on residential mortgage loans you sell to others. If so,
please also revise to include the disclosures specified in
paragraph
17e of SFAS 140.
6. Describe whether loans are sold with or without recourse. If
sold
with recourse, please describe the nature of the recourse
provisions
and tell us how you considered paragraphs 9-12 of SFAS 140 in
determining these transactions should be recorded as loan sales
instead of as secured borrowings.
Note 4 - Investment Securities, page 28
7. We note from the Consolidated Statements of Cash Flows on page
21
that you sold securities during 2004 for a net gain of $5,230.
Please quantify for us the types of investment securities sold,
amortized amount, fair value, and gain recognized for each type of
security.
Form 10-Q filed May 12, 2005
Consolidated Financial Statements
Consolidated Statements of Shareholders` Equity and Comprehensive
Income, page 4
8. We note that during the first quarter of 2005, $57,327 of
unrealized losses were recorded to accumulated other comprehensive
income (loss). Please tell us and revise future filings to state
whether you still have the ability and intent to hold securities
with
gross unrealized losses until such time as the value recovers or
the
securities mature. Please also confirm and revise future filings
to
disclose that you do not consider these losses to be other-than-
temporary.
* * * * * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. 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 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 filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment 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.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a 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 our review of your filing or in
response to our comments on your filing.
You may contact Lisa Haynes, Staff Accountant at (202) 551-
3424
or me at (202) 551-3492 if you have questions.
Sincerely,
John P. Nolan
Accounting Branch Chief
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Ms. Jennifer M. Champagne
Cornerstone Bancorp
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