February 15, 2006
Mail Stop 4561
By U.S. Mail and Facsimile (404) 572-6999
Mark A. Stevens
President and Chief Executive Officer
Atlantic Southern Financial Group, Inc.
4077 Forsyth Road
Macon, Georgia 31210
Re: Atlantic Southern Financial Group, Inc.
Registration Statement on Form S-1
Filed January 19, 2006
File No. 333-130542
Dear Mr. Stevens:
We have reviewed your filing 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
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
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. State that all funds received will be immediately available for
use by the company, that there is no minimum number of shares that
the company must sell, and funds will not be placed in an escrow
or
similar account.
Summary, page 1
2. Please revise the introductory paragraph to avoid stating that
the
summary is incomplete. A summary by its nature does not contain
all
the information that is in the prospectus, but should provide
capsule
disclosure of all the most material information.
Summary Consolidated Financial Data, page 5
Income Statement Data, page 5
3. Revise the "Gross interest income" line item to include
dividend
income. Refer to the "Total interest and dividend income" caption
in
the Statements of Income (Loss) on page F-4. Provide a similar
revision to the "Selected Consolidated Financial Data" section on
page 23.
4. Revise the "Net interest income" line item on page 5 to read
"net
interest income before provision for loan losses". Provide a
similar
revision to the "Selected Consolidated Financial Data" section on
page 23.
Period End Balances, page 6
5. Disclose in a footnote how Earnings Assets are determined.
Provide a similar revision to the "Selected Consolidated Financial
Data" section on page 23.
6. Disclose in a footnote how Shares outstanding - diluted are
computed. Provide a similar revision to the "Selected Consolidated
Financial Data" section on page 23.
Performance Ratios, page 6
7. Include the "Average Equity to Average Assets ratio" in this
section in addition to the "Results of Operations Asset and Equity
Analysis" section on page 38.
Asset Quality Ratios, page 6
8. Revise footnote (4) regarding the composition of non-performing
assets to state why you do not include the ratios for
Nonperforming
assets to total assets and Loans loss reserves to non performing
assets for fiscal years 2001 to 2003. Provide a similar revision
to
the related footnote in the "Selected Consolidated Financial Data"
section on page 23.
Risk Factors, page 7
9. We note in your introductory paragraph the statement that there
may be other risks to investing the company apart from those
discussed in this section. Please revise to delete this language.
You must disclose all risks that you believe are material at this
time. Discussing the possibility of risks that are currently
unknown
or appear immaterial is unnecessarily confusing.
There has been no active market for our common stock..., page 13
10. Please revise to reference the extent of current trading on
the
OTCBB.
Our ability to pay dividends..., page 14
11. Please revise to reference the company`s policy against
payment
of dividends.
Use of Proceeds, page 21
12. Please provide as clear an estimate as possible of your
intended
use of the proceeds of this offering. We note, for example, your
intention to open three new branches and purchase additional land.
To the extent you are able to disclose specific uses for the
proceeds, please show scenarios based on 25%, 50%, 75% and 100% of
shares being sold, as appropriate. To the extent you are not sure
of
your plans for the proceeds, discuss the principal reasons for the
offering at this time.
Capitalization, page 22
13. Discuss in footnote (1) the basis for including the junior
subordinated debentures issued in connection with the trust
preferred
securities as part of permanent equity.
14. Revise footnote (5) to describe the amount and nature of the
debt
instruments related to the interest rate floors. Cross reference
to
the related note in the financial statements that discusses the
terms
of this hedging relationship.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 26
Three and Nine-Months Ended September 30, 2005
Overview, page 27
15. We refer to your statement in the first paragraph on page 27
that
states you anticipate that following this offering your total
assets
will exceed $400 million. In this regard, please disclose the
factually supportable assumptions you used to estimate you will
attain the projected assets and discuss the reasons why you
consider
this information is useful to investors.
Critical Accounting Policies, page 27
16. We refer to the second paragraph of this section that states
you
use several factors to determine if a loan is impaired. In this
regard, please revise to provide the following information:
* Explain in greater detail in this section the specific factors
you
use to determine if a loan is impaired or cross reference to where
this disclosure is included in the filing.
* Consider in your disclosure the guidance in paragraph 9.06 of
the
"Credit Losses" chapter in the AICPA Audit and Accounting Guide
for
Depository Institutions which states that methods that reliance
solely on mathematical calculations, such as a percentage of total
loans based on historical experience, are generally not acceptable
since they do not consider the specific loan transactions and
economic environment of the Company.
Interest Income, page 28
17. Please expand the second paragraph of this section to discuss
how
you monitor and evaluate interest rate risk, credit risk and
liquidity risk as part of your earnings management practices.
18. We refer to the first paragraph on page 29 that states the
significant increase in interest bearing liabilities was due to
your
market penetration and to the issuance of brokered CDs. In this
regard, please revise this section to provide the following
information:
* Quantify the amount of increase in interest bearing liabilities
which you attribute to the issuance of brokered deposits.
* Disclose the amount of the increase in the average rate paid on
interest bearing liabilities that was due to the issuance of
higher-
cost brokered CDs.
Noninterest Income, page 29
19. Expand your discussion in the first paragraph on page 30 to
discuss the factually supportable assumptions that substantiate
your
belief that deposit related noninterest income will continue to
improve throughout 2006.
20. We refer to the first paragraph on page 30 that states "Other
income" consists mainly of income from mortgage loan brokerage
activity started in late 2004. Considering that "Other income"
was
64% and 54% of total noninterest income during the three and nine
months period ended September 30, 2005, and that you expect
mortgage
loan fee income to increase in 2006, please revise the
Consolidated
Statement of Income for this period to separately disclose income
from mortgage broker activities.
Statement of Financial Condition, page 31
21. Disclose the amount of growth in total deposits attributable
to
the issuance of brokered CDs and the Company`s strategy with
respect
to the continued use of brokered deposits and the related risks.
Refer to paragraph 13.30 of the "Deposits" chapter of the AICPA
Audit
and Accounting Guide for Depositary Institutions regarding
regulatory
limitations on the use of brokered deposits by banks and savings
institutions.
Asset Quality, page 32
22. We refer to the third paragraph of this section and to the
first
paragraph on page 40 that states management considers a number of
factors when they determine the additions to the allowance for
loan
loss. Please expand your discussion here or in the "Provision
for
Loan Losses" section on page 40 to discuss the specific factors
that
you consider for estimating the reasonability of the allowance for
loan losses based on the requirements of SFAS 5 and SFAS 114.
23. We refer to the third paragraph of this section and to first
paragraph on page 40 regarding how you establish the additions to
the
allowance based on maintaining a ratio of the allowance for loan
losses to total loans in a range of 1% to 1.25%. In this regard,
please more fully disclose how the comparative loan categories and
balances, risk elements inherent in the portfolio and level of
specific non-performing loan categories impacted your periodic and
on-going determination of how and why you determined that the
level
of the above mentioned ratio is consistent with your methodology.
Nonperforming Assets, page 33
24. Discuss the nature and terms of the loan that is currently in
nonaccrual status. Describe the nature of the underlying
collateral
and how its fair value was determined.
Liquidity, page 33
25. Define what you mean by liquid assets and state the reasons
for
the significant decrease in the ratio of liquid assets as a
percentage of deposits of 2.03% as of September 30, 2005 compared
to
4.44% as of December 31, 2004.
26. As a related matter, please fully discuss alternative sources
of
liquidity that you have at your disposal for the periods
presented.
Please give careful consideration to the fact that approximately
half
of all deposits were brokered with maturities less than one year.
In
this regard, disclose whether you believe you will experience
significant disintermediation (significant deposit run-off) which
would likely result in the need to have significant alternative
sources of funding.
Average Consolidated Balance Sheets and Net Interest Analysis,
page
38
27. State in footnotes to the table how you determined Net
Interest
Revenue, Net Interest Spread and Net Interest Margin.
28. State if the averages called for by Industry Guide 3 are daily
averages. If they are not daily averages, discuss in a footnote
why
these averages are considered representative of your operations
and
why the Company is unable to collect the data on a daily basis.
Refer to Instruction 4 to Industry Guide 3.
29. Explain in a footnote how nonaccruing loans have been treated
in
the analysis of net interest earnings. Refer to Instruction (1)
of
Section I of Industry Guide 3.
Changes in Interest Income and Expenses, page 39
30. Revise this section to include, for the last two fiscal years,
the dollar amount of change in interest income and interest
expense
by segregating each major category of interest-earning asset and
interest-bearing liability into the amounts attributable to
changes
in volume, changes in rata and changes in rate/volume. Refer to
the
disclosure requirements in Section I.C of Industry Guide 3.
31. If material, disclose in a footnote if you have excluded any
out-
of-period items and adjustments in the calculation of changes in
interest income and interest expense. Refer to Instruction (2) of
Section I.A. of Industry Guide 3.
32. State in a footnote if you have calculated tax-exempt income
on a
tax equivalent basis. If so, describe the extent to which you are
exempt from Federal, state and local taxation and the combined
marginal or incremental tax rates used. Refer to Instruction (4)
of
Section I.C. of Industry Guide 3.
Provision for Loan Losses, page 39
33. Tell us and revise this section to describe your methodology
for
determining the amount of your loan loss allowance, including but
not
limited to the following information:
* Discus how you determined each element of the allowance based on
a
credit classification process that categorizes loans into risk
categories, such as loan segmentation and rating into standard,
doubtful and loss categories.
* Describe which loans are evaluated individually and which loans
are
evaluated as a group, considering the requirements of SFAS 5, as
amended by SFAS 114.
* State how you determined both the allocated and unallocated
portions of the allowance for loan losses, and
* Describe how you determined the loss factors that you applied to
graded loans to develop a general allowance.
Loans by Maturity and Repricing, page 43
34. Please present separately the total amount of loans due after
one
year which have predetermined fixed rates and those which have
floating or adjustable or floating interest rates. Refer to the
disclosure requirements of Section III.B. of Industry Guide 3.
35. Confirm to us that you report loans with no stated schedule of
repayments and maturity, as well as overdrafts in the one year or
less category. Refer to Instruction (2) to Industry Guide 2.
Analysis of Changes in the Allowance for Loan Losses, page 44
36. Please revise the analysis of changes in the allowance for
loan
losses to include a breakdown of the charge-offs and recoveries by
type of loan as specified in the tabular format in Section IV.A of
Industry Guide 3.
37. For each period presented, provide a brief description of the
specific factors which influenced management`s decision in
determining the amount of the additions to the allowance through
the
provision for loan losses charged to operating expense. Refer to
Instruction (2) to Section IV.A of Industry Guide 3.
38. Disclose as of the most recent reported period the nature and
amount of any other interest bearing assets that would be required
to
be disclosed as nonaccrual, past due or potential problem loans if
these assets were classified as loans. Refer to Section III.D. of
Industry Guide 3.
39. Provides a breakdown of the allocation of the allowance for
loan
losses required by Section IV.B of Industry Guide 3 and discuss
the
basis for the allocation to specific types of loans and the
reasons
for any significant unallocated amounts. Alternatively, provide a
narrative discussion of the risk elements in the loan portfolio
and
the factors that were considered in determining the allowance for
loan losses.
Nonperforming Assets, page 45
40. Disclose the gross interest income that would have been
recorded
in the period if the loan had been current in accordance with its
original terms and had been outstanding throughout the period.
State
the amount of interest income on those loans that was included in
net
income for the period. Refer to the Instruction 1.(2) of Section
III.C of Industry Guide 3.
41. Disclose the nature and extent of any potential problem loans
as
of the end of the most recent reported period, which are not now
disclosed as nonaccrual or past due, where you have information
about
possible credit problems which cause serious doubts regarding the
borrowers ability to comply with their repayment terms. Refer to
Section III.C.2 of Industry Guide 3.
Deposit and Other Borrowings, page 47
42. Please provide for each reported period the average amount and
rate paid on the deposit categories described in Section V.A of
Industry Guide 3 that are greater than 10% of total average
deposits
or cross reference to where this disclosure is included in the
filing.
43. We refer to the yearly maturity schedule of time deposits on
page
48. Please revise this section to include the maturity
information
for time deposits based on the interim time periods described in
Section V.D of Industry Guide 3.
44. We refer to the table of maturities and rates of FHLB
borrowings
on page 48. Please briefly describe the terms of the interest
rate
caps on the $6 million advance and the conversion feature of the
$5
million loan. Cross reference to related disclosure in Note G,
Borrowings on page F-17.
Market Area and Competition, page 58
45. Please expand your market area information, as necessary, to
include all material information on the population characteristics
and trends of each of the counties you serve, including aging and
per
capita income.
Certain Transactions and Business Relationships, page 71
46. Please revise this heading to read "Certain Relationships and
Related Transactions."
Financial Statements of New Southern Bank for the year ended
December
31, 2004
General
47. Please update the financial statements as required by Item
310(g)
of Regulation S-B when you file an amendment to the registration
statement.
48. A currently dated consent of the independent auditors should
be
included in the amendment to the registration statement. See Rule
302 of Regulation S-T which discusses signatures in electronic
filings.
Note A. Summary of Significant Accounting Policies
Note A.1, Reporting Entity, page F-7
49. Please disclose the changes in the names of the bank holding
company from NSB Holdings, Inc. to Bank to Atlantic Southern
Financial Group and of the Bank from New Southern Bank to Atlantic
Southern Bank, respectively and when these change were made.
Similar disclosure should be provided in Note (1), "Basis of
Presentation" on page F-30 of the NSB Holdings, Inc. financial
statements on page F-30.
Note A.4, Loans Held for Sale, page F-8
50. Please state if the loans held for sale will be sold on a
recourse or non-recourse basis. If they will be sold on a
recourse
basis please discuss your accounting for the recourse liability.
Refer to paragraph 11.c of SFAS 140.
51. We note that your loans held for sale of $890,000 as of
December
31, 2004 increased to $2.127 million as of September 30, 2005.
In
this regard, please explain in Management`s Discussion and
Analysis
the following:
* Explain why your statements of cash flows for the year ended
December 31, 2004 and for the nine-month period ended September
30,
2005 do not show any cash flows from sales of these loans.
* Disclose any concerns regarding the creditworthiness of these
loans
and of your ability to sell them.
* Explain how you consider impairments to the carrying value of
loans
held for sale in your analysis of the reasonability of the
allowance
for loan losses.
Statement of Cash Flows, page F-6
52. Please disclose separately in the "Cash Flows from Investing
Activities" section the proceeds from maturities and from calls of
available for sale securities. A similar breakdown should be
made
in the Noninterest Income section of the Statement of Income
(Loss)
with respect to gains on sales and calls of investment securities
if
material.
Note G. Borrowings, page F-17
53. Disclose the terms of the interest rate caps on the $6 million
loan from the FHLB considering the table of maturities and rates
of
FHLB borrowings on page 48 states the loans have interest rate
caps,
a derivative instrument.
54. Provide the disclosures required by paragraphs 44 and 45 of
SFAS
133 for derivative instruments that qualify as hedging
instruments,
including whether they are designated as fair value or cash flow
hedging instruments or have not been designated as hedging
instruments.
55. Discuss in MD&A any material expected effects of the interest
rate caps on the Company`s future results of operations.
56. Describe the conversion features related to the $5 million
loan
and any other material terms of this loan described as European in
the table of maturities and rates of FHLB borrowings on page 48.
Discuss in MD&A any material effects of the conversion features on
key financial ratios and earnings per share.
Financial Statements of NSB Holdings, Inc. for the nine-month
period
ended September 31, 2005
Note (6), Interest Rate Floors, page F-32
57. We refer to the interest rate contracts entered into during
the
third quarter of 2005 which have interest rate floors and caps.
In
this regard please provide for the interest rate derivative
contracts
the following information:
* Disclose the terms of the various interest contracts, including
the
notional principal amount and the terms of the floors and caps.
Describe the specific type and dollar amount of the liabilities
being
hedged and the quantitative terms of floors and caps used as a
hedge.
* Provide the disclosures required by paragraphs 44 and 45 of SFAS
133 for derivative instruments that qualify as hedging
instruments,
including whether they are designated as fair value or cash flow
hedging instruments or have not been designated as hedging
instruments.
* Assuming the interest rate derivative contracts qualify as
hedging
instruments, please include in MD&A the following information:
o Describe the quantitative measures of correlation you use to
assess
effectiveness of each hedge both at inception and on an ongoing
basis.
o Please tell us whether you use long-haul and/or short cut
application of hedge accounting for each major type of derivative
contract that you have entered into and compare and contrast each
treatment and how it complies with paragraphs 68-70 of SFAS No.
133.
o Disclose when you perform these assessments on an interim or
annual
basis.
o Provide an expanded discussion of management`s business purpose
of
entering into derivative instruments and discuss the effect of
these
activities on your financial position, results of operations and
cash
flows.
o Provide an expanded discussion of how your derivative
instruments
qualify for hedge accounting under SFAS 133 and how your
accounting
policies comply with that standard.
o Disclose where you present the gains and losses relating to
hedge
ineffectiveness in the statements of income and explain why that
presentation is appropriate.
* * *
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 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.
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.
You may contact Edwin Adames, Staff Accountant, at (202)
551-
3447 or John Nolan, Accounting Branch Chief, at (202) 551-3492 if
you have questions regarding comments on the financial statements
and
related matters. Please contact Gregory Dundas at (202) 551-3436
or
me at (202) 551-3493 with any other questions.
Sincerely,
Todd K. Schiffman
Assistant Director
cc: M. Todd Wade, Esq.
Beth Lanier, Esq.
Powell Goldstein LLP
One Atlantic Center, Fourteenth Floor
1201 West Peachtree Street, NW
Atlanta, Georgia.
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M. Todd Wade
Atlantic Southern Financial Group, Inc.
February 13, 2006
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