August 17, 2005
Margaret Fitzgerald, Division of Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549
RE: Service 1st Bancorp
Form 10-ksb for Fiscal Year Ended December 21, 2004
Filed March 31, 2005
File No, 000-50323
Dear Ms. Fitzgerald,
This is in response to the fax that we received from you dated August 4, 2005.
In accordance with your recommendation we will be revising future filings for
Form 10-KSB to incorporate the disclosure requirements that you addressed in
your fax.
Page 1 item 1 - regarding compliance with SFAS 65 "Accounting for Certain
Mortgage Banking Activities" The Bank does not originate mortgage loans for
resale in the secondary market. The mortgage-backed securities owned by the
Company are accounted for in conformity with SFAS 65. The only loans originated
by the Company for sale in the secondary market are government guaranteed loans
such as SBA loans. The Bank retains the unguaranteed portion of the loan on its
books and intends to hold that portion of the loan to maturity. The guaranteed
portion of the loan is immediately sold in the secondary market for which the
Company receives a premium and servicing revenue that will be recognized on
these sold loans. Attached to this fax is a schedule of the 2004 loan activity
and sales related to loans sold. The Company doesn't inventory these loans on
its books for subsequent sales. There were no unsold guaranteed loans available
for sale at December 31, 2004. The guaranteed portion of the loans sold were
sold without recourse.
Page 2 items 2 & 3 - regarding 17 (e) SFAS 140 disclosures. The servicing for
each loan is done on a loan for loan basis. If the loan is paid off, all of the
unamortized servicing assets and interest only strips receivable are written
off. On a monthly basis, the amortization is done as disclosed at the bottom of
page 43 in footnote 1 in the Company's 2004 Form 10-KSB filed on March 31, 2005.
The following footnote will be added to our loan footnote disclosure for each
year presented in the Company's financial statements.
Servicing Assets
---------------------------
2005 2004
------------ ------------
Balance at beginning of year $ 137,960 $ 93,185
Increase from loan sales XXX 74,922
1Amortization charged to income XXX (30,147)
Change in valuation allowance XXX --
------------ ------------
Balance at end of year $ X,XXX $ 137,960
============ ============
Interest-Only Strips
Receivable
---------------------------
2005 2004
------------ ------------
Balance at beginning of year $ 180,262 $ 70,946
Increase from loan sales XXX 135,150
Amortization charged to income XXX (25,834)
Writedowns XXX --
------------ ------------
Balance at end of year $ X,XXX $ 180,262
============ ============
Item 4 page 2 - recognition of interest only strips
The Small Business Administration requires Company's originating and selling SBA
loans to retain a contractual servicing fee of 1%. At the time the guaranteed
portion of the SBA loans are sold, the purchaser may allow the bank to retain a
higher serving fee which results in the creation of an interest only strip.
These interest only strips are amortized over an estimated life using a method
approximating the level yield method. The loans are reviewed on a monthly basis
and any unamortized portion still outstanding for loans paid off are recognized
against income in that month.
2
The Company acknowledges the following items:
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 proceedings
initiated by the Commission or any person under the federal securities laws
of the United States.
Please accept the above response to your fax dated August 4, 2005 and contact me
if you have any questions. Thank you.
By: /s/ ROBERT E. BLOCH
------------------------------------------
Robert E. Bloch
Executive Vice President and
Chief financial Officer
3
SBA Loans in 2004
Guaranteed Servicing Interest-Only Deferred
Name Loan Amount Amount Sold Gain on Sale Asset Strip Premium
------------- ------------- ------------- ------------- ------------- -------------
United Market $ 885,000.00 $ 651,519.00 $ 78,158.41 $ 19,704.68 $ 47,291.23 $ 23,684.37
Flores Laundry $ 140,000.00 $ 119,000.00 $ 10,881.60 $ 2,646.47 $ 3,418.36 $ 1,745.71
Town House Inn $ 480,000.00 $ 360,000.00 $ 44,673.66 $ 11,044.27 $ 21,738.81 $ 15,109.43
Livingston True Hardware $ 470,000.00 $ 352,500.00 $ 36,465.68 $ 7,664.87 $ 13,413.52 $ 11,050.21
Quality Cabinet $ 427,016.22 $ 320,262.17 $ 22,621.42 $ 5,196.88 $ 259.84 $ 6,854.98
Wilton $ 440,021.14 $ 330,015.86 $ 31,060.30 $ 6,961.47 $ 8,759.85 $ 9,412.21
B & N Partnership $ 750,000.00 $ 562,500.00 $ 60,820.37 $ 14,768.18 $ 34,951.35 $ 18,430.41
Siascoco $ 440,000.00 $ 330,000.00 $ 31,351.06 $ 6,934.74 $ 5,316.64 $ 9,500.32
------------- ------------- ------------- ------------- ------------- -------------
Total $4,032,037.36 $3,025,797.03 $ 316,032.50 $ 74,921.56 $ 135,149.60 $ 95,787.64
============= ============= ============= ============= ============= =============
Total proceeds $3,025,797.03 $ 316,032.50 $3,341,829.53
=============
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