United
States
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6035
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56-2480744
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(IRS
Employer Identification No.)
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Gary
R. Bronstein, Esquire
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Eric
Luse, Esq.
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Lori
M. Beresford, Esquire
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Luse
Gorman Pomerenk &
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Muldoon
Murphy & Aguggia LLP
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Schick,
P.C.
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5101
Wisconsin Avenue, NW
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5335
Wisconsin Avenue, NW
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Washington,
DC 20016
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Suite
500
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(202)
362-0840
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Washington,
DC 20016
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(202)
274-2000
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Calculation
of Registration Fee
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Title
of each class of
securities
to be registered
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Amount
to
be
registered
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Proposed
maximum
offering
price
per
unit
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Proposed
maximum
aggregate
offering
price
(2)
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Amount
of
registration
fee
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Common
Stock
$.01
par value
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36,439,975 (1)
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$10.00
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$364,399,750
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(3)
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Participation
Interests
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(4)
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$11,136,530
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(4)
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(1) |
Includes
shares of common stock to be issued to The Beneficial Foundation,
a
private foundation.
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(2) |
Estimated
solely for the purpose of calculating the registration fee.
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(3) |
The registration fee of $11,187 was
previously paid upon the initial filing of
the Form S-1 on March 14, 2007.
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(4) |
The securities of Beneficial Mutual
Bancorp, Inc. to be purchased by the
Beneficial Mutual Savings Bank 401(k) Plan and the Beneficial Insurance Services, LLC 401(k) Plan are included in the amount shown
for common stock. Accordingly, no separate fee is
required for the participation interests. In accordance with Rule 457(h) of the Securities Act of 1933, as amended, the registration
fee has been calculated on the basis
of the number of shares of common stock that may be purchased with the current assets of such Plans.
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INTERESTS
IN
BENEFICIAL MUTUAL SAVINGS BANK 401(k) PLAN
AND
OFFERING OF 917,551 SHARES OF
BENEFICIAL MUTUAL BANCORP, INC.
COMMON STOCK ($.01 PAR VALUE)
This prospectus supplement relates to the offer and sale to participants in the Beneficial Mutual Savings Bank 401(k) Plan (the 401(k) Plan), of participation interests and shares of common stock of Beneficial Mutual Bancorp in connection with the Beneficial Mutual Bancorp initial public offering.
401(k) Plan participants may direct RSGroup Trust Company, the trustee for the Beneficial Mutual Bancorp Stock Fund, to use up to 50% of their account balances to subscribe for and purchase shares of Beneficial Mutual Bancorp common stock through the Beneficial Mutual Bancorp Stock Fund. Based upon the value of the 401(k) Plan assets as of March 31, 2007, the Beneficial Mutual Bancorp Stock Fund trustee may purchase up to 917,551 shares of Beneficial Mutual Bancorp common stock at a purchase price of $10.00 per share. This prospectus supplement relates to the election of 401(k) Plan participants to direct the 401(k) Plan trustee to invest up to 50% of their 401(k) Plan account balances in Beneficial Mutual Bancorp common stock.
The Beneficial Mutual Bancorp prospectus dated May ___, 2007, which we have attached to this prospectus supplement, includes detailed information regarding the offering of shares of Beneficial Mutual Bancorp common stock and the financial condition, results of operations and business of Beneficial Mutual Savings Bank (Beneficial Mutual Savings). This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.
Please refer to Risk Factors beginning on page __ of the prospectus.
Neither
the Securities and Exchange Commission, the Office of Thrift Supervision, the
Federal Deposit
Insurance Corporation, nor any other state or federal agency or any state
securities commission, has
approved or disapproved these securities. Any representation to the contrary is
a criminal offense.
These
securities are not deposits or accounts and are not insured or guaranteed by
the Federal Deposit
Insurance Corporation or any other government agency.
This prospectus supplement may be used only in connection with offers and sales by Beneficial Mutual Bancorp of interests or shares of common stock under the 401(k) Plan in the offering. No one may use this prospectus supplement to re-offer or resell interests or shares of common stock acquired through the 401(k) Plan.
You should rely only on the information contained in this prospectus supplement and the attached prospectus. Neither Beneficial Mutual Bancorp, Beneficial Savings Bank MHC, Beneficial Mutual Savings Bank nor the 401(k) Plan have authorized anyone to provide you with information that is different.
This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of Beneficial Mutual Savings Bank or the 401(k) Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.
The date of this Prospectus Supplement is May ___, 2007.
TABLE OF CONTENTS
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Election to Purchase Beneficial Mutual Bancorp Common Stock in the Stock Offering |
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Nature of a Participants Interest in Beneficial Mutual Bancorp Common Stock |
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Voting and Tender Rights of Beneficial Mutual Bancorp Common Stock |
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The securities offered in connection with this prospectus supplement are participation interests in the 401(k) Plan. At a purchase price of $10.00 per share, the 401(k) Plan trustee may acquire up to 917,551 shares of Beneficial Mutual Bancorp common stock. The interests offered under this prospectus supplement are conditioned on the close of the Beneficial Mutual Bancorp minority stock offering (the Stock Offering). Certain subscription rights and purchase limitations also govern your investment in the Beneficial Mutual Bancorp Stock Fund in connection with the Stock Offering. See: The Stock Offering Subscription Offering and Subscription Rights and Limitations on Purchases of Shares in the prospectus attached to this prospectus supplement for further discussion of these subscription rights and purchase limitations.
This prospectus supplement contains information regarding the 401(k) Plan. The attached prospectus contains information regarding the Stock Offering and the financial condition, results of operations and business of Beneficial Mutual Savings Bank and its affiliates. The address of the principal executive office of Beneficial Mutual Savings Bank is 510 Walnut Street, Philadelphia, Pennsylvania 19106. The telephone number of Beneficial Mutual Savings Bank is (215) 864-6000.
Election to Purchase Beneficial Mutual Bancorp Common Stock in the Stock Offering
In connection with the Stock Offering, you may direct the trustee of the 401(k) Plan to transfer up to 50% of your 401(k) Plan account balance to the Beneficial Mutual Bancorp Stock Fund. The 401(k) Plan trustee will subscribe for Beneficial Mutual Bancorp common stock offered for sale in connection with the Stock Offering in accordance with each participants direction. If there is not enough Beneficial Mutual Bancorp common stock available in the Stock Offering to fill all subscriptions, the common stock will be apportioned and the 401(k) Plan trustee may not be able to purchase all of the common stock you requested. In the event the Stock Offering is oversubscribed and your order is cutback, your 401(k) Plan funds (which are not invested in Beneficial Mutual Bancorp common stock) will be reinvested in accordance with the investment elections that you have in place for your elective deferrals.
All eligible plan participants are permitted to direct a transfer of up to 50% of their account balances in the 401(k) Plan into the Beneficial Mutual Bancorp Stock Fund. However, transfer directions are subject to subscription rights and purchase priorities. Your order for shares in the Stock Offering will be filled based on your subscription rights. See the prospectus section Summary Persons Who Can Order Stock in the Offering. Beneficial Mutual Bancorp has granted rights to subscribe for shares of Beneficial Mutual Bancorp common stock to the following persons in the following order of priority: (1) persons with $50 or more on deposit at Beneficial Mutual Savings Bank as of November 30, 2005; (2) the Beneficial Mutual Savings Bank Employee Stock Ownership Plan; (3) persons with $50 or more on deposit at Beneficial Mutual Savings Bank as of [March 31, 2007]; and (4) except for persons eligible to subscribe for shares under categories 1 and 3, Beneficial Mutual Savings Banks depositors as of the close of business on [April 30, 2007], who were not able to subscribe for shares of Beneficial Mutual Bancorp common stock under categories 1 and 3. If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of Beneficial Mutual Bancorp common stock in the Stock Offering and you may use up to 50% of your account balance in the 401(k) Plan to subscribe for shares of Beneficial Mutual Bancorp common stock.
The limitations on the total amount of Beneficial Mutual Bancorp common stock that you may purchase in the Stock Offering, as described in the prospectus (see The Stock Offering Limitations on Purchases of Shares) will be calculated based on the aggregate amount that you subscribed for: (a)
1
through your 401(k) Plan account and (b) through your sources of funds outside of the 401(k) Plan. Whether you place an order through the 401(k) Plan, outside the plan or both, the number of shares of Beneficial Mutual Bancorp common stock, if any, that you receive will be determined based on the total number of subscriptions, your purchase priority and the allocation priorities set forth in the prospectus. 401(k) Plan assets which have been invested in a Beneficial Mutual Savings Bank money market account in the past will not be considered for purposes of determining your subscription rights. If, as a result of the calculation, you are allocated insufficient shares to fill all of your orders, available shares will be allocated between orders on a pro rata basis.
Value of Participation Interests
As of March 31, 2007, the market value of 50% of the 401(k) Plan assets equaled approximately $9,175,511. The plan administrator has informed each participant of the value of his or her beneficial interest in the 401(k) Plan. The value of the 401(k) Plan assets represents past contributions made to the 401(k) Plan on your behalf, plus or minus earnings or losses on the contributions, less previous withdrawals and loans. Participants will be able to use up to 50% of their 401(k) Plan account balances o purchase shares in the Stock Offering through the Beneficial Mutual Bancorp Stock Fund.
In order to facilitate your investment in the Beneficial Mutual Bancorp Stock Fund in connection with the Stock Offering, you must complete, sign and submit the blue form included with this prospectus supplement (the Investment Form). In order to invest in the Beneficial Mutual Bancorp Stock Fund you must direct the 401(k) Plan trustee to transfer a percentage of your beneficial interest in the assets of the 401(k) Plan (up to 50%) to the Beneficial Mutual Bancorp Stock Fund (in multiples of not less than 1%). If you do not wish to invest in the Beneficial Mutual Bancorp Stock Fund at this time, you do not need to take any action. The minimum investment in the Beneficial Mutual Bancorp Stock Fund during the Stock Offering is $250 and the maximum individual investment is $250,000.
The deadline to submit your Investment Form to Joseph M. Vetter in the Human Resources Department is 12:00 noon on ____________, 2007. If you have any questions regarding the Beneficial Mutual Bancorp Stock Fund, Joseph M. Vetter can be reached at (215) 864-3521.
Irrevocability of Transfer Direction
Once you have submitted your Investment Form to our Human Resources Department, you cannot change your direction to transfer amounts credited to your account in the 401(k) Plan to the Beneficial Mutual Bancorp Stock Fund. Following the closing of the Stock Offering and the initial purchase of shares in the Beneficial Mutual Bancorp Stock Fund, you may change your investment directions, in accordance with the terms of the 401(k) Plan.
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Purchase Price of Beneficial Mutual Bancorp Common Stock
The trustee will use the funds transferred to the Beneficial Mutual Bancorp Stock Fund to purchase shares of Beneficial Mutual Bancorp common stock in the Stock Offering. The Beneficial Mutual Bancorp Stock Fund trustee will pay the same price for shares of Beneficial Mutual Bancorp common stock as all other persons who purchase shares of Beneficial Mutual Bancorp common stock in the Stock Offering. If there is not enough common stock available in the Stock Offering to fill all subscriptions, the common stock will be apportioned and the trustee may not be able to purchase all of the common stock you requested. In the event the Stock Offering is oversubscribed and your order is cut-back, your 401(k) Plan funds (which are not invested in Beneficial Mutual Bancorp common stock) will be reinvested in accordance with the investment elections that you have in place for your elective deferrals.
Nature of a Participants Interest in Beneficial Mutual Bancorp Common Stock
The trustee will hold Beneficial Mutual Bancorp common stock in the name of the 401(k) Plan. The trustee will credit shares of Beneficial Mutual Bancorp common stock acquired at your direction to your account under the 401(k) Plan. Therefore, the investment designations of other 401(k) Plan participants should not affect earnings on your 401(k) Plan account.
Voting and Tender Rights of Beneficial Mutual Bancorp Common Stock
RSGroup Trust Company, as the 401(k) Plan trustee, will exercise voting and tender rights attributable to all Beneficial Mutual Bancorp common stock held in the Beneficial Mutual Bancorp Stock Fund, as directed by participants with interests in the Beneficial Mutual Bancorp Stock Fund. With respect to each matter as to which holders of Beneficial Mutual Bancorp common stock have a right to vote, you will have voting instruction rights that reflect your proportionate interest in the Beneficial Mutual Bancorp Stock Fund. The number of shares of Beneficial Mutual Bancorp common stock held in the Beneficial Mutual Bancorp Stock Fund voted for and against each matter will be proportionate to the number of voting instruction rights exercised. If there is a tender offer for Beneficial Mutual Bancorp common stock, the 401(k) Plan allots each participant a number of tender instruction rights reflecting the participants proportionate interest in the Beneficial Mutual Bancorp Stock Fund. The percentage of shares of Beneficial Mutual Bancorp common stock held in the Beneficial Mutual Bancorp Stock Fund that will be tendered will be the same as the percentage of the total number of tender instruction rights exercised in favor of the tender offer. The remaining shares of Beneficial Mutual Bancorp common stock held in the Beneficial Mutual Bancorp Stock Fund will not be tendered. The 401(k) Plan provides that participants will exercise their voting instruction rights and tender instruction rights on a confidential basis.
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DESCRIPTION OF THE 401(k) PLAN
Beneficial Mutual Savings Bank originally adopted the 401(k) Plan effective August 8, 1985 and amended and restated the plan in its entirety effective May 11, 2007. Beneficial Mutual Savings Bank intends for the 401(k) Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended, or ERISA. Beneficial Mutual Savings Bank may change the 401(k) Plan from time to time in the future to ensure continued compliance with these laws. Beneficial Mutual Savings Bank may also amend the 401(k) Plan from time to time in the future to add, modify, or eliminate certain features of the plan, as it sees fit. Federal law provides you with various rights and protections as a participant in the 401(k) Plan, which is governed by ERISA. However, the Pension Benefit Guaranty Corporation does not guarantee your benefits under the 401(k) Plan.
Reference to Full Text of the Plan. The following portions of this prospectus supplement summarize the material provisions of the 401(k) Plan. Beneficial Mutual Savings Bank qualifies this summary in its entirety by reference to the full text of the 401(k) Plan. You may obtain copies of the 401(k) Plan document including any amendments to the plan and a summary plan description, by contacting Joseph M. Vetter at (215) 864-3521. You should carefully read the 401(k) Plan documents to understand your rights and obligations under the plan.
If you are at least 21 years old, a salaried employee of Beneficial Mutual Savings Bank and you have completed one year of service with Beneficial Mutual Savings Bank, you may elect to participate in the 401(k) Plan on the January 1st or July 1st following or coincident with the date you satisfy the 401(k) Plan eligibility requirements.
As of March 31, 2007, 369 of the 419 eligible employees of Beneficial Mutual Savings Bank actively participated in the 401(k) Plan.
Contributions Under the 401(k) Plan
Employee Pre-Tax Salary Deferrals. Subject to certain IRS limitations, the 401(k) Plan permits you to make pre-tax salary deferrals each payroll period of up to 20% of your compensation. Compensation is defined for purposes of the 401(k) Plan as each participants total pay, including base pay, overtime, bonuses and commissions. In addition to pre-tax salary deferrals, you may make catch up contributions if you are currently age 50 or will be 50 before the end of the calendar year.
Beneficial Mutual Savings Bank Matching Contributions. The 401(k) Plan provides that Beneficial Mutual Savings Bank may make matching contributions on behalf of each participant. Beneficial Mutual Savings Bank makes matching contributions only to those participants who actively defer a percentage of their compensation into the 401(k) Plan. If you elect to defer funds into the 401(k) Plan, Beneficial Mutual Savings Bank will match 60% of the first $1,000 you defer into the 401(k) Plan and 40% of an additional $1,000 you may defer into the 401(k) Plan.
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Rollover Contributions. Beneficial Mutual Savings Bank allows employees who receive a distribution from a previous employers tax-qualified employee benefit plan to deposit that distribution into a Rollover Contribution account under the 401(k) Plan, provided the rollover contribution satisfies IRS requirements.
Limitation on Employee Salary Deferrals. By law, your total deferrals under the 401(k) Plan, together with similar plans, may not exceed $15,500 for 2007. Eligible employees who are age 50 and over may also make additional catch-up contributions to the plan, up to a maximum of $5,000 for 2007. The Internal Revenue Service periodically increases these limitations. An eligible participant who exceeds these limitations must include any excess deferrals in gross income for federal income tax purposes in the year of deferral. In addition, the participant must pay federal income taxes on any excess deferrals when distributed by the 401(k) Plan to the participant, unless the plan distributes the excess deferrals and any related income no later than the first April 15th following the close of the taxable year in which the participant made the excess deferrals. Any income on excess deferrals distributed before such date is treated, for federal income tax purposes, as earned and received by the participant in the taxable year of the distribution.
Limitation on Annual Additions and Benefits. As required by the Internal Revenue Code, the 401(k) Plan provides that the total amount of contributions and forfeitures (annual additions) credited to a participant during any year under all defined contribution plans of Beneficial Mutual Savings Bank (including the 401(k) Plan and the proposed Beneficial Mutual Savings Bank Employee Stock Ownership Plan) may not exceed the lesser of 100% of the participants annual compensation or $45,000 for 2007.
Limitation on Plan Contributions for Highly Compensated Employees. Special provisions of the Internal Revenue Code limit the amount of pre-tax and matching contributions that may be made to the 401(k) Plan in any year on behalf of highly compensated employees, in relation to the amount of pre-tax and matching contributions made by or on behalf of all other employees eligible to participate in the 401(k) Plan. If pre-tax and matching contributions exceed these limitations, the plan must adjust the contribution levels for highly compensated employees.
In general, a highly compensated employee includes any employee who (1) was a 5% owner of the sponsoring employer at any time during the year or the preceding year, or (2) had compensation for the preceding year in excess of $100,000 and, if the sponsoring employer so elects, was in the top 20% of employees by compensation for such year. The preceding dollar amount applies for 2007, and may be adjusted periodically by the IRS.
Top-Heavy Plan Requirements. If the 401(k) Plan is a Top-Heavy Plan for any calendar year, Beneficial Mutual Savings Bank may be required to make certain minimum contributions to the 401(k) Plan on behalf of non-key employees. In general, the 401(k) Plan will be treated as a Top-Heavy Plan for any calendar year if, as of the last day of the preceding calendar year, the aggregate balance of the accounts of Key Employees exceeds 60% of the aggregate balance of the accounts of all employees under the plan. A Key Employee is generally any employee who, at any time during the calendar year or any of the four preceding years, is:
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(1) |
an officer of Beneficial Mutual Savings Bank whose annual compensation exceeds $145,000; |
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(2) |
a 5% owner of the employer, meaning an employee who owns more than 5% of the outstanding stock of Beneficial Mutual Bancorp, or who owns stock that possesses more than 5% of the total combined voting power of all stock of Beneficial Mutual Bancorp; or |
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(3) |
a 1% owner of the employer, meaning an employee who owns more than 1% of the outstanding stock of Beneficial Mutual Bancorp, or who owns stock that possesses more than 1% of the total combined voting power of all stock of Beneficial Mutual Bancorp, and whose annual compensation exceeds $150,000. |
The foregoing dollar amounts are for 2007.
Effective May 11, 2007, the 401(k) Plan offers the following investment choices:
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Annual Rates of Return |
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Fund Name |
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2006 |
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2005 |
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2004 |
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American Funds Euro-Pacific Growth Fund |
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22.17 |
% |
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21.38 |
% |
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19.98 |
% |
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American Funds Growth Fund of America |
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11.24 |
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14.53 |
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12.24 |
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Fidelity Spartan 500 Index Investor Fund |
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15.71 |
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4.86 |
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10.72 |
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Harbor Bond Institutional Fund |
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3.91 |
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2.57 |
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5.47 |
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Janus Fund |
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10.59 |
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3.98 |
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4.69 |
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Selected American Shares D Fund |
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15.59 |
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10.19 |
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12.17 |
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Sunrise Retirement Fund Balanced Equity |
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10.70 |
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6.18 |
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13.07 |
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Vanguard Small Cap Index Fund |
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15.78 |
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7.49 |
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20.02 |
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Wells Fargo Stable Return Fund |
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4.48 |
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4.13 |
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4.04 |
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The following is a brief description of each of the investment choices offered through the 401(k) Plan.
American Funds Euro-Pacific Growth Fund. This is an international (non-U.S.) equity fund and seeks to provide long-term growth of capital by investing in companies based outside the United States. The fund invests in strong, growing companies based chiefly in Europe and the Pacific Basin, ranging from small firms to large corporations. The fund invests primarily in common and preferred stocks, convertibles, American Depositary Receipts, European Depositary Receipts, bonds and cash. Normally, at least 80% of assets must be invested in securities of issuers domiciled in Europe or the Pacific Basin.
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American Funds Growth Fund of America. This is a large-cap growth fund. The fund seeks to provide long-term growth of capital through a diversified portfolio of common stocks. The fund has the flexibility to invest wherever the best growth opportunities may be. The fund emphasizes companies that appear to offer opportunities for long-term growth, and may invest in cyclical companies, turnarounds and value situations. The fund invests primarily in common stocks, convertibles, preferred stocks, U.S. government securities, bonds and cash, and may invest up to 15% of assets in securities of issuers domiciled outside the United States and Canada and not included in the S&P 500.
Fidelity Spartan 500 Fund Investor. This is a large-cap blend fund. The fund seeks investment results that correspond to the total return (i.e., the combination of capital changes and income) of common stocks publicly traded in the United States, as represented by the Standard & Poors 500 Index (S&P 500), while keeping transaction cost and other expenses low.
Harbor Bond Institutional Fund. This is a fixed-income fund and seeks total return (which includes dividends, interest income, realized and unrealized capital gains and changes in net asset value.) The fund invests primarily in bonds of corporate and governmental issuers located in the U.S. and foreign countries, including emerging markets. The fund invests in a diversified portfolio of bonds, which include all types of fixed-income securities. These include mortgage-related securities and asset-backed securities. The fund invests primarily in investment grade securities, (with an average weighted portfolio quality of A), but may invest up to 15% of its assets in below investment grade domestic and foreign securities, commonly referred to as high-yield.
Janus Fund. This actively managed large-cap growth fund seeks long-term growth of capital. The fund invests primarily in common stocks of larger, more established companies selected for growth potential. The fund may also invest up to 35% of assets in high-yield bonds, up to 15% of assets in illiquid investments and without limit in foreign equity and debt securities.
Selected American Shares D Fund. This is an actively managed large-cap blend fund with a value style bias that seeks durable, well-managed businesses that can be purchased at value prices and held for the long term. The fund also focuses on finding companies with top-quality management teams who respond innovatively to change, have proven records and build their business through a long-term vision. This fund will typically maintain a sizable overweight (versus the S&P 500 Index and its peers) to financials stocks.
Sunrise Retirement Fund Balanced Equity. This portfolio targets 70% of its assets in a diversified mix of equity mutual funds and 30% in fixed income mutual funds. The equity allocation includes U.S. large cap, mid cap, and small cap as well as non-U.S. The fixed income exposure is invested in intermediate-term fixed income and money market mutual funds. This portfolios strategic asset class targets include: 35% U.S. large cap equity, 22% U.S. mid/small cap equity, 13% non-U.S. equity, 27% fixed income and 3% cash equivalents.
Vanguard Small Cap Index Fund. The fund employs a passive managementor indexinginvestment approach designed to track the performance of the MSCI US Small Cap 1750 Index, a broadly diversified index of stocks of smaller U.S. companies. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
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Wells Fargo Stable Return Fund. This is a stable value fund and seeks safety of principal and consistency of returns with minimal volatility. The fund invests in financial instruments issued by highly rated companies. These include guaranteed investment contracts (GICs), security-backed contracts (synthetic GICs) and cash equivalents. The weighted average quality of the portfolio is maintained at AA or better.
In connection with the Stock Offering, Beneficial Mutual Savings Bank has added the Beneficial Mutual Bancorp Stock Fund as an additional choice to the investment alternatives described above. The Beneficial Mutual Bancorp Stock Fund invests primarily in the common stock of Beneficial Mutual Bancorp. Participants in the 401(k) Plan may direct RSGroup Trust Company, as the 401(k) Plan Trustee to invest up to 50% of their 401(k) Plan account balances in the Beneficial Mutual Bancorp Stock Fund during the offering. 401(k) Plan participants will not be limited in their investment in the Beneficial Mutual Bancorp Stock Fund following the close of the Offering.
The Beneficial Mutual Bancorp Stock Fund consists of investments in the common stock of Beneficial Mutual Bancorp made on the closing date of the Stock Offering. Your investment in the Beneficial Mutual Bancorp Stock Fund will be recorded using the share accounting method. Share accounting states your Beneficial Mutual Bancorp common stock position in the Beneficial Mutual Bancorp Stock Fund and in terms of shares similar to how a broker would quote your common stock position in a brokerage account. In the event cash dividends are paid on Beneficial Mutual Bancorp common stock, the 401(k) Plan trustee will, to the extent practicable, use the dividends held in the Beneficial Mutual Bancorp Stock Fund to purchase shares of the common stock. Pending investment in the common stock, assets held in the Beneficial Mutual Bancorp Stock Fund will be placed in the Federated Prime Value Obligations Fund, a money market fund.
As of the date of this prospectus supplement, no shares of Beneficial Mutual Bancorp common stock have been issued or are outstanding, and there is no established market for Beneficial Mutual Bancorp common stock. Accordingly, there is no record of the historical performance of the Beneficial Mutual Bancorp Stock Fund. Performance of the Beneficial Mutual Bancorp Stock Fund depends on a number of factors, including the financial condition and profitability of Beneficial Mutual Savings Bank and general stock market conditions.
Once you have submitted your Investment Form to the Human Resources Department, you may not change your investment directions in the Stock Offering.
Benefits Under the 401(k) Plan
Vesting. All participants are 100% vested in their pre-tax salary deferrals. This means that participants have a non-forfeitable right to these funds and any earnings on the funds at all times. Plan participants vest in employer matching contributions credited to their accounts after three years of service. Participants become 100% vested in their employer matching contributions upon termination of employment due to death, disability or retirement (normal or postponed).
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Withdrawals and Distributions from the 401(k) Plan
Withdrawals Before Termination of Employment. While in active service, participants may take two non-hardship withdrawals from the 401(k) Plan per Plan Year (subject to the restrictions set forth in the 401(k) Plan). A participant may also take one hardship withdrawal per Plan Year, provided the participant has a hardship event as defined by the IRS regulations and subject to approval by the Beneficial Mutual Savings Bank Compensation Committee. Plan loans are also permitted, subject to applicable law and IRS regulations. Please see the Plan Administrator for details on the loan policies and procedures.
Distribution Upon Retirement, Death or Disability. If a participants accounts are $1,000 or less upon termination of employment, payment will be in the form of a lump sum as of a valuation date as soon thereafter as administratively possible. If a participants accounts exceed $1,000 and are $5,000 or less upon termination of employment, and the participant does not elect to have his/her distribution paid, payment will be in the form of a Direct Rollover to an individual retirement plan designated by the Plan Administrator.
If termination of employment is due to Normal, Postponed Retirement, Death, or Total and Permanent Disability, and a participants account exceeds $5,000, distribution of the participants accounts will be in the form of a lump sum payment, upon the participants attainment of Normal Retirement Date, unless the participant elects (within 30 days of receipt of an election notice) to further defer distribution beyond Normal Retirement Date to a Postponed Retirement Date (subject to an IRS minimum distribution of benefits requirement following attainment of age 70½), or unless the participant elects one of the following optional forms of payment:
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Lump sum payment or in quarterly, semi-annual or annual installments over a period not exceeding the participants life expectancy or the joint and survivor life expectancy of the participants and his/her designated beneficiary, as selected by the participant as of any valuation date following the date of termination of employment. (Note: lump sums are subject to a mandatory 20% income tax withholding and a statutory 10% additional federal tax if paid before age 55). A participant Rollover within 60 days of distribution to an Individual Retirement Account (IRA), or another employers plan (if permitted by that plan). |
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Direct Rollover from the 401(k) Plan to another employers plan (if permitted by that plan) for accounts which are lesser or greater than $5,000. |
Distribution Upon Termination for Any Other Reason. If a participants accounts are $1,000 or less upon termination of employment, payment will be in the form of a lump sum as of a valuation date as soon thereafter as administratively possible. If a participants accounts exceed $1,000 and are $5,000 or less upon termination of employment, and the participant does not elect to have his/her distribution paid, payment will be in the form of a Direct Rollover to an individual retirement plan designated by the Plan Administrator.
If upon termination of employment, a participants accounts exceed $5,000, payment will be deferred to Normal Retirement Date, unless the participant elects one of the following optional forms of payment:
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Lump sum payment as of any valuation date following the date of termination of employment. (Note: lump sums are subject to a mandatory 20% income tax withholding and a statutory 10% additional federal tax if paid before age 55). A participant |
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Rollover is permitted within 60 days of distribution to an Individual Retirement Account (IRA), or another employers plan (if permitted by that plan). |
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Direct Rollover from the 401(k) Plan to another employers plan (if permitted by that plan) for accounts which are lesser or greater than $5,000. |
Nonalienation of Benefits. Except with respect to federal income tax withholding, and as provided for under a qualified domestic relations order, benefits payable under the 401(k) Plan will not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the 401(k) Plan will be void.
Applicable federal tax law requires the 401(k) Plan to impose substantial restrictions on your right to withdraw amounts held under the plan before your termination of employment with Beneficial Mutual Savings Bank. Federal law may also impose an excise tax on withdrawals from the 401(k) Plan before you attain 59½ years of age, regardless of whether the withdrawal occurs during your employment with Beneficial Mutual Savings Bank or after termination of employment.
ADMINISTRATION OF THE 401(k) PLAN
The board of directors of Beneficial Mutual Savings Bank has appointed RSGroup Trust Company as the trustee for the Beneficial Mutual Bancorp Stock Fund. The trustee receives, holds and invests the contributions to the 401(k) Plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the 401(k) Plan and the directions of the Plan Administrator. The trustee is responsible for the investment of the trust assets, as directed by the Plan Administrator and the participants.
Reports to 401(k) Plan Participants
The Plan Administrator furnishes participants quarterly statements that show the balance in their accounts as of the statement date, contributions made to their accounts during that period and any additional adjustments required to reflect earnings or losses.
Beneficial Mutual Savings Bank currently acts as Plan Administrator for the 401(k) Plan. The Plan Administrator handles the following administrative functions: interpreting the provisions of the plan, prescribing procedures for filing applications for benefits, preparing and distributing information explaining the plan, maintaining plan records, books of account and all other data necessary for the proper administration of the plan, preparing and filing all returns and reports required by the U.S. Department of Labor and the IRS and making all required disclosures to participants, beneficiaries and others under ERISA.
Beneficial Mutual Savings Bank expects to continue the 401(k) Plan indefinitely. Nevertheless, Beneficial Mutual Savings Bank may terminate the 401(k) Plan at any time. If Beneficial Mutual Savings Bank terminates the 401(k) Plan in whole or in part, all affected participants become fully vested in their
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accounts, regardless of other provisions of the 401(k) Plan. Beneficial Mutual Savings Bank reserves the right to make, from time to time, changes which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries. Beneficial Mutual Savings Bank may amend the plan, however, as necessary or desirable, in order to comply with ERISA or the Internal Revenue Code.
Merger, Consolidation or Transfer
If the 401(k) Plan merges or consolidates with another plan or transfers the trust assets to another plan, and either the 401(k) Plan or the other plan is subsequently terminated, the 401(k) Plan requires that you receive a benefit immediately after the merger, consolidation or transfer that would equal or exceed the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer, if the 401(k) Plan had terminated at that time.
Federal Income Tax Consequences
The following summarizes only briefly the material federal income tax aspects of the 401(k) Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences of the 401(k) Plan. Statutory provisions change, as do their interpretation, and their application may vary in individual circumstances. Finally, applicable state and local income tax laws may have different tax consequences than the federal income tax laws. 401(k) Plan participants should consult a tax advisor with respect to any transaction involving the 401(k) Plan, including any distribution from the 401(k) Plan.
As a tax-qualified retirement plan, the Internal Revenue Code affords the 401(k) Plan certain tax advantages, including the following:
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the sponsoring employer may take an immediate tax deduction for the amount contributed to the plan each year; |
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participants pay no current income tax on amounts contributed by the employer on their behalf; and |
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earnings of the plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments. |
Beneficial Mutual Savings Bank administers the 401(k) Plan to comply in operation with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law. If Beneficial Mutual Savings Bank should receive an adverse determination letter from the IRS regarding the 401(k) Plans tax exempt status, all participants would generally recognize income equal to their vested interests in the 401(k) Plan, the participants would not be permitted to transfer amounts distributed from the 401(k) Plan to an Individual Retirement Account or to another qualified retirement plan, and Beneficial Mutual Savings Bank would be denied certain tax deductions taken in connection with the 401(k) Plan.
Lump Sum Distribution. A distribution from the 401(k) Plan to a participant or the beneficiary of a participant qualifies as a lump sum distribution if it is made within one taxable year, on account of the participants death, disability or separation from service, or after the participant attains age 59½; and consists of the balance credited to the participant under this plan and all other profit sharing plans, if any, maintained by Beneficial Mutual Savings Bank. The portion of any lump sum distribution included in taxable income for federal income tax purposes consists of the entire amount of the lump sum
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distribution, less the amount of after-tax contributions, if any, made to any other profit-sharing plans maintained by Beneficial Mutual Savings Bank, if the distribution includes those amounts.
Beneficial Mutual Bancorp Common Stock Included in Lump Sum Distribution. If a lump sum distribution includes Beneficial Mutual Bancorp common stock, the distribution generally is taxed in the manner described above. The total taxable amount is reduced, however, by the amount of any net unrealized appreciation on Beneficial Mutual Bancorp common stock; that is, the excess of the value of Beneficial Mutual Bancorp common stock at the time of the distribution over the cost or other basis of the securities to the trust. The tax basis of Beneficial Mutual Bancorp common stock, for purposes of computing gain or loss on a subsequent sale, equals the value of Beneficial Mutual Bancorp common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of Beneficial Mutual Bancorp common stock, to the extent of the net unrealized appreciation at the time of distribution, is long-term capital gain, regardless of how long you hold the Beneficial Mutual Bancorp common stock, or the holding period. Any gain on a subsequent sale or other taxable disposition of Beneficial Mutual Bancorp common stock that exceeds the amount of net unrealized appreciation upon distribution is considered long-term capital gain, regardless of the holding period. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed under IRS regulations.
We have provided you with a brief description of the material federal income tax aspects of the 401(k) Plan that are generally applicable under the Internal Revenue Code. We do not intend this description to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the 401(k) Plan. Accordingly, you should consult a tax advisor concerning the federal, state and local tax consequences of participating in and receiving distributions from the 401(k) Plan.
Any affiliate of Beneficial Mutual Bancorp under Rules 144 and 405 of the Securities Act of 1933, as amended, who receives a distribution of common stock under the 401(k) Plan, may re-offer or resell such shares only under a registration statement filed under the Securities Act of 1933, as amended, assuming the availability of a registration statement, or under Rule 144 or some other exemption from these registration requirements. An affiliate of Beneficial Mutual Bancorp is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, Beneficial Mutual Bancorp. Generally, a director, principal officer or major shareholder of a corporation is deemed to be an affiliate of that corporation.
Any person who may be an affiliate of Beneficial Mutual Bancorp may wish to consult with counsel before transferring any common stock they own. In addition, participants should consult with counsel regarding the applicability to them of Section 16 of the Securities Exchange Act of 1934, as amended, which may restrict the sale of Beneficial Mutual Bancorp common stock acquired under the 401(k) Plan or other sales of Beneficial Mutual Bancorp common stock.
Persons who are not deemed to be affiliates of Beneficial Mutual Bancorp at the time of resale may resell freely any shares of Beneficial Mutual Bancorp common stock distributed to them under the 401(k) Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, or compliance with the restrictions and conditions contained in the exemptions available under federal law. A person deemed an affiliate of Beneficial Mutual Bancorp at the time of a proposed resale may publicly resell common stock only under a re-offer prospectus or in accordance with the restrictions and conditions contained in Rule 144 of the Securities Act of 1933, as amended, or some other exemption from registration, and may not use this
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prospectus in connection with any such resale. In general, Rule 144 restricts the amount of common stock which an affiliate may publicly resell in any three-month period to the greater of one percent of Beneficial Mutual Bancorp common stock then outstanding or the average weekly trading volume reported on the Nasdaq Stock Market during the four calendar weeks before the sale. Affiliates may sell only through brokers without solicitation and only at a time when Beneficial Mutual Bancorp is current in filing all required reports under the Securities Exchange Act of 1934, as amended.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors and persons who beneficially own more than 10% of public companies such as Beneficial Mutual Bancorp. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), such person must file a Form 3 reporting initial beneficial ownership with the Securities and Exchange Commission (SEC). Such persons must also report periodically certain changes in beneficial ownership involving the allocation or reallocation of assets held in their 401(k) Plan accounts, either on a Form 4 within two days after a transaction, or annually on a Form 5 within 45 days after the close of a companys fiscal year.
In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by Beneficial Mutual Bancorp of profits realized from the purchase and sale or sale and purchase of its common stock within any six-month period by any officer, director or person who beneficially owns more than 10% of the common stock.
The SEC has adopted rules that exempt many transactions involving the 401(k) Plan from the short-swing profit recovery provisions of Section 16(b). The exemptions generally involve restrictions upon the timing of elections to buy or sell employer securities for the accounts of any officer, director or person who beneficially owns more than 10% of the common stock of a company.
Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are subject to Section 16(b) may be required, under limited circumstances involving the purchase of common stock within six months of the distribution, to hold the shares of common stock distributed from the 401(k) Plan for six months after the distribution date.
The validity of the issuance of the common stock of Beneficial Mutual Bancorp will be passed upon by Muldoon Murphy & Aguggia LLP, Washington, DC. Muldoon Murphy & Aguggia LLP acted as special counsel for Beneficial Mutual Bancorp in connection with the Stock Offering.
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BENEFICIAL
MUTUAL SAVINGS BANK
401(k) PLAN
INVESTMENT FORM
Name of Plan Participant: _________________________________________________________________________
Social Security Number: ______________________
1. Instructions. In connection with the offering to the public of the common stock of Beneficial Mutual Bancorp, the Beneficial Mutual Savings Bank 401(k) Plan (the Plan) now permits participants to direct up to 50% of their 401(k) Plan account balances into a new fund: the Beneficial Mutual Bancorp Stock Fund (Employer Stock Fund). The percentage of a participants account (up to 50%) transferred at the direction of the participant into the Employer Stock Fund will be used to purchase shares of common stock of Beneficial Mutual Bancorp (the Common Stock) in the Stock Offering.
To direct a transfer of up to 50% of the funds credited to your accounts in the 401(k) Plan to the Employer Stock Fund, you must complete and submit this form to Joseph M. Vetter in the Human Resources Department by 12:00 noon on _____________, 2007. A representative for the Plan Administrator will retain a copy of this form and return a copy to you. If you need any assistance in completing this form, please contact Joseph M. Vetter at (215) 864-3521. If you do not complete and return this form to Joseph M. Vetter by 12:00 noon on ______________, 2007, the funds credited to your accounts under the Plan will continue to be invested in accordance with your prior investment directions, or in accordance with the terms of the Plan if no investment directions have been provided.
2. Investment Directions for the Stock Offering. I hereby authorize the Plan Administrator to direct the Trustee to invest the following percentages (in multiples of not less than 1%) of my 401(k) Plan account balance in the Employer Stock Fund:
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American Funds Euro-Pacific Fund |
__________________________% |
American Funds Growth Fund of America |
__________________________% |
Fidelity Spartan 500 Index Investor Fund |
__________________________% |
Harbor Bond Institutional Fund |
__________________________% |
Janus Fund |
__________________________% |
Selected American Shares D |
__________________________% |
Sunrise Retirement Fund Balanced Equity |
__________________________% |
Vanguard Small Cap Index Fund |
__________________________% |
Wells Fargo Stable Value Fund |
__________________________% |
I acknowledge that I WILL NOT authorize the Trustee to invest more than 50% of my entire 401(k) Plan account balance in the Employer Stock Fund.
I acknowledge that in the event the Employer Stock Fund trustee cannot fill all or a portion of my order, my unused funds will be reinvested in the investment elections I have in place for my elective deferrals prior to the Stock Offering.
3. Purchaser Information. The ability of participants in the 401(k) Plan to purchase Common Stock and to direct their current 401(k) Plan account balances into the Employer Stock Fund is based upon the participants subscription rights. Please indicate your status.
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Check here if you had $50.00 or more on deposit with Beneficial Mutual Savings Bank as of November 30, 2005. |
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Check here if you had $50.00 or more on deposit with Beneficial Mutual Savings Bank as of [March 31, 2007]. |
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Check here if you are a depositor of Beneficial Mutual Savings Bank as of [April 30, 2007]. |
4. Acknowledgment of Participant. I understand that this Investment Form shall be subject to all of the terms and conditions of the Plan. I acknowledge that I have received a copy of the Beneficial Mutual Bancorp Prospectus and the Prospectus Supplement and that I understand the terms and conditions of my investment in the Employer Stock Fund.
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Signature of Participant |
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Acknowledgment of Receipt by Administrator. This Investment Form was received by the Plan Administrator and will become effective on the date noted below.
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THE PARTICIPATION INTERESTS REPRESENTED BY THE COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY BENEFICIAL MUTUAL BANCORP, BENEFICIAL SAVINGS BANK MHC OR BENEFICIAL MUTUAL SAVINGS BANK. THE COMMON STOCK IS SUBJECT TO AN INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
Minimum Stock Purchase in the Stock Offering
is $250
Maximum Stock Purchase in the Stock Offering is $250,000
PLEASE COMPLETE AND RETURN TO
JOSEPH M. VETTER IN THE HUMAN RESOURCES DEPARTMENT BY 12:00 NOON ON
____________, 2007.
INTERESTS
IN
BENEFICIAL INSURANCE SERVICES, LLC 401(k) PLAN
AND
OFFERING OF 196,102 SHARES OF
BENEFICIAL MUTUAL BANCORP, INC.
COMMON STOCK ($.01 PAR VALUE)
This prospectus supplement relates to the offer and sale to participants in the Beneficial Insurance Services, LLC 401(k) Plan (the 401(k) Plan), of participation interests and shares of common stock of Beneficial Mutual Bancorp in connection with the Beneficial Mutual Bancorp initial public offering. Beneficial Insurance Services, LLC is a wholly owned subsidiary of Beneficial Mutual Savings Bank and operates under the trade name of Paul Hertel & Company.
401(k) Plan participants may direct RSGroup Trust Company, the trustee for the Beneficial Mutual Bancorp Stock Fund, to use up to 50% of their account balances to subscribe for and purchase shares of Beneficial Mutual Bancorp common stock through the Beneficial Mutual Bancorp Stock Fund. Based upon the value of the 401(k) Plan assets as of March 31, 2007, the Beneficial Mutual Bancorp Stock Fund trustee may purchase up to 196,102 shares of Beneficial Mutual Bancorp common stock at a purchase price of $10.00 per share. This prospectus supplement relates to the election of 401(k) Plan participants to direct the 401(k) Plan trustee to invest up to 50% of their 401(k) Plan account balances in Beneficial Mutual Bancorp common stock.
The Beneficial Mutual Bancorp prospectus dated May ___, 2007, which we have attached to this prospectus supplement, includes detailed information regarding the offering of shares of Beneficial Mutual Bancorp common stock and the financial condition, results of operations and business of Beneficial Mutual Savings Bank (Beneficial Mutual Savings). This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.
Please refer to Risk Factors beginning on page __ of the prospectus.
Neither the Securities and Exchange Commission, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, nor any other state or federal agency or any state securities commission, has approved or disapproved these securities. Any representation to the contrary is a criminal offense.
These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
This prospectus supplement may be used only in connection with offers and sales by Beneficial Mutual Bancorp of interests or shares of common stock under the 401(k) Plan in the offering. No one may use this prospectus supplement to re-offer or resell interests or shares of common stock acquired through the 401(k) Plan.
You should rely only on the information contained in this prospectus supplement and the attached prospectus. Neither Beneficial Mutual Bancorp, Beneficial Savings Bank MHC, Beneficial Mutual Savings Bank, Beneficial Insurance Services, LLC nor the 401(k) Plan have authorized anyone to provide you with information that is different.
This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of Beneficial Mutual Savings Bank or the 401(k) Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.
The date of this Prospectus Supplement is May ___, 2007.
TABLE OF CONTENTS
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Election to Purchase Beneficial Mutual Bancorp Common Stock in the Stock Offering |
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Nature of a Participants Interest in Beneficial Mutual Bancorp Common Stock |
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The securities offered in connection with this prospectus supplement are participation interests in the 401(k) Plan. At a purchase price of $10.00 per share, the 401(k) Plan trustee may acquire up to 196,102 shares of Beneficial Mutual Bancorp common stock. The interests offered under this prospectus supplement are conditioned on the close of the Beneficial Mutual Bancorp minority stock offering (the Stock Offering). Certain subscription rights and purchase limitations also govern your investment in the Beneficial Mutual Bancorp Stock Fund in connection with the Stock Offering. See The Stock Offering Subscription Offering and Subscription Rights and Limitations on Purchases of Shares in the prospectus attached to this prospectus supplement for further discussion of these subscription rights and purchase limitations.
This prospectus supplement contains information regarding the 401(k) Plan. The attached prospectus contains information regarding the Stock Offering and the financial condition, results of operations and business of Beneficial Mutual Savings Bank and its subsidiaries. The address of the principal executive office of Beneficial Mutual Savings Bank is 510 Walnut Street, Philadelphia, Pennsylvania 19106. The telephone number of Beneficial Mutual Savings Bank is (215) 864-6000. The address of the principal office of Beneficial Insurance Services, LLC is 325 Chestnut Street, Suite 1200, Philadelphia, Pennsylvania 19106. The telephone number is (215) 925-7656.
Election to Purchase Beneficial Mutual Bancorp Common Stock in the Stock Offering
In connection with the Stock Offering, you may direct the trustee of the 401(k) Plan to transfer up to 50% of your 401(k) Plan account balance to the Beneficial Mutual Bancorp Stock Fund. The 401(k) Plan trustee will subscribe for Beneficial Mutual Bancorp common stock offered for sale in connection with the Stock Offering in accordance with each participants direction. If there is not enough Beneficial Mutual Bancorp common stock available in the Stock Offering to fill all subscriptions, the common stock will be apportioned and the 401(k) Plan trustee may not be able to purchase all of the Beneficial Mutual Bancorp common stock you requested. In the event the Stock Offering is oversubscribed and your order is cutback, your 401(k) Plan funds (which are not invested in Beneficial Mutual Bancorp common stock) will be reinvested in accordance with the investment elections that you have in place for your elective deferrals.
All eligible plan participants are permitted to direct a transfer of up to 50% of their account balances in the 401(k) Plan into the Beneficial Mutual Bancorp Stock Fund. However, transfer directions are subject to subscription rights and purchase priorities. Your order for shares in the Stock Offering will be filled based on your subscription rights in the Stock Offering. See the prospectus section Summary Persons Who Can Order Stock in the Offering. Beneficial Mutual Bancorp has granted rights to subscribe for shares of Beneficial Mutual Bancorp common stock to the following persons in the following order of priority: (1) persons with $50 or more on deposit at Beneficial Mutual Savings Bank as of November 30, 2005; (2) the Beneficial Mutual Savings Bank Employee Stock Ownership Plan; (3) persons with $50 or more on deposit at Beneficial Mutual Savings Bank as of [March 31, 2007]; and (4) except for persons eligible to subscribe for shares under categories 1 and 3, Beneficial Mutual Savings Banks depositors as of the close of business on [April 30, 2007], who were not able to subscribe for shares of Beneficial Mutual Bancorp common stock under categories 1 and 3. If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of Beneficial Mutual Bancorp common stock in the Stock Offering and you may use up to 50% of your account balance in the 401(k) Plan to subscribe for shares of Beneficial Mutual Bancorp common stock.
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The limitations on the total amount of Beneficial Mutual Bancorp common stock that you may purchase in the Stock Offering, as described in the prospectus (see The Stock Offering Limitations on Purchases of Shares) will be calculated based on the aggregate amount that you subscribed for: (a) through your 401(k) Plan account and (b) through your sources of funds outside of the 401(k) Plan. Whether you place an order through the 401(k) Plan, outside the plan or both, the number of shares of Beneficial Mutual Bancorp common stock, if any, that you receive will be determined based on the total number of subscriptions, your purchase priority and the allocation priorities set forth in the prospectus. If, as a result of the calculation, you are allocated insufficient shares to fill all of your orders, available shares will be allocated between all your subscription orders on a pro rata basis.
Value of Participation Interests
As of March 31, 2007, the market value of 50% of the 401(k) Plan assets equaled approximately $1,961,029. The Plan Administrator has informed each participant of the value of his or her beneficial interest in the 401(k) Plan. The value of the 401(k) Plan assets represents past contributions made to the 401(k) Plan on your behalf, plus or minus earnings or losses on the contributions, less previous withdrawals and loans. Participants will be able to use up to 50% of their 401(k) Plan account balances to purchase shares in the Stock Offering through the Beneficial Mutual Bancorp Stock Fund.
In order to facilitate your investment in the Beneficial Mutual Bancorp Stock Fund in connection with the Stock Offering, you must complete, sign and submit the green form included with this prospectus supplement (the Investment Form). In order to invest in the Beneficial Mutual Bancorp Stock Fund you must direct the 401(k) Plan trustee to transfer a percentage of your beneficial interest in the assets of the 401(k) Plan (up to 50%) to the Beneficial Mutual Bancorp Stock Fund (in multiples of not less than 1%). If you do not wish to invest in the Beneficial Mutual Bancorp Stock Fund at this time, you do not need to take any action. The minimum investment in the Beneficial Mutual Bancorp Stock Fund during the Stock Offering is $250 and the maximum individual investment is $250,000.
The deadline to submit your Investment Form to Joseph F. Robinson is 12:00 noon on __________, ____________, 2007. If you have any questions regarding the Beneficial Mutual Bancorp Stock Fund, Joseph F. Robinson can be reached at (215) 925-7656.
Irrevocability of Transfer Direction
Once you have submitted your Investment Form to Joseph F. Robinson, you cannot change your direction to transfer amounts credited to your account in the 401(k) Plan to the Beneficial Mutual Bancorp Stock Fund. Following the closing of the Stock Offering and the initial purchase of shares in the Beneficial Mutual Bancorp Stock Fund, you may change your investment directions, in accordance with the terms of the 401(k) Plan.
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Purchase Price of Beneficial Mutual Bancorp Common Stock
The trustee will use the funds transferred to the Beneficial Mutual Bancorp Stock Fund to purchase shares of Beneficial Mutual Bancorp common stock in the Stock Offering. The Beneficial Mutual Bancorp Stock Fund trustee will pay the same price for shares of Beneficial Mutual Bancorp common stock as all other persons who purchase shares of Beneficial Mutual Bancorp common stock in the Stock Offering. If there is not enough common stock available in the Stock Offering to fill all subscriptions, the common stock will be apportioned and the trustee may not be able to purchase all of the common stock you requested. In the event the Stock Offering is oversubscribed and your order is cut back, your 401(k) Plan funds (which are not invested in Beneficial Mutual Bancorp common stock) will be reinvested in accordance with the investment elections that you have in place for your elective deferrals.
Nature of a Participants Interest in Beneficial Mutual Bancorp Common Stock
The trustee will hold Beneficial Mutual Bancorp common stock in the name of the 401(k) Plan. The trustee will credit shares of Beneficial Mutual Bancorp common stock acquired at your direction to your account under the 401(k) Plan. Therefore, the investment designations of other 401(k) Plan participants should not affect earnings on your 401(k) Plan account.
Voting and Tender Rights of Beneficial Mutual Bancorp Common Stock
RSGroup Trust Company, as the 401(k) Plan trustee, will exercise voting and tender rights attributable to all Beneficial Mutual Bancorp common stock held in the Beneficial Mutual Bancorp Stock Fund, as directed by participants with interests in the Beneficial Mutual Bancorp Stock Fund. With respect to each matter as to which holders of Beneficial Mutual Bancorp common stock have a right to vote, you will have voting instruction rights that reflect your proportionate interest in the Beneficial Mutual Bancorp Stock Fund. The number of shares of Beneficial Mutual Bancorp common stock held in the Beneficial Mutual Bancorp Stock Fund voted for and against each matter will be proportionate to the number of voting instruction rights exercised. If there is a tender offer for Beneficial Mutual Bancorp common stock, the 401(k) Plan allots each participant a number of tender instruction rights reflecting the participants proportionate interest in the Beneficial Mutual Bancorp Stock Fund. The percentage of shares of Beneficial Mutual Bancorp common stock held in the Beneficial Mutual Bancorp Stock Fund that will be tendered will be the same as the percentage of the total number of tender instruction rights exercised in favor of the tender offer. The remaining shares of Beneficial Mutual Bancorp common stock held in the Beneficial Mutual Bancorp Stock Fund will not be tendered. The 401(k) Plan provides that participants will exercise their voting instruction rights and tender instruction rights on a confidential basis.
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DESCRIPTION OF THE 401(k) PLAN
Beneficial Insurance Services, LLC originally adopted the Paul Hertel & Company Thrift and Profit Sharing Plan for the benefit of its employees effective January 1, 1971. Effective May 11, 2007, the Paul Hertel & Company plan was amended and restated in its entirety and renamed the Beneficial Insurance Services, LLC 401(k) Plan. Beneficial Insurance Services, LLC intends for the 401(k) Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended, or ERISA. Beneficial Insurance Services, LLC may change the 401(k) Plan from time to time in the future to ensure continued compliance with these laws. Beneficial Insurance Services, LLC may also amend the 401(k) Plan from time to time in the future to add, modify, or eliminate certain features of the plan, as it sees fit. Federal law provides you with various rights and protections as a participant in the 401(k) Plan, which is governed by ERISA. However, the Pension Benefit Guaranty Corporation does not guarantee your benefits under the 401(k) Plan.
Reference to Full Text of the Plan. The following portions of this prospectus supplement summarize the material provisions of the 401(k) Plan. Beneficial Insurance Services, LLC qualifies this summary in its entirety by reference to the full text of the 401(k) Plan. You may obtain copies of the 401(k) Plan document including any amendments to the plan and a summary plan description, by contacting Joseph F. Robinson at (215) 925-7656. You should carefully read the 401(k) Plan documents to understand your rights and obligations under the plan.
If you are at least 21 years old and you have completed two months of service with Beneficial Insurance Services, LLC you may elect to participate in the 401(k) Plan on the January 1st or July 1st following or coincident with the date you satisfy the 401(k) Plan eligibility requirements.
As of March 31, 2007, 28 of the 34 employees of Beneficial Insurance Services, LLC participated in the 401(k) Plan.
Contributions Under the 401(k) Plan
Employee Pre-Tax Salary Deferrals. Subject to certain IRS limitations, the 401(k) Plan permits you to make pre-tax salary deferrals each payroll period of up to 20% of your compensation. Compensation is defined for purposes of the 401(k) Plan as each participants total pay, including base pay, overtime, bonuses and commissions. In addition to pre-tax salary deferrals, you may make catch up contributions if you are currently age 50 or will be 50 before the end of the calendar year.
Employer Matching Contributions. The 401(k) Plan provides that Beneficial Insurance Services, LLC may make matching contributions on behalf of each participant. Beneficial Insurance Services, LLC makes matching contributions only to those participants who actively defer a percentage of their compensation into the 401(k) Plan. If you elect to defer funds into the 401(k) Plan, Beneficial Insurance Services, LLC will match 10% of up to the first 6% of your elective deferrals for a maximum matching contribution of 0.6% of your compensation.
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Rollover Contributions. Beneficial Insurance Services, LLC allows employees who receive a distribution from a previous employers tax-qualified employee benefit plan to deposit that distribution into a Rollover Contribution account under the 401(k) Plan, provided the rollover contribution satisfies IRS requirements.
Limitation on Employee Salary Deferrals. By law, your total deferrals under the 401(k) Plan, together with similar plans, may not exceed $15,500 for 2007. Eligible employees who are age 50 and over may also make additional catch-up contributions to the plan, up to a maximum of $5,000 for 2007. The Internal Revenue Service periodically increases these limitations. An eligible participant who exceeds these limitations must include any excess deferrals in gross income for federal income tax purposes in the year of deferral. In addition, the participant must pay federal income taxes on any excess deferrals when distributed by the 401(k) Plan to the participant, unless the plan distributes the excess deferrals and any related income no later than the first April 15th following the close of the taxable year in which the participant made the excess deferrals. Any income on excess deferrals distributed before such date is treated, for federal income tax purposes, as earned and received by the participant in the taxable year of the distribution.
Limitation on Annual Additions and Benefits. As required by the Internal Revenue Code, the 401(k) Plan provides that the total amount of contributions and forfeitures (annual additions) credited to a participant during any year under all defined contribution plans of Beneficial Insurance Services, LLC may not exceed the lesser of 100% of the participants annual compensation or $45,000 for 2007.
Limitation on Plan Contributions for Highly Compensated Employees. Special provisions of the Internal Revenue Code limit the amount of pre-tax and matching contributions that may be made to the 401(k) Plan in any year on behalf of highly compensated employees, in relation to the amount of pre-tax and matching contributions made by or on behalf of all other employees eligible to participate in the 401(k) Plan. If pre-tax and matching contributions exceed these limitations, the plan must adjust the contribution levels for highly compensated employees.
In general, a highly compensated employee includes any employee who (1) was a 5% owner of the sponsoring employer at any time during the year or the preceding year, or (2) had compensation for the preceding year in excess of $100,000 and, if the sponsoring employer so elects, was in the top 20% of employees by compensation for such year. The preceding dollar amount applies for 2007, and may be adjusted periodically by the IRS.
Top-Heavy Plan Requirements. If the 401(k) Plan is a Top-Heavy Plan for any calendar year, Beneficial Insurance Services, LLC may be required to make certain minimum contributions to the 401(k) Plan on behalf of non-key employees. In general, the 401(k) Plan will be treated as a Top-Heavy Plan for any calendar year if, as of the last day of the preceding calendar year, the aggregate balance of the accounts of Key Employees exceeds 60% of the aggregate balance of the accounts of all employees under the plan. A Key Employee is generally any employee who, at any time during the calendar year or any of the four preceding years, is:
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(1) |
an officer of Beneficial Insurance Services, LLC whose annual compensation exceeds $145,000; |
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(2) |
a 5% owner of the employer, meaning an employee who owns more than 5% of the outstanding stock of Beneficial Mutual Bancorp, or who owns stock that possesses more than 5% of the total combined voting power of all stock of Beneficial Mutual Bancorp; or |
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(3) |
a 1% owner of the employer, meaning an employee who owns more than 1% of the outstanding stock of Beneficial Mutual Bancorp, or who owns stock that possesses more than 1% of the total combined voting power of all stock of Beneficial Mutual Bancorp, and whose annual compensation exceeds $150,000. |
The foregoing dollar amounts are for 2007.
Effective May 11, 2007, the 401(k) Plan offers the following investment choices:
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Annual Rates of Return |
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Fund Name |
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2006 |
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2005 |
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2004 |
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American Century Vista Fund |
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9.28 |
% |
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9.10 |
% |
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16.00 |
% |
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American Funds Euro-Pacific Growth Fund |
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22.17 |
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21.38 |
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19.98 |
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American Funds Growth Fund of America |
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11.24 |
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14.53 |
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12.24 |
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Sunrise Retirement Fund Balanced |
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9.16 |
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5.34 |
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10.81 |
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Sunrise Retirement Fund Balanced Equity |
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10.70 |
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6.18 |
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13.07 |
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Sunrise Retirement Fund Capital Preservation |
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4.79 |
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2.50 |
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4.93 |
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Sunrise Retirement Fund Diversified Equity |
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13.69 |
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7.95 |
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16.87 |
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Sunrise Retirement Fund Diversified Equity w/Income |
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12.15 |
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7.25 |
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15.05 |
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Sunrise Retirement Fund Diversified Income |
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7.92 |
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4.18 |
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8.91 |
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Sunrise Retirement Fund Income |
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6.16 |
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3.01 |
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6.88 |
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T. Rowe Price Capital Opportunities Fund |
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15.81 |
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4.57 |
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11.40 |
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Vanguard Growth Index Fund |
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9.02 |
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5.09 |
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7.20 |
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Vanguard Mid-Cap Index Fund |
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13.60 |
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13.93 |
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20.35 |
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Vanguard Small Cap Index Fund |
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15.78 |
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7.49 |
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20.02 |
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Vanguard Total Bond Market Index Fund |
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4.27 |
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2.39 |
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4.24 |
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Vanguard Value Index Fund |
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22.15 |
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7.09 |
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15.29 |
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Wells Fargo Stable Return Fund |
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4.48 |
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4.13 |
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4.04 |
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The following is a brief description of each of the investment choices offered through the 401(k) Plan.
American Century Vista Fund. This actively managed fund seeks long term growth of capital by investing in medium-sized and smaller companies with earnings and revenues that are growing at an
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accelerating rate. The fund managers discipline is based on bottom-up fundamental analysis and the belief that the direction of a companys growth is more important than its absolute growth. The manager looks for rising rates of growth in revenue, earnings, cash flows and operating margins. In addition, relative price and valuation are considered.
American Funds Euro-Pacific Growth Fund. This is an international (non-U.S.) equity fund and seeks to provide long-term growth of capital by investing in companies based outside the United States. The fund invests in strong, growing companies based chiefly in Europe and the Pacific Basin, ranging from small firms to large corporations. The fund invests primarily in common and preferred stocks, convertibles, American Depositary Receipts, European Depositary Receipts, bonds and cash. Normally, at least 80% of assets must be invested in securities of issuers domiciled in Europe or the Pacific Basin.
American Funds Growth Fund of America. This is a large-cap growth fund. The fund seeks to provide long-term growth of capital through a diversified portfolio of common stocks. The fund has the flexibility to invest wherever the best growth opportunities may be. The fund emphasizes companies that appear to offer opportunities for long-term growth, and may invest in cyclical companies, turnarounds and value situations. The fund invests primarily in common stocks, convertibles, preferred stocks, U.S. government securities, bonds and cash, and may invest up to 15% of assets in securities of issuers domiciled outside the United States and Canada and not included in the S&P 500.
Sunrise Retirement Fund Balanced. This portfolio targets 55% of its assets in a diversified mix of equity mutual funds and 45% in fixed income mutual funds. The equity allocation includes U.S. large cap, mid cap, and small cap as well as non-U.S. The fixed income exposure is invested in intermediate-term fixed income and money market mutual funds. This portfolios strategic asset class targets include: 30% U.S. large cap equity, 15% U.S. mid/small cap equity, 10% non-U.S. equity, 42% fixed income, and 3% cash equivalents.
Sunrise Retirement Fund Balanced Equity. This portfolio targets 70% of its assets in a diversified mix of equity mutual funds and 30% in fixed income mutual funds. The equity allocation includes U.S. large cap, mid cap, and small cap as well as non-U.S. The fixed income exposure is invested in intermediate-term fixed income and money market mutual funds. This portfolios strategic asset class targets include: 35% U.S. large cap equity, 22% U.S. mid/small cap equity, 13% non-U.S. equity, 27% fixed income, and 3% cash equivalents
Sunrise Retirement Fund Capital Preservation. This portfolio targets 10% of its assets in a diversified mix of equity mutual funds and 90% in fixed income mutual funds. The equity allocation includes U.S. large cap. The fixed income exposure is invested in intermediate- and short-term fixed income, and money market mutual funds. This portfolios strategic asset class targets include: 10% U.S. large cap equity, 87% fixed income, and 3% cash equivalents.
Sunrise Retirement Fund Diversified Equity. This portfolio is 97% invested in a diversified mix of equity mutual funds. Currently, it includes U.S. large cap, mid cap, and small cap equities as well as non-U.S. equities. The balance is invested in a money market portfolio. This portfolios strategic asset class targets include: 42% U.S. large cap equity, 35% U.S. mid/small cap equity, 20% non-U.S. equity, and 3% cash equivalents.
Sunrise Retirement Fund Diversified Equity with Income. This portfolio targets 85% of its assets in a diversified mix of equity mutual funds and 15% in fixed income mutual funds. Currently, the equity allocation includes U.S. large cap, mid cap, and small cap as well as non-U.S. The fixed income exposure is invested in intermediate-term fixed income and money market mutual funds. This portfolios
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strategic asset class targets include: 40% U.S. large cap equity, 28% U.S. mid/small cap equity, 17% non-U.S. equity, 12% fixed income, and 3% cash equivalents.
Sunrise Retirement Fund Diversified Income. This portfolio targets 40% of its assets in a diversified mix of equity mutual funds and 60% in fixed income mutual funds. The equity allocation includes U.S. large cap, mid cap, and small cap as well as non-U.S. The fixed income exposure is invested in intermediate-term fixed income and money market mutual funds. This portfolios strategic asset class targets include: 25% U.S. large cap equity, 10% U.S. mid/small cap equity, 5% non-U.S. equity, 57% fixed income, and 3% cash equivalents.
Sunrise Retirement Fund Income. This portfolio targets 25% of its assets in a diversified mix of equity mutual funds and 75% in fixed income mutual funds. The equity allocation includes U.S. large cap and small cap. The fixed income exposure is invested in intermediate- and short-term fixed income, and money market mutual funds. This portfolios strategic asset class targets include: 20% U.S. large cap equity, 5% U.S. small cap equity, 72% fixed income, and 3% cash equivalents.
T. Rowe Price Capital Opportunities Fund. This is an actively managed large-cap blend fund that seeks superior capital appreciation over time by investing primarily in U.S. common stocks. The fund invests in companies well positioned for significant capital appreciation. Sector diversification will approximate that of the S&P 500 Index
Vanguard Growth Index Fund. This fund employs a passive managementor indexinginvestment approach designed to track the performance of the MSCI US Prime Market Growth Index, a broadly diversified index predominantly made up of growth stocks of large U.S. companies. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Vanguard Mid-Cap Index Fund. This fund seeks to track the performance of a benchmark index that measures the investment return of mid-capitalization stocks. The fund employs a passive managementor indexinginvestment approach designed to track the performance of the MSCI® US Mid Cap 450 Index, a broadly diversified index of stocks of medium-size U.S. companies. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting within the index.
Vanguard Small Cap Index Fund. This fund employs a passive managementor indexinginvestment approach designed to track the performance of the MSCI US Small Cap 1750 Index, a broadly diversified index of stocks of smaller U.S. companies. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Vanguard Total Bond Market Index Fund. The fund employs a passive managementor indexinginvestment approach designed to track the performance of the Lehman Brothers Aggregate Bond Index. This index measures a wide spectrum of public, investment-grade, taxable, fixed income securities in the United Statesincluding government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year. The fund invests by sampling the index, meaning that it holds a range of securities that, in the aggregate, approximate the full index in terms of key risk factors and other characteristics. All of the funds investments will be selected through the sampling process, and at least 80% of the funds assets will be invested in bonds held in the index. The fund maintains a dollar-weighted average maturity consistent with that of the index, which currently ranges between 5 and 10 years.
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Vanguard Value Index Fund. This fund employs a passive managementor indexinginvestment approach designed to track the performance of the MSCI US Prime Market Value Index, a broadly diversified index predominantly made up of value stocks of large U.S. companies. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Wells Fargo Stable Return Fund. This is a stable value fund and seeks safety of principal and consistency of returns with minimal volatility. The fund invests in financial instruments issued by highly rated companies. These include guaranteed investment contracts (GICs), security-backed contracts (synthetic GICs) and cash equivalents. The weighted average quality of the portfolio is maintained at AA or better.
In connection with the Stock Offering, we have added the Beneficial Mutual Bancorp Stock Fund as an additional choice to the investment alternatives described above. The Beneficial Mutual Bancorp Stock Fund invests primarily in the common stock of Beneficial Mutual Bancorp, Inc. Participants in the 401(k) Plan may direct RSGroup Trust Company, as the 401(k) Plan Trustee, to invest up to 50% of their 401(k) Plan account balances in the Beneficial Mutual Bancorp Stock Fund during the offering. 401(k) Plan participants will not be limited in their investment in the Beneficial Mutual Bancorp Stock Fund following the close of the offering.
The Beneficial Mutual Bancorp Stock Fund consists of investments in the common stock of Beneficial Mutual Bancorp made on the closing date of the Stock Offering. Your investment in the Beneficial Mutual Bancorp Stock Fund will be recorded using the share accounting method. Share accounting states your Beneficial Mutual Bancorp common stock position in the 401(k) Plan in terms of shares similar to how a broker would quote your common stock position in a brokerage account. In the event cash dividends are paid on Beneficial Mutual Bancorp common stock, the 401(k) Plan Trustee will, to the extent practicable, use the dividends held in the Beneficial Mutual Bancorp Stock Fund to purchase shares of the common stock. Pending investment in the common stock, assets held in the Beneficial Mutual Bancorp Stock Fund will be placed in the Federated Prime Value Obligations Fund, a money market fund.
As of the date of this prospectus supplement, no shares of Beneficial Mutual Bancorp common stock have been issued or are outstanding, and there is no established market for Beneficial Mutual Bancorp common stock. Accordingly, there is no record of the historical performance of the Beneficial Mutual Bancorp Stock Fund. Performance of the Beneficial Mutual Bancorp Stock Fund depends on a number of factors, including the financial condition and profitability of Beneficial Mutual Savings Bank and general stock market conditions.
Once you have submitted your Investment Form to Joseph F. Robinson, you may not change your investment directions in the Stock Offering.
Benefits Under the 401(k) Plan
Vesting. All participants are 100% vested in their pre-tax salary deferrals. This means that participants have a non-forfeitable right to these funds and any earnings on the funds at all times. Plan participants vest in employer matching contributions credited to their accounts on a graded basis over a six-year period. Participants become 100% vested in their employer matching contributions upon termination of employment due to death, disability or retirement (as normal or postponed retirement).
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Withdrawals and Distributions from the 401(k) Plan
Withdrawals Before Termination of Employment. While in active service, participants may take a hardship withdrawal from the 401(k) Plan once per Plan Year, provided the participant has a hardship event as defined by the IRS regulations and subject to approval by the committee administering the 401(k) Plan. Plan loans are also permitted, subject to applicable law and IRS regulations. Please see the Plan Administrator for details on the loan policies and procedures.
Distribution Upon Retirement, Death or Disability. If a participants accounts are $1,000 or less upon termination of employment, payment will be in the form of a lump sum as of a valuation date as soon thereafter as administratively possible. If a participants accounts exceed $1,000 and are $5,000 or less upon termination of employment, and the participant does not elect to have his/her distribution paid, the funds will remain in the 401(k) Plan until distribution instructions are provided.
If termination of employment is due to Normal, Postponed Retirement, Death, or Total and Permanent Disability, and a participants account exceeds $5,000, distribution of the participants accounts will be in the form of a lump sum payment, upon the participants attainment of Normal Retirement Date, unless the participant elects (within 30 days of receipt of an election notice) to further defer distribution beyond Normal Retirement Date to a Postponed Retirement Date (subject to an IRS minimum distribution of benefits requirement following attainment of age 70½) or the participant elects a direct rollover from the 401(k) Plan to another employers plan (if permitted by that plan).
Distribution Upon Termination for Any Other Reason. If a participants accounts are $1,000 or less upon termination of employment, payment will be in the form of a lump sum as of a valuation date as soon thereafter as administratively possible. If a participants accounts exceed $1,000 and are $5,000 or less upon termination of employment, and the participant does not elect to have his/her distribution paid, the funds will remain in the 401(k) Plan until the participant requests a distribution.
If upon termination of employment, a participants accounts exceed $5,000, payment will be deferred to Normal Retirement Date, unless the participant elects one of the following optional forms of payment:
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Lump sum payment as of any valuation date following the date of termination of employment. (Note: lump sums are subject to a mandatory 20% income tax withholding and a statutory 10% additional federal tax if paid before age 55). A participant Rollover is permitted within 60 days of distribution to an Individual Retirement Account (IRA), or another employers plan (if permitted by that plan). |
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Direct Rollover from the 401(k) Plan to another employers plan (if permitted by that plan) for accounts which are lesser or greater than $5,000. |
Nonalienation of Benefits. Except with respect to federal income tax withholding, and as provided for under a qualified domestic relations order, benefits payable under the 401(k) Plan will not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the 401(k) Plan will be void.
Applicable federal tax law requires the 401(k) Plan to impose substantial restrictions on your right to withdraw amounts held under the plan before your termination of employment with Beneficial Insurance Services, LLC. Federal law may also impose an excise tax on withdrawals
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from the 401(k) Plan before you attain 59½ years of age, regardless of whether the withdrawal occurs during your employment with Beneficial Insurance Services, LLC or after termination of employment.
ADMINISTRATION OF THE 401(k) PLAN
The RSGroup Trust Company has been engaged as the trustee for the Beneficial Mutual Bancorp Stock Fund in the 401(k) Plan. The trustee receives, holds and invests the contributions to the 401(k) Plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the 401(k) Plan and the directions of the Plan Administrator. The trustee is responsible for the investment of the trust assets, as directed by the Plan Administrator and the participants.
Reports to 401(k) Plan Participants
The Plan Administrator furnishes participants quarterly statements that show the balance in their accounts as of the statement date, contributions made to their accounts during that period and any additional adjustments required to reflect earnings or losses.
Beneficial Insurance Services, LLC currently acts as Plan Administrator for the 401(k) Plan. The Plan Administrator handles the following administrative functions: interpreting the provisions of the plan, prescribing procedures for filing applications for benefits, preparing and distributing information explaining the plan, maintaining plan records, books of account and all other data necessary for the proper administration of the plan, preparing and filing all returns and reports required by the U.S. Department of Labor and the IRS and making all required disclosures to participants, beneficiaries and others under ERISA.
Beneficial Insurance Services, LLC expects to continue the 401(k) Plan indefinitely. If the 401(k) Plan is terminated in whole or in part, all affected participants become fully vested in their accounts, regardless of other provisions of the 401(k) Plan. Beneficial Insurance Services, LLC reserves the right to make, from time to time, changes which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries. Beneficial Insurance Services, LLC may amend the plan, however, as necessary or desirable, in order to comply with ERISA or the Internal Revenue Code.
Merger, Consolidation or Transfer
If the 401(k) Plan merges or consolidates with another plan or transfers the trust assets to another plan, and either the 401(k) Plan or the other plan is subsequently terminated, the 401(k) Plan requires that you receive a benefit immediately after the merger, consolidation or transfer that would equal or exceed the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer, if the 401(k) Plan had terminated at that time.
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Federal Income Tax Consequences
The following summarizes only briefly the material federal income tax aspects of the 401(k) Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences of the 401(k) Plan. Statutory provisions change, as do their interpretation, and their application may vary in individual circumstances. Finally, applicable state and local income tax laws may have different tax consequences than the federal income tax laws. 401(k) Plan participants should consult a tax advisor with respect to any transaction involving the 401(k) Plan, including any distribution from the 401(k) Plan.
As a tax-qualified retirement plan, the Internal Revenue Code affords the 401(k) Plan certain tax advantages, including the following:
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(1) |
the sponsoring employer may take an immediate tax deduction for the amount contributed to the plan each year; |
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(2) |
participants pay no current income tax on amounts contributed by the employer on their behalf; and |
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(3) |
earnings of the plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments. |
Beneficial Insurance Services, LLC administers the 401(k) Plan to comply in operation with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law. If Beneficial Insurance Services, LLC should receive an adverse determination letter from the IRS regarding the 401(k) Plans tax exempt status, all participants would generally recognize income equal to their vested interests in the 401(k) Plan, the participants would not be permitted to transfer amounts distributed from the 401(k) Plan to an Individual Retirement Account or to another qualified retirement plan, and Beneficial Insurance Services, LLC would be denied certain tax deductions taken in connection with the 401(k) Plan.
Lump Sum Distribution. A distribution from the 401(k) Plan to a participant or the beneficiary of a participant qualifies as a lump sum distribution if it is made within one taxable year, on account of the participants death, disability or separation from service, or after the participant attains age 59½; and consists of the balance credited to the participant under this plan and all other profit sharing plans, if any, maintained by Beneficial Insurance Services, LLC. The portion of any lump sum distribution included in taxable income for federal income tax purposes consists of the entire amount of the lump sum distribution, less the amount of after-tax contributions, if any, made to any other profit-sharing plans maintained by Beneficial Insurance Services, LLC, if the distribution includes those amounts.
Beneficial Mutual Bancorp Common Stock Included in Lump Sum Distribution. If a lump sum distribution includes Beneficial Mutual Bancorp common stock, the distribution generally is taxed in the manner described above. The total taxable amount is reduced, however, by the amount of any net unrealized appreciation on Beneficial Mutual Bancorp common stock; that is, the excess of the value of Beneficial Mutual Bancorp common stock at the time of the distribution over the cost or other basis of the securities to the trust. The tax basis of Beneficial Mutual Bancorp common stock, for purposes of computing gain or loss on a subsequent sale, equals the value of Beneficial Mutual Bancorp common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of Beneficial Mutual Bancorp common stock, to the extent of the net unrealized appreciation at the time of distribution, is long-term capital gain, regardless of how long you hold the Beneficial Mutual Bancorp common stock, or the holding period. Any gain on a subsequent
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sale or other taxable disposition of Beneficial Mutual Bancorp common stock that exceeds the amount of net unrealized appreciation upon distribution is considered long-term capital gain, regardless of the holding period. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed under IRS regulations.
We have provided you with a brief description of the material federal income tax aspects of the 401(k) Plan that are generally applicable under the Internal Revenue Code. We do not intend this description to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the 401(k) Plan. Accordingly, you should consult a tax advisor concerning the federal, state and local tax consequences of participating in and receiving distributions from the 401(k) Plan.
Any affiliate of Beneficial Mutual Bancorp under Rules 144 and 405 of the Securities Act of 1933, as amended, who receives a distribution of common stock under the 401(k) Plan, may re-offer or resell such shares only under a registration statement filed under the Securities Act of 1933, as amended, assuming the availability of a registration statement, or under Rule 144 or some other exemption from these registration requirements. An affiliate of Beneficial Mutual Bancorp is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, Beneficial Mutual Bancorp. Generally, a director, principal officer or major shareholder of a corporation is deemed to be an affiliate of that corporation.
Any person who may be an affiliate of Beneficial Mutual Bancorp may wish to consult with counsel before transferring any common stock they own. In addition, participants should consult with counsel regarding the applicability to them of Section 16 of the Securities Exchange Act of 1934, as amended, which may restrict the sale of Beneficial Mutual Bancorp common stock acquired under the 401(k) Plan or other sales of Beneficial Mutual Bancorp common stock.
Persons who are not deemed to be affiliates of Beneficial Mutual Bancorp at the time of resale may resell freely any shares of Beneficial Mutual Bancorp common stock distributed to them under the 401(k) Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, or compliance with the restrictions and conditions contained in the exemptions available under federal law. A person deemed an affiliate of Beneficial Mutual Bancorp at the time of a proposed resale may publicly resell common stock only under a re-offer prospectus or in accordance with the restrictions and conditions contained in Rule 144 of the Securities Act of 1933, as amended, or some other exemption from registration, and may not use this prospectus in connection with any such resale. In general, Rule 144 restricts the amount of common stock which an affiliate may publicly resell in any three-month period to the greater of 1% of Beneficial Mutual Bancorp common stock then outstanding or the average weekly trading volume reported on the Nasdaq Stock Market during the four calendar weeks before the sale. Affiliates may sell only through brokers without solicitation and only at a time when Beneficial Mutual Bancorp is current in filing all required reports under the Securities Exchange Act of 1934, as amended.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors and persons who beneficially own more than 10% of public companies such as Beneficial Mutual Bancorp. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), such person must file a Form 3 reporting initial beneficial ownership with
15
the Securities and Exchange Commission (SEC). Such persons must also report periodically certain changes in beneficial ownership involving the allocation or reallocation of assets held in their 401(k) Plan accounts, either on a Form 4 within two days after a transaction, or annually on a Form 5 within 45 days after the close of a companys fiscal year.
In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by Beneficial Mutual Bancorp of profits realized from the purchase and sale or sale and purchase of its common stock within any six-month period by any officer, director or person who beneficially owns more than 10% of the common stock of the Company.
The SEC has adopted rules that exempt many transactions involving the 401(k) Plan from the short-swing profit recovery provisions of Section 16(b). The exemptions generally involve restrictions upon the timing of elections to buy or sell employer securities for the accounts of any officer, director or person who beneficially owns more than 10% of the common stock.
Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are subject to Section 16(b) may be required, under limited circumstances involving the purchase of common stock within six months of the distribution, to hold the shares of common stock distributed from the 401(k) Plan for six months after the distribution date.
The validity of the issuance of the common stock of Beneficial Mutual Bancorp will be passed upon by Muldoon Murphy & Aguggia LLP, Washington, DC Muldoon Murphy & Aguggia LLP acted as special counsel for Beneficial Mutual Bancorp in connection with the Stock Offering.
16
BENEFICIAL
INSURANCE SERVICES, LLC
401(k) PLAN
INVESTMENT FORM
Name of Plan Participant: ____________________________________________________________
Social Security Number: __________________
1. Instructions. In connection with the offering to the public of the common stock of Beneficial Mutual Bancorp, the Beneficial Insurance Services, LLC 401(k) Plan (the Plan) now permits participants to direct up to 50% of their 401(k) Plan account balances into a new fund: the Beneficial Mutual Bancorp Stock Fund (Employer Stock Fund). The percentage of a participants account (up to 50%) transferred at the direction of the participant into the Employer Stock Fund will be used to purchase shares of common stock of Beneficial Mutual Bancorp (the Common Stock) in the Stock Offering.
To direct a transfer of up to 50% of the funds credited to your accounts in the 401(k) Plan to the Employer Stock Fund, you must complete and submit this form to Joseph F. Robinson by 12:00 noon on _____________, 2007. A representative for the Plan Administrator will retain a copy of this form and return a copy to you. If you need any assistance in completing this form, please contact Joseph F. Robinson at (215) 925-7656. If you do not complete and return this form to Joseph F. Robinson by 12:00 noon on _____________, ______________, 2007, the funds credited to your accounts under the Plan will continue to be invested in accordance with your prior investment directions, or in accordance with the terms of the Plan if no investment directions have been provided.
2. Investment Directions for the Stock Offering. I hereby authorize the Plan Administrator to direct the trustee to invest the following percentages (in multiples of not less than 1%) of my 401(k) Plan account balance in the Employer Stock Fund:
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American Century Vista Fund |
_________% |
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American Funds Euro-Pacific Growth Fund |
_________% |
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American Funds Growth Fund of America |
_________% |
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Sunrise Retirement Fund Balanced |
_________% |
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Sunrise Retirement Fund Balanced Equity |
_________% |
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Sunrise Retirement Fund Capital Preservation |
_________% |
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Sunrise Retirement Fund Diversified Equity |
_________% |
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Sunrise Retirement Fund Diversified Equity w/Income |
_________% |
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Sunrise Retirement Fund Diversified Income |
_________% |
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Sunrise Retirement Fund Income |
_________% |
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T. Rowe Price Capital Opportunities Fund |
_________% |
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Vanguard Growth Index Fund |
_________% |
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Vanguard Mid-Cap Index Fund |
_________% |
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Vanguard Small Cap Index Fund |
_________% |
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Vanguard Total Bond Market Index Fund |
_________% |
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Vanguard Value Index Fund |
_________% |
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Wells Fargo Stable Return Fund |
_________% |
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I acknowledge that I WILL NOT authorize the Trustee to invest more than 50% of my entire 401(k) Plan account balance in the Employer Stock Fund.
I also acknowledge that in the event the Employer Stock Fund trustee cannot fill all or a portion of my order, my unused funds will be reinvested in the investment elections I have in place for my elective deferrals prior to the Stock Offering.
3. Purchaser Information. The ability of participants in the 401(k) Plan to purchase Common Stock and to direct their current 401(k) Plan account balances into the Employer Stock Fund is based upon the participants subscription rights. Please indicate your status.
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Check here if you had $50.00 or more on deposit with Beneficial Mutual Savings Bank as of November 30, 2005. |
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Check here if you had $50.00 or more on deposit with Beneficial Mutual Savings Bank as of [March 31, 2007]. |
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Check here if you are a depositor of Beneficial Mutual Savings Bank as of [April 30, 2007]. |
4. Acknowledgment of Participant. I understand that this Investment Form shall be subject to all of the terms and conditions of the Plan. I acknowledge that I have received a copy of the Beneficial Mutual Bancorp Prospectus and the Prospectus Supplement and that I understand the terms and conditions of my investment in the Employer Stock Fund.
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Signature of Participant |
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Date |
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Acknowledgment of Receipt by Administrator. This Investment Form was received by the Plan Administrator and will become effective on the date noted below.
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By: |
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Date |
THE PARTICIPATION INTERESTS REPRESENTED BY THE COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY BENEFICIAL MUTUAL BANCORP, BENEFICIAL SAVINGS BANK MHC OR BENEFICIAL MUTUAL SAVINGS BANK. THE COMMON STOCK IS SUBJECT TO AN INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
Minimum
Stock Purchase in the Stock Offering is $250
Maximum
Stock Purchase in the Stock Offering is $250,000
PLEASE COMPLETE AND RETURN TO
JOSEPH F. ROBINSON BY
12:00 NOON ON
____________, 2007.
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PROSPECTUS |
[LOGO] |
Beneficial Mutual
Bancorp, Inc. |
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This is the initial
public offering of shares of common
stock of Beneficial Mutual Bancorp, Inc. In addition to the shares we are
offering to the public in our initial public offering, Beneficial Mutual
Bancorp will be offering shares of its common stock to shareholders of FMS
Financial Corporation in connection with the merger of FMS Financial with and into
Beneficial Mutual Bancorp. FMS Financial shareholders may elect to exchange
their FMS Financial shares for either $28.00 in cash, 2.80 shares of Beneficial Mutual Bancorp
stock for each share of FMS Financial or
a combination thereof, subject to the election and proration procedures set
forth in the merger agreement. In the event that we are
unable to complete the merger we will terminate the offering. Additionally, we will contribute $500,000 in cash
and
950,000 shares to The Beneficial Foundation, a charitable foundation to be
formed in connection with the initial public offering, which represents between
1.69% and 1.30% of our outstanding common stock at the minimum and maximum of
the offering range, respectively. Beneficial Savings Bank MHC, our federally
chartered mutual holding company parent, will own at least a majority of our
outstanding common stock following the initial public offering and the merger
of FMS Financial with Beneficial Mutual Bancorp. We expect that our shares of
common stock will
be quoted on the Nasdaq Global Select Market under the symbol
BNCL.
If you are or were a depositor of
Beneficial Mutual Savings Bank, you may have priority rights to purchase shares of common stock.
If you are a participant in the Beneficial Mutual Savings Bank 401(k) Plan or the Beneficial
Insurance Services, LLC
401(k) Plan, you may direct that up to 50% of your 401(k) Plan
account balance be invested
in shares of Beneficial Mutual Bancorp common stock. You will receive a separate supplement
to this prospectus that describes your rights under your
401(k) Plan. If you are a shareholder of FMS Financial, you
may elect to receive shares of Beneficial Mutual Bancorp common stock in
exchange for your FMS Financial common stock in connection with the merger
subject to election and proration procedures set forth in the merger agreement.
A maximum of 11,883,350 shares of Beneficial Mutual Bancorp common stock will
be issued to FMS Financial shareholders. You will receive a separate proxy statement
explaining
the merger in more detail. If you fit none of the categories above, but are interested in purchasing
shares of our common stock, you may have an opportunity to purchase
shares of common stock after priority orders are filled.
We are offering up to 20,527,500 shares of
common
stock for sale on a best efforts basis, subject to certain conditions. We must
issue a minimum of 15,172,500 shares to complete the offering. If, as a result of regulatory
considerations, demand for the shares or changes in market conditions, the
independent appraiser determines our market value has increased, we may sell up
to 23,606,625 shares without
giving you further notice or the opportunity to change or cancel your order.
The offering is scheduled to terminate at 4:00 p.m., Eastern time, on [DATE1], 2007. We may extend this termination date without notice to you until [DATE2], 2007, unless the Office of Thrift Supervision approves a later date. Funds received before completion of the offering will be maintained at Beneficial Mutual Savings Bank or, at our discretion, in an escrow account at an independent insured depository institution. All subscriptions received will earn interest at our passbook savings rate, which is currently 0.75% per annum.
The minimum purchase is 25 shares. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond [DATE2], 2007. If we extend the offering beyond [DATE2], 2007, we will promptly return the funds of all subscribers who do not reconfirm their subscriptions. If we terminate the offering because we fail to sell the minimum number of shares, the merger is terminated, or for any other reason, we will promptly return your funds with interest at our passbook savings rate.
Sandler ONeill & Partners, L.P. will use its best efforts to assist us in our selling efforts, but is not required to purchase any of the common stock that is offered for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering. All shares offered for sale are offered at a price of $10.00 per share.
We
expect our current directors and executive officers, together with their
associates, to subscribe for 326,500 shares, which equals an aggregate 1.59% of the shares
offered for sale at
the maximum of the offering range.
The Office of Thrift Supervision conditionally approved our plan of stock issuance on _____________, 2007. However, such approval does not constitute a recommendation or endorsement of this offering.
This investment involves a degree of risk, including the possible loss of
principal.
Please read Risk Factors beginning on page ___.
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OFFERING SUMMARY |
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Price Per Share: $10.00 |
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Minimum |
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Maximum |
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Maximum |
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Number of shares |
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15,172,500 |
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20,527,500 |
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23,606,625 |
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Gross cash offering proceeds |
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$ |
151,725,000 |
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$ |
205,275,000 |
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$ |
236,066,250 |
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Estimated offering expenses, excluding underwriting fees |
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$ |
2,445,000 |
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$ |
2,445,000 |
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$ |
2,445,000 |
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Estimated underwriting fees |
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$ |
790,000 |
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$ |
1,095,000 |
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$ |
1,271,000 |
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Estimated net cash proceeds |
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$ |
148,490,000 |
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$ |
201,735,000 |
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$ |
232,350,250 |
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Estimated net cash proceeds per share |
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$ |
9.79 |
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$ |
9.83 |
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$ |
9.84 |
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These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, the
Office of Thrift Supervision nor any state securities regulator has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
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Sandler ONeill + Partners, L.P. |
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The date of this prospectus is ______________, 2007
[Map of applicable Pennsylvania and New Jersey counties showing office locations of Beneficial Mutual Savings Bank and separately identifying the branch offices of Farmers & Mechanics Bank appears here]
Table of Contents
This
summary highlights material information from this document and may not
contain all the information that is important to you. To understand the stock
offering and merger fully, you should read this entire document carefully. For
assistance, please call our Stock Information Center at _____________.
The Companies
Beneficial Savings Bank MHC
Beneficial Mutual Bancorp, Inc.
Beneficial Mutual Savings Bank
510 Walnut Street
Philadelphia, Pennsylvania 19106
(215) 864-6000
Beneficial
Savings Bank MHC is our federally chartered mutual holding company
parent. As a mutual holding company, Beneficial Savings Bank MHC is a non-stock company. Upon completion of the
offering and merger, Beneficial Savings Bank MHC will own at least a majority of Beneficial Mutual Bancorps common
stock. So long as Beneficial Savings Bank MHC
exists, it will own a majority of the voting stock of Beneficial Mutual Bancorp
and, through its board of directors, will be able to exercise voting control
over most matters put to a vote of stockholders. Following the offering and
merger, Beneficial Savings Bank MHC is
not expected to engage in any business activity other than owning a majority of
the common stock of Beneficial Mutual Bancorp. The officers of Beneficial Savings
Bank MHC are also the officers of
Beneficial Mutual Bancorp and Beneficial Mutual Savings Bank. The directors of Beneficial Savings
Bank MHC are the directors of Beneficial
Mutual Bancorp and Beneficial Mutual Savings Bank. Beneficial Savings Bank MHC
has no members.
Beneficial Mutual Bancorp, Inc. is a federally chartered mid-tier stock holding company that was formed in 2004 by Beneficial Mutual Savings Bank to be its holding company. This offering is made by Beneficial Mutual Bancorp. Beneficial Mutual Bancorp owns all of Beneficial Mutual Savings Banks capital stock and directs, plans and coordinates Beneficial Mutual Savings Banks business activities.
In October
2006, Beneficial Mutual Bancorp entered into an Agreement and Plan of Merger
pursuant to which Beneficial Mutual Bancorp will acquire FMS Financial
Corporation, a New Jersey corporation and sole stockholder of Farmers &
Mechanics Bank, a federal savings bank headquartered in Burlington, New Jersey
with $1.2 billion in assets as of December 31, 2006. In the future, Beneficial
Mutual Bancorp might also acquire or organize other operating subsidiaries,
including other financial institutions or financial services companies,
although it currently has no specific plans or agreements to do so. At December
31, 2006, Beneficial Mutual Bancorp had total assets of $2.3 billion, deposits
of $1.7 billion and total equity of $280.0 million on a consolidated basis.
Beneficial Mutual Savings Bank is a Pennsylvania chartered savings bank that operates from 39 full-service locations in Chester, Delaware, Montgomery, Philadelphia and Bucks Counties in Pennsylvania and one full-service location in each of Burlington and Camden Counties, New Jersey. We offer a variety of deposit and loan products to individuals and small businesses, most of which are located in our primary market, which consists of Chester, Delaware, Montgomery, Philadelphia and Bucks Counties, Pennsylvania and Burlington, Camden and Gloucester Counties, New Jersey. The acquisition of FMS Financial and its wholly owned subsidiary, Farmers & Mechanics Bank, will expand our market presence in Burlington, Camden and Mercer Counties, New Jersey.
Our website address is www.beneficialsavings.com. Information on our website should not be considered a part of this prospectus.
1
Acquisition of FMS Financial
In
connection with the offering, we will acquire FMS Financial in a merger,
whereby FMS Financial will be merged with and into Beneficial Mutual Bancorp
and FMS Financials wholly owned subsidiary, Farmers & Mechanics Bank, will
be merged with and into Beneficial Mutual Savings Bank. In connection with the
merger, FMS Financials shareholders will be given the opportunity to exchange
their shares of FMS Financial common stock for $28.00 in cash, 2.80 shares of
Beneficial Mutual Bancorp common stock for each share of FMS Financial, or a
combination thereof, subject to the election and proration procedures set forth
in the merger agreement.
Completion of the merger is expected to increase Beneficial Mutual Savings Banks deposit base and its loan portfolio, and provide Beneficial Mutual Savings Bank with greater access to customers in New Jersey, particularly in Burlington County, New Jersey. In addition, the merger, in combination with the offering, will permit Beneficial Mutual Savings Bank to utilize a significant portion of its capital, while continuing to be a well capitalized institution for regulatory purposes. The merger is also expected to reduce the pressure to leverage Beneficial Mutual Savings Banks balance sheet that typically exists when a well capitalized institution raises capital.
Immediately
following the acquisition of FMS Financial, Beneficial Mutual Bancorp will
appoint Craig W. Yates and Roy D. Yates, currently directors of FMS Financial,
to the Boards of Directors of Beneficial Mutual Bancorp and Beneficial Savings
Bank MHC and the Board of Trustees of Beneficial Mutual Savings Bank.
Impact of the Termination of the Acquisition of FMS Financial on the Offering
The merger agreement sets forth many conditions to the completion of the merger that must be met. In the event those conditions cannot be met or are not waived, or other termination events occur that result in the merger agreement being terminated and the merger is not completed, the offering will be terminated and we will promptly return your funds with interest at our passbook savings rate.
2
Our Corporate Structure
The following diagram depicts our corporate structure after the offering and merger:
3
Our Business Strategy (page ___)
Our business strategy is to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:
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expanding our franchise through acquisition opportunities, including our merger with FMS Financial, and through the opening of additional branch offices in our primary market area; |
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pursuing opportunities to increase commercial lending in our primary market area; |
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continuing to use conservative underwriting practices to maintain the high quality of our loan portfolio; |
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growing non-interest income by expanding the products and services we offer our customers, including the expansion of our insurance services; and |
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building profitable business and consumer relationships by providing superior customer service with an emphasis on growing transaction deposit accounts and deposit balances. |
Regulation and Supervision (page __)
Beneficial Savings Bank MHC and Beneficial Mutual Bancorp are subject to regulation, supervision and examination by the Office of Thrift Supervision. Beneficial Mutual Savings Bank is also subject to regulation by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation.
The Offering
Purchase Price
The purchase price is $10.00 per share. You will not pay a commission to buy any shares in the offering.
Number of Shares to be Sold
We are offering for sale between 15,172,500 and 20,527,500 shares of Beneficial Mutual Bancorp common stock in this offering. The amount of capital being raised is based on an appraisal of Beneficial Mutual Bancorp. Most of the terms of this offering are required by Office of Thrift Supervision regulations. With regulatory approval, we may increase the number of shares to be issued to 23,606,625 shares without giving you further notice or the opportunity to change or cancel your order. In considering whether to increase the offering size, the Office of Thrift Supervision will consider the level of subscriptions, the views of our independent appraiser, our financial condition and results of operations and changes in market conditions.
How We Determined the Offering Range (page ___)
We decided
to offer between 15,172,500 and 20,527,500 shares, which is our offering range,
based on an independent appraisal of our pro forma market value prepared by RP
Financial, LC, an appraisal firm experienced in appraisals of financial
institutions. RP Financial will receive fees totaling $140,000 for the
preparation and delivery of the original appraisal report, plus reimbursement
of out-of-pocket expenses and $15,000 for the preparation and delivery of each
required updated appraisal report. RP Financial estimates that as of February
23, 2007, our pro forma market value on a fully converted basis, which
includes: (1) the total number of shares that will be issued to Beneficial
Savings Bank MHC; (2) the total number of shares that will be sold in the
offering; (3) the total number of shares that will be issued to FMS Financial shareholders
in connection with the merger; and (4) the 950,000 shares that will be issued
to The Beneficial Foundation, was between $560,871,940 and $728,758,900,
with a midpoint of $644,031,030. The term fully converted means that
RP Financial assumed that 100% of our common stock had been sold to the public,
rather than the minority percentage of the total outstanding shares
that will be held publicly by individuals and entities other than Beneficial
Savings Bank MHC. The percentage of stock that will be
4
held publicly by individuals and entities other than Beneficial Savings
Bank MHC will be 47.49%, 46.20% and 45.32% if the shares in the offering are
sold at the minimum, midpoint and maximum of the offering range, respectively.
In the event we increase the number of shares we issue in the offering to
23,606,625 shares, the percentage of shares publicly outstanding will decrease
to 44.30%. The percentage of shares that will be issued publicly changes over
the offering range because the number of shares that will be issued to FMS
Financial shareholders changes as the offering range increases. For a more
detailed discussion of how many shares will be issued in connection with
the offering and the merger, see Pro Forma
DataAnalysis of Pro Forma Outstanding Shares of Beneficial Mutual Bancorp
Common Stock.
In
preparing its appraisal, RP Financial considered the information in this
prospectus, including our consolidated financial statements, as well as the
impact of the merger with FMS Financial and the impact of the contribution of
shares of Beneficial Mutual Bancorp and cash to The Beneficial Foundation. RP
Financial also considered the following factors, among others:
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our historical, present and projected operating results and financial condition and the economic and demographic characteristics of our market area; |
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a comparative evaluation of the operating and financial statistics of Beneficial Mutual Savings Bank with those of other similarly-situated, publicly-traded savings associations and savings association holding companies; |
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the effect of the capital raised in this offering on our net worth and earnings potential; and |
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the trading market for securities of comparable institutions and general conditions in the market for such securities. |
Our
Board of Directors determined that the common stock should be sold at $10.00
per share and that a maximum of 36,439,975 shares of our common
stock should be issued through the exchange of Beneficial Mutual Bancorp shares
for shares of FMS Financial in the merger, the sale of common stock to
the public through the offering and the issuance of shares to The Beneficial
Foundation.
Two measures that some investors use to analyze whether a stock might be a good investment are the ratio of the offering price to the issuers tangible book value and the ratio of the offering price to the issuers annual core earnings. RP Financial considered these ratios in preparing its appraisal, among other factors. Tangible book value is the same as total equity, less intangibles, and represents the difference between the issuers tangible assets and liabilities. Core earnings, for purposes of the appraisal, was defined as net earnings after taxes, excluding the after-tax portion of income from nonrecurring items. RP Financials appraisal also incorporates an analysis of a peer group of publicly traded fully converted savings associations and fully converted savings association holding companies that RP Financial considered to be comparable to us.
The
following table presents a summary of selected pricing ratios for the peer
group companies, which were all first step mutual holding companies, and for
us utilized by RP Financial in its appraisal. These ratios are based on
earnings for the 12 months ended December 31, 2006 and book value as of
December 31, 2006 and are shown on a fully-converted equivalent basis.
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Price To Earnings |
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Price To Book |
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Price to Tangible to |
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Beneficial Mutual Bancorp (pro forma): |
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Minimum |
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32.04x |
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74.25 |
% |
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91.37 |
% |
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Maximum |
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36.96x |
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80.98 |
% |
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96.08 |
% |
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Maximum, as adjusted |
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39.26x |
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83.88 |
% |
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98.02 |
% |
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Peer group companies as of February 23, 2007: |
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Average |
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32.61x |
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103.72 |
% |
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106.37 |
% |
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Median |
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32.94x |
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102.10 |
% |
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103.60 |
% |
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5
Compared to the average pricing ratios of the peer group at the maximum of the offering range, our stock would be priced at a premium of 13.3% to the peer group on a price-to-earnings basis, a discount of 21.9% to the peer group on a price-to-book basis and a discount of 9.7% to the peer group on a price-to-tangible book basis. This means that, at the maximum of the offering range, a share of our common stock would be more expensive than the peer group based on an earnings per share basis and less expensive than the peer group based on a book value per share basis and a tangible book value per share basis.
The independent appraisal does not indicate market value. You should not assume or expect that the valuation described above means that our common stock will trade at or above the $10.00 purchase price after the public offering.
Mutual Holding Company Data
The following table presents a summary of selected pricing ratios for publicly traded mutual holding companies and the pricing ratios for us, without the ratios being adjusted to the hypothetical case of being fully converted.
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|
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|
|
|
Non-Fully Converted |
|
Non-Fully Converted |
|
Non-Fully Converted |
|
|||||||
|
||||||||||||||
Beneficial Mutual Bancorp (pro forma): |
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|
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|
|
|
|
|
|
|
|
Minimum |
|
|
40.00x |
|
|
|
111.98 |
% |
|
|
|
155.76 |
% |
|
Maximum |
|
|
50.00x |
|
|
|
131.41 |
% |
|
|
|
176.06 |
% |
|
Maximum, as adjusted |
|
|
55.56x |
|
|
|
141.04 |
% |
|
|
|
185.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peer group companies as of February 23, 2007 (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
32.04x |
|
|
|
237.58 |
% |
|
|
|
253.53 |
% |
|
Median |
|
|
32.04x |
|
|
|
225.91 |
% |
|
|
|
258.09 |
% |
|
|
|
|
|
|
(1) |
The information for publicly traded mutual holding companies may not be meaningful for investors because it presents average and median information for mutual holding companies that issued a different percentage of their stock in their offerings than the 47.49%, 46.20%, 45.32% and 44.30% that we are issuing to the public if we sell our shares at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range, respectively. In addition, the effect of stock repurchases also affects the ratios to a greater or lesser degree depending upon repurchase activity. |
Possible Change in Offering Range (page ____)
RP
Financial will update its appraisal before we complete the offering. If, as a
result of regulatory considerations, demand for the shares or changes in market
conditions, RP Financial determines that our pro forma market value has
increased, we may sell up to 23,606,625 shares without further notice to you.
If our pro forma market value including shares issued to FMS Financial and
contributed to The Beneficial Foundation at that time is either below $560.9
million or above $822.6 million, then, after consulting with the Office of
Thrift Supervision, we may: terminate the stock offering and promptly return
all funds; promptly return all funds, set a new offering range and give all
subscribers the opportunity to modify or rescind their purchase orders for
shares of Beneficial Mutual Bancorps common stock; or take such other actions
as may be permitted by the Office of Thrift Supervision and the Securities and
Exchange Commission.
Possible Termination of the Offering
We must sell a minimum of 15,172,500 shares to complete the offering. If we terminate the offering because the merger is terminated or because we fail to sell the minimum number of shares or for any other reason, we will promptly return your funds with interest at our passbook savings rate.
6
After-Market Performance of First-Step Mutual Holding Company Offerings
The following table provides information regarding the after-market performance of the first-step mutual holding company offerings completed from January 1, 2005 through February 23, 2007. First-step mutual holding company offerings are initial public offerings by companies in the mutual holding company form of organization.
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|
|
|
|
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|
|
Appreciation From Initial |
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||||||||||
|
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|
|
|
|||||||||||
Issuer (Market/Symbol) |
|
Date of IPO |
|
After |
|
After |
|
After |
|
Through |
|
|||||
Oritani Financial Corp. (Nasdaq: ORIT) |
|
|
1/24/2007 |
|
|
59.7 |
|
|
53.5 |
|
|
54.8 |
|
|
55.0 |
|
Polonia Bancorp (OTCBB: PBCP) |
|
|
1/16/2007 |
|
|
1.0 |
|
|
0.1 |
|
|
1.0 |
|
|
2.0 |
|
MSB Financial Corp. (Nasdaq: NSBF) |
|
|
1/5/2007 |
|
|
23.0 |
|
|
21.0 |
|
|
19.3 |
|
|
17.5 |
|
Mainstreet Financial Corp. (OTCBB: MSFN) |
|
|
12/27/2006 |
|
|
10.0 |
|
|
10.0 |
|
|
(2.5 |
) |
|
(1.5 |
) |
Ben Franklin Financial, Inc. (OTCBB: BFFI) |
|
|
10/19/2006 |
|
|
7.0 |
|
|
5.7 |
|
|
6.5 |
|
|
10.0 |
|
ViewPoint Financial Group (Nasdaq: VPFG) |
|
|
10/03/2006 |
|
|
49.9 |
|
|
50.7 |
|
|
54.0 |
|
|
72.3 |
|
Fox Chase Bancorp, Inc. (Nasdaq: FXCB) |
|
|
10/02/2006 |
|
|
29.5 |
|
|
28.1 |
|
|
29.4 |
|
|
42.6 |
|
Roma Financial Corporation (Nasdaq: ROMA) |
|
|
07/12/2006 |
|
|
41.0 |
|
|
42.4 |
|
|
44.5 |
|
|
53.5 |
|
Seneca-Cayuga Bancorp, Inc. (OTCBB: SCAY) |
|
|
07/12/2006 |
|
|
0.0 |
|
|
(4.0 |
) |
|
(7.0 |
) |
|
(6.5 |
) |
Northeast Community Bancorp, Inc. (Nasdaq: NECB) |
|
|
07/06/2006 |
|
|
10.0 |
|
|
12.8 |
|
|
11.5 |
|
|
23.9 |
|
Mutual Federal Bancorp, Inc. (OTCBB: MFDB) |
|
|
04/06/2006 |
|
|
11.3 |
|
|
10.0 |
|
|
14.0 |
|
|
44.1 |
|
Lake Shore Bancorp, Inc. (Nasdaq: LSBK) |
|
|
04/04/2006 |
|
|
7.0 |
|
|
4.8 |
|
|
2.8 |
|
|
24.5 |
|
United Community Bancorp (Nasdaq: UCBA) |
|
|
03/31/2006 |
|
|
8.0 |
|
|
7.0 |
|
|
5.5 |
|
|
21.5 |
|
Magyar Bancorp, Inc. (Nasdaq: MGYR) |
|
|
01/24/2006 |
|
|
6.5 |
|
|
5.5 |
|
|
6.0 |
|
|
47.5 |
|
Greenville Federal Financial Corporation (OTCBB: GVFF) |
|
|
01/10/2006 |
|
|
2.5 |
|
|
0.0 |
|
|
0.0 |
|
|
4.5 |
|
Equitable Financial Corporation (OTCBB: EQFC) |
|
|
11/09/2005 |
|
|
0.0 |
|
|
0.0 |
|
|
(6.0 |
) |
|
5.0 |
|
Investors Bancorp, Inc. (Nasdaq: ISBC) |
|
|
10/12/2005 |
|
|
0.2 |
|
|
1.0 |
|
|
5.2 |
|
|
56.7 |
|
Wauwatosa Holdings, Inc. (Nasdaq: WAUW) |
|
|
10/05/2005 |
|
|
12.5 |
|
|
7.3 |
|
|
8.0 |
|
|
77.9 |
|
Ottawa Savings Bancorp, Inc. (OTCBB: OTTW) |
|
|
07/15/2005 |
|
|
10.0 |
|
|
2.5 |
|
|
5.0 |
|
|
36.0 |
|
United Financial Bancorp, Inc. (Nasdaq: UBNK) |
|
|
07/13/2005 |
|
|
17.5 |
|
|
16.0 |
|
|
17.7 |
|
|
48.4 |
|
Heritage Financial Group (Nasdaq: HBOS) |
|
|
06/30/2005 |
|
|
7.5 |
|
|
7.5 |
|
|
9.0 |
|
|
65.8 |
|
Colonial Bankshares, Inc. (Nasdaq: COBK) |
|
|
06/30/2005 |
|
|
6.0 |
|
|
9.9 |
|
|
7.5 |
|
|
37.8 |
|
North Penn Bancorp, Inc. (OTCBB: NPEN) |
|
|
06/02/2005 |
|
|
10.0 |
|
|
2.5 |
|
|
1.5 |
|
|
11.5 |
|
Rockville Financial, Inc. (Nasdaq: RCKB) |
|
|
05/28/2005 |
|
|
4.8 |
|
|
11.4 |
|
|
21.1 |
|
|
53.2 |
|
FedFirst Financial Corporation (Nasdaq: FFCO) |
|
|
04/07/2005 |
|
|
(6.6 |
) |
|
(9.3 |
) |
|
(14.9 |
) |
|
(5.0 |
) |
Brooklyn Federal Bancorp, Inc. (Nasdaq: BFSB) |
|
|
04/06/2005 |
|
|
(0.5 |
) |
|
(1.0 |
) |
|
(4.5 |
) |
|
44.0 |
|
Prudential Bancorp, Inc. of PA (Nasdaq: PBIP) |
|
|
03/30/2005 |
|
|
(1.5 |
) |
|
(6.5 |
) |
|
(12.0 |
) |
|
37.0 |
|
Kentucky First Federal Bancorp (Nasdaq: KFFB) |
|
|
03/03/2005 |
|
|
7.9 |
|
|
12.0 |
|
|
12.1 |
|
|
2.5 |
|
Kearny Financial Corp. (Nasdaq: KRNY) |
|
|
02/24/2005 |
|
|
13.9 |
|
|
15.0 |
|
|
11.3 |
|
|
47.5 |
|
Home Federal Bancorp, Inc. of LA (OTCBB: HFBL) |
|
|
01/21/2005 |
|
|
(1.0 |
) |
|
0.5 |
|
|
(0.8 |
) |
|
3.5 |
|
BV Financial, Inc. (OTCBB: BVFL) |
|
|
01/14/2005 |
|
|
(6.5 |
) |
|
(5.0 |
) |
|
(1.5 |
) |
|
(7.5 |
) |
Georgetown Bancorp, Inc. (OTCBB: GTWN) |
|
|
01/06/2005 |
|
|
2.0 |
|
|
(0.5 |
) |
|
0.1 |
|
|
(11.9 |
) |
All Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
10.7 |
|
|
9.7 |
|
|
9.3 |
|
|
28.5 |
|
Median |
|
|
|
|
|
7.3 |
|
|
6.4 |
|
|
5.8 |
|
|
30.3 |
|
Nasdaq Traded Companies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
14.8 |
|
|
14.5 |
|
|
14.4 |
|
|
41.2 |
|
Median |
|
|
|
|
|
8.0 |
|
|
10.7 |
|
|
10.2 |
|
|
45.8 |
|
OTCBB Traded Companies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
3.9 |
|
|
1.8 |
|
|
0.9 |
|
|
7.4 |
|
Median |
|
|
|
|
|
2.3 |
|
|
0.3 |
|
|
0.1 |
|
|
4.0 |
|
This table is not intended to be indicative of how our stock may perform. Furthermore, this table presents only short-term price performance with respect to several companies that only recently completed their initial public offerings and may not be indicative of the longer-term stock price performance of these companies. Stock price appreciation is affected by many factors, including, but not limited to: general market and economic conditions; the interest rate environment; the amount of proceeds a company raises in its offering; and numerous factors relating to the specific company, including the experience and ability of management, historical and
7
anticipated operating results, the nature and quality of the companys assets, and the companys market area. The companies listed in the table above may not be similar to Beneficial Mutual Bancorp, the pricing ratios for their stock offerings were in some cases different from the pricing ratios for Beneficial Mutual Bancorps common stock and the market conditions in which these offerings were completed were, in some cases, different from current market conditions. Any or all of these differences may cause our stock to perform differently from these other offerings. Before you make an investment decision, we urge you to carefully read this prospectus, including, but not limited to, the Risk Factors section beginning on page ___.
You should be aware that, in certain market conditions, stock prices of thrift initial public offerings have decreased. For example, as the above table illustrates, the stock of several companies traded at or below their initial offering price at various times through February 23, 2007. We can give you no assurance that our stock will not trade below the $10.00 purchase price or that our stock will perform similarly to other recent mutual to stock conversions.
Conditions to Completing the Offering
We are conducting the offering under the terms of our plan of stock issuance. We cannot complete the offering unless we sell at least the minimum number of shares offered and we receive the final approval of the Office of Thrift Supervision to complete the offering, and we consummate the merger.
Reasons for the Offering (page ___)
Our primary reasons for this offering are to:
|
|
|
|
|
issue stock and raise capital to provide the stock and funds necessary to acquire FMS Financial and support future expansion through branching and possibly through acquisition; |
|
|
|
|
|
enhance profitability and earnings through investing and leveraging the proceeds, primarily through the acquisition of FMS Financial and also through traditional funding and lending activities; and |
|
|
|
|
|
implement equity compensation plans to retain and attract qualified directors, officers and staff and to enhance our current compensation programs. |
We Will Form The Beneficial Foundation
To continue our long-standing commitment to our local communities, we intend to establish a charitable foundation, named The Beneficial Foundation, as part of the offering. The charitable foundation will be funded with up to 950,000 shares of Beneficial Mutual Bancorp common stock and $500,000 in cash. The common stock
8
contributed to the charitable foundation is in addition to the shares being offered for sale and exchanged in the merger and will not be included in determining whether the minimum number of shares of common stock has been sold to complete the offering. Our contribution to the charitable foundation would reduce net earnings by up to $6.5 million, after tax, in the year in which the charitable foundation is established, which is expected to be fiscal 2007. The Beneficial Foundation will make charitable grants and donations and support projects located within our market areas.
The amount of common stock that we would offer for sale would be greater if the offering were to be completed without the formation of The Beneficial Foundation. For a further discussion of the financial impact of the charitable foundation, including its effect on those who purchase shares in the offering and on the shares issued to stockholders of Beneficial Mutual Bancorp, see Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation.
We intend to adopt the benefit plans and employment agreements described below. Beneficial Mutual Bancorp will recognize compensation expense related to the employee stock ownership plan and the equity incentive plan. The actual expense will depend on the market value of Beneficial Mutual Bancorps common stock and, with respect to the employee stock ownership plan, will fluctuate in response to changes in the trading price of Beneficial Mutual Bancorps common stock, increasing if the trading price increases. As reflected under Pro Forma Data, based upon assumptions set forth therein, the annual filer-tax expense related to the employee stock ownership plan and the equity incentive plan would be $928,000 and $1.9 million, respectively, assuming shares are sold in the offering at the maximum of the offering range. See Pro Forma Data for a detailed analysis of the effects of each of these plans.
Employee Stock Ownership Plan. We intend to establish an employee stock ownership plan that will purchase an amount of shares equal to 3.92% of the shares sold in the offering, as well as shares issued to Beneficial Savings Bank MHC, shares issued in connection with the merger and contributed to The Beneficial Foundation. The plan will use the proceeds from a 20-year loan from Beneficial Mutual Bancorp to purchase these shares. As the loan is repaid and shares are released from collateral, the shares will be allocated to the accounts of employee participants. Allocations will be based on a participants individual compensation as a percentage of total plan compensation. Non-employee directors are not eligible to participate in the employee stock ownership plan. We will incur additional compensation expense as a result of this plan. See Pro Forma Data for an illustration of the effects of this plan.
Equity Incentive Plan. We intend to implement an equity incentive plan no earlier than six months after completion of the offering. Under current Office of Thrift Supervision regulations, this plan must be approved by a majority of the total votes eligible to be cast by our stockholders, other than Beneficial Savings Bank MHC. Under this plan, we may grant stock options in an amount up to 4.9% of the number of shares sold in the offering, as well as shares issued to Beneficial Savings Bank MHC, shares issued in connection with the merger and contributed to The Beneficial Foundation and restricted stock awards in an amount equal to 1.96% of the shares issued in the offering, as well as shares issued to Beneficial Savings Bank MHC, shares issued in connection with the merger and shares contributed to The Beneficial Foundation. Shares of restricted stock will be awarded at no cost to the recipient. Stock options will be granted at an exercise price equal to 100% of the fair market value of our common stock on the option grant date. We will incur additional compensation expense as a result of this plan. See Pro Forma Datafor an illustration of the effects of this plan. The equity incentive plan will comply with all applicable Office of Thrift Supervision regulations.
The Office of Thrift Supervision has proposed amendments to its existing regulations regarding stock-based benefit plans that are intended to clarify and simplify such regulations. Specifically, the amendments would clarify that we may grant options and award shares of common stock under one or more equity incentive plans in excess of 4.90% and 1.96%, respectively, of our total outstanding shares if the equity incentive plans are adopted more than one year following the stock offering, provided shares used to fund the plans in excess of these amounts are obtained through stock repurchases. The proposed amendments would also require that if the equity incentive plans are adopted less than one year following the stock offering, the equity incentive plans must be approved by a majority of the votes of Beneficial Mutual Bancorp stockholders cast at an annual or special meeting of stockholders, excluding votes eligible to be cast by Beneficial Savings Bank MHC. Under the proposed
9
amendments, there would be no separate vote required of minority shareholders if the equity incentive plans are adopted more than one year following the stock offering. The proposed amendments would further clarify that the current regulatory restrictions set forth above regarding the amount of individual and group awards, and restrictions on accelerated vesting of awards, would not apply if the equity incentive plans are adopted more than one year following the stock offering.
In the event the Office of Thrift Supervision adopts these regulations as proposed, or otherwise changes its existing regulations or policies, we may implement equity incentive plans that exceed the current limits applicable to the overall size of such plans and individual awards thereunder, and otherwise grant awards with terms that are different than those required by current Office of Thrift Supervision regulations and policy. Moreover, to the extent that any new regulations or policies contain a more flexible voting standard for stockholder approval than that currently required, we intend to use the more flexible voting standard, which could result in the vote of Beneficial Savings Bank MHC controlling the outcome of a stockholder vote on our equity incentive plans.
The following tables are based upon current Office of Thrift Supervision regulations and policy. Proposed Office of Thrift Supervision regulations would clarify that the amount of stock options and stock awards available for grant under the equity incentive plan could be greater than the amounts reflected in the tables below, provided shares used to fund the equity incentive plan are excess of the amounts reflected below are obtained through stock purchases.
The following table presents the total value of all shares to be available for restricted stock awards under the equity incentive plan, based on a range of market prices from $8.00 per share to $14.00 per share. Ultimately, the value of the grants will depend on the actual trading price of our common stock, which depends on numerous factors.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
|||||||||||||||||||||
|
|
|||||||||||||||||||||||
Share Price |
|
1,099,309 |
|
1,262,301 |
|
1,428,367 |
|
1,612,386 |
|
|||||||||||||||
|
|
|
(In thousands) |
|
||||||||||||||||||||
|
$ |
8.00 |
|
|
|
$ |
8,794 |
|
|
|
$ |
10,098 |
|
|
|
$ |
11,427 |
|
|
|
$ |
12,899 |
|
|
|
|
10.00 |
|
|
|
|
10,993 |
|
|
|
|
12,623 |
|
|
|
|
14,284 |
|
|
|
|
16,124 |
|
|
|
|
12.00 |
|
|
|
|
13,192 |
|
|
|
|
15,148 |
|
|
|
|
17,140 |
|
|
|
|
19,349 |
|
|
|
|
14.00 |
|
|
|
|
15,390 |
|
|
|
|
17,672 |
|
|
|
|
19,997 |
|
|
|
|
22,573 |
|
|
The following table presents the total value of all stock options available for grant under the equity incentive plan, based on a range of market prices from $8.00 per share to $14.00 per share. For purposes of this table, the value of the stock options was determined using the Black-Scholes option-pricing formula. See Pro Forma Data. Ultimately, financial gains can be realized on a stock option only if the market price of the common stock increases above the price at which the option is granted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|||||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||||
|
Exercise |
|
|
Option Value |
|
2,748,273 |
|
3,155,752 |
|
|
3,570,919 |
|
|
4,030,965 |
|
||||||||||||||
|
|
|
|
|
|
(In thousands) |
|
||||||||||||||||||||||
|
$ |
8.00 |
|
|
|
$ |
3.05 |
|
|
|
$ |
8,382 |
|
|
|
$ |
9,625 |
|
|
|
$ |
10,891 |
|
|
|
$ |
12,294 |
|
|
|
|
10.00 |
|
|
|
|
3.81 |
|
|
|
|
10,471 |
|
|
|
|
12,023 |
|
|
|
|
13,605 |
|
|
|
|
15,358 |
|
|
|
|
12.00 |
|
|
|
|
4.57 |
|
|
|
|
12,560 |
|
|
|
|
14,422 |
|
|
|
|
16,319 |
|
|
|
|
18,422 |
|
|
|
|
14.00 |
|
|
|
|
5.34 |
|
|
|
|
14,676 |
|
|
|
|
16,852 |
|
|
|
|
19,069 |
|
|
|
|
21,525 |
|
|
The following table summarizes, at the maximum of the offering range, the total number and value of the shares of common stock that the employee stock ownership plan expects to acquire and the total value of all restricted stock awards and stock options that are expected to be available under the equity incentive plan. At the
10
maximum of the offering range, we will sell 20,527,500 shares and have 72,875,890 shares outstanding. The number of shares reflected for the benefit plans in the table below assumes that Beneficial Mutual Savings Banks tangible capital will be 10% or more following the completion of the offering and the application of the net proceeds as described under Use of Proceeds.
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Number of Shares to be Granted or Purchased |
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(Dollars in thousands) |
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At |
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As a % of |
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As a % of |
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Total Estimated |
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(In thousands) |
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Employee stock ownership plan (3) |
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2,856,735 |
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13.92 |
% |
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3.92 |
% |
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$ |
28,567 |
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Restricted stock awards (3) |
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1,428,367 |
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6.96 |
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1.96 |
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14,284 |
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Stock options (4) |
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3,570,919 |
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17.40 |
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4.90 |
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13,605 |
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Total |
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7,856,021 |
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38.27 |
% |
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10.78 |
% |
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$ |
56,456 |
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(1) |
Reflects the amount of shares in the respective plans as a percentage of total sold in the offering. |
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(2) |
Reflects the amount of shares in the respective plans as a percentage of total issued and outstanding shares immediately subsequent to the offering and merger, including shares sold in the offering and issued in the merger, issued to Beneficial Savings Bank MHC and contributed to The Beneficial Foundation. |
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(3) |
Assumes the value of Beneficial Mutual Bancorp common stock is $10.00 per share for purposes of determining the total estimated value of the grants. |
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(4) |
Assumes the value of a stock option is $3.81, which was determined using the Black-Scholes option-pricing formula assuming a share price of $10.00 as of the date of grant. See Pro Forma Data. |
The Offering Will Not Be Taxable to Persons Receiving Subscription Rights (page ___)
As a general matter, the offering will not be a taxable transaction for purposes of federal or state income taxes to persons who receive or exercise subscription rights. We have received an opinion from our counsel, Muldoon Murphy & Aguggia LLP that, for federal and state income tax purposes:
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it is more likely than not that the depositors of Beneficial Mutual Savings Bank will not realize any income upon the issuance or exercise of the subscription rights; |
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it is more likely than not that the tax basis to the purchasers in the offering will be the amount paid for our common stock, and that the holding period for shares of common stock will begin on the date of completion of the offering; and |
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the holding period for shares of common stock purchased in the direct community offering or syndicated community offering will begin on the day after the date of the purchase. |
Persons Who Can Order Stock in the Offering (page ____)
We have granted rights to subscribe for shares of Beneficial Mutual Bancorp common stock in a subscription offering to the following persons in the following order of priority:
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1. |
Persons with $50 or more on deposit at Beneficial Mutual Savings Bank as of November 30, 2005. |
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2. |
Our employee stock ownership plan, which provides retirement benefits to our employees. |
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3. |
Persons with $50 or more on deposit at Beneficial Mutual Savings Bank as of [March 31, 2007]. |
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4. |
Beneficial Mutual Savings Banks depositors as of [April 30, 2007], who were not able to subscribe for shares under categories 1 and 3. |
If we receive subscriptions for more shares than are to be sold in this offering, we may be unable to fill or may only partially fill your order. Shares will be allocated in order of the priorities described above under a formula outlined in the plan of stock issuance. Generally, shares first will be allocated so as to permit each eligible subscriber, if possible, to purchase a number of shares sufficient to make the subscribers total allocation equal to 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining eligible subscribers whose subscriptions remain unfilled in proportion to the amounts their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible subscribers whose subscriptions remain unfilled. If we increase the number of shares to be sold in the offering above 20,527,500, Beneficial Mutual Savings Banks employee stock ownership plan will have the first priority right to purchase any shares exceeding that amount to the extent that its subscription has not previously been filled. Any shares remaining will be allocated in the order of priorities described above. See The Stock OfferingSubscription Offering and Subscription Rights for a description of the allocation procedure.
We may offer shares not sold in the subscription offering to the general public in a direct community offering that can begin concurrently with, during or immediately following the subscription offering. Orders received in the direct community offering will be subordinate to subscription offering orders. Natural persons who are residents of Bucks, Chester, Philadelphia, Montgomery and Delaware Counties, Pennsylvania and Burlington, Camden and Gloucester Counties, New Jersey will have first preference to purchase shares in the direct community offering. Shares of common stock not purchased in the subscription offering or the direct community offering may be offered for sale through a syndicated community offering managed by Sandler ONeill & Partners, L.P. We have the right to accept or reject, in our sole discretion, orders we receive in the direct community offering and syndicated community offering.
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Subscription Rights are Not Transferable
You are not allowed to transfer your subscription rights and we will act to ensure that you do not do so. You will be required to certify that you are purchasing shares solely for your own account and that you have no agreement or understanding with another person to sell or transfer subscription rights or the shares that you purchase. We will not accept any stock orders that we believe involve the transfer of subscription rights. Eligible depositors who enter into agreements to allow ineligible investors to participate in the subscription offering may be violating federal and state law and may be subject to civil enforcement actions or criminal prosecution. With the exception of IRA and Keogh account stock purchases, shares purchased in the subscription offering must be registered in the names of all depositors on the qualifying account(s). Deleting names of depositors or adding non-depositors or otherwise altering the form of beneficial ownership of a qualifying account will result on the loss of your subscription rights.
How to Purchase Common Stock (page ____)
In the subscription offering and the community offering, you may pay for your shares by:
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1. |
personal check, bank check or money order made payable directly to Beneficial Mutual Bancorp (third-party checks of any type will not be accepted); or |
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2. |
authorizing us to withdraw money from your Beneficial Mutual Savings Bank deposit account(s) other than checking accounts or individual retirement accounts (IRAs). To use funds from accounts with check writing privileges, please submit a check. To use IRA funds, please see the next section. |
Beneficial Mutual Savings Bank is not permitted to lend funds (including funds drawn on a Beneficial Mutual Savings Bank line of credit) to anyone for the purpose of purchasing shares of common stock in the offering. Also, payment may not be made by wire transfer.
Checks and money orders will be immediately cashed, so the funds must be available within the account when we receive your stock order form. Do not overdraw your account. The funds will be deposited by us into a Beneficial Mutual Savings Bank segregated escrow account. We will pay interest at Beneficial Mutual Savings Banks passbook savings rate from the date those funds are received until completion or termination of the offering. Withdrawals from certificates of deposit at Beneficial Mutual Savings Bank for the purpose of purchasing common stock in the offering may be made without incurring an early withdrawal penalty. All funds authorized for withdrawal from deposit accounts with Beneficial Mutual Savings Bank must be available within the deposit accounts at the time the stock order form is received. A hold will be placed on the amount of funds designated on your stock order form. Those funds will be unavailable to you during the offering; however, the funds will not be withdrawn from the accounts until the offering is completed and will continue to earn interest at the applicable contractual deposit account rate until the completion of the offering.
You may submit your order form in one of three ways: by mail, using the reply envelope provided; by overnight courier to the address indicated on the order form; or by taking the stock order form and payment to our Stock Information Center, located at 510 Walnut Street, Philadelphia, Pennsylvania 19106. Stock order forms may not be hand-delivered to our branch offices. Our branch offices will not have stock offering materials on hand. Once submitted, your order is irrevocable. We are not required to accept copies or facsimiles of order forms.
Using IRA Funds to Purchase Shares in the Offering (page ___)
You may be able to subscribe for shares of common stock using funds in your individual retirement account(s), or IRA, provided that such IRAs are not maintained at Beneficial Mutual Savings Bank. If you wish to use some or all of the funds in your Beneficial Mutual Savings Bank IRA, the applicable funds must first be transferred to a self-directed account maintained by an unaffiliated institutional trustee or custodian, such as a brokerage firm. If you do not have such an account, you will need to establish one and transfer your funds before placing your stock order. Our Stock Information Center can give you guidance in this regard. Because processing
13
this type of order takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the [DATE1], 2007 offering deadline. Whether you may use retirement funds for the purchase of shares in the stock offering will depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.
Purchase Limitations (page ____)
Our plan of stock issuance establishes limitations on the purchase of stock in the public offering. These limitations include the following:
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The minimum purchase is 25 shares. |
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No individual (or individuals exercising subscription rights through a single deposit account held jointly) may purchase more than $250,000 of common stock (which equals 25,000 shares) in the public offering. |
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No individual, together with any associates, and no group of persons acting in concert may purchase more than $500,000 of common stock (which equals 50,000 shares) in the public offering. For purposes of applying this limitation, your associates include: |
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your spouse, or any relative of your spouse, who either lives in your home or who is a director or officer of Beneficial Mutual Savings Bank; |
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companies or other entities in which you are a director, officer or partner or have a 10% or greater beneficial ownership interest; and |
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trusts or other estates in which you have a substantial beneficial interest or as to which you serve as a trustee or in another fiduciary capacity. |
Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying deposit accounts registered to the same address will be subject to this overall purchase limitation. We have the right to determine, in our sole discretion, whether prospective purchasers are associates or acting in concert.
Subject to the Office of Thrift Supervisions approval, we may increase or decrease the purchase limitations at any time. Our tax-qualified employee benefit plans, including our employee stock ownership plan, are authorized to purchase up to 3.92% of the shares sold in the offering, as well as shares issued to Beneficial Savings Bank MHC, shares issued in the merger and shares contributed to The Beneficial Foundation without regard to these purchase limitations.
Deadline for Ordering Stock (page ____)
The subscription offering will end at 4:00 p.m., Eastern time, on [DATE1], 2007. If you wish to purchase shares, a properly completed and signed original stock order form, together with full payment for the shares of common stock, must be received by us (not postmarked) no later than this time. We expect that the direct community offering will terminate at the same time, although it may continue for up to 45 days after the end of the subscription offering, or longer if regulators approve a later date. No single extension may be for more than 90 days. If we extend the offering beyond [DATE2], 2007, all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest at our passbook rate or cancel your deposit account withdrawal authorization. If we intend to sell fewer than 15,172,500 shares or more than 23,606,625 shares (in each case after taking into account shares to be exchanged in the merger), we will promptly return all funds, set a new offering range and all subscribers will be notified and given the opportunity to confirm, change or cancel their orders.
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How We Will Use the Proceeds of this Offering (page ____)
The following table summarizes how we will use the proceeds of this offering, based on the sale of shares at the minimum and maximum of the offering range.
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(In thousands) |
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Minimum |
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Maximum |
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Gross offering proceeds |
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$ |
151,725 |
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$ |
205,275 |
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Less: offering expenses |
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(3,235 |
) |
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(3,540 |
) |
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Net offering proceeds |
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148,490 |
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201,735 |
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Less: |
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Proceeds contributed to Beneficial Mutual Savings Bank |
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(29,073 |
) |
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(60,889 |
) |
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Proceeds used for loan to employee stock ownership plan |
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(21,986 |
) |
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(28,567 |
) |
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Proceeds contributed to The Beneficial Foundation |
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(500 |
) |
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(500 |
) |
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Cash needed to pay cash portion of merger consideration |
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(90,344 |
) |
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(79,957 |
) |
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Proceeds remaining for Beneficial Mutual Bancorp |
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$ |
6,587 |
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$ |
31,822 |
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Initially, Beneficial Mutual Bancorp intends to invest the proceeds not used to acquire FMS Financial in short-term liquid investments. In the future, Beneficial Mutual Bancorp may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Beneficial Mutual Savings Bank intends to use the proceeds it receives for investment in short-term liquid investments. In the future, Beneficial Mutual Savings Bank may use the portion of the proceeds that it receives to fund new loans, open new branches, invest in securities and expand its business activities. Beneficial Mutual Bancorp and Beneficial Mutual Savings Bank may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans to do so at this time.
Purchases and Stock Elections by Directors and Executive Officers (page ___)
Market for Beneficial Mutual Bancorps Common Stock (page ___)
We intend to have the common stock of Beneficial Mutual Bancorp quoted on the Nasdaq Global Select Market. Sandler ONeill currently intends to become a market maker in the common stock, but it is under no obligation to do so. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for our common stock will develop or, if developed, will be maintained. After shares of the common stock begin trading, you may contact a stock broker to buy or sell shares. There can be no assurance that persons purchasing the common stock in the offering will be able to sell their shares at or above the $10.00 offering price, and brokerage firms typically charge commissions related to the purchase or sale of securities.
15
Beneficial Mutual Bancorps Dividend Policy (page ___)
Possible Conversion of Beneficial Savings Bank MHC to Stock Form (page __)
In the future, we may undertake a transaction commonly known as a second-step conversion in which we would sell to the public the shares held by Beneficial Savings Bank MHC. In a second-step conversion, members of Beneficial Savings Bank MHC would have subscription rights to purchase common stock of Beneficial Mutual Bancorp or its successor, and the public stockholders of Beneficial Mutual Bancorp would be entitled to exchange their shares of common stock for an equal percentage of shares of the new holding company. This percentage may be adjusted to reflect any assets owned by Beneficial Savings Bank MHC. Beneficial Mutual Bancorps public stockholders, therefore, would own approximately the same percentage of the resulting entity as they owned before the second-step conversion.
Upon the completion of the merger, each share of FMS Financial common stock will automatically be converted into the right to receive $28.00 in cash, 2.80 shares of Beneficial Mutual Bancorp stock for each share of FMS Financial, or a combination of cash and stock, subject to the election and proration procedures set forth in the merger agreement. Pursuant to the merger agreement, 57.5% of FMS Financial common stock may be exchanged for Beneficial Mutual Bancorp stock; provided that, to the extent necessary to maintain the aggregate pro forma tangible book value of the shares of Beneficial Mutual Bancorp stock to be issued in the merger at $65.6 million, up to 65% of FMS Financial common stock will be exchanged for Beneficial Mutual Bancorp common stock. However, under no circumstances will FMS Financial shareholders receive more than 49% of the Beneficial Mutual Bancorp shares issued in the offering to persons other than Beneficial Savings Bank MHC. It is expected that 10,512,194, 10,953,103, 11,550,890 and 11,883,350 shares of Beneficial Mutual Bancorp will be exchanged for FMS Financial shares in connection with the merger assuming shares are sold at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range, respectively.
Options to purchase FMS Financial common stock will be cancelled in the merger and option holders will receive a cash payment equal to the difference between $28.00 and the exercise price of each stock option multiplied by the number of options held.
Conditions to Completing the Merger (page ___)
We cannot complete the merger unless we receive the approval of the Office of Thrift Supervision, Federal Deposit Insurance Corporation and Pennsylvania Department of Banking. We have made the necessary filings with
16
the Office of Thrift Supervision, Federal Deposit Insurance Corporation and Pennsylvania Department of Banking and [received the requisite approvals.]
In addition, we cannot complete the merger unless FMS Financials shareholders approve the merger agreement. FMS Financials shareholders will vote on the merger at a meeting to be held on June __, 2007. Each director of FMS Financial has signed an agreement to vote his or her shares of FMS Financial common stock in favor of the merger. In the aggregate, FMS Financial directors own ____% of the outstanding FMS Financial common stock. In addition, a shareholder with a 9.15% ownership interest in FMS Financial also signed a voting agreement.
Delivery of Prospectus
To ensure that each purchaser in the subscription and community offering receives a prospectus at least 48 hours before the offering deadline in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, we will not mail a prospectus any later than five days prior to such date or hand-deliver a prospectus later than two days prior to that date. Stock order forms may only be delivered if accompanied or preceded by a prospectus. We are not obligated to deliver a prospectus or order form by means other than United States mail.
We will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights. The subscription offering and all subscription rights will expire at 4:00 p.m., Eastern time, on [DATE1], 2007 whether or not we have been able to locate each person entitled to subscription rights.
Delivery of Stock Certificates (page ___)
Certificates representing shares of common stock issued in the offering will be mailed to purchasers at the address provided on the order form as soon as practicable following completion of the offering and receipt of all necessary regulatory approvals.
Stock Information Center
If you have any questions regarding the offering, please call the Stock Information Center at ________________ to speak to a registered representative of Sandler ONeill. The stock information center is open Monday through Friday, except bank holidays, from 10:00 a.m. to 4:00 p.m., Eastern time.
17
You should consider carefully the following risk factors before purchasing Beneficial Mutual Bancorp common stock.
Risks Related to Our Business
Rising interest rates may hurt our profits and asset values.
Interest rates have recently been at historically low levels. However, between June 30, 2004 and December 31, 2006, the United States Federal Reserve increased its target for the federal funds rate 17 times in 25 basis point increments from 1.00% to 5.25%. The increase in the federal funds rate has had the effect of increasing short-term market interest rates. While short-term market interest rates (which we use as a guide to price our deposits) have increased, longer-term market interest rates (which we use as a guide to price our longer-term loans) have not, which has recently resulted in short-term rates being higher than long-term rates. This inversion of the market yield curve has had a negative impact on our interest rate spread and net interest margin, which has reduced our profitability. If short-term interest rates continue to rise, and if rates on our deposits continue to reprice upwards faster than the rates on our long-term loans and investments, we would continue to experience compression of our interest rate spread and net interest margin, which would have a negative effect on our profitability. For further discussion of how changes in interest rates could impact us, see Managements Discussion and Analysis of Results of Operations and Financial ConditionRisk ManagementInterest Rate Risk Management.
Our increased emphasis on commercial real estate loans and commercial business loans may expose us to increased lending risks.
At
December 31, 2006, $409.7 million, or 24.4%, of our loan portfolio consisted of
commercial real estate loans, including loans for the acquisition and
development of property. Commercial real estate loans constitute a greater
percentage of our loan portfolio than any other loan category, including
one-to-four family loans, which totaled only $279.0 million, or 16.6%, of our
total loan portfolio at December 31, 2006. In addition, at December 31, 2006,
$98.6 million, or 5.87%, of our loan portfolio consisted of commercial business
loans. We have increased the percentage of commercial real estate and
commercial business loans in our loan portfolio in recent years and intend to
continue to emphasize these types of lending. Commercial real estate loans and
commercial business loans generally expose a lender to a greater risk of loss than
one-to-four family residential loans. Repayment of commercial real estate and
commercial business loans generally is dependent, in large part, on sufficient
income from the property to cover operating expenses and debt service.
Commercial real estate loans typically involve larger loan balances to single
borrowers or groups of related borrowers compared to one-to-four family
residential mortgage loans. Changes in economic conditions that are out of the
control of the borrower and lender could impact the value of the security for
the loan, the future cash flow of the affected property, or the marketability
of a construction project with respect to loans originated for the acquisition
and development of property. Additionally, any decline in real estate values
may be more pronounced with respect to commercial real estate properties than
residential properties.
A substantial portion of our loan portfolio consists of consumer loans secured by rapidly depreciable assets.
At December 31, 2006, our loan portfolio included $232.7 million in automobile loans representing 13.8% of our total loan portfolio. In addition, at December 31, 2006, other consumer loans totaled $265.9 million, or 15.8%, of our loan portfolio. Included in other consumer loans is $14.8 million in automobile lease financing, $9.3 million in loans secured by manufactured housing, $70.0 million in loans secured by recreational vehicles and $84.1 million in loans secured by boats. Consumer loans secured by rapidly depreciable assets such as automobiles, recreational vehicles and boats, may subject us to greater risk of loss than loans secured by real estate because any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance.
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A downturn in the local economy or a decline in real estate values could hurt our profits.
A majority of our loans, including our commercial real estate and commercial loans, are secured by real estate or made to businesses in areas where our offices are located. As a result of this concentration, a downturn in the local economy could cause significant increases in nonperforming loans, which would hurt our profits. In recent years, there has been a significant increase in real estate values in our market area. As a result of rising real estate prices in recent years, our loans have been well collateralized. A decline in real estate values could cause some of our mortgage loans to become inadequately collateralized, which would expose us to a greater risk of loss. Additionally, a decline in real estate values could adversely impact our portfolio of commercial real estate loans and could result in a decline in the origination of such loans. For a discussion of our market areas, see Our BusinessMarket Area.
Strong competition within our market area could hurt our profits and slow growth.
We face intense competition in making loans, attracting deposits and hiring and retaining experienced employees. This competition has made it more difficult for us to make new loans and attract deposits. Price competition for loans and deposits sometimes results in us charging lower interest rates on our loans and paying higher interest rates on our deposits, which reduces our net interest income. Competition also makes it more difficult and costly to attract and retain qualified employees. At June 30, 2006, which is the most recent date for which data is available from the Federal Deposit Insurance Corporation, we held 0.66% of the deposits in the Philadelphia metropolitan statistical area. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area. For more information about our market area and the competition we face, see Our BusinessMarket Area and Our BusinessCompetition.
We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.
We are subject to extensive regulation, supervision and examination by the Federal Deposit Insurance Corporation, as insurer of our deposits, and by the Pennsylvania Department of Banking as our primary regulator. Beneficial Savings Bank MHC and Beneficial Mutual Bancorp are subject to regulation and supervision by the Office of Thrift Supervision. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of Beneficial Mutual Savings Bank rather than for holders of Beneficial Mutual Bancorp common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.
The Federal Deposit Insurance Corporation has issued new rules on how it imposes deposit insurance assessments that will increase our deposit insurance assessments and will reduce our income.
Under its current rules, the Federal Deposit Insurance Corporation does not impose a deposit insurance assessment on financial institutions, such as Beneficial Mutual Savings Bank, that are, among other criteria, well-capitalized. On November 2, 2006, the Federal Deposit Insurance Corporation adopted final regulations establishing a risk-based assessment system that will enable the Federal Deposit Insurance Corporation to more closely tie each financial institutions premiums to the risk it poses to the Deposit Insurance Fund. Under the new risk-based assessment system, which becomes effective in the beginning of 2007, the Federal Deposit Insurance Corporation will evaluate the risk of each financial institution based on three primary sources of information: (1) its supervisory rating; (2) its financial ratios; and (3) its long-term debt issuer rating, if the institution has one. The new rates for nearly all of the financial institution industry will vary between five and seven cents for every $100 of domestic deposits. Once effective, this increased assessment will reduce our income.
19
Risks Related to the Merger
There is a possibility Beneficial Mutual Savings Bank will be unable to effectively integrate Farmers & Mechanics Bank with and into its operations.
Subscribers who purchase shares in the offering will experience dilution of their investment as a result of the intangible assets resulting from the merger.
The
acquisition of FMS Financial culminates with the recording of new intangible
assets totaling approximately $132.3 million and, combined with existing
intangible assets from Beneficial Mutual Savings Bank, result in total pro
forma intangible assets of $141.0 million. As a result, subscribers to the
offering will experience per share dilution in tangible capital of $2.51,
$2.19, $1.93 and $1.71 at the minimum, midpoint, maximum and maximum, as
adjusted, of the offering range.
Subscribers who purchase shares in the offering will have their interests diluted by the issuance of shares in the merger.
Upon
completion of the merger, each issued and outstanding share of FMS Financial
common stock will be converted into the right to receive $28.00 in cash, 2.80
shares of Beneficial Mutual Bancorp stock for each share of FMS Financial
common stock, or a combination thereof, subject to election and proration
procedures set forth in the merger agreement. At the midpoint of the offering
range, assuming 10,953,103 of the shares are issued to former FMS Financial
shareholders in the merger, then the issuance of the shares in the merger would
dilute the interests of purchasers in the offering by approximately 17.0%.
Following
the offering and the merger, at the maximum of the offering range, of the
72,875,890 shares that will be outstanding, a total of 39,847,500 shares, or
54.68% of the total outstanding shares, will be held by Beneficial Savings Bank
MHC and 33,028,390 shares, or 45.32% of the total outstanding shares, will be
issued to the public. At the maximum of the offering range, a total of
11,550,890 shares of Beneficial Mutual Bancorp stock may be exchanged for FMS
Financial stock in the merger. Craig W. Yates and Roy D. Yates currently own
1,386,889 and 467,156 shares of FMS Financial stock, respectively, which would
entitle them to exchange their FMS Financial stock for a maximum of 3,883,289
and 1,308,036 shares of Beneficial Mutual Bancorp stock in connection with the
merger, respectively. In the event Craig W. Yates and Roy D. Yates were able to
receive 3,883,289 and 1,308,036 shares of Beneficial Mutual Bancorp stock,
respectively, in connection with the merger, they would own ____% and ____% of
the outstanding common stock of Beneficial Mutual Bancorp, respectively, or
___% and ___% of the publicly held shares, respectively, immediately following
the offering. However, because the maximum amount of Beneficial Mutual Bancorp
stock that can be issued in the merger at the maximum of the offering range is
11,550,890 shares and all stock elections are subject to the proration
procedures set forth in the merger agreement, it is possible Craig W. Yates and
Roy D. Yates would not receive all of their merger consideration in the form of
Beneficial Mutual Bancorp stock.
Risks Related to this Offering
Additional expenses following the offering from new equity benefit plans will adversely affect our profitability.
Following the offering, we will recognize additional annual employee compensation expenses stemming from options and shares granted to employees, directors and executives under new benefit plans. These additional
20
expenses will adversely affect our profitability. We cannot determine the actual amount of these new stock-related compensation expenses at this time because applicable accounting practices generally require that they be based on the fair market value of the options or shares of common stock at the date of the grant; however, we expect them to be material. We will recognize expenses for our employee stock ownership plan when shares are committed to be released to participants accounts and will recognize expenses for restricted stock awards and stock options over the vesting period of awards made to recipients. These benefit expenses in the first year following the offering have been estimated to be approximately $5.3 million on a filer-tax basis at the maximum of the offering range, as set forth in the pro forma financial information under Pro Forma Data assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock, the number of shares awarded under the plans and the timing of the implementation of the plans. For further discussion of these plans, see Our ManagementBenefit Plans.
We may need to implement additional finance and accounting systems, procedures and controls in order to satisfy our new public company reporting requirements, which may increase our operating expenses.
As a result of the completion of this offering, we will become a public reporting company. The federal securities laws and the regulations of the Securities and Exchange Commission require that we file annual, quarterly and current reports and that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We expect that the obligations of being a public company, including substantial public reporting obligations, may require significant expenditures and place additional demands on our management team. Compliance with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission will require us to certify the adequacy of our internal controls and procedures, which may require us to upgrade our accounting systems. These reporting and compliance obligations may increase our operating expenses.
Our return on equity will initially be low compared to other publicly traded financial institutions. A low return on equity may negatively impact the trading price of our common stock.
Net
income divided by average equity, known as return on equity, is a ratio used
by many investors to compare the performance of a financial institution with
its peers. For the year ended December 31, 2006, our return on equity was
4.04%. Although we expect that our net income will increase following the
offering, as well as the merger, we expect that our return on equity will be
reduced as a result of the additional capital that we will raise in the
offering. For example, our pro forma return on equity for the year ended
December 31, 2006 is 2.50%, assuming the sale of shares at the maximum of the
offering range and giving effect to the merger. In comparison, the peer group
used by RP Financial in its appraisal had an average return on equity of 4.41%
for the year ended December 31, 2006. Over time, we intend to use the net
proceeds from this offering to increase earnings per share and book value per
share, without assuming undue risk, with the goal of achieving a return on
equity that is competitive with other publicly held companies. This goal could
take a number of years to achieve, and we cannot assure you that it will be
attained. Consequently, you should not expect a competitive return on equity in
the near future. Failure to achieve a competitive return on equity might make
an investment in our common stock unattractive to some investors and might
cause our common stock to trade at lower prices than comparable companies with
higher returns on equity. See Pro Forma
Data for an illustration of the financial impact of this offering.
Issuance of shares for benefit programs may dilute your ownership interest.
We intend to adopt an equity incentive plan following the offering. If stockholders approve the new equity incentive plan, we intend to issue shares to our officers, employees and directors through this plan. We may fund the equity incentive plan through the purchase of common stock in the open market, subject to regulatory restrictions, by a trust established in connection with the plan, or from authorized but unissued shares of Beneficial Mutual Bancorp common stock. If the restricted stock awards under the equity incentive plan are funded from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 1.9%, assuming awards of common stock equal to 1.96% of the shares issued in the offering, including shares issued to Beneficial Savings Bank MHC, issued in connection with the merger and contributed to The Beneficial Foundation are awarded under the plan. If the shares issued upon the exercise of stock options under the equity incentive plan are issued from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 4.7%, assuming stock option grants equal to 4.9% of the shares issued in the offering, including
21
shares issued to Beneficial Savings Bank MHC, issued in connection with the merger and contributed to The Beneficial Foundation are granted under the plan. See Pro Forma Data and Our ManagementBenefit Plans.
The contribution of shares to the charitable foundation will dilute your ownership interests and adversely affect net income in fiscal year 2007.
We
intend to establish a charitable foundation in connection with the stock
offering. We will make a contribution to the charitable foundation in the form
of shares of Beneficial Mutual Bancorp common stock and Beneficial Mutual
Savings Bank will contribute $500,000 in cash. The contribution of cash and
shares of common stock will total $10.0 million. The aggregate contribution
will also have an adverse effect on our net income for the quarter and year in
which we make the issuance and contribution to the charitable foundation. The
after-tax expense of the contribution will reduce net income in our 2007 fiscal
year by approximately $6.5 million. We had net income of $11.6 million for the
fiscal year ended December 31, 2006. Persons purchasing shares in the stock
offering will have their ownership and voting interests in Beneficial Mutual
Bancorp diluted by up to ______% due to the issuance of 950,000 shares of
common stock to the charitable foundation.
Under the Internal Revenue Code, an entity is permitted to deduct up to 10% of its taxable income (income before income taxes) in any one year for charitable contributions. Any contribution in excess of the 10% limit may be deducted for federal income tax purposes over each of the five years following the year in which the charitable contribution was made. Accordingly, a charitable contribution by an entity to a charitable foundation could, if necessary, be deducted over a six-year period. Based on $14.0 million of income before income tax expense for the fiscal year ended December 31, 2006, and assuming that our income before income tax expense remained at that level in future years following the stock offering, we estimate that we would only be able to deduct for federal income tax purposes $8.4 million of the contribution to the charitable foundation. This would result in after-tax expense of $5.5 million and not $6.5 million as we currently estimate.
Our contribution to the charitable foundation may not be tax deductible, which could reduce our profits.
We believe that the contribution to The Beneficial Foundation will be deductible for federal income tax purposes. However, we cannot assure you that the Internal Revenue Service will grant tax-exempt status to the charitable foundation. If the contribution is not deductible, we would not receive any tax benefit from the contribution. In addition, even if the contribution is tax deductible, we may not have sufficient profits to be able to use the deduction fully. The value of the contribution would be $10.0 million in cash and shares of common stock, which would result in after-tax expense of approximately $6.5 million during the fiscal year ended December 31, 2007. In the event that the Internal Revenue Service does not grant tax-exempt status to the charitable foundation or the contribution to the charitable foundation is otherwise not tax deductible, we would recognize as after tax expense the value of the entire contribution, or $10.0 million.
Beneficial Savings Bank MHCs majority control of our common stock will enable it to exercise voting control over most matters put to a vote of stockholders and will prevent stockholders from forcing a sale or a second-step conversion transaction you may find advantageous.
Beneficial Savings Bank MHC will own a majority of Beneficial Mutual Bancorps common stock after the offering and, through its board of directors, will be able to exercise voting control over most matters put to a vote of stockholders. The members of the boards of Beneficial Mutual Bancorp, Beneficial Savings Bank MHC and Beneficial Mutual Savings Bank are the same. As a federally chartered mutual holding company, the board of directors of Beneficial Savings Bank MHC must ensure that the interests of depositors of Beneficial Mutual Savings Bank are represented and considered in matters put to a vote of stockholders of Beneficial Mutual Bancorp. Therefore, the votes cast by Beneficial Savings Bank MHC may not be in your personal best interests as a stockholder. For example, Beneficial Savings Bank MHC may exercise its voting control to defeat a stockholder nominee for election to the board of directors of Beneficial Mutual Bancorp. Beneficial Savings Bank MHCs ability to control the outcome of the election of the board of directors of Beneficial Mutual Bancorp restricts the ability of minority stockholders to effect a change of management. In addition, stockholders will not be able to force a merger or second-step conversion transaction without the consent of Beneficial Savings Bank MHC, as such transactions require the approval of at least two-thirds of all outstanding voting stock, which can only be achieved if Beneficial Savings Bank MHC voted to approve such transactions. Some stockholders may desire a sale or merger
22
transaction, since stockholders typically receive a premium for their shares, or a second-step conversion transaction, since fully converted institutions tend to trade at higher multiples than mutual holding companies.
A significant percentage of our common stock
held publicly will be held by directors and officers of Beneficial Mutual
Bancorp and our benefit plans.
Assuming
we sell our stock at the maximum of the offering range, we will have 33,028,390
shares, or 45.32% of our total outstanding stock, publicly issued to individuals
and entities other than Beneficial Savings Bank MHC. We expect our current
directors and executive officers, together with their associates, to subscribe
for 326,500 shares. In addition, we intend to establish an employee stock
ownership plan that will purchase an amount of shares equal to 3.92% of the
shares sold in the offering, as well as shares issued to Beneficial Savings
Bank MHC, shares issued in connection with the merger and shares contributed to
The Beneficial Foundation, which would total 28,567,000 shares at the maximum of
the offering range. Additionally, Craig
W. Yates and Roy D. Yates, who are currently directors of FMS Financial and
will become directors of Beneficial Mutual Bancorp following the merger, own
1,854,045 shares of FMS Financial in the aggregate, which would entitle them to
exchange their FMS Financial stock for up to 5,191,325 shares of Beneficial Mutual
Bancorp stock in connection with the merger. As a result, a total of up to
______ shares, or ___% of our publicly held shares, will be held by our
officers and directors and our employee stock ownership plan immediately following the
offering and merger. Further, shares will be held by management following the implementation
of an equity incentive plan, which we intend to implement no earlier than six months following
completion of the offering.
Office of Thrift Supervision policy on remutualization transactions could prevent acquisition of Beneficial Mutual Bancorp, which may adversely affect our stock price.
Current Office of Thrift Supervision regulations permit a mutual holding company to be acquired by a mutual institution in what is commonly called a remutualization transaction. In the past, remutualization transactions often resulted in minority stockholders receiving a premium for their shares. However, in 2003, the Office of Thrift Supervision issued a policy statement indicating that it views remutualization transactions as raising significant issues concerning disparate treatment of minority stockholders and mutual members of the target entity and raising issues concerning the effect on the mutual members of the acquiring entity. Under certain circumstances, the Office of Thrift Supervision tends to give these issues special scrutiny and reject applications providing for the remutualization of a mutual holding company unless the applicant can clearly demonstrate that the Office of Thrift Supervisions concerns are not warranted in the particular case. Should the Office of Thrift Supervision prohibit or further restrict these transactions in the future, our per share stock price may be adversely affected. For further information, see Restrictions on Acquisition of Beneficial Mutual Bancorp and Beneficial Mutual Savings BankRegulatory Restrictions.
Office of Thrift Supervision regulations and anti-takeover provisions in our charter restrict the accumulation of our common stock, which may adversely affect our stock price.
Office of Thrift Supervision regulations provide that for a period of three years following the date of the completion of the stock offering, no person, acting alone, together with associates or in a group of persons acting in concert, will directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of our common stock without the prior written approval of the Office of Thrift Supervision. In addition, Beneficial Mutual Bancorps charter provides that, for a period of five years from the date of the stock offering, no person, other than Beneficial Savings Bank MHC may acquire directly or indirectly the beneficial ownership of more than 10% of any class of any equity security of Beneficial Mutual Bancorp. In the event a person acquires shares in violation of this charter provision, all shares beneficially owned by such person in excess of 10% will be considered excess shares and will not be counted as shares entitled to vote or counted as voting shares in connection with any matters submitted to the stockholders for a vote. These restrictions make it more difficult and less attractive for stockholders to acquire a significant amount of our common stock, which may adversely affect our stock price.
Proposed Office of Thrift Supervision regulations may permit us to adopt stock-based benefit plans that exceed limits applicable under current regulations, and may permit us to approve stock benefit plans without a separate vote of minority stockholders.
The Office of Thrift Supervision has proposed amendments to its existing regulations regarding stock-based benefit plans that are intended to clarify and simplify such regulations. Specifically, the amendments would
23
clarify that we may grant options and award shares of common stock under our stock-based benefit plans in excess of 4.90% and 1.96%, respectively, of our total outstanding shares if the stock-based benefit plans are adopted more than one year following the stock offering, provided shares used to fund the plans in excess of these amounts are obtained through stock repurchases. The proposed amendments would also require that, if the stock-based plans are adopted less than one year following the stock offering, the stock-based benefit plans must be approved by a majority of the votes of Beneficial Mutual Bancorp shareholders and cast at an annual or special meeting of shareholders, excluding votes eligible to be cast by Beneficial Savings Bank MHC. Under the proposed amendments, there would be no separate vote required of minority shareholders if the stock-based benefit plans are adopted more than one year following the stock offering. The proposed amendments would further clarify that the restrictions set forth above regarding the maximum amount of individual and group awards and restrictions on accelerated vesting of awards, would not apply of the stock-based benefit plans are adopted more than one year following the stock offering.
In the event the Office of Thrift Supervision adopts these regulations as proposed, or otherwise changes its existing regulations or policies, we may implement stock-based benefit plans that exceed the current limits applicable to the overall size of such plans, the relative amounts of stock options and stock awards and individual awards thereunder, and otherwise grant awards with terms that are different than those required by current Office of Thrift Supervision regulations and policy. Implementing stock-based benefit plans that exceed current limits could result in expense that exceeds the amounts we have estimated based up on the current limitations imposed by the Office of Thrift Supervision. However, until we implement our stock-based benefit plans, and until the proposed Office of Thrift Supervision regulations are adopted in final form, we cannot estimate the cost of stock-based benefit plans that we may adopt in the future.
Moreover, to the extent that any new regulations or policies contain a more flexible voting standard for shareholder approval than that currently required, we intend to use the more flexible voting standard, which could result in the vote of Beneficial Savings Bank MHC controlling the outcome of a shareholder vote on stock-based benefit plans.
Our stock price may decline when trading commences.
You
may not be able to sell the shares you purchase in the offering at or above the
$10.00 purchase price. After the shares of our common stock begin trading, the
trading price of the common stock will be determined by the marketplace, and
will be influenced by many factors outside of our control, including prevailing
interest rates, investor perceptions, securities analyst research reports and
general industry, geopolitical and economic conditions. Publicly traded stocks,
including stocks of financial institutions, often experience substantial market
price volatility. These market fluctuations might not be related to the
operating performance of particular companies whose shares are traded.
There may be a limited market for our common stock, which may adversely affect our stock price.
We
have applied to have our shares of common stock listed for trading on the
Nasdaq Global Select Market under the symbol BNCL. Sandler ONeill currently
intends to become a market maker in the common stock, but is under no
obligation to do so. There is no way of determining at this time whether other
market makers will be obtained or that an active and liquid trading market for
the shares of common stock will develop or if developed, will be maintained.
After shares of the common stock begin trading, you may contact a stock broker
to buy or sell shares.
24
A Warning About Forward-Looking Statements
This prospectus contains forward-looking statements, which can be identified by the use of words such as believes, expects, anticipates, estimates or similar expressions. Forward-looking statements include:
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statements of goals, intentions and expectations; |
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statements regarding business plans, prospects, growth and operating strategies; |
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statements regarding the quality of loan and investment portfolios; and |
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estimates of risks and future costs and benefits. |
These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
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general economic conditions, either nationally or locally, that are worse than expected; |
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changes in the interest rate environment that reduce interest margins or reduce the fair value of financial instruments; |
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increased competitive pressures among financial services companies; |
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changes in consumer spending, borrowing and savings habits; |
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legislative or regulatory changes that adversely affect business; |
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Beneficial Mutual Savings Banks ability to integrate successfully the operations of FMS Financial following the merger; |
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adverse changes in the securities markets; and |
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changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board. |
Any of the forward-looking statements made in this prospectus and in other public statements may later prove incorrect because of inaccurate assumptions, the factors illustrated above or other factors that cannot be foreseen. Consequently, no forward-looking statement can be guaranteed.
25
Selected
Consolidated Financial and Other Data of
Beneficial Mutual Bancorp
The summary financial information presented below is derived in part from our consolidated financial statements. The following is only a summary and you should read it in conjunction with our consolidated financial statements and notes beginning on page F-1. The information at December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006 is derived in part from our audited consolidated financial statements that appear in this prospectus. The information at December 31, 2004 and at and for the years ended December 31, 2003 and 2002 is derived in part from our audited consolidated financial statements that do not appear in this prospectus.
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At and For
the Year Ended December 31, |
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2006 |
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2005 |
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2004 |
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2003 |
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2002 |
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Financial Condition Data: |
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Total assets |
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$ |
2,300,219 |
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$ |
2,392,394 |
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$ |
2,332,730 |
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$ |
2,255,277 |
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$ |
2,164,898 |
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Cash and cash equivalents |
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23,147 |
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32,930 |
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32,358 |
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25,125 |
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22,398 |
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Investment securities available-for-sale |
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346,411 |
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359,441 |
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434,736 |
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379,697 |
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369,421 |
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Investment securities held-to-maturity |
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130,357 |
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163,320 |
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205,584 |
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264,812 |
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314,749 |
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Loans receivable, net |
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1,671,457 |
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1,716,057 |
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1,558,159 |
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1,481,223 |
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1,374,770 |
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Deposits |
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1,667,876 |
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1,655,033 |
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1,597,933 |
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1,546,412 |
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1,506,967 |
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Federal Home Loan Bank |
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196,550 |
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312,797 |
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395,104 |
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371,484 |
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356,100 |
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Other borrowed funds |
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98,346 |
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95,414 |
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14,232 |
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20,000 |
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Stockholders equity |
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280,415 |
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278,372 |
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270,116 |
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258,414 |
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243,577 |
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Operating Data: |
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Interest income |
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$ |
127,326 |
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$ |
117,091 |
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$ |
108,080 |
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$ |
113,629 |
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$ |
125,178 |
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Interest expense |
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62,899 |
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51,366 |
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41,947 |
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46,494 |
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55,745 |
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Net interest income |
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64,427 |
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65,725 |
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66,133 |
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67,135 |
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69,433 |
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Provision for loan losses |
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1,575 |
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1,703 |
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2,400 |
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2,775 |
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1,950 |
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Net interest income after provision for loan losses |
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62,852 |
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64,022 |
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63,733 |
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64,360 |
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67,483 |
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Other income |
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10,531 |
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10,862 |
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3,168 |
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7,073 |
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6,735 |
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Operating expenses |
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59,436 |
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56,956 |
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50,573 |
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49,651 |
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46,087 |
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Income before income taxes |
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13,947 |
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17,928 |
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16,328 |
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21,782 |
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28,131 |
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Income taxes |
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2,322 |
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4,728 |
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4,704 |
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6,322 |
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8,075 |
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Net income |
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$ |
11,625 |
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$ |
13,200 |
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$ |
11,624 |
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$ |
15,460 |
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$ |
20,056 |
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At or For the Year Ended December 31, |
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Selected Financial Ratios and Other Data |
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2006 |
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2005 |
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2004 |
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2003 |
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2002 |
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Performance Ratios: |
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Return on average assets |
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0.49 |
% |
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0.56 |
% |
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0.51 |
% |
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0.69 |
% |
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0.96 |
% |
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Return on average equity |
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4.04 |
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4.83 |
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4.44 |
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6.24 |
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8.71 |
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Interest rate spread (1) |
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2.45 |
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2.57 |
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2.73 |
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2.81 |
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3.03 |
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Net interest margin (2) |
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2.87 |
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2.90 |
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3.03 |
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3.15 |
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3.47 |
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Other expenses to average assets |
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2.51 |
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2.40 |
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2.22 |
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2.23 |
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2.20 |
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Efficiency ratio (3) |
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79.29 |
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74.37 |
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72.98 |
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66.91 |
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60.51 |
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Average interest-earning assets to average interest-bearing liabilities |
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114.86 |
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114.80 |
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115.75 |
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115.43 |
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115.42 |
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Average equity to average assets |
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12.20 |
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11.52 |
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11.49 |
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11.12 |
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11.03 |
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Capital Ratios (4): |
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Tier 1 capital to average assets |
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11.73 |
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11.37 |
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11.40 |
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11.29 |
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10.99 |
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Tier 1 capital to risk-weighted assets |
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17.66 |
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16.83 |
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17.95 |
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17.77 |
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17.17 |
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Total risk-based capital to risk-weighted assets |
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18.78 |
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17.91 |
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19.18 |
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18.99 |
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18.38 |
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Asset Quality Ratios: |
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Allowance for loan losses as a percent of total loans |
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1.03 |
|
|
0.99 |
|
|
1.09 |
|
|
1.13 |
|
|
1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of non-performing loans |
|
|
213.09 |
|
|
331.32 |
|
|
278.17 |
|
|
252.90 |
|
|
256.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average outstanding loans during the period |
|
|
0.07 |
|
|
0.10 |
|
|
0.14 |
|
|
0.18 |
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a percent of total loans |
|
|
0.48 |
|
|
0.30 |
|
|
0.39 |
|
|
0.45 |
|
|
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets as a percent of total assets |
|
|
0.48 |
|
|
0.35 |
|
|
0.39 |
|
|
0.44 |
|
|
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices (5) |
|
|
39 |
|
|
38 |
|
|
35 |
|
|
33 |
|
|
33 |
|
Number of deposit accounts |
|
|
163,140 |
|
|
163,740 |
|
|
164,827 |
|
|
169,915 |
|
|
177,182 |
|
Number of loans |
|
|
61,478 |
|
|
67,242 |
|
|
70,430 |
|
|
73,327 |
|
|
73,264 |
|
|
|
|
|
|
|
(1) |
Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost on average interest-bearing liabilities. |
|
|
(2) |
Represents net interest income as a percent of average interest-earning assets. |
|
|
(3) |
Represents other non-interest expenses divided by the sum of net interest income and non-interest income. |
|
|
(4) |
Ratios are for Beneficial Mutual Savings Bank. |
|
|
(5) |
Two additional offices were opened in the first quarter of 2007. |
27
Selected Consolidated Financial and Other Data of FMS Financial
The following tables set forth certain financial and other data of FMS Financial at and for the periods indicated. The summary financial information presented below is derived in part from FMS Financials consolidated financial statements. The following is only a summary and you should read it in conjunction with the FMS Financial consolidated financial statements and notes beginning on page ____. The information at December 31, 2006 and 2005 and for each of the three years ended December 31, 2006 is derived in part from the audited consolidated financial statements of FMS Financial that appear in this prospectus. The information at December 31, 2004 and at and for the years ended December 31, 2003 and 2002 is derived in part from audited consolidated financial statements of FMS Financial that do not appear in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and For
the Year Ended December 31, |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,188,112 |
|
$ |
1,231,263 |
|
$ |
1,250,006 |
|
$ |
1,225,557 |
|
$ |
1,126,557 |
|
Cash and cash equivalents |
|
|
109,761 |
|
|
93,841 |
|
|
110,577 |
|
|
72,335 |
|
|
88,410 |
|
Investment securities available-for-sale |
|
|
146,006 |
|
|
155,632 |
|
|
141,999 |
|
|
149,231 |
|
|
118,613 |
|
Investment securities held-to-maturity |
|
|
428,441 |
|
|
483,536 |
|
|
524,056 |
|
|
545,299 |
|
|
506,350 |
|
Loans receivable, net |
|
|
450,099 |
|
|
442,571 |
|
|
418,799 |
|
|
402,606 |
|
|
361,674 |
|
Deposits |
|
|
933,103 |
|
|
947,067 |
|
|
941,507 |
|
|
893,006 |
|
|
800,340 |
|
Federal Home Loan Bank advances |
|
|
|
|
|
|
|
|
10,000 |
|
|
11,191 |
|
|
11,232 |
|
FMS Statutory Trust I and II debentures |
|
|
51,548 |
|
|
25,774 |
|
|
25,774 |
|
|
25,774 |
|
|
25,000 |
|
Other borrowed funds |
|
|
115,000 |
|
|
175,000 |
|
|
195,000 |
|
|
225,000 |
|
|
225,000 |
|
Stockholders equity |
|
|
78,361 |
|
|
75,082 |
|
|
70,337 |
|
|
62,830 |
|
|
57,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
60,993 |
|
$ |
57,906 |
|
$ |
55,819 |
|
$ |
50,814 |
|
$ |
57,748 |
|
Interest expense |
|
|
27,415 |
|
|
21,537 |
|
|
18,414 |
|
|
19,362 |
|
|
24,756 |
|
|
|
|||||||||||||||
Net interest income |
|
|
33,578 |
|
|
36,369 |
|
|
37,405 |
|
|
31,452 |
|
|
32,992 |
|
Provision for loan losses |
|
|
330 |
|
|
360 |
|
|
330 |
|
|
270 |
|
|
149 |
|
|
|
|||||||||||||||
Net interest income after provision for loan losses |
|
|
33,248 |
|
|
36,009 |
|
|
37,075 |
|
|
31,182 |
|
|
32,843 |
|
Other income |
|
|
7,164 |
|
|
5,423 |
|
|
6,060 |
|
|
6,056 |
|
|
4,504 |
|
Operating expenses |
|
|
31,726 |
|
|
30,067 |
|
|
28,385 |
|
|
26,970 |
|
|
24,580 |
|
|
|
|||||||||||||||
Income before income taxes |
|
|
8,686 |
|
|
11,365 |
|
|
14,750 |
|
|
10,268 |
|
|
12,767 |
|
Income taxes |
|
|
3,367 |
|
|
4,647 |
|
|
5,982 |
|
|
4,067 |
|
|
4,806 |
|
|
|
|||||||||||||||
Net income |
|
|
5,319 |
|
|
6,718 |
|
|
8,768 |
|
|
6,201 |
|
|
7,961 |
|
|
|
|||||||||||||||
Basic earnings per common share |
|
|
0.82 |
|
|
1.03 |
|
|
1.35 |
|
|
0.96 |
|
|
1.22 |
|
Diluted earnings per common share |
|
|
0.81 |
|
|
1.03 |
|
|
1.34 |
|
|
0.96 |
|
|
1.21 |
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Year Ended December 31, |
|
|||||||||||||
|
|
|||||||||||||||
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.45 |
% |
|
0.55 |
% |
|
0.71 |
% |
|
0.49 |
% |
|
0.77 |
% |
Return on average equity |
|
|
6.95 |
|
|
9.22 |
|
|
13.21 |
|
|
9.52 |
|
|
14.61 |
|
Dividend payout ratio |
|
|
14.81 |
|
|
11.65 |
|
|
8.95 |
|
|
12.63 |
|
|
9.92 |
|
Interest rate spread (1) |
|
|
3.05 |
|
|
3.23 |
|
|
3.29 |
|
|
2.98 |
|
|
3.44 |
|
Net interest margin (2) |
|
|
3.03 |
|
|
3.22 |
|
|
3.26 |
|
|
2.92 |
|
|
3.40 |
|
Other expenses to average assets |
|
|
2.62 |
|
|
2.47 |
|
|
2.29 |
|
|
2.30 |
|
|
2.34 |
|
Efficiency ratio (3) |
|
|
77.87 |
|
|
71.94 |
|
|
65.30 |
|
|
71.90 |
|
|
65.56 |
|
Average interest-earning assets to average interest-bearing liabilities |
|
|
99.30 |
|
|
99.29 |
|
|
98.57 |
|
|
96.80 |
|
|
98.71 |
|
Average equity to average assets |
|
|
6.60 |
|
|
6.10 |
|
|
5.63 |
|
|
5.13 |
|
|
5.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to average assets |
|
|
7.98 |
|
|
7.29 |
|
|
6.60 |
|
|
6.10 |
|
|
6.43 |
|
Tier 1 capital to risk-weighted assets |
|
|
18.31 |
|
|
17.24 |
|
|
16.35 |
|
|
15.60 |
|
|
17.10 |
|
Tier 1 capital to adjusted tangible assets |
|
|
7.28 |
|
|
7.29 |
|
|
6.60 |
|
|
6.10 |
|
|
6.43 |
|
Total capital to risk-weighted assets |
|
|
19.27 |
|
|
18.13 |
|
|
17.21 |
|
|
16.43 |
|
|
18.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of total loans |
|
|
1.18 |
|
|
1.13 |
|
|
1.11 |
|
|
1.08 |
|
|
1.18 |
|
Allowance for loan losses as a percent of non-performing loans |
|
|
189 |
|
|
285 |
|
|
262 |
|
|
260 |
|
|
157 |
|
Net charge-offs to average outstanding loans during the period |
|
|
0.0004 |
|
|
0.005 |
|
|
0.005 |
|
|
0.046 |
|
|
0.017 |
|
Non-performing loans as a percent of total loans |
|
|
0.63 |
|
|
0.40 |
|
|
0.43 |
|
|
0.42 |
|
|
0.76 |
|
Non-performing assets as a percent of total assets |
|
|
0.24 |
|
|
0.16 |
|
|
0.20 |
|
|
0.23 |
|
|
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of offices |
|
|
42 |
|
|
42 |
|
|
41 |
|
|
40 |
|
|
39 |
|
Number of deposit accounts |
|
|
152,611 |
|
|
154,146 |
|
|
155,198 |
|
|
157,705 |
|
|
155,914 |
|
Number of loans |
|
|
6,320 |
|
|
6,317 |
|
|
6,426 |
|
|
6,720 |
|
|
7,063 |
|
|
|
(1) |
Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost on average interest-bearing liabilities. (Tax exempt income is reported on a tax-equivalent basis using a combined federal and state marginal tax rate of 34%.) |
|
|
(2) |
Represents net interest income as a percent of average interest-earning assets. (Tax exempt income is reported on a tax-equivalent basis using a combined federal and state marginal tax rate of 34%.) |
|
|
(3) |
Represents other expenses divided by the sum of net interest income and other income. |
|
|
(4) |
Ratios are for Farmers & Mechanics Bank. |
29
Summary
Selected Pro Forma
Condensed Consolidated Financial Data
The following table shows selected financial information on a pro forma condensed consolidated basis giving effect to the merger and the stock offering assuming the offering is completed at the maximum of the offering range based on the assumptions set forth below. The pro forma unaudited consolidated financial statements give effect to the merger using the purchase method of accounting as required by accounting principles generally accepted in the United States of America. The pro forma unaudited consolidated financial statements give effect to the merger as if the merger had become effective at the end of the period presented, in the case of balance sheet information, and at the beginning of the period presented, in the case of income statement information.
We anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined as of the date and during the period presented.
You should read this summary pro forma information in conjunction with the information under Pro Forma Data beginning on page ____ of the prospectus.
|
|
|
|
|
|
|
(In thousands) |
|
At December 31, 2006 |
|
|||
|
|
|
|
|
|
|
Pro Forma Combined Financial Condition Data: |
|
|
|
|
|
|
Total assets |
|
|
$ |
3,684,822 |
|
|
Cash and cash equivalents |
|
|
|
211,335 |
|
|
Investment securities available-for-sale |
|
|
|
476,873 |
|
|
Investment securities held-to-maturity |
|
|
|
551,984 |
|
|
Loans receivable, net |
|
|
|
2,115,747 |
|
|
Intangible assets |
|
|
|
140,954 |
|
|
Deposits |
|
|
|
2,600,109 |
|
|
Federal Home Loan Bank advances |
|
|
|
196,550 |
|
|
Other borrowed funds |
|
|
|
266,400 |
|
|
Stockholders equity |
|
|
|
554,591 |
|
|
|
|
|
|
|
|
|
Pro Forma Combined Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
$ |
194,961 |
|
|
Interest expense |
|
|
|
(90,585 |
) |
|
|
|
|
|
|||
Net interest income |
|
|
|
104,376 |
|
|
Provision for loan losses |
|
|
|
(1,905 |
) |
|
|
|
|
|
|||
Net interest income after provision for loan losses |
|
|
|
102,471 |
|
|
Other income |
|
|
|
17,695 |
|
|
Operating expenses |
|
|
|
(101,153 |
) |
|
|
|
|
|
|||
Income before income taxes |
|
|
|
19,013 |
|
|
Income taxes |
|
|
|
(5,136 |
) |
|
|
|
|
|
|||
Net income |
|
|
|
13,877 |
|
|
30
|
|
|
|
|
|
|
|
|
At or For
the |
|
|||
|
|
|
|
|
|
|
Performance Ratios: |
|
|
|
|
|
|
Return on assets (1) |
|
|
|
0.38 |
% |
|
Return on equity (1) |
|
|
|
2.50 |
|
|
Equity to assets |
|
|
|
15.05 |
|
|
Efficiency ratio |
|
|
|
82.86 |
|
|
|
|
|
|
|
|
|
Capital Ratios (2): |
|
|
|
|
|
|
Tier 1 leverage ratio capital |
|
|
|
10.45 |
|
|
Tier 1 risk-based capital |
|
|
|
18.49 |
|
|
Total risk-based capital |
|
|
|
19.60 |
|
|
|
|
|
|
|
|
|
Asset Quality Ratios: |
|
|
|
|
|
|
Allowance for loan losses as a percent of non-performing loans |
|
|
|
206.15 |
|
|
Net charge-offs (recoveries) to average outstanding loans during the period |
|
|
|
0.06 |
|
|
Non-performing loans as a percent of total loans |
|
|
|
0.52 |
|
|
Non-performing assets as a percent of total assets |
|
|
|
0.38 |
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
Number of offices |
|
|
|
81 |
|
|
Number of deposit accounts |
|
|
|
315,751 |
|
|
Number of loans |
|
|
|
67,798 |
|
|
|
|
(1) |
In calculating the return on assets and equity, total pro forma combined assets and equity of $3.7 billion and $554.6 million at December 31, 2006, respectively, were used instead of average assets and average equity. |
|
|
(2) |
Pro forma ratios for Beneficial Mutual Savings Bank. |
31
The following tables contain certain information concerning the consolidated financial position and results of operations of Beneficial Mutual Bancorp. The data at December 31, 2006 is derived from Beneficial Mutual Bancorps audited financial statements. You should read this information in connection with the audited financial statements included in this prospectus. The data at March 31, 2007 and for the three months ended March 31, 2007 and March 31, 2006 was not audited but, in the opinion of our management, reflects all adjustments necessary for a fair presentation. No adjustments were made other than normal recurring entries. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results of operation that may be expected for the entire year.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
At |
|
At |
|
% Change |
|
|||
Financial Condition Data: |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,277,324 |
|
$ |
2,300,219 |
|
|
(1.00 |
)% |
Cash and cash equivalents |
|
|
31,475 |
|
|
23,147 |
|
|
35.98 |
|
Investment securities available-for-sale |
|
|
339,373 |
|
|
346,411 |
|
|
(2.03 |
) |
Investment securities held-to-maturity |
|
|
125,428 |
|
|
130,357 |
|
|
(3.78 |
) |
Loans receivable, net |
|
|
1,644,148 |
|
|
1,671,457 |
|
|
(1.63 |
) |
Deposits |
|
|
1,633,525 |
|
|
1,667,876 |
|
|
(2.06 |
) |
Federal Home Loan Bank advances |
|
|
196,550 |
|
|
196,550 |
|
|
0.00 |
|
Other borrowed funds |
|
|
102,646 |
|
|
98,346 |
|
|
4.37 |
|
Stockholders equity |
|
|
282,776 |
|
|
280,415 |
|
|
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|||||
|
|
|
|
|
||||||
|
|
2007 |
|
2006 |
|
% Change |
|
|||
|
|
(unaudited) |
|
|
|
|||||
Operating Data: |
|
|
|
|
|
|
|
|||
Interest income |
|
$ |
31,381 |
|
$ |
30,491 |
|
|
2.92 |
% |
Interest expense |
|
|
15,994 |
|
|
14,419 |
|
|
10.92 |
|
|
|
|||||||||
Net interest income |
|
|
15,387 |
|
|
16,072 |
|
|
(4.26 |
) |
Provision for loan losses |
|
|
300 |
|
|
600 |
|
|
(50.00 |
) |
|
|
|||||||||
Net interest income after provision for loan losses |
|
|
15,087 |
|
|
15,472 |
|
|
(2.49 |
) |
Other income |
|
|
2,844 |
|
|
3,068 |
|
|
(7.30 |
) |
Operating expenses |
|
|
15,981 |
|
|
14,843 |
|
|
7.67 |
|
|
|
|||||||||
Income before income taxes |
|
|
1,950 |
|
|
3,697 |
|
|
(47.25 |
) |
Income taxes |
|
|
200 |
|
|
927 |
|
|
(78.43 |
) |
|
|
|||||||||
Net income |
|
$ |
1,750 |
|
$ |
2,770 |
|
|
(36.82 |
) |
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the |
|
|
|
|
||||
|
|
|
|
|
|
|||||
|
|
2007 |
|
2006 |
|
% Change |
|
|||
|
||||||||||
Performance Ratios: |
|
|
|
|
|
|
|
|||
Return on average assets |
|
|
0.31 |
% |
|
0.47 |
% |
|
(34.71 |
)% |
Return on average equity |
|
|
2.49 |
|
|
3.95 |
|
|
(36.95 |
) |
Interest rate spread (1) |
|
|
2.40 |
|
|
2.46 |
|
|
(2.44 |
) |
Net interest margin (2) |
|
|
2.85 |
|
|
2.84 |
|
|
0.35 |
|
Other expenses to average assets |
|
|
2.79 |
|
|
2.51 |
|
|
11.26 |
|
Efficiency ratio (3) |
|
|
89.12 |
|
|
80.06 |
|
|
11.32 |
|
Average interest-earning assets to average interest-bearing liabilities |
|
|
115.06 |
|
|
114.95 |
|
|
0.10 |
|
Average equity to average assets |
|
|
12.27 |
|
|
11.85 |
|
|
3.55 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios (4): |
|
|
|
|
|
|
|
|
|
|
Tier I capital to average assets |
|
|
12.11 |
|
|
11.56 |
|
|
4.76 |
|
Tier I capital to risk-weighted assets |
|
|
17.89 |
|
|
17.19 |
|
|
4.07 |
|
Total risk-based capital to risk-weighted assets |
|
|
19.03 |
|
|
18.30 |
|
|
3.99 |
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of total loans |
|
|
1.05 |
|
|
0.99 |
|
|
6.20 |
|
Allowance for loan losses as a percent of non-performing loans |
|
|
207.44 |
|
|
204.31 |
|
|
1.53 |
|
Net charge-offs to average outstanding loans during the period |
|
|
0.05 |
|
|
0.10 |
|
|
(52.30 |
) |
Non-performing loans as a percent of total loans |
|
|
0.51 |
|
|
0.48 |
|
|
6.25 |
|
Non-performing assets as a percent of total assets |
|
|
0.50 |
|
|
0.49 |
|
|
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
Number of offices |
|
|
41 |
|
|
39 |
|
|
5.13 |
|
Number of deposit accounts |
|
|
161,856 |
|
|
158,978 |
|
|
1.81 |
|
Number of loans |
|
|
59,148 |
|
|
65,654 |
|
|
(9.91 |
) |
|
|
|
|
(1) |
Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost on interest-bearing liabilities. |
|
|
(2) |
Represents net interest income as a percent of average interest-earning assets. |
|
|
(3) |
Represents other non-interest expenses divided by the sum of net interest income and non-interest income. |
|
|
(4) |
Ratios are for Beneficial Mutual Savings Bank. |
Comparison of Financial Condition at March 31, 2007 and December 31, 2006
33
General. Net income decreased by $1.1 million, or 36.82% to $1.8 million for the three months ended March 31, 2007, compared to $2.8 million for the same period in 2006. The change in net income was primarily due to decreases in net interest income and non-interest income, and an increase in non-interest expenses, partially offset by decreases in the provisions for loan losses and income taxes.
Net Interest Income. Net interest income decreased $685,000 or 4.26% to $15.4 million for the three months ended March 31, 2007, compared to $16.1 million for the same period in 2006. The decrease in net interest income in the 2007 period compared to the same period in 2006 was primarily due to continued pressure on the Banks interest rate spread. The Banks interest rate spread equaled 2.40% for the three months ended March 31, 2007, compared to 2.46% for the three months ended March 31, 2006.
Analysis of Net Interest Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2007/2006 |
|
||||
March 31, (Dollars in thousands) |
|
2007 |
|
2006 |
|
$ Change |
|
% Change |
|
||||
|
|||||||||||||
Components of net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
25,766 |
|
$ |
24,786 |
|
$ |
980 |
|
|
3.95 |
% |
Investment securities |
|
|
5,516 |
|
|
5,637 |
|
|
(121 |
) |
|
(2.15 |
) |
Other interest-earning assets |
|
|
99 |
|
|
68 |
|
|
31 |
|
|
45.59 |
|
Total interest income |
|
|
31,381 |
|
|
30,491 |
|
|
890 |
|
|
2.92 |
|
Deposits |
|
|
12,288 |
|
|
9,886 |
|
|
2,402 |
|
|
24.30 |
|
Borrowings |
|
|
3,706 |
|
|
4,533 |
|
|
(827 |
) |
|
(18.24 |
) |
Total interest expense |
|
|
15,994 |
|
|
14,419 |
|
|
1,575 |
|
|
10.92 |
|
Net interest income |
|
|
15,387 |
|
|
16,072 |
|
|
(685 |
) |
|
(4.26 |
) |
Average yield and rates paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets |
|
|
5.81 |
% |
|
5.40 |
% |
|
0.41 |
|
|
7.59 |
|
Interest-bearing liabilities |
|
|
3.41 |
% |
|
2.93 |
% |
|
0.48 |
|
|
16.38 |
|
Interest rate spread |
|
|
2.40 |
% |
|
2.46 |
% |
|
(0.06 |
) |
|
(2.44 |
) |
Net interest margin |
|
|
2.85 |
% |
|
2.84 |
% |
|
0.01 |
|
|
0.35 |
|
Average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
1,679,741 |
|
|
1,740,222 |
|
|
(60,481 |
) |
|
(3.48 |
) |
Investment securities |
|
|
471,350 |
|
|
513,694 |
|
|
(42,344 |
) |
|
(8.24 |
) |
Other interest-earning assets |
|
|
7,911 |
|
|
6,354 |
|
|
1,557 |
|
|
24.50 |
|
Deposits |
|
|
1,577,271 |
|
|
1,571,489 |
|
|
5,782 |
|
|
0.37 |
|
Borrowings |
|
|
299,176 |
|
|
394,895 |
|
|
(95,719 |
) |
|
(24.24 |
) |
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||||||||||||||
|
|
||||||||||||||||||
March 31, (Dollars in thousands) |
|
Average |
|
Interest |
|
Yield/ |
|
Average |
|
Interest |
|
Yield/ |
|
||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
7,000 |
|
$ |
87 |
|
|
4.97 |
% |
$ |
2,049 |
|
$ |
22 |
|
|
4.29 |
% |
Loans |
|
|
1,679,741 |
|
|
25,766 |
|
|
6.14 |
|
|
1,740,222 |
|
|
24,786 |
|
|
5.70 |
|
Investment securities |
|
|
151,267 |
|
|
1,625 |
|
|
4.30 |
|
|
153,051 |
|
|
1,424 |
|
|
3.72 |
|
Mortgage-backed securities |
|
|
184,682 |
|
|
2,190 |
|
|
4.74 |
|
|
210,383 |
|
|
2,379 |
|
|
4.52 |
|
Collateralized mortgage obligations |
|
|
135,401 |
|
|
1,701 |
|
|
5.03 |
|
|
150,260 |
|
|
1,834 |
|
|
4.88 |
|
Other interest-earning assets |
|
|
911 |
|
|
12 |
|
|
5.27 |
|
|
4,305 |
|
|
46 |
|
|
4.27 |
|
Total interest-earning assets |
|
|
2,159,002 |
|
|
31,381 |
|
|
5.81 |
|
|
2,260,270 |
|
|
30,491 |
|
|
5.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest earning assets |
|
|
131,751 |
|
|
|
|
|
|
|
|
106,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
|
2,290,753 |
|
|
31,381 |
|
|
|
|
|
2,367,269 |
|
|
30,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning checking accounts |
|
|
164,912 |
|
|
424 |
|
|
1.03 |
|
|
167,175 |
|
|
429 |
|
|
1.03 |
|
Money market accounts |
|
|
292,323 |
|
|
2,215 |
|
|
3.03 |
|
|
264,928 |
|
|
1,513 |
|
|
2.28 |
|
Savings accounts |
|
|
247,421 |
|
|
454 |
|
|
0.73 |
|
|
280,926 |
|
|
516 |
|
|
0.73 |
|
Time deposits |
|
|
872,615 |
|
|
9,195 |
|
|
4.21 |
|
|
858,460 |
|
|
7,428 |
|
|
3.46 |
|
Total interest-bearing deposits |
|
|
1,577,271 |
|
|
12,288 |
|
|
3.12 |
|
|
1,571,489 |
|
|
9,886 |
|
|
2.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
195,272 |
|
|
2,436 |
|
|
4.99 |
|
|
253,597 |
|
|
2,919 |
|
|
4.60 |
|
Repurchase agreements |
|
|
88,600 |
|
|
1,082 |
|
|
4.88 |
|
|
92,646 |
|
|
1,049 |
|
|
4.53 |
|
Federal Home Loan Bank overnight borrowings |
|
|
|
|
|
|
|
|
0.00 |
|
|
37,288 |
|
|
420 |
|
|
4.51 |
|
Other borrowings |
|
|
15,304 |
|
|
188 |
|
|
4.91 |
|
|
11,364 |
|
|
145 |
|
|
5.10 |
|
Total interest-bearing liabilities |
|
|
1,876,447 |
|
|
15,994 |
|
|
3.41 |
|
|
1,966,384 |
|
|
14,419 |
|
|
2.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits |
|
|
73,541 |
|
|
|
|
|
|
|
|
80,811 |
|
|
|
|
|
|
|
Other non-interest-bearing liabilities |
|
|
59,711 |
|
|
|
|
|
|
|
|
39,587 |
|
|
|
|
|
|
|
Total liabilities |
|
|
2,009,699 |
|
|
15,994 |
|
|
|
|
|
2,086,782 |
|
|
14,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
281,054 |
|
|
|
|
|
|
|
|
280,487 |
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
|
2,290,753 |
|
|
|
|
|
|
|
|
2,367,269 |
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
15,387 |
|
|
|
|
|
|
|
|
16,072 |
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
2.40 |
|
|
|
|
|
|
|
|
2.46 |
|
Net interest margin |
|
|
|
|
|
|
|
|
2.85 |
|
|
|
|
|
|
|
|
2.84 |
|
Average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
|
115.06 |
% |
|
|
|
|
|
|
|
114.95 |
% |
Provision for Loan Losses. The provision for loan losses amounted to $300,000 for three months ended March 31, 2007, compared to $600,000 for the same period in 2006, and was determined by management to be an amount necessary to maintain a balance of allowance for loan losses at a level that considers all known and current losses in the loan portfolio. The change in the provision for loan losses in the 2007 period compared to the same period in 2006 reflects the lower level of net charge-offs and the decrease in average loans outstanding.
Non-interest Income. Non-interest income decreased $224,000 or 7.30% from $3.1 million for the three months ended March 31, 2007, to $2.8 million for the same period in 2006. This change was primarily due to a decrease in profit on the sale of available for sale equity securities to $313,000 during the quarter ended March 31, 2007 from $617,000 during the period ended March 31, 2006. This decrease was partially offset by a $107,000 reduction in losses on other assets, including operating losses on limited partnerships established to support low to moderate income housing in the local market.
35
36
The financial information and other data in this section is derived in part from and should be read in conjunction with FMS Financials Form 10-K for the year ended December 31, 2006. Financial information at or for the three-month periods ended March 31, 2007 and 2006 was derived from our unaudited consolidated financial statements, which in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The unaudited results of operations and other data presented for the three month period ended March 31, 2007 do not necessarily indicate the results that may be expected for the year ending December 31, 2007 or any other period.
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
At March 31, 2007 |
|
December 31, 2006 |
|
||
|
|
|||||||
|
|
|
(unaudited) |
|
|
|
|
|
|
Financial Condition: |
|
|
|
|
|
|
|
|
Assets |
|
$ |
1,169,314 |
|
$ |
1,188,112 |
|
|
Loans receivable, net |
|
|
447,466 |
|
|
450,099 |
|
|
Deposits |
|
|
942,798 |
|
|
933,103 |
|
|
Stockholders equity |
|
|
79,458 |
|
|
78,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Three Months
Ended |
|
||||||
|
|
|
|
|||||||||
|
|
|
(unaudited) |
|
(unaudited) |
|
||||||
|
Operations: |
|
|
|
|
|
||||||
|
Interest income |
|
$ |
14,912 |
|
$ |
15,177 |
|
||||
|
Interest expense |
|
|
|
7,249 |
|
|
|
|
6,345 |
|
|
|
Net interest income |
|
|
|
7,663 |
|
|
|
|
8,832 |
|
|
|
Net income |
|
|
|
886 |
|
|
|
|
1,334 |
|
|
|
Basic earnings per common share |
|
|
|
0.14 |
|
|
|
|
0.20 |
|
|
|
Diluted earnings per common share |
|
|
|
0.14 |
|
|
|
|
0.20 |
|
|
|
Dividends declared per common share |
|
|
|
0.03 |
|
|
|
|
0.03 |
|
|
|
Weighted average common shares outstanding |
|
|
|
6,536 |
|
|
|
|
6,515 |
|
|
|
Weighted average common shares outstanding and common stock equivalents outstanding |
|
|
|
6,540 |
|
|
|
|
6,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other selected data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread |
|
|
|
2.83 |
% |
|
|
|
3.15 |
% |
|
|
Net interest margin |
|
|
|
2.83 |
|
|
|
|
3.15 |
|
|
|
Return on average assets |
|
|
|
0.30 |
|
|
|
|
0.44 |
|
|
|
Return on average equity |
|
|
|
4.32 |
|
|
|
|
6.75 |
|
|
|
Dividend payout ratio |
|
|
|
21.43 |
|
|
|
|
15.00 |
|
|
|
Equity-to-asset ratio |
|
|
|
6.80 |
|
|
|
|
6.60 |
|
|
|
Number of employees (full-time equivalents) |
|
|
|
477 |
|
|
|
|
547 |
|
|
37
Comparisons of
Financial Condition at March 31, 2007 and December 31, 2006
Total assets of FMS Financial decreased $18.8 million or 1.6% to $1.17 billion at March 31, 2007 from $1.19 billion at December 31, 2006. Investment securities held to maturity decreased $13.4 million or 3.1% to $415.0 million at March 31, 2007 from $428.4 million at December 31, 2006 primarily due to $8.8 million in principal paydowns and $4.6 million in investment maturities during this period. Investment securities available for sale decreased $4.9 million or 3.4% to $141.1 million at March 31, 2007 from $146.0 million at December 31, 2006, due to principal paydowns of $2.7 million and investment calls of $2.6 million during this period. Loans receivable decreased $2.6 million or 0.6% to $447.5 million at March 31, 2007 from $450.1 million at December 31, 2006 primarily due to $17.8 million of principal collected on loans, partially offset by $15.1 million of loans originated during this period. Short-term funds increased $9.2 million or 17.2% to $62.6 million at March 31, 2007 from $53.4 million at December 31, 2006, primarily due to an increase in short-term money market accounts.
Total liabilities decreased $19.9 million or 1.8% to $1.09 billion at March 31, 2007 from $1.11 billion at December 31, 2006. FMS Statutory Trust I and II debentures decreased $25.8 million or 50% to $25.8 million at March 31, 2007 from $51.5 million at December 31, 2006. In March 2007, FMS Financial redeemed FMS Statutory Trust 1, which had issued $25.0 million of floating rate capital securities and $774,000 of common securities. These debentures were redeemed at par and required the mandatory redemption of the Trusts capital and common securities. Deposits increased $9.7 million or 1.0% to $942.8 million at March 31, 2007 from $933.1 million at December 31, 2006. The increase in total deposits during the year was due to increases in time deposits of $24.9 million and savings accounts of $1.2 million, partially offset by decreases in checking accounts of $10.3 million, money market accounts of $3.1 million and non-interest checking accounts of $3.0 million during this period. Securities sold under agreements to repurchase decreased $5.0 million or 4.4% to $110.0 million at March 31, 2007 from $115.0 million at December 31, 2006 due to the repayment of these borrowings during the period. These borrowings are collateralized by U.S. Government agency notes, MBSs and CMOs and had a weighted average rate of 5.31% and 5.24% at March 31, 2007 and December 31, 2006, respectively.
Stockholders equity increased $1.1 million or 1.4% to $79.5 million at March 31, 2007 from $78.4 million at December 31, 2006. The increase was due to net income of $886,000, an increase in accumulated comprehensive income of $277,000 and the exercise of stock options of $130,000, partially offset by $196,000 of dividends declared on common stock.
Results of Operations for the Three Months Ended March 31, 2007 and 2006
General. The earnings of FMS Financial depend primarily upon the level of net interest income, which is the difference between interest earned on its interest-earning assets such as loans and investments, and the interest paid on interest-bearing liabilities, such as deposits including non-interest checking accounts, long-term debts and borrowings. Net interest income is a function of the interest rate spread, which is the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, as well as the average balance of interest-earning assets as compared to interest-bearing liabilities. Net income is also affected by non-interest income, such as gains (losses) on the sale of loans and investments, provision for loan losses and real estate owned, service charges and other fees, and operating expenses, such as salaries, employee benefits, deposit insurance premiums, depreciation, occupancy and equipment expense and purchased services expense.
FMS Financial recorded net income for the three months ended March 31, 2007 of $886,000, or $0.14 diluted earnings per share as compared to $1.3 million, or $0.20 diluted earnings per share for the comparable period in 2006.
Interest Rate Spread. FMS Financials
interest
income is affected by the difference or interest rate spread between yields
received by FMS Financial on its interest-earning assets and the interest rates
paid by FMS Financial on its interest-bearing liabilities including
non-interest checking accounts. Net interest income is affected by (i) the
spread between the yield earned on interest-earning assets and the interest
rates paid on interest-bearing savings deposits including non-interest checking
accounts and borrowings (liabilities) and (ii) the relative amounts of
interest-earning assets versus interest-bearing liabilities. FMS Financials
interest rate spread varies over time because money fund accounts and other
flexible rate accounts have become significant sources of savings deposits.
38
Income from investment securities and
mortgage-backed securities depends upon the amount invested during the period
and the yields earned on such securities. The yield on loans changes
principally as a result of existing mortgage loan repayments, adjustable rate
loan adjustments, sales and the interest rates and volume of new mortgage
loans. The average yields and rates are derived by dividing income or expense
by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods presented.
The following table sets forth certain information relating to FMS Financials average balance sheet and reflects the average yield on assets and average rates paid on liabilities for the periods indicated. Such yields and rates are derived by dividing interest income or expense, on a tax-equivalent basis, by the average balance of interest-earning assets or liabilities, respectively for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
2007 |
|
2006 |
|
||||||||||||||
|
|
||||||||||||||||||
|
|
Average |
|
Interest |
|
Average |
|
Average |
|
Interest |
|
Average |
|
||||||
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
453,991 |
|
$ |
6,915 |
|
|
6.09 |
% |
$ |
454,145 |
|
$ |
6,805 |
|
|
5.99 |
% |
Interest-bearing deposits |
|
|
54,750 |
|
|
704 |
|
|
5.14 |
|
|
24,108 |
|
|
260 |
|
|
4.31 |
|
Mortgage-backed securities |
|
|
225,270 |
|
|
2,847 |
|
|
5.06 |
|
|
274,898 |
|
|
3,472 |
|
|
5.05 |
|
Investment securities |
|
|
349,203 |
|
|
4,459 |
|
|
5.11 |
|
|
375,518 |
|
|
4,684 |
|
|
4.99 |
|
|
|
||||||||||||||||||
Total interest-earning assets |
|
|
1,083,214 |
|
|
14,925 |
|
|
5.51 |
|
|
1,128,669 |
|
|
15,221 |
|
|
5.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking deposits |
|
|
392,654 |
|
|
1,634 |
|
|
1.66 |
|
|
401,228 |
|
|
1,469 |
|
|
1.46 |
|
Savings deposits |
|
|
172,968 |
|
|
302 |
|
|
0.70 |
|
|
189,662 |
|
|
279 |
|
|
0.59 |
|
Money market deposits |
|
|
111,630 |
|
|
369 |
|
|
1.32 |
|
|
130,297 |
|
|
344 |
|
|
1.06 |
|
Time deposits |
|
|
243,209 |
|
|
2,433 |
|
|
4.00 |
|
|
212,554 |
|
|
1,562 |
|
|
2.94 |
|
Borrowings |
|
|
110,376 |
|
|
1,463 |
|
|
5.30 |
|
|
171,614 |
|
|
2,124 |
|
|
4.95 |
|
Long-term debt |
|
|
49,890 |
|
|
1,048 |
|
|
8.40 |
|
|
25,774 |
|
|
567 |
|
|
8.80 |
|
|
|
||||||||||||||||||
Total interest-bearing liabilities |
|
$ |
1,080,727 |
|
|
7,249 |
|
|
2.68 |
% |
$ |
1,131,129 |
|
|
6,345 |
|
|
2.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
$ |
7,676 |
|
|
|
|
|
|
|
$ |
8,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate spread |
|
|
|
|
|
|
|
|
2.83 |
% |
|
|
|
|
|
|
|
3.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net yield on average interest-earning assets |
|
|
|
|
|
|
|
|
2.83 |
% |
|
|
|
|
|
|
|
3.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Ratio of average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
|
100.23 |
% |
|
|
|
|
|
|
|
99.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Rate/Volume Analysis. The following table
describes the extent to which changes in interest rates and changes in volume
of interest-earning assets and interest-bearing liabilities have affected FMS
Financials interest income and interest expense, on a tax equivalent basis,
during the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to (i) changes in rate, (ii) changes in volume and (iii) total changes in rate
and volume (the combined effect of changes in both volume and rate, not
separately identified, has been allocated to rate). A higher level of
non-performing loans affects the changes in both volume and rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
|||||||
|
|
|||||||||
|
|
Rate |
|
Volume |
|
Total |
|
|||
|
|
(In thousands) |
|
|||||||
|
|
|||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
112 |
|
($ |
2 |
) |
$ |
110 |
|
Interest-bearing deposits |
|
|
114 |
|
|
330 |
|
|
444 |
|
Mortgage-backed securities |
|
|
2 |
|
|
(627 |
) |
|
(625 |
) |
Investment securities |
|
|
103 |
|
|
(328 |
) |
|
(225 |
) |
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
Total change - interest income |
|
|
331 |
|
|
(627 |
) |
|
(296 |
) |
|
|
|||||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
Checking deposits |
|
|
196 |
|
|
(31 |
) |
|
165 |
|
Savings deposits |
|
|
48 |
|
|
(25 |
) |
|
23 |
|
Money market deposits |
|
|
74 |
|
|
(49 |
) |
|
25 |
|
Time deposits |
|
|
646 |
|
|
225 |
|
|
871 |
|
Borrowings |
|
|
97 |
|
|
(758 |
) |
|
(661 |
) |
Long-Term Debt |
|
|
(50 |
) |
|
531 |
|
|
481 |
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
Total change - interest expense |
|
|
1,011 |
|
|
(107 |
) |
|
904 |
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income |
|
($ |
680 |
) |
($ |
520 |
) |
($ |
1,200 |
) |
|
|
Net Income. FMS Financial and its subsidiary recorded net income of $886,000 for the quarter ended March 31, 2007, or $0.14 diluted earnings per share, as compared to net income of $1.3 million, or $0.20 diluted earnings per share for the quarter ended March 31, 2006. Net interest income on a tax equivalent basis was $7.7 million for the three months ended March 31, 2007 compared to $8.9 million for the same period in 2006. Provisions for loan losses were $15,000 and $90,000 for the quarters ended March 31, 2007 and 2006, respectively. Non-interest income was $1.4 million for the three months ended March 31, 2007 and 2006. Total noninterest expense for the quarter ended March 31, 2007 was $7.5 million compared to $7.9 million for the same quarter in 2006.
Interest Income. Total interest income on a
tax equivalent basis decreased $296,000 to $14.9 million for the quarter ended
March 31, 2007 from $15.2 million for the same period in 2006. The decrease is
attributable to decreases in interest income on mortgage-backed securities
(MBSs) of $625,000 and investment securities of $225,000, partially offset by
increases in interest income on interest-bearing deposits of $444,000 and loans
receivable of $110,000. Interest income on mortgage-backed securities decreased
by $625,000 to $2.8 million for the three months ended March 31, 2007 from $3.5
million for the same period in 2006. The average balance of MBSs decreased
$49.6 million to $225.3 million for the three months ended March 31, 2007 from
$274.9 million for the same period in 2006, which resulted in an interest
income volume decrease of $627,000. The decrease in the average balance during
this period was due to principal paydowns of $29.2 million and calls and
maturities of $12.0 million, partially offset by purchases of MBSs of $3.1
million from the first quarter of 2006. The average yield of
40
the MBS portfolio increased 1 basis points to
5.06% for the quarter ended March 31, 2007 from 5.05% for the same period in
2006, which resulted in an interest income increase of $2,000 due to changes in
rates.
Interest income on investment securities decreased $225,000 to $4.5 million for the three months ended March 31, 2007 from $4.7 million for the same period in 2006. The average balance of investment securities decreased $26.3 million to $349.2 million for the three months ended March 31, 2007 from $375.5 million for the same period in 2006, which resulted in a volume decrease in interest income of $328,000. The decrease in the average volume during this period is due to investment principal paydowns of $23.8 million and calls and maturities of $22.5 million, partially offset by investment purchases of $8.1 million since the first quarter 2006. The average yield of the investment portfolio increased 12 basis points to 5.11% for the quarter ended March 31, 2007 from 4.99% for the same period in 2006, which resulted in an interest income increase of $103,000 due to rate changes.
Interest income on interest-bearing deposit investments increased $444,000 to $704,000 for the three months ended March 31, 2007 from $260,000 for the same period in 2006. The average balance of interest-bearing deposit investments increased $30.7 million to $54.8 million for the quarter ended March 31, 2007 from $24.1 million for the same period in 2006, which resulted in a volume increase in interest income of $330,000. The average yield of interest-bearing deposit investments increased 83 basis points to 5.14% for the three months ended March 31, 2007 from 4.31% for the same period in 2006, which resulted in an increase in interest income of $114,000 due to rate changes.
Interest income on loans increased $110,000 to $6.9 million for the three months ended March 31, 2007 from $6.8 million for the same period in 2006. The average rate on loans increased 10 basis points to 6.09% for the three months ended March 31, 2007 from 5.99% for the same period in 2006, which resulted in an increase in interest income of $112,000 due to rate changes. The average balance of the loan portfolio decreased $154,000 to $454.0 million for the three months ended March 31, 2007 from $454.1 million for the same period in 2006, which resulted in a volume decrease in interest income of $2,000. The decrease in the average balance is primarily due to principal collected on loans of $89.0 million, partially offset by $86.3 of loan originated since the first quarter of 2006.
Interest Expense. Total interest expense increased $904,000 to $7.2 million for the three months ended March 31, 2007 from $6.3 million for the same period in 2006. The increases in interest expense on time deposits, long-term debt, checking deposits, money market deposits and savings deposits were partially offset by a decrease in interest expense on borrowings.
Interest expense on time deposits increased $871,000 to $2.4 million for the three months ended March 31, 2007 from $1.6 million for the same period in 2006. The average rate on time deposits increased 106 basis points to 4.00% for the quarter ended March 31, 2007 from 2.94% for the same period in 2006, which resulted in a rate increase in interest expense of $646,000. The average balance of time deposits increased $30.6 million to $243.2 million for the quarter ended March 31, 2007 from $212.6 million for the same period in 2006, which resulted in an increase in interest expense of $225,000. The increase in the average balance of time deposits is the result of a promotional 5 month and 13 month certificate of deposit program that began in September 2006.
Interest expense on long-term debt increased $481,000 to $1.0 million for the three months ended March 31, 2007 from $567,000 for the same period in 2006. The average balance on debentures increased $24.1 million to $49.9 million for the quarter ended March 31, 2007 from $25.8 million for the same period in 2006, which resulted in an increase in interest expense of $531,000. This increase is primarily due to the Trust II issuance in June 2006 of $25.0 million of floating rate debentures. The average rate decreased 40 basis points to 8.40% for the three months ended March 31, 2007 from 8.80% for the same period in 2006, which decreased interest expense on long-term debt $50,000.
Interest
expense on checking deposits increased $165,000 to $1.6 million for the three
months ended March 31, 2007 from $1.5 million for the same period in 2006. The
average rate on checking deposits increased 20 basis points to 1.66% for the
quarter ended March 31, 2007 from 1.46% for the same period in 2006, which
resulted in an increase in interest expense of $196,000. This increase was
primarily due to an increase in the average rate paid on municipal government
checking accounts to 5.25% for the three months ended March 31, 2007 from 4.67%
for the
41
same period in 2006. The average balance of
checking deposits decreased $8.5 million to $392.7 million for the three months
ended March 31, 2007 from $401.2 million for the same period in 2006, which
resulted in a volume decrease in interest expense of $31,000.
Interest expense on money market deposits increased $25,000 to $369,000 for the three months ended March 31, 2007 from $344,000 for the same period in 2006. The average rate on money market deposits increased 26 basis points to 1.32% for the quarter ended March 31, 2007 from 1.06% for the same period in 2006, which resulted in an increase in interest expense of $74,000. The average balance of money market deposits decreased $18.7 million to $111.6 million for the three months ended March 31, 2007 from $130.3 million for the same period in 2006, which resulted in a volume decrease in interest expense of $49,000.
Interest expense on savings deposits increased $23,000 to $302,000 for the three months ended March 31, 2007 from $279,000 for the same period in 2006. The average rate on savings deposits increased 11 basis points to 0.70% for the quarter ended March 31, 2007 from 0.59% for the same period in 2006, which resulted in an increase in interest expense of $48,000. The average balance of savings deposits decreased $16.7 million to $173.0 million for the three months ended March 31, 2007 from $189.7 million for the same period in 2006, which resulted in a volume decrease in interest expense of $25,000.
Interest expense on borrowings decreased $661,000 to $1.5 million for the three months ended March 31, 2007 from $2.1 million for the same period in 2006. The average balance of borrowings decreased $61.2 million to $110.4 million at March 31, 2007 from $171.6 million for the same period in 2006, which resulted in a volume decrease in interest expense of $758,000. The average rate paid on borrowings increased 35 basis points to 5.30% for the quarter ended March 31, 2007 from 4.95% for the same period in 2006, which resulted in an increase in interest expense of $97,000 due to rate changes.
Critical Accounting Estimate-Provision for Loan Losses. A critical accounting estimate is the provision for loan losses. The provision decreased to $15,000 for the three months ended March 31, 2007 compared to $90,000 for the same period in 2006. The allowance for loan losses amounted to $5.4 million at March 31, 2007 and December 31, 2006. The determination of the allowance level for loan losses is based on managements analysis of the risk characteristics of various types of loans, levels of classified loans, previous loan loss experience, the estimated fair market value of the underlying collateral and current economic conditions. Additionally, the mix within the FMS Financials portfolio continues to change as FMS Financial offers a wider variety of products. Within the loan portfolio, a change is also occurring as a shift is made from lower yielding loans (i.e., one-to-four family loans) to higher yielding loans (i.e., commercial real estate mortgages, commercial construction, consumer and commercial business loans). These types of loans contain a higher degree of risk. FMS Financial will continue to monitor its allowance for loan losses and make future adjustments to the allowance through the provision for loan losses as changing conditions dictate. Although FMS Financial maintains its allowance for loan losses at a level that it considers to be adequate to provide for the inherent risk of loss in its loan portfolio, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods due to the higher degree of credit risk which might result from the change in the mix of the loan portfolio or changes in economic conditions. Most of FMS Financials lending activity is with customers located within southern New Jersey. Generally, the loans are secured by real estate consisting of single-family residential properties. While this represents a concentration of credit risk, the credit losses arising from this type of lending compare favorably with FMS Financials credit loss experience on its portfolio as a whole. The ultimate repayment of these loans is dependent to a certain degree on the local economy and real estate market.
FMS Financial recognizes deferred tax assets and liabilities for the future tax effects of temporary differences. Deferred tax assets are subject to managements judgment based upon available evidence that future realization is more likely than not. If management determines that FMS Financial may be unable to realize all or part of net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the expected realizable amount.
Non-interest Income. Non-interest
income remained constant at $1.4 million for
the three month period ended March 31, 2007 and 2006.
42
Non-interest Expense. Non-interest
expense decreased $400,000 to $7.5 million for
the three month period ended March 31, 2007 from $7.9 million for the same
period in 2006 primarily due to a decrease in salaries and employee benefits
expense, partially offset by an increase in occupancy and equipment expense.
Salaries and Employee Benefits. Salaries and employee benefits decreased $356,000 to $4.5 million for the three month period ended March 31, 2007 compared to $4.8 million for the same period in 2006. The decrease was due to a reduction in overtime pay of $69,000 as well as a current moratorium on hiring is in effect. Average full time equivalent employees were 477 at March 31, 2007 as compared to 547 at March 31, 2006.
Occupancy and Equipment. Occupancy
and equipment increased $116,000 to $1.6 million
for the three month period ended March 31, 2007 compared to $1.5 million for
the same period in 2006 due primarily to increases in maintenance expense of
$77,000, equipment expense of $18,000 and property taxes of $12,000.
43
The following table shows selected financial information on a pro forma condensed consolidated basis giving effect to the merger and the stock offering assuming the offering is completed at the maximum of the offering range based on the assumptions set forth below. The pro forma unaudited consolidated financial statements give effect to the merger using the purchase method of accounting as required by accounting principles generally accepted in the United States of America. The pro forma unaudited consolidated financial statements give effect to the merger as if the merger had become effective at the end of the period presented, in the case of balance sheet information, and at the beginning of the period presented, in the case of income statement information.
We anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined as of the date and during the period presented.
You should read this summary pro forma information in conjunction with the information under Pro Forma Data beginning on page ____ of the prospectus.
|
|
|
|
(In thousands) |
|
At March 31, 2007 |
|
|
|||
Pro Forma Combined Financial Condition Data: |
|
|
|
Total assets |
|
3,642,032 |
|
Cash and cash equivalents |
|
221,116 |
|
Investment securities available-for-sale |
|
480,458 |
|
Investment securities held-to-maturity |
|
533,597 |
|
Loans receivable, net |
|
2,085,805 |
|
Intangible assets |
|
139,678 |
|
Deposits |
|
2,575,453 |
|
Federal Home Loan Bank advances |
|
196,550 |
|
Other borrowed funds |
|
266,400 |
|
Stockholders equity |
|
556,952 |
|
|
|
|
|
Pro Forma Combined Operating Data: |
|
|
|
Interest income |
|
47,953 |
|
Interest expense |
|
(23,311 |
) |
|
|
|
|
Net interest income |
|
24,643 |
|
Provision for loan losses |
|
(315 |
) |
|
|
|
|
Net interest income after provision for loan losses |
|
24,328 |
|
Other income |
|
4,234 |
|
Operating expenses |
|
(26,019 |
) |
|
|
|
|
Income before income taxes |
|
2,543 |
|
Income taxes |
|
(674 |
) |
|
|
|
|
Net income |
|
1,869 |
|
44
|
|
|
|
|
(Dollars in thousands) |
|
At or For the |
|
|
|
|
|
|
|
Performance Ratios: |
|
|
|
|
Return on assets (1) |
|
0.21 |
% |
|
Return on equity (1) |
|
1.34 |
|
|
Equity to assets |
|
15.29 |
|
|
Efficiency ratio |
|
90.10 |
|
|
|
|
|
|
|
Capital Ratios (2): |
|
|
|
|
Tier 1 leverage ratio capital |
|
10.84 |
|
|
Tier 1 risk-based capital |
|
18.15 |
|
|
Total risk-based capital |
|
19.96 |
|
|
|
|
|
|
|
Asset Quality Ratios: |
|
|
|
|
Allowance for loan losses as a percent of non-performing loans |
|
160.48 |
|
|
Net charge-offs (recoveries) to average outstanding loans during the period (3) |
|
0.04 |
|
|
Non-performing loans as a percent of total loans |
|
0.66 |
|
|
Non-performing assets as a percent of total assets |
|
0.46 |
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
Number of offices |
|
83 |
|
|
Number of deposit accounts |
|
311,199 |
|
|
Number of loans |
|
65,394 |
|
|
|
|
(1) |
In calculating the return on assets and equity, total pro
forma combined assets and equity of $3.6 billion and $557.0 million at March
31, 2007, respectively, were used instead of average assets and average
equity and net income was annualized from the three months ended March 31,
2007. |
(2) |
Figures shown for Beneficial Mutual Savings Bank. |
(3) |
Annualized from pro forma net charge-offs for the three months ended March 31, 2007. |
45
The following table shows how we intend to use the net proceeds of the offering. The actual net proceeds will depend on the number of shares of common stock sold in the offering and the expenses incurred in connection with the offering and merger and the number of shares of FMS Financial that are exchanged for shares of Beneficial Mutual Bancorp common stock. Payments for shares made through withdrawals from deposit accounts at Beneficial Mutual Savings Bank will reduce Beneficial Mutual Savings Banks deposits and will not result in the receipt of new funds for investment. See Pro Forma Data for the assumptions used to arrive at these amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum of |
|
Midpoint of |
|
Maximum of |
|
15% Above Maximum of Offering Range (1) |
|
||||||||||||||||
|
|
||||||||||||||||||||||||
(Dollars in thousands) |
|
15,172,500 |
|
Percent |
|
17,850,000 |
|
Percent |
|
20,527,500 |
|
Percent |
|
23,606,625 |
|
Percent |
|
||||||||
Gross offering proceeds |
|
$ |
151,725 |
|
|
|
|
$ |
178,500 |
|
|
|
|
$ |
205,275 |
|
|
|
|
$ |
236,066 |
|
|
|
|
Less: offering expenses |
|
|
(3,235 |
) |
|
|
|
|
(3,387 |
) |
|
|
|
|
(3,540 |
) |
|
|
|
|
(3,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net offering proceeds |
|
|
148,490 |
|
|
100.00 |
% |
|
175,113 |
|
|
100.00 |
% |
|
201,735 |
|
|
100.00 |
% |
|
232,350 |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds contributed to Beneficial Mutual Savings Bank |
|
|
(29,073 |
) |
|
(19.58 |
) |
|
(44,589 |
) |
|
(25.46 |
) |
|
(60,889 |
) |
|
(30.18 |
) |
|
(77,859 |
) |
|
(33.51 |
) |
Proceeds used for loan to employee stock ownership plan |
|
|
(21,986 |
) |
|
(14.81 |
) |
|
(25,246 |
) |
|
(14.42 |
) |
|
(28,567 |
) |
|
(14.16 |
) |
|
(32,248 |
) |
|
(13.88 |
) |
Proceeds contributed to The Beneficial Foundation |
|
|
(500 |
) |
|
(0.34 |
) |
|
(500 |
) |
|
(0.29 |
) |
|
(500 |
) |
|
(0.25 |
) |
|
(500 |
) |
|
(0.22 |
) |
Cash needed to for the merger |
|
|
(90,344 |
) |
|
(60.84 |
) |
|
(86,934 |
) |
|
(49.07 |
) |
|
(79,957 |
) |
|
(39.63 |
) |
|
(76,632 |
) |
|
(32.98 |
) |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Proceeds remaining for Beneficial Mutual Bancorp |
|
$ |
6,587 |
|
|
4.44 |
% |
$ |
18,843 |
|
|
10.76 |
% |
$ |
31,822 |
|
|
15.77 |
% |
$ |
45,111 |
|
|
19.42 |
% |
|
|
(1) |
Assumes that 57.5%, 59.7%, 63.0% and 65.0% of the shares of FMS Financial are exchanged for Beneficial Mutual Bancorp common stock at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range, respectively. |
The net offering proceeds will be used primarily to pay the cash portion of the merger consideration to FMS Financial stockholders and merger expenses. To the extent offering proceeds remain available after consummation of the merger, Beneficial Mutual Bancorp intends to contribute 50% of such proceeds to Beneficial Mutual Savings Bank. Beneficial Mutual Bancorp intends to invest the remaining proceeds in short-term, liquid investments, such as United States treasury and government agency securities, mortgage-backed securities and cash and cash equivalents, in order to supplement the interest income of Beneficial Mutual Savings Bank and increase consolidated interest income. The actual amounts to be invested in different instruments will depend on the interest rate environment and Beneficial Mutual Bancorps liquidity requirements. In the future, Beneficial Mutual Bancorp may liquidate its investments and use those funds:
|
|
|
|
|
to pay dividends to stockholders; |
|
|
|
|
|
to repurchase shares of its common stock, subject to regulatory restrictions; |
|
|
|
|
|
to finance the possible acquisition of financial institutions or other businesses that are related to banking; and |
|
|
|
|
|
for general corporate purposes. |
Under current Office of Thrift Supervision regulations, Beneficial Mutual Bancorp may not repurchase shares of its common stock during the first year following the offering, except to fund equity benefit plans or, with prior regulatory approval, when extraordinary circumstances exist.
|
|
|
|
|
to fund new loans; |
46
|
|
|
|
|
to invest in securities, primarily obligations of U.S. government agencies and mortgage-backed securities; |
|
|
|
|
|
to finance the possible expansion of its business activities, including developing new branch locations; and |
|
|
|
|
|
for general purposes. |
Beneficial
Mutual Savings Bank may need regulatory approval to engage in some of the
activities listed above.
Except as described above, neither Beneficial Mutual Bancorp nor Beneficial Mutual Savings Bank has any specific plans for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. For a discussion of our business reasons for undertaking the offering, see The Stock OfferingReasons for the Stock Offering.
47
We have not yet determined whether we will pay a dividend on the common stock. After the offering, our board of directors will consider a policy of paying regular cash dividends. The board of directors may declare and pay periodic special cash dividends in addition to, or in lieu of, regular cash dividends. In determining whether to declare or pay any dividends, whether regular or special, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements, industry standards and economic conditions. The regulatory restrictions that affect the payment of dividends by Beneficial Mutual Savings Bank to us discussed below will also be considered. We cannot guarantee that we will pay dividends or that, if paid, we will not reduce or eliminate dividends in the future.
If Beneficial Mutual Bancorp pays dividends to its stockholders, it also will be required to pay dividends to Beneficial Savings Bank MHC, unless Beneficial Savings Bank MHC elects to waive the receipt of dividends. We anticipate that Beneficial Savings Bank MHC will waive any dividends that Beneficial Mutual Bancorp may pay. Any decision to waive dividends will be subject to regulatory approval.
We will not be subject to Office of Thrift Supervision regulatory restrictions on the payment of dividends. However, our ability to pay dividends may depend, in part, upon dividends we receive from Beneficial Mutual Savings Bank because we initially will have no source of income other than dividends from Beneficial Mutual Savings Bank and earnings from the investment of the net proceeds from the offering that we retain. We expect that Beneficial Mutual Bancorp will retain approximately $31.8 million from the net proceeds raised in the offering at the maximum of the offering range based upon our estimate of offering and merger-related expenses and other assumptions described in Pro Forma Data. Office of Thrift Supervision regulations limit dividends and other distributions from Beneficial Mutual Savings Bank to us. In addition, Beneficial Mutual Savings Bank may not make a distribution that would constitute a return of capital during the three-year term of the business plan submitted in connection with the offering. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized. See Regulation and SupervisionRegulation of Federal Savings AssociationsLimitation on Capital Distributions.
Any payment of dividends by Beneficial Mutual Savings Bank to us that would be deemed to be drawn out of Beneficial Mutual Savings Banks bad debt reserves would require Beneficial Mutual Savings Bank to pay federal income taxes at the then current income tax rate on the amount deemed distributed. See Federal and State TaxationFederal Income Taxation and note ____ of the notes to the consolidated financial statements included in this prospectus. We do not contemplate any distribution by Beneficial Mutual Savings Bank that would result in this type of tax liability.
Market for Common Stock of Beneficial Mutual Bancorp
We have not previously issued common stock and there is currently no established market for the common stock. Upon completion of the offering, we expect that our shares of common stock will trade on the Nasdaq Global Select Market under the symbol BNCL. Sandler ONeill intends to become a market maker in our common stock following the offering, but it is under no obligation to do so. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for the common stock will develop or, if developed, will be maintained.
The development of a public market having the desirable characteristics of depth, liquidity and orderliness depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of our common stock at any particular time may be limited, which may have an adverse effect on the price at which our common stock can be sold. There can be no assurance that persons purchasing the common stock will be able to sell their shares at or above the $10.00 price per share in the offering. Purchasers of our common stock should have a long-term investment intent and should recognize that there may be a limited trading market in the common stock.
48
The following table presents the historical capitalization of Beneficial Mutual Bancorp and FMS Financial at December 31, 2006 and the capitalization of Beneficial Mutual Bancorp after giving effect to the offering proceeds and the merger (referred to as pro forma information). The table depicts adjustments to capitalization resulting first from the offering and then from the merger only at the minimum of the offering range and then depicts Beneficial Mutual Bancorps capitalization following the offering and merger at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range. The pro forma capitalization gives effect to the assumptions listed under Pro Forma Data, based on the sale of the number of shares of common stock indicated in the table. This table does not reflect the issuance of additional shares as a result of the exercise of options granted under the proposed equity incentive plan. A change in the number of shares to be issued in the offering may materially affect pro forma capitalization. We are offering our common stock on a best efforts basis. We must sell a minimum of 15,172,500 shares to complete the offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
(Dollars in thousands) |
|
Beneficial |
|
Offering
Adjustments: |
|
Beneficial |
|
FMS |
|
Merger |
|
Minimum |
|
Midpoint |
|
Maximum |
|
Maximum, |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits (3) |
|
$ |
1,667,876 |
|
$ |
|
|
$ |
1,667,876 |
|
$ |
933,103 |
|
$ |
(870 |
) |
$ |
2,600,109 |
|
$ |
2,600,109 |
|
$ |
2,600,109 |
|
$ |
2,600,109 |
|
Borrowings |
|
|
294,896 |
|
|
|
|
|
294,896 |
|
|
115,000 |
|
|
1,690 |
|
|
411,586 |
|
|
411,586 |
|
|
411,586 |
|
|
411,586 |
|
Subordinated debt |
|
|
|
|
|
|
|
|
|
|
|
51,548 |
|
|
(144 |
) |
|
51,404 |
|
|
51,404 |
|
|
51,404 |
|
|
51,404 |
|
Total deposits and borrowed funds |
|
|
1,962,772 |
|
|
|
|
|
1,962,772 |
|
|
1,099,651 |
|
|
676 |
|
|
3,063,099 |
|
|
3,063,099 |
|
|
3,063,099 |
|
|
3,063,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
Common stock (4) |
|
|
|
|
|
456 |
|
|
456 |
|
|
802 |
|
|
(697 |
) |
|
561 |
|
|
644 |
|
|
729 |
|
|
823 |
|
Additional paid-in capital |
|
|
|
|
|
157,534 |
|
|
157,534 |
|
|
8,931 |
|
|
96,086 |
|
|
262,551 |
|
|
293,500 |
|
|
326,015 |
|
|
359,861 |
|
Stockholders equity (5) |
|
|
293,157 |
|
|
|
|
|
293,157 |
|
|
82,120 |
|
|
(85,337 |
) |
|
289,940 |
|
|
289,940 |
|
|
289,940 |
|
|
289,940 |
|
Accumulated other comprehensive income |
|
|
(12,742 |
) |
|
|
|
|
(12,742 |
) |
|
(2,485 |
) |
|
2,485 |
|
|
(12,742 |
) |
|
(12,742 |
) |
|
(12,742 |
) |
|
(12,742 |
) |
Treasury shares |
|
|
|
|
|
|
|
|
|
|
|
(11,007 |
) |
|
11,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Contribution to foundation |
|
|
|
|
|
(10,000 |
) |
|
(10,000 |
) |
|
|
|
|
|
|
|
(10,000 |
) |
|
(10,000 |
) |
|
(10,000 |
) |
|
(10,000 |
) |
Plus: Tax benefit of contribution to foundation |
|
|
|
|
|
3,500 |
|
|
3,500 |
|
|
|
|
|
|
|
|
3,500 |
|
|
3,500 |
|
|
3,500 |
|
|
3,500 |
|
Less: Common stock acquired by employee stock ownership plan (6) |
|
|
|
|
|
(21,986 |
) |
|
(21,986 |
) |
|
|
|
|
|
|
|
(21,986 |
) |
|
(25,246 |
) |
|
(28,567 |
) |
|
(32,248 |
) |
Less: Common stock acquired by equity incentive plan (7) |
|
|
|
|
|
(10,993 |
) |
|
(10,993 |
) |
|
|
|
|
|
|
|
(10,993 |
) |
|
(12,623 |
) |
|
(14,284 |
) |
|
(16,124 |
) |
Total stockholders equity |
|
$ |
280,415 |
|
$ |
118,511 |
|
$ |
398,926 |
|
$ |
78,361 |
|
$ |
23,544 |
|
$ |
500,831 |
|
$ |
526,973 |
|
$ |
554,591 |
|
$ |
583,010 |
|
|
|
(1) |
For a discussion of the assumptions used in calculating the expenses of the offering, see Pro Forma Data. Shares issued and outstanding total 56,087,194, 64,403,103, 72,875,890 and 82,264,600, respectively, at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range including shares sold in the offering, issued to Beneficial Savings Bank MHC, issued to FMS Financial stockholders, and contributed to The Beneficial Foundation. |
49
|
|
(2) |
Reflects the issuance of shares to FMS Financial shareholders in the merger as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to |
|
Percent of Merger Consideration |
|
||
|
|
|
|
|
||||
|
Minimum |
|
10,512,194 |
|
|
57.500 |
% |
|
|
Midpoint |
|
10,953,103 |
|
|
59.912 |
% |
|
|
Maximum |
|
11,550,890 |
|
|
63.182 |
% |
|
|
Adjusted Maximum |
|
11,883,350 |
|
|
65.000 |
% |
|
|
|
(3) |
Does not reflect withdrawals from deposit accounts for the purchase of common stock in the offering. Withdrawals to purchase common stock will reduce pro forma deposits by the amounts of the withdrawals. |
|
|
(4) |
Reflects total shares issued, including shares sold in the offering, as well as all shares to be issued in the merger; issued to Beneficial Savings Bank MHC and contributed to The Beneficial Foundation. |
|
|
(5) |
Stockholders equity are restricted by applicable regulatory capital requirements. |
|
|
(6) |
Assumes that 3.92% of the outstanding common stock, including shares issued to Beneficial Savings Bank MHC, issued in the merger and contributed to The Beneficial Foundation will be acquired by the employee stock ownership plan in the offering with funds borrowed from Beneficial Mutual Bancorp. Under United States generally accepted accounting principles, the amount of common stock to be purchased by the employee stock ownership plan represents unearned compensation and is, accordingly, reflected as a reduction of capital. As shares are released to plan participants accounts, a compensation expense will be charged, along with a related tax benefit, and a reduction in the charge against capital will occur in the amount of the compensation expense recognized. Since the funds are borrowed from Beneficial Mutual Bancorp, the borrowing will be eliminated in consolidation and no liability or interest expense will be reflected in the consolidated financial statements of Beneficial Mutual Bancorp. See Our ManagementBenefit PlansEmployee Stock Ownership Plan. |
|
|
(7) |
Assumes the purchase in the open market at $10.00 per share, for restricted stock awards under the proposed equity incentive plan, of a number of shares equal to 1.96% of the outstanding shares of common stock, including shares issued to Beneficial Savings Bank MHC, issued in the merger and contributed to The Beneficial Foundation. The shares are reflected as a reduction of stockholders equity. The equity incentive plan will be submitted to stockholders for approval at a meeting following the offering. See Risk FactorsIssuance of shares for benefit programs may dilute your ownership interest, Pro Forma Data and Our ManagementBenefit PlansFuture Equity Incentive Plan. |
50
At December 31, 2006, Beneficial Mutual Savings Bank exceeded all regulatory capital requirements. The following table presents Beneficial Mutual Savings Banks regulatory capital position relative to the regulatory capital requirements at December 31, 2006, on a historical and a pro forma basis assuming completion of the merger with FMS Financial and completion of the public offering. The table reflects receipt by Beneficial Mutual Savings Bank of 50% of the net proceeds of the offering after funding the expenses and cash costs of the merger with FMS Financial. For purposes of the table, the amount expected to be borrowed by the employee stock ownership plan (3.92% of the shares of common stock outstanding, including shares issued to Beneficial Savings Bank MHC, shares issued to FMS Financial shareholders in the merger, and shares contributed to The Beneficial Foundation) are deducted from pro forma regulatory capital. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see Use of Proceeds, Capitalization and Pro Forma Data. For a discussion of the capital standards applicable to Beneficial Mutual Savings Bank and Farmers & Mechanics Bank, see Regulation and SupervisionBank RegulationRegulatory Capital Requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
|
|
|
Pro Forma (giving effect to the offering and merger) at December 31, 2006 |
|
||||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||
|
|
Beneficial Mutual |
|
Minimum of |
|
Midpoint of |
|
Maximum of |
|
15% Above |
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
(Dollars in thousands) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
||||||||||
|
|||||||||||||||||||||||||||||||
Capital under generally accepted accounting principles |
|
$ |
268,470 |
|
11.50 |
% |
|
$ |
477,682 |
|
13.42 |
% |
|
$ |
489,938 |
|
13.71 |
% |
|
$ |
502,917 |
|
14.01 |
% |
|
$ |
516,206 |
|
14.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Leverage Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
273,711 |
|
11.73 |
% |
|
|
349,858 |
|
9.83 |
% |
|
|
362,114 |
|
10.13 |
% |
|
|
375,093 |
|
10.45 |
% |
|
|
388,382 |
|
10.77 |
% |
|
Requirement |
|
|
116,712 |
|
5.00 |
% |
|
|
177,950 |
|
5.00 |
% |
|
|
178,726 |
|
5.00 |
% |
|
|
179,541 |
|
5.00 |
% |
|
|
180,389 |
|
5.00 |
% |
|
|
|
||||||||||||||||||||||||||||||
Excess |
|
|
156,999 |
|
6.73 |
% |
|
|
171,908 |
|
4.83 |
% |
|
|
183,389 |
|
5.13 |
% |
|
|
195,553 |
|
5.45 |
% |
|
|
207,993 |
|
5.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Risk-Based Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
273,711 |
|
17.66 |
% |
|
|
349,858 |
|
17.30 |
% |
|
|
362,114 |
|
17.88 |
% |
|
|
375,093 |
|
18.49 |
% |
|
|
388,382 |
|
19.12 |
% |
|
Requirement |
|
|
92,974 |
|
6.00 |
% |
|
|
121,314 |
|
6.00 |
% |
|
|
121,500 |
|
6.00 |
% |
|
|
121,696 |
|
6.00 |
% |
|
|
121,899 |
|
6.00 |
% |
|
|
|
||||||||||||||||||||||||||||||
Excess |
|
|
180,737 |
|
11.66 |
% |
|
|
228,544 |
|
11.30 |
% |
|
|
240,614 |
|
11.88 |
% |
|
|
253,397 |
|
12.49 |
% |
|
|
266,483 |
|
13.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
|
|
291,079 |
|
18.78 |
% |
|
|
372,203 |
|
18.41 |
% |
|
|
384,459 |
|
18.99 |
% |
|
|
397,438 |
|
19.60 |
% |
|
|
410,727 |
|
20.22 |
% |
|
Requirement (3) |
|
|
154,956 |
|
10.00 |
% |
|
|
161,752 |
|
8.00 |
% |
|
|
162,000 |
|
8.00 |
% |
|
|
162,261 |
|
8.00 |
% |
|
|
162,533 |
|
8.00 |
% |
|
Excess |
|
|
136,123 |
|
8.78 |
% |
|
|
210,451 |
|
10.41 |
% |
|
|
222,459 |
|
10.99 |
% |
|
|
235,177 |
|
11.60 |
% |
|
|
248,195 |
|
12.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Shown as percent of assets under generally accepted accounting principles, adjusted total, or adjusted risk-weighted assets as appropriate. |
|
|
(2) |
Reflects the issuance of shares to FMS Financial shareholders in the merger. |
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to |
|
Percent of Merger Consideration |
|
||
|
|
|
|
|
||||
|
Minimum |
|
10,512,194 |
|
|
57.500 |
% |
|
|
Midpoint |
|
10,953,103 |
|
|
59.912 |
% |
|
|
Maximum |
|
11,550,890 |
|
|
63.182 |
% |
|
|
Adjusted Maximum |
|
11,883,350 |
|
|
65.000 |
% |
|
|
|
(3) |
Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk-weighting. |
51
|
|
|
|
(4) |
Reconciliation of capital adjustment for Beneficial Mutual Savings Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
Midpoint |
|
Maximum |
|
Maximum, |
|
||||
|
|
||||||||||||
|
|
(In thousands) |
|
||||||||||
Gross offering proceeds |
|
$ |
151,725 |
|
$ |
178,500 |
|
$ |
205,275 |
|
$ |
236,066 |
|
Less: offering expenses |
|
|
(3,235 |
) |
|
(3,387 |
) |
|
(3,540 |
) |
|
(3,716 |
) |
Less: cash to fund the acquisition of FMS Financial |
|
|
(90,344 |
) |
|
(85,934 |
) |
|
(79,957 |
) |
|
(76,632 |
) |
Less: cash retained by the holding company |
|
|
(29,073 |
) |
|
(44,589 |
) |
|
(60,889 |
) |
|
(77,859 |
) |
|
|
||||||||||||
Net cash infused into the Bank |
|
|
29,073 |
|
|
44,589 |
|
|
60,889 |
|
|
77,859 |
|
Less: ESOP adjustment at Bank |
|
|
(21,986 |
) |
|
(25,246 |
) |
|
(28,567 |
) |
|
(32,248 |
) |
|
|
||||||||||||
Net increase in capital resulting from the offering |
|
|
7,087 |
|
|
19,343 |
|
|
32,322 |
|
|
45,611 |
|
Net increase in capital resulting from the merger* |
|
|
202,125 |
|
|
202,125 |
|
|
202,125 |
|
|
202,125 |
|
|
|
||||||||||||
Increase in GAAP capital |
|
|
209,212 |
|
|
221,468 |
|
|
234,447 |
|
|
247,736 |
|
|
|
||||||||||||
Less: increase in disallowed intangible assets |
|
|
(132,319 |
) |
|
(132,319 |
) |
|
(132,319 |
) |
|
(132,319 |
) |
Less: increase in minority interests in consolidated subsidiaries |
|
|
(746 |
) |
|
(746 |
) |
|
(746 |
) |
|
(746 |
) |
|
|
||||||||||||
Increase in Tier 1 capital |
|
|
76,147 |
|
|
88,403 |
|
|
101,382 |
|
|
114,671 |
|
|
|
||||||||||||
Plus: increase in allowable Tier 2 capital |
|
|
4,977 |
|
|
4,977 |
|
|
4,977 |
|
|
4,977 |
|
|
|
||||||||||||
Increase in risk-based capital |
|
|
81,124 |
|
|
93,380 |
|
|
106,359 |
|
|
119,648 |
|
|
|
|
|
* |
Includes purchase price of $183.0 million, effect on Bank capital of trust preferred securities acquired with FMS Financial and other accounting entries related to the application of purchase accounting. |
|
|
52
The following pro forma unaudited condensed consolidated statements of financial condition and the pro forma unaudited consolidated statements of income give effect to the proposed offering and the merger with FMS Financial, based on the assumptions set forth below. As a result, the pro forma data assumes the completion of the offering and the merger with FMS Financial. The condensed pro forma unaudited consolidated financial statements are based, in part, on the audited consolidated financial statements of Beneficial Mutual Bancorp and FMS Financial for the year ended December 31, 2006. The pro forma unaudited condensed consolidated financial statements give effect to the offering at historical cost and the merger using purchase accounting as required by accounting principles generally accepted in the United States of America.
The
pro forma adjustments in the tables assume the issuance of 15,172,500 shares,
which is the minimum of the offering range, and 23,606,625 shares, which is the
maximum of the offering range, as adjusted, in the offering and the merger. FMS
Financial stockholders will receive in the merger $28.00 in cash, 2.80 shares
of Beneficial Mutual Bancorp common stock for each share of FMS Financial
stock, or a combination thereof with the amount of common stock ranging from
57.5% to 65.0% of merger consideration based on the terms of the merger
agreement. At the minimum and maximum, as adjusted, of the offering range, pro
forma data is presented under the assumption that FMS Financial stockholders
exchange 57.5% and 65.0%, respectively, of their FMS Financial stock for shares
of Beneficial Mutual Bancorp common stock. The remainder of the merger
consideration is assumed to consist of cash. For a more detailed discussion of
how many shares will be issued in connection with the offering and the merger,
see Pro Forma DataAnalysis of Pro Forma
Outstanding Shares of Beneficial Mutual Bancorp Common Stock. The
purchase price for purposes of the pro forma presentation for FMS Financial was
calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
December 31, 2006 |
|
|||
|
|
|||||
Net assets acquired |
|
|
$ |
78,361 |
|
|
Fair value adjustments: |
|
|
|
|
|
|
Estimated non-tax deductible merger costs |
|
|
|
(3,465 |
) |
|
Estimated tax deductible merger costs |
|
|
|
(4,025 |
) |
|
Loans (1) |
|
|
|
(5,809 |
) |
|
Investments held-to-maturity (1) |
|
|
|
(6,814 |
) |
|
Deposits (1) |
|
|
|
870 |
|
|
Borrowings (1) |
|
|
|
(1,546 |
) |
|
Increase in core deposit intangible asset (2) |
|
|
|
33,626 |
|
|
Tax impact of purchase accounting adjustments |
|
|
|
(5,705 |
) |
|
Goodwill |
|
|
|
97,533 |
|
|
|
|
|
|
|
||
Purchase price |
|
|
$ |
183,026 |
|
|
|
|
(1) |
Loans, investments held-to-maturity, certificates of deposit and borrowings adjustments reflect the market value adjustment assigned to each class of these items. Fair value adjustments were reflected in note 14 to the consolidated financial statements of FMS Financial as of December 31, 2006. Fair value adjustments are amortized using the estimated lives of the respective assets and liabilities. |
|
|
|
|
(2) |
Core deposit intangible was calculated at $34.8 million. Figure shown is the net increase to the $1.2 million core deposit intangible acquired with FMS Financial. Core deposit intangible reflects the present value benefit to Beneficial Mutual Bancorp of utilizing the acquired core deposits as a funding source relative to wholesale funding costs based on the rates of Federal Home Loan Bank advances. The core deposit intangible is calculated using deposit balances and interest rates as of December 31, 2006. Costs of the acquired core deposits include interest costs, plus estimated operating expenses, less estimated non-interest income to be derived from the core deposits. Acquired core deposits are projected to decay based on assumptions promulgated by the Office of Thrift Supervision. The yield benefit for each period is discounted to present value using a weighted average cost of capital. The core deposit intangibles are amortized over the estimated lives of the core deposits using a straight line amortization method. |
|
|
53
The net proceeds are based upon the following assumptions:
|
|
|
|
|
Beneficial Mutual Bancorp will sell all shares of common stock offered in the subscription offering; |
|
|
|
|
|
Beneficial Mutual Bancorps employee stock ownership plan will purchase a number of shares equal to 3.92% of the total number of outstanding shares of Beneficial Mutual Bancorp, which includes shares sold in the offering, shares issued in the merger, shares issued to Beneficial Savings Bank MHC and shares contributed to The Beneficial Foundation, with a loan from Beneficial Mutual; |
|
|
|
|
|
|
|
|
expenses of the offering, other than the fees to be paid to Sandler ONeill, are estimated to be $2,445,000; |
|
|
|
|
|
450,000 shares of common stock will be purchased by the 401(k) plan; |
|
|
|
|
|
326,500 shares of common stock will be purchased by Beneficial Mutual Bancorps executive officers and directors, and their immediate families; and |
|
|
|
|
|
|
|
|
Sandler ONeill will receive fees equal to 0.65% of the aggregate purchase price of the shares of stock sold in the offering, excluding any shares purchased by any employee benefit plans, any charitable foundation established by Beneficial Mutual Bancorp and any of Beneficial Mutual Bancorps directors, officers or employees or members of their immediate families. |
In addition, the expenses of the offering and the merger may vary from those estimated, and the fees paid to Sandler ONeill will vary from the amounts estimated if the amount of shares of Beneficial Mutual Bancorp common stock sold varies from the amounts assumed above or if a syndicated community offering becomes necessary. These items, net of income tax effects, are shown as a reduction in shareholders equity in the following tables, but are not shown as a reduction in net income for the periods shown in the following tables.
Pro forma net earnings has been calculated for the year ended December 31, 2006 as if the shares of Beneficial Mutual Bancorp common stock to be issued in the offering had been sold and the merger exchange shares had been issued as of the beginning of the period. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of Beneficial Mutual Bancorp common stock.
The unaudited condensed consolidated pro forma balance sheets assume the offering and merger were consummated on December 31, 2006.
The pro forma unaudited statements are provided for informational purposes only. The pro forma financial information presented is not necessarily indicative of the actual results that would have been achieved had the offering and merger been consummated on December 31, 2006, and is not indicative of future results. The pro forma unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto of Beneficial Mutual Bancorp and FMS Financial contained elsewhere in this document.
The
shareholders equity represents the resulting book value of the common
shareholders ownership of Beneficial Mutual Bancorp and FMS Financial computed
in accordance with accounting principles generally accepted in the United
States of America. Pro forma shareholders equity and book value are not
intended to represent the fair market value of the common stock and, due to the
existence of the tax bad debt reserve and intangible assets, may be different
than amounts that would be available for distribution to shareholders in the
event of liquidation.
The unaudited pro forma net earnings and common shareholders equity derived from the above assumptions are qualified by the statements set forth under this caption and should not be considered indicative of
54
the market value of Beneficial Mutual Bancorp common stock or the actual
results of operations of Beneficial Mutual Bancorp and FMS Financial for any
period. Such pro forma data may be materially affected by the actual gross
proceeds from the sale of shares of Beneficial Mutual Bancorp in the offering
and the actual expenses incurred in connection with the offering and the
merger. Pro forma merger adjustments to stockholders equity include $4.95
million of one-time expense estimated to be incurred to consolidate the
operations of FMS Financial, including the closure of branch offices as
follows:
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Amount |
|
|||
|
|
|
||||
Consolidation of branches |
|
|
$ |
2,500 |
|
|
Retention bonuses |
|
|
|
1,650 |
|
|
Conversion of systems |
|
|
|
580 |
|
|
Insurance |
|
|
|
75 |
|
|
Consulting for integration |
|
|
|
145 |
|
|
|
|
|
|
|
||
Total one-time expenses |
|
|
$ |
4,950 |
|
|
Pro
forma merger adjustments to net income include entries to reflect the estimated
fair value adjustments on financial assets and liabilities and the amortization
of identifiable intangible assets created in the acquisition. Excluded from the
calculation of pro forma net income are any adjustments to reflect the
estimated interest income to be earned on the net proceeds of the offering, the
estimated interest income to be foregone on the cash required to fund the
merger with FMS Financial and related expenses, and other estimated expense
reductions from consolidating the operations of FMS Financial with those of
Beneficial Mutual Bancorp. Such entries will be recorded as incurred, are
non-recurring and are thus not reflected in the calculations of pro forma
income. See Use of Net Proceeds.
55
The following table
presents pro forma balance sheet information at December 31, 2006 assuming the
issuance of a total of 26,634,694 shares to the public, including the issuance
of 15,172,500 shares in the offering at the minimum of the offering range, and
that 10,512,194 shares are issued in exchange for FMS Financial stock in the
merger.
Unaudited
Pro Forma Combined Statements of Financial Condition
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Beneficial |
|
Offering |
|
Beneficial |
|
FMS |
|
Merger |
|
Beneficial Mutual |
|
||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
23,147 |
|
$ |
115,011 |
|
(3) |
$ |
138,158 |
|
$ |
109,761 |
|
$ |
(90,344 |
) |
(11) |
$ |
157,575 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
330,867 |
|
|
|
|
|
|
330,867 |
|
|
146,006 |
|
|
|
|
|
|
476,873 |
|
Held for maturity |
|
|
130,357 |
|
|
|
|
|
|
130,357 |
|
|
428,441 |
|
|
(6,814 |
) |
(12) |
|
551,984 |
|
Federal Home Loan Bank stock |
|
|
15,544 |
|
|
|
|
|
|
15,544 |
|
|
6,313 |
|
|
|
|
|
|
21,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
|
1,671,457 |
|
|
|
|
|
|
1,671,457 |
|
|
450,099 |
|
|
(5,809 |
) |
(13) |
|
2,115,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank premises and equipment, net |
|
|
33,168 |
|
|
|
|
|
|
33,168 |
|
|
33,739 |
|
|
|
|
|
|
66,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BOLI |
|
|
28,003 |
|
|
|
|
|
|
28,003 |
|
|
|
|
|
|
|
|
|
28,003 |
|
Goodwill |
|
|
6,679 |
|
|
|
|
|
|
6,679 |
|
|
|
|
|
97,533 |
|
(14) |
|
104,212 |
|
Core deposit intangible |
|
|
|
|
|
|
|
|
|
|
|
|
1,160 |
|
|
33,626 |
|
(15) |
|
34,786 |
|
Other amortizing intangible assets |
|
|
1,956 |
|
|
|
|
|
|
1,956 |
|
|
|
|
|
|
|
|
|
1,956 |
|
Other |
|
|
59,041 |
|
|
3,500 |
|
(4) |
|
62,541 |
|
|
12,593 |
|
|
(3,972 |
) |
(16) |
|
71,162 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total assets |
|
$ |
2,300,219 |
|
$ |
118,511 |
|
|
$ |
2,418,730 |
|
$ |
1,188,112 |
|
$ |
24,220 |
|
|
$ |
3,631,062 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,667,876 |
|
|
|
|
|
$ |
1,667,876 |
|
$ |
933,103 |
|
$ |
(870 |
) |
(17) |
$ |
2,600,109 |
|
Borrowed funds |
|
|
294,896 |
|
|
|
|
(5) |
|
294,896 |
|
|
115,000 |
|
|
1,690 |
|
(18) |
|
411,586 |
|
Other liabilities |
|
|
57,032 |
|
|
|
|
|
|
57,032 |
|
|
10,100 |
|
|
|
|
|
|
67,132 |
|
Subordinated debtenturees |
|
|
|
|
|
|
|
|
|
|
|
|
51,548 |
|
|
(144 |
) |
(18) |
|
51,404 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total liabilities |
|
|
2,019,804 |
|
|
|
|
|
|
2,019,804 |
|
|
1,109,751 |
|
|
676 |
|
|
|
3,130,231 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
|
|
|
456 |
|
(6) |
|
456 |
|
|
802 |
|
|
(697 |
) |
(19) |
|
561 |
|
Additional paid-in capital |
|
|
|
|
|
157,534 |
|
(7) |
|
157,534 |
|
|
8,931 |
|
|
96,086 |
|
(20) |
|
262,551 |
|
Retained earnings |
|
|
293,157 |
|
|
(6,500 |
) |
(8) |
|
286,657 |
|
|
82,120 |
|
|
(85,337 |
) |
(21) |
|
283,440 |
|
Accumulated other comprehensive (loss) income |
|
|
(12,742 |
) |
|
|
|
|
|
(12,742 |
) |
|
(2,485 |
) |
|
2,485 |
|
(22) |
|
(12,742 |
) |
Treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
(11,007 |
) |
|
11,007 |
|
(22) |
|
|
|
Employee stock ownership plan |
|
|
|
|
|
(21,986 |
) |
(9) |
|
(21,986 |
) |
|
|
|
|
|
|
|
|
(21,986 |
) |
Restricted stock |
|
|
|
|
|
(10,993 |
) |
(10) |
|
(10,993 |
) |
|
|
|
|
|
|
|
|
(10,993 |
) |
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total equity |
|
|
280,415 |
|
|
118,511 |
|
|
|
398,926 |
|
|
78,361 |
|
|
23,544 |
|
|
|
500,831 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,300,219 |
|
$ |
118,511 |
|
|
$ |
2,418,730 |
|
$ |
1,188,112 |
|
$ |
24,220 |
|
|
$ |
3,631,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Footnotes follow tables)
56
|
|
|
|
(1) |
Shows the effect of the minority stock offering of Beneficial Mutual Bancorp, assuming gross proceeds of $151.7 million, the minimum of the valuation range, offering expenses of $3.2 million, a contribution to the foundation of $10.0 million of conversion stock and cash, and establishment of an ESOP and equity incentive plan that will acquire 3.92% and 1.96%, respectively, of the pro forma shares outstanding. The ESOP will purchase its shares in the offering and possibly open market purchases. The equity incentive plan will purchase shares in the open market after receiving shareholder approval to adopt the plan. Open market purchased by the ESOP and the equity incentive plan are assumed at $10.00 per share. The reduction in stockholders equity reflects the contribution to the foundation net of a deferred tax asset. |
|
|
|
|
(2) |
Reflects the purchase accounting and acquisition adjustments related to the acquisition of FMS Financial for a price of $28.00 per share in cash and newly issued conversion stock. The stock portion of the merger consideration varies based upon the aggregate tangible stockholders equity represented by the shares issued to FMS Financial. At the minimum of the offering range, the stock component of the merger is 57.5% of the total merger consideration. |
|
|
(3) |
Calculated as follows: |
|
|
|
|
|
Gross proceeds of offering |
|
$ |
151,725 |
|
Estimated expenses |
|
|
(3,235 |
) |
Cash contribution to foundation |
|
|
(500 |
) |
Common stock acquired by employee stock ownership plan |
|
|
(21,986 |
) |
Common stock acquired by incentive plan |
|
|
(10,993 |
) |
|
|
|
||
Pro forma adjustment |
|
$ |
115,011 |
|
|
|
|
|
|
(4) |
Deferred tax asset resulting from the contribution to the foundation based on marginal tax rate of 35%. |
|
|
(5) |
The ESOP loan is assumed to be funded internally with a loan from Beneficial Mutual Bancorp, thus no borrowing liability will be recorded on the consolidated balance sheet of Beneficial Mutual Bancorp. |
|
|
(6) |
Par value $0.01 per share and the issuance of 15,172,500 shares in the offering, 29,452,500 shares to the MHC and 950,000 shares to the foundation. |
|
|
(7) |
Calculated as follows: |
|
|
|
|
|
Net proceeds of offering |
|
$ |
148,490 |
|
Stock contribution to foundation |
|
|
9,500 |
|
Less: par value (footnote 6) |
|
|
(456 |
) |
|
|
|
||
Pro forma adjustment |
|
$ |
157,534 |
|
|
|
|
|
|
(8) |
After-tax impact to stockholders equity from the $10.0 million expense for funding the foundation based on a marginal tax rate of 35%. |
|
|
(9) |
Contra-equity account established to reflect the obligation to repay the loan to the ESOP to purchase 3.92% of pro forma shares outstanding. |
|
|
(10) |
Contra-equity account established to reflect the equity incentive plan equal to 1.96% of the pro forma shares outstanding. |
|
|
(11) |
Includes the cash portion of the merger consideration paid to FMS Financial, non-tax deductible transaction costs remaining to be paid at December 31, 2006, tax deductible one time acquisition costs, and one time expenses that will be incurred by Beneficial Mutual Bancorp to consolidate FMS Financial. See the introduction to Pro Forma Data for detail regarding pro forma merger adjustments. |
|
|
|
|
|
Cash portion of merger consideration |
|
$ |
77,904 |
|
Non-tax deductible transaction expenses |
|
|
3,465 |
|
Tax deductible transaction expenses |
|
|
4,025 |
|
One time expenses to consolidate operations of FMS Financial |
|
|
4,950 |
|
|
|
|
||
Total cash adjustment |
|
$ |
90,344 |
|
|
|
|
|
|
(12) |
Adjustment to reflect unrealized losses in securities held to maturity. The adjustment, along with the unrealized losses in securities held as available for sale, will be accreted into income as an increase in interest income over the lives of the related securities. |
|
|
(13) |
Yield adjustment to reflect the difference between portfolio yields and market rates as of December 31, 2006 for loans acquired in the merger. For variable rate loans that reprice frequently and with no significant change in credit risk, fair value is the carrying value. For other categories of loans such as fixed rate residential mortgages, commercial and consumer loans, fair value is estimated based on discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar collateral and credit ratings and for similar remaining maturities. |
57
|
|
(14) |
Goodwill is an intangible asset that is not subject to amortization. The goodwill balance will be tested annually for impairment. Goodwill is calculated as: |
|
|
|
|
|
|
|
FMS |
|
|
|
|
|
||
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
Purchase price per share ($) |
|
$ |
28.00 |
|
Number of FMS Financial shares acquired |
|
|
6,529,313 |
|
Number of FMS Financial options acquired |
|
|
17,500 |
|
Average exercise price of options ($) |
|
|
10.00 |
|
Cost of purchasing shares |
|
|
182,821 |
|
Cost of purchasing options |
|
|
315 |
|
Tax effect of purchasing options |
|
|
(110 |
) |
|
|
|
||
Purchase price |
|
|
183,026 |
|
Less: acquired stockholders equity |
|
|
(78,361 |
) |
Plus: non-tax deductible transaction costs |
|
|
3,465 |
|
Plus: taxable purchase accounting adjustments tax deductible transaction expenses |
|
|
4,025 |
|
Yield adjustment for acquired certificates of deposit |
|
|
(870 |
) |
Yield adjustment for acquired borrowings |
|
|
1,690 |
|
Yield adjustment for subordinated debentures |
|
|
(144 |
) |
Yield adjustment for acquired investments held-to-maturity |
|
|
6,814 |
|
Yield adjusted for acquired loans |
|
|
5,809 |
|
Core deposit intangible net of existing FMS Financial entry |
|
|
(33,626 |
) |
Tax effect at 35% marginal tax rate |
|
|
5,705 |
|
|
|
|
||
Goodwill |
|
$ |
97,533 |
|
|
|
|
|
|
(15) |
Core deposit intangible is an identifiable intangible asset representing the economic value of the acquired FMS Financial deposit base, calculated as the present value benefit of funding operations with the acquired deposit base versus using an alternative wholesale funding source. The core deposit intangible asset is amortized into expense on a straight line basis over 9.4 years. |
|
|
(16) |
Calculated as follows: |
|
|
|
|
|
Deferred tax entry for taxable transaction costs (footnote 14) |
|
$ |
(5,705 |
) |
Deferred tax entry for one time merger charges (footnote 21) |
|
|
1,733 |
|
|
|
|
||
Pro forma adjustment |
|
$ |
(3,972 |
) |
|
|
|
|
|
(17) |
Yield adjustment to reflect the difference between portfolio yields and market rates as of December 31, 2006 for time deposits acquired in the merger. Yield adjustment is estimated using the rates currently offered for deposits with similar remaining maturities. |
|
|
(18) |
Fair value is calculated for securities sold under agreements to repurchase acquired with FMS Financial. For investment securities with a quoted market price, fair value is equal to quoted market prices. If a quoted price is not available, fair value is estimated using quoted market prices for similar securities. For the FMS Statutory Trust I and II debentures acquired with FMS Financial, the fair value is estimated using quoted market prices for similar securities. |
58
|
|
(19) |
Calculated as follows: |
|
|
|
|
|
Eliminate existing FMS Financial common stock |
|
$ |
(802 |
) |
Par value of common stock issued in acquisition at $0.01 per share |
|
|
105 |
|
|
|
|
||
Adjustment to common stock |
|
$ |
(697 |
) |
|
|
|
|
|
(20) |
Calculated as follows: |
|
|
|
|
|
Eliminate existing FMS Financial paid-in capital |
|
$ |
(8,931 |
) |
Stock issued to FMS Financial stockholders in the merger |
|
|
105,122 |
|
Less par value of common stock issued in merger |
|
|
(105 |
) |
|
|
|
||
Adjustment to paid-in capital |
|
$ |
96,086 |
|
|
|
|
|
|
(21) |
Calculated as follows: |
|
|
|
|
|
Eliminate existing FMS Financial retained earnings |
|
$ |
(82,120 |
) |
Expenses to consolidate FMS Financial |
|
|
(4,950 |
) |
Tax effect at marginal rate of 35% |
|
|
1,733 |
|
|
|
|
||
Adjustment to retained earnings |
|
$ |
(85,337 |
) |
|
|
|
|
|
(22) |
Calculated to eliminate the capital account entries of FMS Financial pursuant to purchase accounting. |
59
Unaudited
Pro Forma Combined Statements of Financial Condition
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Beneficial |
|
Offering |
|
Beneficial |
|
FMS |
|
Merger |
|
Beneficial Mutual |
|
||||||
|
|||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
23,147 |
|
$ |
183,478 |
(3) |
$ |
206,625 |
|
$ |
109,761 |
|
$ |
(76,632 |
) (11) |
$ |
239,754 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
330,867 |
|
|
|
|
|
330,867 |
|
|
146,006 |
|
|
|
|
|
476,873 |
|
Held for maturity |
|
|
130,357 |
|
|
|
|
|
130,357 |
|
|
428,441 |
|
|
(6,814 |
) (12) |
|
551,984 |
|
Federal Home Loan Bank stock |
|
|
15,544 |
|
|
|
|
|
15,544 |
|
|
6,313 |
|
|
|
|
|
21,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
|
1,671,457 |
|
|
|
|
|
1,671,457 |
|
|
450,099 |
|
|
(5,809 |
) (13) |
|
2,115,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank premises and equipment, net |
|
|
33,168 |
|
|
|
|
|
33,168 |
|
|
33,739 |
|
|
|
|
|
66,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BOLI |
|
|
28,003 |
|
|
|
|
|
28,003 |
|
|
|
|
|
|
|
|
28,003 |
|
Goodwill |
|
|
6,679 |
|
|
|
|
|
6,679 |
|
|
|
|
|
97,533 |
(14) |
|
104,212 |
|
Core deposit intangible |
|
|
|
|
|
|
|
|
|
|
|
1,160 |
|
|
33,626 |
(15) |
|
34,786 |
|
Other amortizing intangible assets |
|
|
1,956 |
|
|
|
|
|
1,956 |
|
|
|
|
|
|
|
|
1,956 |
|
Other |
|
|
59,041 |
|
|
3,500 |
(4) |
|
62,541 |
|
|
12,593 |
|
|
(3,972 |
) (16) |
|
71,162 |
|
|
|
|
|
|
|
|
|
||||||||||||
Total assets |
|
$ |
2,300,219 |
|
$ |
186,978 |
|
$ |
2,487,197 |
|
$ |
1,188,112 |
|
$ |
37,932 |
|
$ |
3,713,241 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,667,876 |
|
$ |
|
|
$ |
1,667,876 |
|
$ |
933,103 |
|
$ |
(870 |
) (17) |
$ |
2,600,109 |
|
Borrowed funds |
|
|
294,896 |
|
|
|
(5) |
|
294,896 |
|
|
115,000 |
|
|
1,690 |
(18) |
|
411,586 |
|
Other liabilities |
|
|
57,032 |
|
|
|
|
|
57,032 |
|
|
10,100 |
|
|
|
|
|
67,132 |
|
Subordinated debtenturees |
|
|
|
|
|
|
|
|
|
|
|
51,548 |
|
|
(144 |
) (18) |
|
51,404 |
|
|
|
|
|
|
|
|
|
||||||||||||
Total liabilities |
|
|
2,019,804 |
|
|
|
|
|
2,019,804 |
|
|
1,109,751 |
|
|
676 |
|
|
3,130,231 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
|
|
|
704 |
(6) |
|
704 |
|
|
802 |
|
|
(683 |
) (19) |
|
823 |
|
Additional paid-in capital |
|
|
|
|
|
241,146 |
(7) |
|
241,146 |
|
|
8,931 |
|
|
109,784 |
(20) |
|
359,862 |
|
Retained earnings |
|
|
293,157 |
|
|
(6,500 |
) (8) |
|
286,657 |
|
|
82,120 |
|
|
(85,337 |
) (21) |
|
283,440 |
|
Accumulated other comprehensive (loss) income |
|
|
(12,742 |
) |
|
|
|
|
(12,742 |
) |
|
(2,485 |
) |
|
2,485 |
(22) |
|
(12,742 |
) |
Treasury stock |
|
|
|
|
|
|
|
|
|
|
|
(11,007 |
) |
|
11,007 |
(22) |
|
|
|
Employee stock ownership plan |
|
|
|
|
|
(32,248 |
) (9) |
|
(32,248 |
) |
|
|
|
|
|
|
|
(32,248 |
) |
Restricted stock |
|
|
|
|
|
(16,124 |
) (10) |
|
(16,124 |
) |
|
|
|
|
|
|
|
(16,124 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Total equity |
|
|
280,415 |
|
|
186,978 |
|
|
467,393 |
|
|
78,361 |
|
|
37,256 |
|
|
583,010 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,300,219 |
|
$ |
186,978 |
|
$ |
2,487,197 |
|
$ |
1,188,112 |
|
$ |
37,932 |
|
$ |
3,713,241 |
|
|
(Notes follow tables)
60
|
|
(1) |
Shows the effect of the minority stock offering of Beneficial Mutual Bancorp, assuming gross proceeds of $236.1 million, the adjusted maximum of the valuation range, offering expenses of $3.7 million, a contribution to the foundation of $10.0 million of conversion stock and cash, and establishment of an ESOP and equity incentive plan that will acquire 3.92% and 1.96%, respectively, of the pro forma shares outstanding. The ESOP will purchase its shares in the offering and possibly open market purchases. The equity incentive plan will purchase shares in the open market after receiving shareholder approval to adopt the plan. Open market purchased by the ESOP and the equity incentive plan are assumed at $10.00 per share. The reduction in stockholders equity reflects the contribution to the foundation net of a deferred tax asset. |
|
|
(2) |
Reflects the purchase accounting and acquisition adjustments related to the acquisition of FMS Financial for a price of $28.00 per share in cash and newly issued conversion stock. The stock portion of the merger consideration varies based upon the aggregate tangible stockholders equity represented by the shares issued to FMS Financial. At the adjusted maximum of the offering range, the stock component of the merger is 65.0% of the total merger consideration. |
|
|
(3) |
Calculated as follows: |
|
|
|
|
|
Gross proceeds of offering |
|
$ |
236,066 |
|
Estimated expenses |
|
|
(3,716 |
) |
Cash contribution to foundation |
|
|
(500 |
) |
Common stock acquired by employee stock ownership plan |
|
|
(32,248 |
) |
Common stock acquired by incentive plan |
|
|
(16,124 |
) |
|
|
|
||
Pro forma adjustment |
|
$ |
183,478 |
|
|
|
|
|
|
(4) |
Deferred tax asset resulting from the contribution to the foundation based on marginal tax rate of 35%. |
|
|
(5) |
The ESOP loan is assumed to be funded internally with a loan from Beneficial Mutual Bancorp, thus no borrowing liability will be recorded on the consolidation balance sheet of Beneficial Mutual Bancorp. |
|
|
(6) |
Par value $0.01 per share and the issuance of 23,606,625 shares in the offering, 45,824,625 shares to Beneficial Savings Bank MHC and 950,000 shares to the foundation. |
|
|
(7) |
Calculated as follows: |
|
|
|
|
|
Net proceeds of offering |
|
$ |
232,350 |
|
Stock contribution to foundation |
|
|
9,500 |
|
Less: par value (footnote 6) |
|
|
(704 |
) |
|
|
|
||
Pro forma adjustment |
|
$ |
241,146 |
|
|
|
|
|
|
(8) |
After-tax impact to stockholders equity from the $10.0 million expense for funding the foundation based on a marginal tax rate of 35%. |
|
|
(9) |
Contra-equity account established to reflect the obligation to repay the loan to the ESOP to purchase 3.92% of pro forma shares outstanding. |
|
|
(10) |
Contra-equity account established to reflect the equity incentive plan equal to 1.96% of the pro forma shares outstanding. |
|
|
(11) |
Includes the cash portion of the merger consideration paid to FMS Financial, non-tax deductible transaction costs remaining to be paid at December 31, 2006, tax deductible one time acquisition costs, and one time expense that will be incurred by Beneficial Mutual Bancorp to consolidate FMS Financial. See the introduction to Pro Forma Data for detail regarding pro forma merger adjustments. |
|
|
|
|
|
Cash portion of merger consideration |
|
$ |
64,192 |
|
Non-tax deductible transaction expenses |
|
|
3,465 |
|
Tax deductible transaction expenses |
|
|
4,025 |
|
One time expenses to consolidate operations of FMS Financial |
|
|
4,950 |
|
|
|
|
||
Total cash adjustment |
|
$ |
76,632 |
|
|
|
|
|
|
(12) |
Adjustment to reflect unrealized losses in securities held to maturity. The adjustment, along with the unrealized losses in securities held as available for sale, will be accreted into income as an increase in interest income over the lives of the related securities. |
|
|
(13) |
Yield adjustment to reflect the difference between portfolio yields and market rates as of December 31, 2006 for loans acquired in the merger. For variable rate loans that reprice frequently and with no significant change in credit risk, fair value is the carrying value. For other categories of loans such as fixed rate residential mortgages, commercial and consumer loans, fair value is estimated based on discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar collateral and credit ratings and for similar remaining maturities. |
61
|
|
(14) |
Goodwill is an intangible asset that is not subject to amortization. The goodwill balance will be tested annually for impairment. Goodwill is calculated as: |
|
|
|
|
|
(In thousands, except per share data) |
|
FMS |
|
|
|
|
|||
Purchase price per share ($) |
|
$ |
28.00 |
|
Number of FMS Financial shares acquired |
|
|
6,529,313 |
|
Number of FMS Financial options acquired |
|
|
17,500 |
|
Average exercise price of options ($) |
|
|
10.00 |
|
Cost of purchasing shares |
|
|
182,821 |
|
Cost of purchasing options |
|
|
315 |
|
Tax effect of purchasing options |
|
|
(110 |
) |
|
|
|
||
Purchase price |
|
|
183,026 |
|
Less: acquired stockholders equity |
|
|
(78,361 |
) |
Plus: non-tax deductible transaction costs |
|
|
3,465 |
|
Plus: taxable purchase accounting adjustments tax deductible transaction expenses |
|
|
4,025 |
|
Yield adjustment for acquired certificates of deposit |
|
|
(870 |
) |
Yield adjustment for acquired borrowings |
|
|
1,690 |
|
Yield adjustment for subordinated debentures |
|
|
(144 |
) |
Yield adjustment for acquired investments held-to-maturity |
|
|
6,814 |
|
Yield adjusted for acquired loans |
|
|
5,809 |
|
Core deposit intangible net of existing FMS Financial balance |
|
|
(33,626 |
) |
Tax effect at 35% marginal tax rate |
|
|
5,705 |
|
|
|
|
||
Goodwill |
|
$ |
97,533 |
|
|
|
|
|
|
(15) |
Core deposit intangible is an identifiable intangible asset representing the economic value of the acquired FMS Financial deposit base, calculated as the present value benefit of funding operations with the acquired deposit base versus using an alternative wholesale funding source. The core deposit intangible asset is amortized into expense on a straight line basis over 9.4 years. |
|
|
(16) |
Calculated as follows: |
|
|
|
|
|
Deferred tax entry for taxable transaction costs (footnote 14) |
|
$ |
(5,705 |
) |
Deferred tax entry for one time merger charges (footnote 21) |
|
|
1,733 |
|
|
|
|
||
Pro forma adjustment |
|
$ |
(3,972 |
) |
|
|
|
|
|
(17) |
Yield adjustment to reflect the difference between portfolio yields and market rates as of December 31, 2006 for time deposits acquired in the merger. Yield adjustment is estimated using the rates currently offered for deposits with similar remaining maturities. |
62
|
|
(18) |
Fair value is calculated for securities sold under agreements to repurchase acquired with FMS Financial. For investment securities with a quoted market price, fair value is equal to quoted market prices. If a quoted price is not available, fair value is estimated using quoted market prices for similar securities. For the FMS Statutory Trust I and II debentures acquired with FMS Financial, the fair value is estimated using quoted market prices for similar securities. |
|
|
(19) |
Calculated as follows: |
|
|
|
|
|
Eliminate existing FMS Financial common stock |
|
$ |
(802 |
) |
Par value of common stock issued in acquisition at $0.01 per share |
|
|
119 |
|
|
|
|
||
Adjustment to common stock |
|
$ |
(683 |
) |
|
|
|
|
|
(20) |
Calculated as follows: |
|
|
|
|
|
Eliminate existing FMS Financial paid-in capital |
|
$ |
(8,931 |
) |
Stock issued to FMS Financial stockholders in the merger |
|
|
118,834 |
|
Less par value of common stock issued in merger |
|
|
(119 |
) |
|
|
|
||
Adjustment to paid-in capital |
|
$ |
109,784 |
|
|
|
|
|
|
(21) |
Calculated as follows: |
|
|
|
|
|
Eliminate existing FMS Financial retained earnings |
|
$ |
(82,120 |
) |
Expenses to consolidate FMS Financial |
|
|
(4,950 |
) |
Tax effect at marginal rate of 35% |
|
|
1,733 |
|
|
|
|
||
Adjustment to retained earnings |
|
$ |
(85,337 |
) |
|
|
|
|
|
(22) |
Calculated to eliminate the capital account entries of FMS Financial pursuant to purchase accounting. |
63
The
following table presents pro forma income assuming the issuance of 15,172,500
shares in the offering at the minimum of the offering range and that 10,512,194
shares are issued in exchange for FMS Financial stock in the merger.
Unaudited
Pro Forma Combined Statements of Income
For the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Beneficial |
|
Offering |
|
Beneficial |
|
FMS |
|
Merger |
|
Beneficial |
|
||||||
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
127,326 |
|
$ |
|
|
$ |
127,326 |
|
$ |
60,993 |
|
$ |
2,728 |
(4) |
$ |
191,047 |
|
Interest expense |
|
|
(62,899 |
) |
|
|
|
|
(62,899 |
) |
|
(27,415 |
) |
|
(271 |
) (5) |
|
(90,585 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Net interest income before provision for loan losses |
|
|
64,427 |
|
|
|
|
|
64,427 |
|
|
33,578 |
|
|
2,457 |
|
|
100,462 |
|
Provision for loan losses |
|
|
(1,575 |
) |
|
|
|
|
(1,575 |
) |
|
(330 |
) |
|
|
|
|
(1,905 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Net interest income after provision for loan losses |
|
|
62,852 |
|
|
|
|
|
62,852 |
|
|
33,248 |
|
|
2,457 |
|
|
98,557 |
|
Non-interest income |
|
|
10,531 |
|
|
|
|
|
10,531 |
|
|
7,164 |
|
|
|
|
|
17,695 |
|
Non-interest expense |
|
|
(59,436 |
) |
|
(1,100 |
) (2) |
|
(60,536 |
) |
|
(31,726 |
) |
|
(2,985 |
) (6) |
|
(95,247 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Income before provision for income taxes |
|
|
13,947 |
|
|
(1,100 |
) |
|
12,847 |
|
|
8,686 |
|
|
(528 |
) |
|
21,005 |
|
Provision for income taxes |
|
|
(2,322 |
) |
|
385 |
|
|
(1,937 |
) |
|
(3,367 |
) |
|
185 |
(7) |
|
(5,119 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Net income |
|
$ |
11,625 |
|
$ |
(715 |
) |
$ |
10,910 |
|
$ |
5,319 |
|
$ |
(343 |
) |
$ |
15,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
|
|
|
|
|
|
$ |
0.25 |
|
$ |
0.82 |
|
|
|
|
$ |
0.29 |
|
Diluted EPS |
|
|
|
|
|
|
|
$ |
0.25 |
|
$ |
0.81 |
|
|
|
|
$ |
0.29 |
|
|
|
|
(1) |
Shows the effect of the minority stock offering of Beneficial Mutual Bancorp, assuming gross proceeds of $151.7 million, the minimum of the offering range, offering expenses of $3.2 million, a contribution to the foundation of $10.0 million of stock and cash, and establishment of an ESOP that will acquire 3.92% of the pro forma shares outstanding. The ESOP will purchase its shares in the offering and in open market purchases. The loan taken down by the ESOP will be amortized over 20 years on a straight line basis. The ESOP expense shown reflects the estimated amortization expense on a pretax basis for the period shown. Beneficial Mutual Bancorp also intends to adopt an equity incentive plan that will purchase 1.96% of the pro forma shares outstanding. The equity incentive plan will purchase shares in the open market after receiving shareholder approval. Open market purchases are assumed at $10.00 per share. Beneficial Mutual Bancorp also intends to adopt a stock option plan that will include 4.90% of the pro forma shares outstanding. Pursuant to an application of the Black-Scholes option pricing model, the stock options are assumed to have a value of $3.81 per option. The option value is assumed to be expensed over the five year vesting period for the options and 25% of the option expense is assumed to be deductible for income tax purposes. The stock option plan is subject to shareholder approval. Adjustments to record estimated equity incentive plan expense, stock option plan expense, and interest income to be earned on net proceeds of the offering will be recorded as incurred. Since these estimates are speculative, they are not reflected in the calculations of pro forma income. The estimated interest income assuming net cash proceeds of $115.0 million from the offering are invested at an average pretax yield of 4.99 percent for the year ended December 31, 2006 would be approximately $5.7 million pretax. The yield utilized approximates the yield on a one year U.S. Treasury security as of December 31, 2006. The estimated expense for the equity incentive plan assuming gross proceeds of $151.7 million is $2.2 million pretax for the year ended December 31, 2006. The estimated expense for the stock option plan ESOP shares are assumed to be released at $10.00 per share. Equity incentive plan shares are assumed to vest over 5 years on a straight-line basis. Taxes are calculated on an assumed marginal rate of 35%. No expenses are included for the shares issued to the foundation or other merger-related charges, all of which are one time expenses. |
64
|
|
(2) |
ESOP loan with a balance of $22.0 million and an amortization period of 20 years straight line. ESOP loan is assumed to be funded internally, so no interest expense is recorded on the consolidated income statement for Beneficial Mutual Bancorp. ESOP expense thus reflects only the amortization of principal for the period shown. |
|
|
(3) |
Reflects the purchase accounting and acquisition adjustments related to the acquisition of FMS Financial for a price of $28.00 per share in cash and newly issued conversion stock. |
|
|
|
|
(4) |
Adjustment to interest income is the accretion of the loan discount on the FMS Financial loans resulting from purchase accounting and the accretion of the discount on investment securities held-to-maturity and available for sale. Adjustments to record estimated interest income to be foregone as a result of funding the cash portion of the merger consideration paid to stockholders of FMS Financial and the expenses of the acquisition will be recorded as incurred. These are non-recurring, they are not reflected in the Pro Forma Income Statements. The estimated reduction in interest income assuming total funding requirements of $90.3 million for the merger and related expenses, assuming such cash costs were funded with investments yielding 4.99 percent for the year ended December 31, 2006, would be approximately $4.5 million. The yield approximates the yield on the one year U.S. Treasury security on December 31, 2006. The adjustment to interest income is calculated as follows: |
|
|
|
|
|
Accretion of loan discount from purchase accounting |
|
$ |
1,452 |
|
Accretion of investment securities discount from purchase accounting |
|
|
1,276 |
|
|
|
|
||
Adjustment to interest income |
|
$ |
2,728 |
|
|
|
|
|
|
(5) |
Adjustment to interest expense is calculated as follows: |
|
|
|
|
|
Amortization of deposit premium from purchase accounting |
|
$ |
580 |
|
Accretion of borrowings discount from purchase accounting |
|
|
(338 |
) |
Amortization of subordinated debenture discount from purchase accounting |
|
|
29 |
|
|
|
|
||
Adjustment to interest expense |
|
$ |
271 |
|
|
|
|
|
|
(6) |
Adjustment to non-interest expense is calculated as follows: |
|
|
|
|
|
Amortization of new core deposit intangible |
|
$ |
(3,701 |
) |
Elimination of historical amortization of core deposit intangible |
|
|
716 |
|
|
|
|
||
Adjustment to non-interest expense |
|
$ |
(2,985 |
) |
|
|
|
|
|
(7) |
Marginal tax rate of 35%. |
65
The
following table presents pro forma income assuming the issuance of 23,606,625
shares in the offering at the maximum, as adjusted, of the offering range and
that 11,883,350 shares are issued in exchange for FMS Financial stock in the
merger.
Unaudited
Pro Forma Combined Statements of Income
For the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Beneficial |
|
Offering |
|
Beneficial |
|
FMS |
|
Merger |
|
Beneficial |
|
||||||
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
127,326 |
|
$ |
|
|
$ |
127,326 |
|
$ |
60,993 |
|
$ |
2,728 |
(4) |
$ |
191,047 |
|
Interest expense |
|
|
(62,899 |
) |
|
|
|
|
(62,899 |
) |
|
(27,415 |
) |
|
(271 |
)(5) |
|
(90,585 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Net interest income before provision for loan losses |
|
|
64,427 |
|
|
|
|
|
64,427 |
|
|
33,578 |
|
|
2,457 |
|
|
100,462 |
|
Provision for loan losses |
|
|
(1,575 |
) |
|
|
|
|
(1,575 |
) |
|
(330 |
) |
|
|
|
|
(1,905 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Net interest income after provision for loan losses |
|
|
62,852 |
|
|
|
|
|
62,852 |
|
|
33,248 |
|
|
2,457 |
|
|
98,557 |
|
Non-interest income |
|
|
10,531 |
|
|
|
|
|
10,531 |
|
|
7,164 |
|
|
|
|
|
17,695 |
|
Non-interest expense |
|
|
(59,436 |
) |
|
(1,612 |
)(2) |
|
(61,048 |
) |
|
(31,726 |
) |
|
(2,985 |
)(6) |
|
(95,759 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Income before provision for income taxes |
|
|
13,947 |
|
|
(1,612 |
) |
|
12,335 |
|
|
8,686 |
|
|
(528 |
) |
|
20,493 |
|
Provision for income taxes |
|
|
(2,322 |
) |
|
564 |
|
|
(1,758 |
) |
|
(3,367 |
) |
|
185 |
(7) |
|
(4,940 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Net income |
|
$ |
11,625 |
|
$ |
(1,048 |
) |
$ |
10,577 |
|
$ |
5,319 |
|
$ |
(343 |
) |
$ |
15,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
|
|
|
|
|
|
$ |
0.16 |
|
$ |
0.82 |
|
|
|
|
$ |
0.20 |
|
Diluted EPS |
|
|
|
|
|
|
|
$ |
0.16 |
|
$ |
0.81 |
|
|
|
|
$ |
0.20 |
|
|
|
(1) |
Shows the effect of the minority stock offering of Beneficial Mutual Bancorp, assuming gross proceeds of $236.1 million, the adjusted maximum of the offering range, offering expenses of $3.7 million, a contribution to the foundation of $10.0 million of stock and cash, and establishment of an ESOP that will acquire 3.92% of the pro forma shares outstanding. The ESOP will purchase its shares in the offering and in open market purchases. The loan taken down by the ESOP will be amortized over 20 years on a straight line basis. The ESOP expense shown reflects the estimated amortization expense on a pretax basis for the period shown. Beneficial Mutual Bancorp also intends to adopt an equity incentive plan that will purchase 1.96% of the pro forma shares outstanding. The equity incentive plan will purchase shares in the open market after receiving shareholder approval. Open market purchases are assumed at $10 per share. Beneficial Mutual Bancorp also intends to adopt a stock option plan that will include 4.90% of the pro forma shares outstanding. Pursuant to an application of the Black-Scholes option pricing model, the stock options are assumed to have a value of $3.81 per option. The option value is assumed to be expensed over the five year vesting period for the options and 25% of the option expense is assumed to be deductible for income tax purposes. The stock option plan is subject to shareholder approval. Adjustments to record estimated equity incentive plan expense, stock option plan expense, and interest income to be earned on net proceeds of the offering will be recorded as incurred. Since these estimates are speculative, they are not reflected in the calculations of pro forma income. The estimated interest income assuming net cash proceeds of $183.5 million from the offering are invested at an average pretax yield of 4.99 percent for the year ended December 31, 2006 would be approximately $9.2 million pretax. The yield utilized approximates the yield on a one year U.S. Treasury security as of December 31, 2006. The estimated expense for the equity incentive plan assuming gross proceeds of $236.1 million is $3.2 million pretax for the year ended December 31, 2006. The estimated expense for the stock option plan ESOP shares are assumed to be released at $10.00 per share. Equity incentive plan shares are assumed to vest over 5 years on a straight-line basis. Taxes are calculated on an assumed marginal rate of 35.0%. No expenses are included for the shares issued to the foundation or other merger-related charges, all of which are one time expenses. |
66
|
|
(2) |
ESOP loan with a balance of $32.2 million and an amortization period of 20 years straight line. ESOP loan is assumed to be funded internally, so no interest expense is recorded on the consolidated income statement for Beneficial Mutual Bancorp. ESOP expense thus reflects only the amortization of principal for the period shown. |
|
|
(3) |
Reflects the purchase accounting and acquisition adjustments related to the acquisition of FMS Financial for a price of $28.00 per share in cash and newly issued conversion stock. |
|
|
|
|
(4) |
Adjustment to interest income is the accretion of the loan discount on the FMS Financial loans resulting from purchase accounting and the accretion of the discount on investment securities held-to-maturity and available for sale. Adjustments to record estimated interest income to be foregone as a result of funding the cash portion of the merger consideration paid to stockholders of FMS Financial and the expenses of the acquisition will be recorded as incurred. These are non-recurring, they are not reflected in the Pro Forma Income Statements. The estimated reduction in interest income assuming total funding requirements of $76.6 million for the merger and related expenses, assuming such cash costs were funded with investments yielding 4.99 percent for the year ended December 31, 2006, would be approximately $3.8 million. The yield approximates the yield on the one year U.S. Treasury security on December 31, 2006. The adjustment to interest income is calculated as follows: |
|
|
|
|
|
Accretion of loan discount from purchase accounting |
|
$ |
1,452 |
|
Accretion of investment securities discount from purchase accounting |
|
|
1,276 |
|
|
|
|
||
Adjustment to interest income |
|
$ |
2,728 |
|
|
|
|
|
|
(5) |
Adjustment to interest expense is calculated as follows: |
|
|
|
|
|
Amortization of deposit premium from purchase accounting |
|
$ |
580 |
|
Accretion of borrowings discount from purchase accounting |
|
|
(338 |
) |
Amortization of subordinated debenture discount from purchase accounting |
|
|
29 |
|
|
|
|
||
Adjustment to interest expense |
|
$ |
271 |
|
|
|
|
|
|
(6) |
Adjustment to non-interest expense is calculated as follows: |
|
|
|
|
|
Amortization of new core deposit intangible |
|
$ |
(3,701 |
) |
Elimination of historical amortization of core deposit intangible |
|
|
716 |
|
|
|
|
||
Adjustment to non-interest expense |
|
$ |
(2,985 |
) |
|
|
|
|
|
(7) |
Marginal tax rate of 35%. |
67
Analysis of Pro Forma Outstanding Shares of Beneficial Mutual Bancorp Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering Range |
|
Total Shares Outstanding |
|
Shares Issued |
|
Shares Sold |
|
Shares Issued |
|
Shares Issued |
|
|||||
|
|
|
|
|
|
|||||||||||
Minimum |
|
56,087,194 |
|
|
29,452,500 |
|
|
15,172,500 |
|
|
10,512,194 |
|
|
950,000 |
|
|
Midpoint |
|
64,403,103 |
|
|
34,650,000 |
|
|
17,850,000 |
|
|
10,953,103 |
|
|
950,000 |
|
|
Maximum |
|
72,875,890 |
|
|
39,847,500 |
|
|
20,527,500 |
|
|
11,550,890 |
|
|
950,000 |
|
|
Maximum, as adjusted |
|
82,264,600 |
|
|
45,824,625 |
|
|
23,606,625 |
|
|
11,883,350 |
|
|
950,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Pro Forma Data
The following tables show information about Beneficial Mutual Bancorps and FMS Financials historical combined consolidated net income and stockholders equity prior to the offering and merger and Beneficial Mutual Bancorps pro forma consolidated net income and shareholders equity following the offering and merger. The information provided illustrates our consolidated pro forma net income and stockholders equity based on the sale of common stock at the minimum, midpoint, maximum and 15% above the maximum of the offering range, respectively. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following tables are based upon the following assumptions:
|
|
|
|
|
all shares of stock will be sold in the subscription and direct community offerings; |
|
|
|
|
|
our employee stock ownership plan will purchase a number of shares equal to 3.92% of the shares outstanding, including shares issued to FMS Financial shareholders in connection with the merger, shares issued to Beneficial Savings Bank MHC and shares contributed to The Beneficial Foundation, with a loan from Beneficial Mutual Bancorp that will be repaid in equal installments over 20 years; |
|
|
|
|
|
|
|
|
450,000 shares of common stock will be purchased by the 401(k) plan; |
|
|
|
|
|
326,500 shares of common will be purchased by Beneficial Mutual Bancorp executive officers and directors and their immediate families; and |
|
|
|
|
|
total expenses of the offering, including fees paid to Sandler ONeill, will range from $3.2 million and the minimum of the offering range to $3.7 million at the maximum, as adjusted, of the offering range. |
Actual expenses may vary from this estimate, and the amount of fees paid will depend upon whether a syndicate of broker-dealers or other means is necessary to sell the shares (which would increase offering expenses), and other factors.
Consolidated pro forma net income for the year ended December 31, 2006 has been calculated as if the offering were completed at the beginning of the period, and the net proceeds had been invested at 4.99% for the year ended December 31, 2006, which represents the one-year treasury rate. We believe that the one-year treasury rate represents a more realistic yield on the investment of the offering proceeds than the arithmetic average of the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate required by Office of Thrift Supervision regulations.
68
|
|
|
|
When reviewing the following tables, you should consider the following: |
|
|
|
|
|
|
The final column gives effect to a 15% increase in the offering range, which may occur without any further notice if RP Financial increases its appraisal to reflect the results of this offering, changes in our financial condition or results of operations, or changes in market conditions after the offering begins. See The Stock OfferingHow We Determined the Offering Range and the $10.00 Purchase Price. |
|
|
|
|
|
Since funds on deposit at Beneficial Mutual Savings Bank may be withdrawn to purchase shares of common stock, the amount of funds available for investment will be reduced by the amount of withdrawals for stock purchases. The pro forma tables do not reflect withdrawals from deposit accounts. |
|
|
|
|
|
Historical per share amounts have been computed as if the shares of common stock expected to be issued in the offering had been outstanding at the beginning of the period covered by the table. However, neither historical nor pro forma stockholders equity has been adjusted to reflect the investment of the estimated net proceeds from the sale of the shares in the offering, the additional employee stock ownership plan expense or the proposed equity incentive plan. |
|
|
|
|
|
|
|
|
Pro forma stockholders equity (book value) represents the difference between the stated amounts of our assets and liabilities. Book value amounts do not represent fair market values of intangible assets, or amounts available for distribution to stockholders, in the unlikely event of liquidation. The amounts shown do not reflect the federal income tax consequences of the restoration to income of Beneficial Mutual Savings Banks special bad debt reserves for income tax purposes, which would be required in the unlikely event of liquidation. See Federal and State Taxation. |
|
|
|
|
|
|
|
|
The amounts shown as pro forma stockholders equity per share do not represent possible future price appreciation of our common stock. |
|
|
|
|
|
The pro forma tables do not reflect the impact of the new expenses that we expect to incur as a result of operating as a public company. |
The following consolidated pro forma data, which are based on Beneficial Mutual Savings Banks and FMS Financials equity at December 31, 2006 and net income for the year ended December 31, 2006, may not represent the actual financial effects of the offering or our operating results after the offering. The consolidated pro forma data rely exclusively on the assumptions outlined above and in the notes to the pro forma tables. The consolidated pro forma data do not represent the fair market value of our common stock, the current fair market value of our assets or liabilities, or the amount of money that would be available for distribution to stockholders if we were to be liquidated after the offering.
We are offering our common stock on a best efforts basis. We must issue a minimum of 15,172,500 shares in the offering and in connection with the merger to complete the offering.
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
At or For the Year Ended December 31, 2006 |
|
||||||||||
|
|
||||||||||||
|
|
Minimum |
|
Midpoint |
|
Maximum |
|
Maximum, |
|
||||
|
|
||||||||||||
(Dollars in thousands, except per share amounts) |
|
15,172,500 |
|
17,850,00 |
|
20,527,500 |
|
23,606,625 |
|
||||
Gross proceeds of offering |
|
$ |
151,725 |
|
|
178,500 |
|
|
205,275 |
|
$ |
236,066 |
|
Fair value of shares issued in merger with FMS Financial (1) |
|
|
105,122 |
|
|
109,531 |
|
|
115,509 |
|
|
118,833 |
|
|
|
|
|
|
|
||||||||
Pro forma value |
|
|
256,847 |
|
|
288,031 |
|
|
320,784 |
|
|
354,900 |
|
Plus: foundation shares |
|
|
9,500 |
|
|
9,500 |
|
|
9,500 |
|
|
9,500 |
|
|
|
|
|
|
|
||||||||
Pro forma value including foundation shares |
|
|
266,347 |
|
|
297,531 |
|
|
330,284 |
|
|
364,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds of offering |
|
|
151,725 |
|
|
178,500 |
|
|
205,275 |
|
|
236,066 |
|
Less: estimated expenses |
|
|
3,235 |
|
|
3,387 |
|
|
3,540 |
|
|
3,716 |
|
|
|
|
|
|
|
||||||||
Estimated net proceeds |
|
|
148,490 |
|
|
175,113 |
|
|
201,735 |
|
|
232,350 |
|
Less: common stock acquired by employee stock ownership plan |
|
|
(21,986 |
) |
|
(25,246 |
) |
|
(28,567 |
) |
|
(32,248 |
) |
Less: common stock to be acquired by equity incentive plan |
|
|
(10,993 |
) |
|
(12,623 |
) |
|
(14,284 |
) |
|
(16,124 |
) |
Less: cash contribution to foundation |
|
|
(500 |
) |
|
(500 |
) |
|
(500 |
) |
|
(500 |
) |
|
|
|
|
|
|
||||||||
Net investable proceeds from offering |
|
|
115,011 |
|
|
136,744 |
|
|
158,384 |
|
|
183,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds required to effect the merger with FMS Financial (2) |
|
|
(90,344 |
) |
|
(85,934 |
) |
|
(79,957 |
) |
|
(76,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated pro forma net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical combined |
|
|
16,601 |
|
|
16,601 |
|
|
16,601 |
|
|
16,601 |
|
Pro forma income on net investable proceeds |
|
|
3,730 |
|
|
4,435 |
|
|
5,137 |
|
|
5,951 |
|
Pro forma impact of funding the merger with FMS Financial |
|
|
(2,930 |
) |
|
(2,787 |
) |
|
(2,593 |
) |
|
(2,486 |
) |
Pro forma employee stock ownership plan adjustments (4) |
|
|
(715 |
) |
|
(820 |
) |
|
(928 |
) |
|
(1,048 |
) |
Pro forma restricted stock award expense (5) |
|
|
(1,429 |
) |
|
(1,641 |
) |
|
(1,857 |
) |
|
(2,096 |
) |
Pro forma stock option expense (6) |
|
|
(1,911 |
) |
|
(2,194 |
) |
|
(2,483 |
) |
|
(2,803 |
) |
|
|
|
|
|
|
||||||||
Pro forma net income (7) |
|
|
13,346 |
|
|
13,594 |
|
|
13,877 |
|
|
14,119 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical combined |
|
|
0.31 |
|
|
0.27 |
|
|
0.25 |
|
|
0.21 |
|
Pro forma income on net investable proceeds |
|
|
0.07 |
|
|
0.07 |
|
|
0.07 |
|
|
0.08 |
|
Pro forma impact of funding the merger with FMS Financial |
|
|
(0.05 |
) |
|
(0.05 |
) |
|
(0.04 |
) |
|
(0.03 |
) |
Pro forma employee stock ownership plan adjustments (4) |
|
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
Pro forma restricted stock award expense (5) |
|
|
(0.03 |
) |
|
(0.03 |
) |
|
(0.03 |
) |
|
(0.03 |
) |
Pro forma stock option expense (6) |
|
|
(0.04 |
) |
|
(0.04 |
) |
|
(0.04 |
) |
|
(0.04 |
) |
|
|
|
|
|
|
||||||||
Pro forma net income per share (7) |
|
|
0.25 |
|
|
0.22 |
|
|
0.20 |
|
|
0.18 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price as a multiple of pro forma net income per share |
|
|
40.00 |
x |
|
45.45 |
x |
|
50.00x |
|
|
55.56 |
x |
|
|
|
|
|
|
||||||||
Number of shares used to calculate pro forma earnings per share (3) |
|
|
53,998,507 |
|
|
62,004,731 |
|
|
70,161,992 |
|
|
79,201,066 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma stockholders equity (book value): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical combined including merger adjustments |
|
|
382,320 |
|
|
386,729 |
|
|
392,707 |
|
|
396,032 |
|
Estimated net proceeds |
|
|
148,490 |
|
|
175,113 |
|
|
201,735 |
|
|
232,350 |
|
Less: common stock acquired by employee stock ownership plan (4) |
|
|
(21,986 |
) |
|
(25,246 |
) |
|
(28,567 |
) |
|
(32,248 |
) |
Less: common stock to be acquired by equity incentive plan (5) |
|
|
(10,993 |
) |
|
(12,623 |
) |
|
(14,284 |
) |
|
(16,124 |
) |
Less: stock and cash contribution to the foundation |
|
|
(10,000 |
) |
|
(10,000 |
) |
|
(10,000 |
) |
|
(10,000 |
) |
Plus: tax benefit of contribution to the foundation |
|
|
3,500 |
|
|
3,500 |
|
|
3,500 |
|
|
3,500 |
|
Plus: shares issued to the foundation |
|
|
9,500 |
|
|
9,500 |
|
|
9,500 |
|
|
9,500 |
|
|
|
|
|
|
|
||||||||
Pro forma stockholders equity |
|
|
500,831 |
|
|
526,973 |
|
|
554,591 |
|
|
583,010 |
|
Intangible assets (8) |
|
|
(140,954 |
) |
|
(140,954 |
) |
|
(140,954 |
) |
|
(140,954 |
) |
|
|
|
|
|
|
||||||||
Pro forma tangible stockholders equity |
|
|
359,877 |
|
|
386,019 |
|
|
413,637 |
|
|
442,056 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma stockholders equity per share (9): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical combined including merger adjustments |
|
|
6.82 |
|
|
6.00 |
|
|
5.39 |
|
|
4.81 |
|
Estimated net proceeds |
|
|
2.65 |
|
|
2.73 |
|
|
2.77 |
|
|
2.83 |
|
Less: common stock acquired by employee stock ownership plan (4) |
|
|
(0.39 |
) |
|
(0.39 |
) |
|
(0.39 |
) |
|
(0.39 |
) |
Less: common stock to be acquired by equity incentive plan (5) |
|
|
(0.20 |
) |
|
(0.20 |
) |
|
(0.20 |
) |
|
(0.20 |
) |
Plus: tax benefit of contribution to the foundation |
|
|
0.06 |
|
|
0.05 |
|
|
0.05 |
|
|
0.04 |
|
Plus: shares issued to the foundation |
|
|
0.17 |
|
|
0.15 |
|
|
0.13 |
|
|
0.12 |
|
Less: shares issued to the foundation |
|
|
(0.18 |
) |
|
(0.16 |
) |
|
(0.14 |
) |
|
(0.12 |
) |
|
|
|
|
|
|
||||||||
Pro forma stockholders equity per share |
|
|
8.93 |
|
|
8.18 |
|
|
7.61 |
|
|
7.09 |
|
Intangible assets (8) |
|
|
(2.51 |
) |
|
(2.19 |
) |
|
(1.93 |
) |
|
(1.71 |
) |
|
|
|
|
|
|
||||||||
Pro forma tangible stockholders equity per share |
|
|
6.42 |
|
|
5.99 |
|
|
5.68 |
|
|
5.38 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price as a percentage of pro forma equity per share |
|
|
111.98 |
% |
|
122.25 |
% |
|
131.41 |
% |
|
141.04 |
% |
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price as a percentage of pro forma tangible equity per share |
|
|
155.76 |
% |
|
166.94 |
% |
|
176.06 |
% |
|
185.87 |
% |
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used for pro forma stockholders equity per share (9) |
|
|
56,087,194 |
|
|
64,403,103 |
|
|
72,875,890 |
|
|
82,264,600 |
|
|
|
|
|
|
|
||||||||
|
(footnotes on following page)
70
|
|
(1) |
Reflects the issuance of shares to FMS Financial shareholders in the merger as follows: |
|
|
|
|
|
|
|
|
|
|
Shares issued to
FMS |
|
Percent of Merger |
|
||
|
|
|
|||||
Minimum |
|
10,512,194 |
|
|
57.50 |
% |
|
Midpoint |
|
10,953,103 |
|
|
59.91 |
|
|
Maximum |
|
11,550,890 |
|
|
63.18 |
|
|
Maximum, as adjusted |
|
11,883,350 |
|
|
65.00 |
|
|
|
|
|
(2) |
For the purposes of this presentation, the funds required to effect the merger with FMS Financial, pre-tax, which are expected to be paid upon consummation of the offering and merger (which are to occur simultaneously) or shortly thereafter, are reflected as an adjustment for purposes of the pro forma net income and pro forma net income per share information. Funds required to effect the merger include the cash portion of the merger consideration and one-time transaction and restructuring costs of $12.4 million on a pre-tax basis. |
|
|
(3) |
Per share income data is based on weighted average shares outstanding, which represents shares sold in the offering, shares issued to Beneficial Savings Bank MHC, shares issued in the merger, shares to be contributed to The Beneficial Foundation and shares to be allocated or distributed under Beneficial Mutual Bancorps employee stock ownership plan and stock-based incentive plan for the year presented. For the year ended December 31, 2006, the weighted average shares outstanding for purposes of computing earnings per share have been calculated as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,172,500 |
|
17,850,000 |
|
20,527,500 |
|
23,606,625 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
|
|
56,087,194 |
|
|
64,403,103 |
|
|
72,875,890 |
|
|
82,264,600 |
|
Shares acquired by the employee stock ownership plan |
|
|
(2,198,618 |
) |
|
(2,524,602 |
) |
|
(2,856,735 |
) |
|
(3,224,772 |
) |
Employee stock ownership plan shares allocated or committed to be released |
|
|
109,931 |
|
|
126,320 |
|
|
142,837 |
|
|
161,239 |
|
|
|
|
|
|
|
||||||||
Weighted-average shares outstanding |
|
|
53,998,507 |
|
|
62,004,731 |
|
|
70,161,992 |
|
|
79,201,066 |
|
|
|
|
|
|
(4) |
Assumes that the employee stock ownership plan will acquire a number of shares of stock equal to 3.92% of the shares outstanding, including shares issued in the offering to Beneficial Savings Bank MHC and shares issued in connection with the merger and contributed to The Beneficial Foundation (2,198,618, 2,524,602, 2,856,735 and 3,224,772 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively). The employee stock ownership plan will borrow the funds to acquire these shares from the net offering proceeds retained by Beneficial Mutual Bancorp. The amount of this borrowing has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. This borrowing will have an interest rate equal to the prime rate as published in The Wall Street Journal, which is currently 8.25%, and a term of 20 years. Beneficial Mutual Savings Bank intends to make contributions to the employee stock ownership plan in amounts at least equal to the principal and interest requirement of the debt. Interest income that Beneficial Mutual Bancorp will earn on the loan will offset a portion of the compensation expense recorded by Beneficial Mutual Savings Bank as it contributes to the ESOP. As the debt is paid down, shares will be released for allocation to participants accounts and stockholders equity will be increased. |
|
|
|
|
|
The adjustment to pro forma net income for the employee stock ownership plan reflects the after-tax compensation expense associated with the plan. Applicable accounting principles require that compensation expense for the employee stock ownership plan be based upon shares committed to be released and that unallocated shares be excluded from earnings per share computations. An equal number of shares (5.0% of the total, based on a 20-year loan) will be released each year over the term of the loan. The valuation of shares committed to be released will be based upon the average market value of the shares during the year, which, for purposes of this calculation, was assumed to be equal to the $10.00 per share purchase price. If the average market value per share is greater than $10.00 per share, total employee stock ownership plan expense would be greater. See Our ManagementBenefit PlansEmployee Stock Ownership Plan. |
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(5) |
Assumes that Beneficial Mutual Bancorp will purchase in the open market a number of shares of stock equal to 1.96% of the shares outstanding, including shares issued to FMS Financial shareholders in the merger, to Beneficial Savings Bank MHC and contributed to The Beneficial Foundation (1,099,309, 1,262,301, 1,428,367 and 1,612,386 shares at the minimum, |
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71
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|
midpoint, maximum and adjusted maximum of the offering range, respectively), that will be reissued as restricted stock awards under an equity incentive plan to be adopted following the offering. Purchases will be funded with cash on hand at Beneficial Mutual Bancorp or with dividends paid to Beneficial Mutual Bancorp by Beneficial Mutual Savings Bank. The cost of these shares has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. In calculating the pro forma effect of the restricted stock awards, it is assumed that the required stockholder approval has been received, that the shares used to fund the awards were acquired at the beginning of the respective period and that the shares were acquired at the $10.00 per share purchase price. The issuance of authorized but unissued shares of common stock instead of shares repurchased in the open market would dilute the ownership interests of existing stockholders by approximately 1.9%. |
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|
The adjustment to pro forma net income for the restricted stock awards reflects the after-tax compensation expense associated with the awards. It is assumed that the fair market value of a share of Beneficial Mutual Bancorp common stock was $10.00 at the time the awards were made, that shares of restricted stock issued under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the shares awarded was an amortized expense during each year, and that the combined federal and state income tax rate was 35%. If the fair market value per share is greater than $10.00 per share on the date shares are awarded under the equity incentive plan, total equity incentive plan expense would be greater. |
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(6) |
The adjustment to pro forma net income for stock options reflects the after-tax compensation expense associated with the stock options that may be granted under the equity incentive plan to be adopted following the offering. If the equity incentive plan is approved by stockholders, a number of shares equal to 4.9% of the number of shares outstanding, including shares issued to Beneficial Savings Bank MHC and shares issued in connection with the merger and contributed to The Beneficial Foundation (2,748,273, 3,155,752, 3,570,919 and 4,030,965) shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively), will be reserved for future issuance upon the exercise of stock options that may be granted under the plan. We will follow Financial Accounting Standards Board Statement No. 123 (revised 2004), Share-Based Payment, to account for stock options issued. This standard requires compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements over the period the employee is required to provide services for the award. The cost will be measured based on the fair value of the equity instruments issued. Applicable accounting standards do not prescribe a specific valuation technique to be used to estimate the fair value of employee stock options. Using the Black-Scholes option-pricing formula, the options are assumed to have a value of $3.81 for each option, based on the following assumptions: exercise price, $10.00; trading price on date of grant, $10.00; dividend yield, 0%; expected life, 10 years; expected volatility, 9.39%; and risk-free interest rate, 4.71%. Because there currently is no market for Beneficial Mutual Bancorp common stock, the assumed expected volatility is based on the SNL Index for all publicly-traded mutual holding company thrifts. The dividend yield is assumed to be 0% because there is no history of dividend payments and the board of directors has not expressed an intention to commence dividend payments upon completion of the offering. It is assumed that stock options granted under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the options awarded is an amortized expense during each year, that 25% of the options awarded are non-qualified options and that the combined federal and state income tax rate is 35%. We plan to use the Black-Scholes option-pricing formula; however, if the fair market value per share is different than $10.00 per share on the date options are awarded under the equity incentive plan, or if the assumptions used in the option-pricing formula are different from those used in preparing this pro forma data, the value of the stock options and the related expense would be different. The issuance of authorized but unissued shares of common stock to satisfy option exercises instead of shares repurchased in the open market would dilute the ownership interests of existing stockholders, other than Beneficial Savings Bank MHC, by approximately 4.7%. |
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(7) |
Does not give effect to the non-recurring expense that will be recognized in fiscal 2007 as a result of the contribution of 950,000 shares of common stock to The Beneficial Foundation. |
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The following table shows the estimated after-tax expense associated with the contribution to the foundation, as well as pro forma net income (loss) and pro forma net income (loss) per share assuming the contribution to the foundation was expensed during the periods presented. |
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||||||||||||
(Dollars in thousands, except per share amounts) |
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Minimum |
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Midpoint |
|
Maximum |
|
15% Above |
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||||||||||||
After-tax expense of contribution to foundation: |
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|
$ |
(6,500 |
) |
|
|
$ |
(6,500 |
) |
|
|
$ |
(6,500 |
) |
|
|
$ |
(6,500 |
) |
|
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|
|
|
|
|
|
|
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Pro forma net income: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Year ended December 31, 2006 |
|
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|
6,846 |
|
|
|
|
7,094 |
|
|
|
|
7,377 |
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7,619 |
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Pro forma net income per share: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Year ended December 31, 2006 |
|
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0.13 |
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|
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|
0.11 |
|
|
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0.11 |
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|
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0.10 |
|
|
72
|
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(8) |
Includes $8.7 million of intangible assets from Beneficial Mutual Savings Bank and $132.3 million of goodwill and core deposit intangibles resulting from the acquisition of FMS Financial. |
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(9) |
Includes the following: |
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|
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|
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|
Shares issued to the Beneficial Savings Bank MHC |
|
|
29,452,500 |
|
|
34,650,000 |
|
|
39,847,500 |
|
|
45,824,625 |
|
Shares issued in the offering |
|
|
15,172,500 |
|
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17,850,000 |
|
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20,527,500 |
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23,606,625 |
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Shares issued to FMS Financial |
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|
10,512,194 |
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10,953,103 |
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11,550,890 |
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11,883,350 |
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Shares issued to The Beneficial Foundation |
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|
950,000 |
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|
950,000 |
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|
950,000 |
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|
950,000 |
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|
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||||||||
Shares used for pro forma stockholders equity per share |
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|
56,087,194 |
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64,403,103 |
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72,875,890 |
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82,264,600 |
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73
Comparison of Independent
Valuation and Pro Forma
Financial Information With and Without the Foundation
As set forth in the following table, if we do not establish and fund The Beneficial Foundation as part of the offering, RP Financial estimates that our pro forma valuation would be greater, which would have resulted in an increase in the amount of common stock offered for sale in the offering. If the foundation is not established, there is no assurance that the updated appraisal that RP Financial will prepare at the closing of the offering would conclude that our pro forma market value would be the same as the estimate set forth in the table below. The updated appraisal will be based on the facts and circumstances existing at that time, including, among other things, market and economic conditions.
The information presented in the following table is for comparative purposes only. It assumes that the offering was completed at December 31, 2006, based on the assumptions set forth under Pro Forma Data.
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At the Minimum of |
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At the Midpoint of |
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At the Maximum of |
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At the Maximum, as |
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(Dollars in thousands, except per share amounts) |
|
With Foundation |
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No Foundation |
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With Foundation |
|
No Foundation |
|
With Foundation |
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No Foundation |
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With Foundation |
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No Foundation |
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Estimated offering amount (1) |
|
$ |
151,725 |
|
$ |
154,615 |
|
$ |
178,500 |
|
$ |
181,900 |
|
$ |
205,275 |
|
$ |
209,185 |
|
$ |
236,066 |
|
|
240,563 |
|
Pro forma market capitalization (excluding Beneficial Savings Bank MHC) |
|
|
266,347 |
|
|
259,737 |
|
|
297,531 |
|
|
291,431 |
|
|
330,284 |
|
|
324,694 |
|
|
364,400 |
|
|
359,396 |
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Estimated pro forma valuation |
|
|
560,872 |
|
|
559,872 |
|
|
644,031 |
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|
644,531 |
|
|
728,759 |
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|
730,759 |
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|
822,646 |
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|
826,371 |
|
Pro forma total assets |
|
|
3,631,062 |
|
|
3,630,992 |
|
|
3,657,205 |
|
|
3,657,553 |
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|
3,684,822 |
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|
3,686,589 |
|
|
3,713,241 |
|
|
3,714,491 |
|
Pro forma total liabilities |
|
|
3,130,231 |
|
|
3,130,231 |
|
|
3,130,231 |
|
|
3,130,231 |
|
|
3,130,231 |
|
|
3,130,231 |
|
|
3,130,231 |
|
|
3,130,231 |
|
Pro forma stockholders equity |
|
|
501,831 |
|
|
500,761 |
|
|
526,973 |
|
|
527,321 |
|
|
554,591 |
|
|
555,358 |
|
|
583,010 |
|
|
584,260 |
|
Pro forma net income |
|
|
13,346 |
|
|
13,466 |
|
|
13,594 |
|
|
13,715 |
|
|
13,877 |
|
|
14,001 |
|
|
14,119 |
|
|
14,245 |
|
Pro forma stockholders equity per share |
|
|
8.93 |
|
|
8.94 |
|
|
8.18 |
|
|
8.18 |
|
|
7.61 |
|
|
7.60 |
|
|
7.09 |
|
|
7.07 |
|
Pro forma tangible stockholders equity per share |
|
|
6.42 |
|
|
6.42 |
|
|
5.99 |
|
|
5.99 |
|
|
5.68 |
|
|
5.67 |
|
|
5.38 |
|
|
5.36 |
|
Pro forma net income per share |
|
|
0.25 |
|
|
0.25 |
|
|
0.22 |
|
|
0.22 |
|
|
0.20 |
|
|
0.20 |
|
|
0.18 |
|
|
0.18 |
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|
Pro Forma Pricing Ratios: |
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Offering price as a percentage of pro forma stockholders equity |
|
|
111.98 |
% |
|
111.86 |
% |
|
122.25 |
% |
|
122.25 |
% |
|
131.41 |
% |
|
131.58 |
% |
|
141.04 |
% |
|
141.44 |
% |
Offering price as a percent of pro forma tangible stockholders equity per share |
|
|
155.76 |
|
|
155.76 |
|
|
166.94 |
|
|
166.94 |
|
|
176.06 |
|
|
176.37 |
|
|
185.87 |
|
|
186.57 |
|
Offering price as a multiple of pro forma net income per share |
|
|
40.00 |
|
|
40.00 |
|
|
45.45 |
|
|
45.45 |
|
|
50.00 |
|
|
50.00 |
|
|
55.56 |
|
|
55.56 |
|
Offering price to assets |
|
|
15.45 |
|
|
15.42 |
|
|
17.61 |
|
|
17.62 |
|
|
19.78 |
|
|
19.83 |
|
|
22.15 |
|
|
22.25 |
|
|
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
Pro Forma Financial Ratios: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets |
|
|
0.37 |
% |
|
0.37 |
% |
|
0.37 |
% |
|
0.37 |
% |
|
0.38 |
% |
|
0.38 |
% |
|
0.38 |
% |
|
0.38 |
% |
Return on stockholders equity |
|
|
2.66 |
|
|
2.69 |
|
|
2.58 |
|
|
2.60 |
|
|
2.50 |
|
|
2.52 |
|
|
2.42 |
|
|
2.44 |
|
Stockholders equity to total assets |
|
|
13.79 |
|
|
13.79 |
|
|
14.41 |
|
|
14.42 |
|
|
15.05 |
|
|
15.07 |
|
|
15.70 |
|
|
15.73 |
|
Tangible stockholders equity to assets |
|
|
10.31 |
|
|
10.31 |
|
|
10.98 |
|
|
10.99 |
|
|
11.67 |
|
|
11.69 |
|
|
12.37 |
|
|
12.41 |
|
|
|
|
|
|
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|
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|
(1) |
Based on the independent valuation prepared by RP Financial as of February 23, 2007. |
74
Business of Beneficial Mutual Bancorp
General
Beneficial Mutual Bancorp is a federally chartered savings and loan holding company established in 2004 to be the holding company for Beneficial Mutual Savings Bank. Beneficial Mutual Bancorps primary business activity is the ownership of the outstanding capital stock of Beneficial Mutual Savings Bank. Beneficial Mutual Bancorp does not own or lease any property but instead uses the premises, equipment and other property of Beneficial Mutual Savings Bank with the payment of appropriate rental fees, as required by applicable law and regulations, under the terms of an expense allocation agreement. In connection with the offering, Beneficial Mutual Bancorp is acquiring FMS Financial, a New Jersey chartered corporation and sole stockholder of Farmers & Mechanics Bank, a federally chartered savings bank located in Burlington, New Jersey. Farmers & Mechanics Bank was founded in 1871 under the name of Farmers & Mechanics Building and Loan Association. Farmers & Mechanics Bank is headquartered in Burlington, New Jersey and serves greater Burlington County and parts of Camden and Mercer Counties, New Jersey.
In the future, Beneficial Mutual Bancorp may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.
Beneficial
Mutual Savings Bank is a Pennsylvania chartered savings bank originally founded
in 1853. In 2004, we reorganized into the mutual holding company structure,
forming Beneficial Mutual Bancorp as our holding company and Beneficial Mutual
Savings MHC as the sole stockholder of Beneficial Mutual Bancorp. As a
Pennsylvania chartered savings bank, Beneficial Mutual Savings Bank never had
members. When we reorganized into the mutual holding company structure,
Beneficial Savings Bank MHC was organized with no members as well. We have
served the financial needs of our depositors and the local community since our
founding. We are a community-minded, customer focused institution based on
quality customer service. We offer traditional financial services to consumers
and businesses in our market areas. We attract deposits from the general public
and use those funds to originate a variety of loans, including commercial real
estate loans, consumer loans, particularly home equity loans and automobile
loans, one-to -four family real estate loans, commercial business loans and
construction loans. We also maintain an investment portfolio.
Our website address is www.beneficialsavings.com. We plan to make available on our website, free of charge, our annual report on Form 10-K, quarterly report on Form 10-Q and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Information on our website should not be considered a part of this prospectus.
Market Area
We are headquartered in Philadelphia, Pennsylvania. In addition to our main office, we operate 38 full-service branch offices in Chester, Delaware, Montgomery, Philadelphia and Bucks Counties, Pennsylvania and one full-service office in each of Burlington and Camden Counties, New Jersey.
Philadelphia Market Area. The economy of our Philadelphia market area is predominated by the service sector. According to published statistics, the population of the five-county area served by our branches totaled 3.9 million. The economy in the Philadelphia market area has grown in recent years due to the presence of a highly-educated workforce and the diversity of the local economy as traditional employers in the manufacturing and financial services industry have been bolstered by growth in the life services and health care industries, as well as the information technology and communication sectors. The median household and per capita income in Bucks, Chester, Delaware and Montgomery Counties significantly exceeds the comparable figures for Pennsylvania as a whole, while the median household and per capita income in Philadelphia County trailed the comparable figures for Pennsylvania. The difference reflects the suburban location of Bucks, Chester, Delaware and Montgomery Counties compared to the urban location of Philadelphia County.
New Jersey Market Area. We currently consider our New Jersey market area to include the counties of Burlington, Camden and Gloucester. The acquisition of FMS Financial will substantially enhance our market share in Burlington County and increase our presence in Camden and Mercer Counties. The median household income in
75
Burlington County, New Jersey exceeds the median household income for New Jersey as a whole. However, the per capita income of both Gloucester and Burlington Counties, as well as the median household income of Gloucester County are below the comparable figures for New Jersey. Growth trends for the New Jersey market area ranged from 1.3% in Burlington County to 0.4% in Camden County. Burlington County exceeded the state and MSA trends, while mirroring the national trend. Camden County fell below the comparative growth trends and Mercer County fell below the comparative national trend, but exceeded the trends for the State of New Jersey and the MSA.
Overall, the nine counties that will comprise our Philadelphia and New Jersey market areas provide attractive growth potential by demonstrating relatively strong population and household growth trends; and by exhibiting above average wealth in terms of income levels and median home value.
Competition
We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the many financial institutions operating in our market area and, to a lesser extent, from other financial service companies such as brokerage firms, credit unions and insurance companies. Several large holding companies operate banks in our market area, including Bank of America, Wachovia, Commerce Bank and PNC Bank. These institutions are significantly larger than us and, therefore, have significantly greater resources. We also face competition for investors funds from money market funds, mutual funds and other corporate and government securities. At June 30, 2006, which is the most recent date for which data is available from the Federal Deposit Insurance Corporation, we held approximately 0.66% of the deposits in the Philadelphia metropolitan statistical area, which was the 18th largest market share out of the 158 institutions with offices in that metropolitan statistical area.
Our competition for loans comes primarily from financial institutions in our market area and, to a lesser extent, from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies entering the mortgage market, such as insurance companies, securities companies and specialty finance companies.
We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal law permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans could limit our growth in the future.
Lending Activities
We offer a variety of loans. Historically, we have had a substantial portion of our loan portfolio concentrated in consumer loans, including primarily automobile loans and automobile lease financing, as well as home equity loans and lines of credit. In 2004, we stopped providing automobile lease financing and our automobile loan portfolio has decreased in recent years. We intend that our automobile loan portfolio will continue to decline as we place greater emphasis on originating commercial real estate and commercial business loans. Since 2002, our commercial real estate loan portfolio has grown steadily and at December 31, 2006 and 2005 comprised 24.38% and 21.48% of our total loan portfolio, respectively, which was greater than any other loan category.
In the future, we intend to continue to emphasize home equity lending, while concentrating on ways to compete for a greater share of commercial real estate and commercial business loan originations in our primary market area.
One-to-Four Family Residential
Loans. We offer two types of
residential mortgage loans: fixed-rate loans and adjustable-rate loans. We
offer fixed-rate mortgage loans with terms of up to 40 years, although we
generally do not originate fixed-rate mortgages with terms in excess of 30
years. We offer adjustable-rate mortgage loans with interest rates and payments
that adjust annually after an initial fixed period of one, three or five years.
Interest rates and payments on our adjustable-rate loans generally are adjusted
to a rate equal to a percentage above
76
the U.S. Treasury Security Index. The maximum amount by which the interest rate may be increased or decreased is generally 2.0% per adjustment period and the lifetime interest rate cap is generally 6.0% over the initial interest rate of the loan. We generally sell all fixed rate loans we originate with terms in excess of 15 years with servicing retained.
Borrower demand for adjustable-rate loans compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees offered for fixed-rate mortgage loans as compared to the interest rates and loan fees for adjustable-rate loans. The relative amount of fixed-rate and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment. The loan fees, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions.
While
one-to-four family residential real estate loans are normally originated with
up to 30-year terms, such loans typically remain outstanding for substantially
shorter periods because borrowers often prepay their loans in full either upon
sale of the property pledged as security or upon refinancing the original loan.
Therefore, average loan maturity is a function of, among other factors, the
level of purchase and sale activity in the real estate market, prevailing
interest rates and the interest rates payable on outstanding loans. We do not
offer loans with negative amortization or interest only loans.
It is our general policy not to make high loan-to-value loans (defined as loans with a loan-to-value ratio of 80% or more) without private mortgage insurance; however, we do offer loans with loan-to-value ratios of up to 90% under a special low income loan program. The maximum loan-to-value ratio we generally permit is 95% with private mortgage insurance, although occasionally we do originate loans with loan-to-value ratios as high as 97% under special loan programs, including our first time home owner loan program. We require all properties securing mortgage loans to be appraised by a board-approved independent appraiser. We generally require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, and flood insurance is required for loans on properties located in a flood zone.
Commercial Real Estate Loans. At December
31, 2006, we
had commercial real estate loans totaling $409.7 million, or 24.4%, of our
total loan portfolio, which was greater than any other loan category, including
one-to-four family loans.
We offer commercial real estate loans secured by real estate primarily with adjustable rates. We originate a variety of commercial real estate loans generally for terms up to 25 years and payments based on an amortization schedule of up to 25 years. These loans are typically based on either the Federal Home Loan Bank of Pittsburghs borrowing rate or U.S. Treasury rate and adjust every five years. Commercial real estate loans also are originated for the acquisition and development of land. Commercial real estate loans for the acquisition and development of land are typically based upon the prime rate as published in The Wall Street Journal and/or LIBOR. Commercial real estate loans for developed real estate and for real estate acquisition and development are originated with loan-to-value ratios of up to 75%, while loans for the acquisition of land are originated with a maximum loan to value ratio of 65%.
As of December 31, 2006, our largest commercial real estate loan was a $20.0 million revolving line of credit for the acquisition and development of land into a development of 170 homes. The loan is secured by the land being developed. The loan balance was $10.5 million at December 31, 2006. This loan was performing in accordance with its original terms at December 31, 2006.
Commercial Loans. We offer commercial business loans to professionals, sole proprietorships and small businesses in our market area. We offer installment loans for capital improvements, equipment acquisition and long-term working capital. These loans are typically based on the prime rate as published in The Wall Street Journal and/or LIBOR. These loans are secured by business assets other than real estate, such as business equipment and inventory, or are backed by the personal guarantee of the borrower. We originate lines of credit to finance the working capital needs of businesses to be repaid by seasonal cash flows or to provide a period of time during which the business can borrow funds for planned equipment purchases. We also offer accounts receivable lines of credit.
77
When making commercial business loans, we consider the financial statements of the borrower, the borrowers payment history of both corporate and personal debt, the debt service capabilities of the borrower, the projected cash flows of the business, the viability of the industry in which the customer operates and the value of the collateral.
At December 31, 2006, our largest commercial business loan relationship was a $4.2 million loan secured by common stock. This loan was performing in accordance with its original terms at December 31, 2006.
Consumer Loans. We offer a variety of consumer loans, including home equity loans and lines of credit, automobile loans, including loans for recreational vehicles, marine loans for the purchase of new and used boats, guaranteed student loans and loans secured by passbook accounts and certificates of deposit. We also offer unsecured lines of credit.
We generally offer home equity loans and lines of credit with a maximum combined loan-to-value ratio of 80%. Home equity loans have fixed-rates of interest and are originated with terms of up to 20 years. Home equity lines of credit have adjustable rates and are based upon the prime rate as published in The Wall Street Journal. Home equity lines of credit require that 2.0% of the principal and interest be paid each month. We hold a first mortgage position on the majority of the homes that secure our home equity loans.
We offer loans secured by new and used automobiles. These loans have fixed interest rates and generally have terms up to six years. We offer automobile loans with loan-to-value ratios of up to 100% of the purchase price of the vehicle depending upon the credit history of the borrower and other factors. Loans on recreational vehicles are originated for terms of up to 20 years depending upon the loan amount and the loan-to-value ratio on such loans generally does not exceed 90%. We generally offer marine loans for up to $500,000 for the purchase of new and used boats with terms up to 20 years. The maximum loan-to-value ratio for such a loan is 85% for loans up to $249,999 and 80% for loans over $249,999. Although we continue to hold some automobile leases, we no longer originate or purchase automobile lease financing. At December 31, 2006, we had 769 leases totaling $14.8 million.
We offer consumer loans secured by passbook accounts and certificates of deposit held at Beneficial Mutual Savings Bank based upon the prime rate as published in The Wall Street Journal with terms up to four years. We will offer such loans up to 100% of the principal balance of the certificate of deposit or balance in the passbook account. We also offer unsecured loans and lines of credit with terms up to five years. Our unsecured loans and lines of credit bear a substantially higher interest rate than our secured loans and lines of credit. For more information on our loan commitments, see Managements Discussion and Analysis of Financial Condition and Results of OperationsRisk ManagementLiquidity Management.
The procedures for underwriting consumer loans include an assessment of the applicants payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicants creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.
Loan Underwriting Risks.
Adjustable-Rate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, an increased monthly mortgage payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.
Commercial
Real Estate Loans. Loans secured by commercial real estate generally have
larger balances and involve a greater degree of risk than one-to-four family
residential mortgage loans. Of primary concern in commercial real estate
lending is the borrowers creditworthiness and the feasibility and cash flow
potential of the project. Payments on loans secured by income properties often
depend on successful operation and management of the properties. As a result,
repayment of such loans may be subject to a greater extent than residential
real estate
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loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements on commercial real estate loans and rent rolls where applicable. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrowers expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.20x. An environmental report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials.
Commercial Business Loans. Unlike residential mortgage loans, which generally are made on the basis of the borrowers ability to make repayment from his or her employment or other income, and which are secured by real property, the value of which tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrowers ability to make repayment from the cash flow of the borrowers business. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value.
Consumer Loans. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles, recreational vehicles and boats. In the latter case, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrowers continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
Loan Originations and Purchases. Loan originations come from a number of sources. The primary source of loan originations are existing customers, walk-in traffic, advertising and referrals from customers. We also purchase home equity, automobile, recreational vehicle and marine loans.
From time to time, we will purchase participations in loans from local banks to supplement our lending portfolio. Loan participations totaled $40.3 million at December 31, 2006. Loan participations are also subject to the same credit analysis and loan approvals as loans we originate. We are permitted to review all of the documentation relating to any loan in which we participate. However, in a purchased participation loan, we do not service the loan and thus are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings.
Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our board of trustees and management. The board of trustees has granted loan approval authority to certain officers or groups of officers up to prescribed limits, based on the officers experience and tenure. Individual loans or lending relationships with aggregate exposure of $5.0 million must be approved by the senior loan committee, which is comprised of senior bank officers and five non-employee directors. All loans in excess of $20.0 million must be approved by the senior loan committee of the board, as well as the executive committee of the board, which includes six non-employee directors.
Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrowers related entities is limited, by regulation, to generally 15% of our stated capital and reserves. At December 31, 2006, our regulatory limit on loans to one borrower was $40.3 million. At that date, our largest lending relationship was $20.0 million and was secured by real estate being developed with 170 homes. This loan was performing in accordance with its original terms at December 31, 2006.
Loan Commitments. We issue commitments for fixed- and adjustable-rate mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers. Generally, our loan commitments expire after 60 days.
79
Investment Activities
We have authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various U.S. government sponsored enterprises, federal agencies and state and municipal governments, mortgage-backed securities and certificates of deposit of federally insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in corporate securities and mutual funds. As a member of the Federal Home Loan Bank of Pittsburgh, we also are required to maintain an investment in Federal Home Loan Bank of Pittsburgh stock. While we have the authority under applicable law to invest in derivative instruments for hedging activities, we had no such investments at December 31, 2006.
At December 31, 2006, our investment portfolio excluding Federal Home Loan Bank stock totaled $461.2 million and consisted primarily of mortgage-backed securities, including collateralized mortgage obligations, United States government and agency securities, including securities issued by government sponsored enterprises, municipal and other bonds and equity securities.
Our investment objectives are to provide and maintain liquidity, to establish an acceptable level of interest rate and credit risk, to provide an alternate source of low-risk investments when demand for loans is weak and to generate a favorable return. Our board of trustees has the overall responsibility for the investment portfolio, including approval of our investment policy, which is reviewed and approved at least annually. The Investment Oversight Committee of the board of trustees is responsible for implementation of the investment policy, and monitoring our investment performance. Our board of trustees reviews the status of our investment portfolio on a monthly basis.
Deposit Activities and Other Sources of Funds
General. Deposits, borrowings and loan repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.
Deposit Accounts. Deposits are primarily attracted from within our market area through the offering of a broad selection of deposit instruments, including non-interest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts), savings accounts and certificates of deposit. From time to time, we solicit brokered time deposits as an alternative source of funds.
We also offer a variety of deposit accounts designed for the businesses operating in our market area. Our business banking deposit products include a commercial checking account and a checking account specifically designed for small businesses. Additionally, we offer cash management, including lockbox service and sweep accounts.
Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, the rates on borrowings, brokered deposits, our liquidity needs, profitability to us, and customer preferences and concerns. We generally review our deposit mix and pricing bi-weekly. Our deposit pricing strategy has generally been to offer competitive rates on all types of deposit products, and to periodically offer special rates in order to attract deposits of a specific type or term.
Borrowings. We have the ability to utilize advances from the Federal Home Loan Bank of Pittsburgh to supplement our investable funds. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institutions net worth or on the Federal Home Loan Banks assessment of the institutions creditworthiness. We also utilize securities sold under agreements to repurchase and
80
overnight repurchase agreements to supplement our supply of investable funds and to meet deposit withdrawal requirements.
Properties
The following table sets forth certain information relating to our properties as of December 31, 2006.
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Location |
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Date |
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Square |
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Owned/ |
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Lease |
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Net Book Value |
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Executive Office |
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4/1/2001 |
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3,014 |
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Leased |
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3/31/2011 |
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$ |
232 |
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Corporate Office |
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4/1/2001 |
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84,517 |
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Leased |
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3/31/2011 |
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946 |
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Branch Offices |
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Philadelphia |
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Center City Area |
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1139
Chestnut Street |
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1/1/2006 |
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3,000 |
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Leased |
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12/31/2011 |
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951 |
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1600
Chestnut Street |
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4/10/1967 |
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4,000 |
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Leased |
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10/31/2016 |
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644 |
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530
Walnut Street |
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4/1/2001 |
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1,832 |
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Leased |
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3/31/2011 |
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23 |
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2500
Aramingo Street |
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10/12/2004 |
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3,000 |
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Owned |
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1,155 |
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North |
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5700 N.
Broad Street |
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9/9/1946 |
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4,354 |
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Owned |
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110 |
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Northeast |
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Academy
Plaza Shopping Center |
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10/14/1968 |
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2,750 |
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Owned |
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177 |
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Bells
Corner |
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4/20/1966 |
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1,895 |
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Leased |
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7/31/2009 |
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275 |
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6244
Bustleton Avenue |
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2/2/1953 |
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1,820 |
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Leased |
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12/31/2007 |
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3 |
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6918
Brous Avenue |
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4/14/2005 |
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2,400 |
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Owned |
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1,089 |
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1411
Rhawn Street |
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4/18/2005 |
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3,000 |
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Leased |
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4/30/2025 |
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342 |
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7262-64
Frankford Avenue |
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10/23/1974 |
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3,800 |
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Leased |
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6/30/2016 |
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4 |
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81
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Date |
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Square |
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Owned/ |
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Lease |
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Net Book Value |
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Holme
Circle Shopping Center |
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8/20/2001 |
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2,400 |
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Leased |
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8/31/2011 |
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146 |
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826 E.
Allegheny Avenue |
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12/8/1924 |
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5,922 |
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Owned |
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95 |
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Morrell
Plaza Shopping Center |
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12/22/1997 |
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2,000 |
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Leased |
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10/15/2007 |
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8 |
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Parkwood
Shopping Center |
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1/18/2005 |
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2,280 |
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Leased |
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12/31/2015 |
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829 |
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Northwest |
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Ivy Ridge
Shopping Center |
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4/5/1999 |
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2,000 |
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Leased |
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12/31/2008 |
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32 |
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South |
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2037 S.
Broad Street |
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11/27/1928 |
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4,248 |
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Owned |
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89 |
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Southwest |
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6401
Woodland Avenue |
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4/10/1954 |
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1,800 |
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Leased |
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12/31/2009 |
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42 |
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West |
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City Line
Shopping Center |
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4/27/1949 |
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2,340 |
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Leased |
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6/30/2012 |
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2 |
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Bucks County |
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Bensalem |
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Bensalem
Shopping Center |
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1/29/1975 |
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2,000 |
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Leased |
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1/31/2008 |
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26 |
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Newtown |
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Summit
Square Shopping Center |
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4/12/1995 |
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2,400 |
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Leased |
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3/31/2010 |
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1 |
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Warminster |
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|
|
|
|
|
|
|
|
|
|
Rosemore
Shopping Center |
|
9/14/1970 |
|
|
2,000 |
|
|
Leased |
|
|
6/30/2010 |
|
|
|
|
29 |
|
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82
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||||||||
Location |
|
Date |
|
Square |
|
Owned/ |
|
Lease |
|
Net Book Value |
|
|||||||
|
||||||||||||||||||
Warrington |
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|
|
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|
Stone
Manor Corporate Center |
|
1/30/2006 |
|
|
3,200 |
|
|
Owned |
|
|
|
|
|
|
|
900 |
|
|
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Chester County |
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Exton |
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|
Main
Street at Exton |
|
1/27/2003 |
|
|
2,950 |
|
|
Leased |
|
|
1/26/2018 |
|
|
|
|
327 |
|
|
|
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Delaware County |
|
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Broomall |
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|
|
Lawrence
Park Shopping Center |
|
10/31/1960 |
|
|
2,640 |
|
|
Leased |
|
|
4/30/2009 |
|
|
|
|
1 |
|
|
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|
Clifton Heights |
|
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|
|
Baltimore
Pike & Oak Avenue |
|
12/09/1968 |
|
|
2,572 |
|
|
Leased |
|
|
4/30/2009 |
|
|
|
|
14 |
|
|
|
|
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|
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Drexel Hill |
|
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|
|
1200
Township Line Road |
|
03/27/2006 |
|
|
3,200 |
|
|
Owned |
|
|
|
|
|
|
|
1,701 |
|
|
|
|
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|
|
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Eddystone |
|
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|
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|
|
Eddystone
Crossings Shopping Center |
|
12/18/2000 |
|
|
3,000 |
|
|
Leased |
|
|
12/31/2015 |
|
|
|
|
198 |
|
|
|
|
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Edgmont |
|
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|
|
Edgmont
Square Shopping Center |
|
5/6/1997 |
|
|
3,000 |
|
|
Leased |
|
|
5/5/2012 |
|
|
|
|
411 |
|
|
|
|
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Folcroft |
|
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|
|
Delcroft
Shopping Center |
|
4/23/1971 |
|
|
2,000 |
|
|
Leased |
|
|
1/31/2011 |
|
|
|
|
34 |
|
|
|
|
|
|
|
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|
Yeadon |
|
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|
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|
|
727
Church Lane |
|
3/23/1973 |
|
|
1,450 |
|
|
Owned |
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
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|
|
83
|
|
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|
||||||||
Location |
|
Date |
|
Square |
|
Owned/ |
|
Lease |
|
Net Book Value |
|
|||||||
|
||||||||||||||||||
Montgomery County |
|
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|
Ardmore |
|
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|
|
Ardmore
West Shopping Center |
|
2/20/1974 |
|
|
1,839 |
|
|
Leased |
|
|
8/03/2009 |
|
|
|
|
2 |
|
|
|
|
|
|
|
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|
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|
|
|
Conshohocken |
|
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|
|
|
|
|
|
|
Giant
Market, 12 E. Ridge Pike |
|
4/16/1997 |
|
|
500 |
|
|
Leased |
|
|
4/15/2012 |
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
East Norriton |
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
2905
Whitehall Road East |
|
8/2/2004 |
|
|
3,000 |
|
|
Leased |
|
|
8/31/2025 |
|
|
|
|
773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jenkintown |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baederwood
Shopping Center |
|
1/5/1976 |
|
|
2,000 |
|
|
Leased |
|
|
12/31/2010 |
|
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montgomeryville |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five
Points Plaza Shopping Center |
|
6/7/1999 |
|
|
2,738 |
|
|
Leased |
|
|
12/31/2008 |
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Narberth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
901
Montgomery Avenue |
|
9/29/1972 |
|
|
2,197 |
|
|
Owned |
|
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Springhouse |
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
509
Springhouse Village Center |
|
4/26/1999 |
|
|
2,750 |
|
|
Leased |
|
|
1/31/2009 |
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Jersey |
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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|
|
|
|
|
|
Burlington County |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mt. Laurel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larchmont
Commons Shopping Center |
|
4/22/1998 |
|
|
3,612 |
|
|
Leased |
|
|
12/31/2008 |
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
325
Chestnut Street |
|
10/01/2002 |
|
|
7,848 |
|
|
Leased |
|
|
10/31/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470 John
Young Way |
|
3/11/2002 |
|
|
15,085 |
|
|
Owned |
|
|
|
|
|
|
|
2,680 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
84
During
2006, we opened one new branch office and relocated two branch offices to more
modern facilities. Three additional branch
offices were opened in 2007.
Personnel
As of December 31, 2006, we had 515 full-time employees and 62 part-time employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.
Subsidiaries
Beneficial Mutual Savings Bank has six wholly owned subsidiaries and a minority interest in another company. Beneficial Investment Center, LLC is a Pennsylvania Limited Liability Company formed in 2000 for the purpose of offering investment and insurance related products, including, but not limited to, fixed- and variable-rate annuities and the sale of mutual funds and securities through INVEST, a third party broker dealer.
Neumann Corporation, which was formed in 1990, is a Delaware Investment Holding Company and holds title to various Beneficial Mutual Savings Bank securities and other investments. At December 31, 2006, Neumann Corporation held $431.2 million in assets.
Beneficial Insurance Services, LLC is a Pennsylvania Limited Liability Company formed in 2004. In 2005, Beneficial Insurance Services LLC acquired the assets of a Philadelphia-based insurance brokerage firm, Paul Hertel & Co., Inc., which provides property, casualty, life, health and benefits insurance services to individuals and businesses. Beneficial Insurance Services, LLC conducts business under the trade name of Paul Hertel & Company Beneficial Insurance Services, LLC also acquired a majority interest in Graphic Arts Insurance Agency, Inc. through its acquisition of the assets of Paul Hertel & Co. Inc.
BSB Union Corporation was formed in 1994 for the purpose of engaging in the business of owning and leasing automobiles. In 1998, BSB Union Corporation obtained approval to hold an interest in a titling trust.
St. Ignatius Senior Housing I, L.P. is a limited partnership formed in 2002 and sponsored by St. Ignatius Nursing Home, a subsidiary of which is the general partner. Beneficial Mutual Savings Bank owns 99.99% of the partnership. The limited partnership was sponsored as an affordable housing project providing low income housing tax credits pursuant to Section 42 of the Internal Revenue Code.
Beneficial Abstract, LLC is a title insurance company in which Beneficial Mutual Savings Bank purchased a 40% ownership interest in 2006. In January 2007, Beneficial Mutual Savings Bank made the decision to discontinue its participation in Beneficial Abstract, LLC. It is anticipated that Beneficial Mutual Savings Bank will liquidate its investment in Beneficial Abstract, LLC in the second quarter of 2007.
Beneficial Equity Holdings, LLC was formed in 2004 and is currently inactive.
85
Managements
Discussion and Analysis of
Beneficial Mutual Bancorp
The objective of this section is to help potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear at the end of this prospectus.
Overview
Our principal business is to acquire deposits from individuals and businesses in the communities surrounding our offices and to use these deposits to fund loans. We focus on providing our products and services to two segments of customers: individuals and small businesses.
The history of Beneficial Mutual Bancorp dates back to 1853. Over the years, we have expanded primarily through internal growth, reaching $2.3 billion in assets at December 31, 2006. In 2004, Beneficial Mutual Savings Bank reorganized into the mutual holding company structure, forming Beneficial Mutual Bancorp as its holding company and Beneficial Savings Bank MHC as the sole stockholder of Beneficial Mutual Bancorp. In 2005, we completed the acquisition of Northwood Savings Bank, located in the Fishtown area of Philadelphia and acquired the insurance firm Paul Hertel & Co., Inc. through our subsidiary Beneficial Insurance Services, to provide property, casualty, life, heath and benefits insurance to individual and business customers with a focus on strengthening our fee income and overall earnings. In 2007, we will complete our minority stock offering and acquire FMS Financial. FMS Financial has total assets of over $1.2 billion and is characterized by a lower loan to deposit ratio than Beneficial Mutual Bancorp, providing us with an additional source of funds for our rising loan activity.
Beneficial Mutual Bancorp was established to serve the financing needs of the public and has expanded its services over time to offer personal and business checking accounts, home equity loans and lines of credit, commercial real estate loans and other types of commercial and consumer loans. We also provide insurance services through our wholly owned subsidiary, Beneficial Insurance Services, LLC. Our retail market area primarily includes all of the area surrounding our 41 offices located in Bucks, Chester, Delaware, Montgomery and Philadelphia Counties in Pennsylvania and Burlington and Camden Counties in New Jersey, while our lending market also includes Gloucester, Camden and Burlington Counties in New Jersey. We serve our customers through our four offices in Bucks County, seven offices in each of Delaware and Montgomery Counties, nineteen offices in Philadelphia County, and single offices in Chester County, Pennsylvania and Burlington and Camden County, New Jersey.
In addition to expanding relationships with current customers, we plan to increase the number of households and customers we serve by continuing to expand our branch network. Branch expansions will focus on suburban Philadelphia with a particular emphasis on the New Jersey market. Acquisitions are a strategic objective, as evidenced by the planned acquisition of FMS Financial, and we will continue to evaluate other opportunities.
We
have focused on attaining and maintaining a sound financial position and recognize that maintaining a strong financial
position is a major consideration in strategic planning. We are aware that our vision must be pursued in conjunction with key
financial objectives to ensure overall sound financial performance. The recent interest rate environment, which has caused
short-term market interest rates to rise, while longer term interest rates have not, has had a negative impact on our interest rate
spread and net interest margin, which has reduced profitability and caused a decrease in our return on average assets and return on
average equity. To offset the negative impact the current interest rate environment is having on our profitability, we are seeking
to find means of increasing interest income and non-interest income while controlling expenses. As a result, we have identified five
key financial objectives, which are described in the Business Strategy section that begins on page ____.
Income. Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. In recent periods, short-term interest rates (which influence the rates we pay on deposits) have increased, while longer-term interest rates (which influence the rates we earn on loans) have not. The
86
narrowing of the spread between the interest we earn on loans and investments and the interest we pay on deposits has negatively affected our net interest income.
A secondary source of income is non-interest income, which is revenue that we receive from providing products and services. The majority of our non-interest income generally comes from service charges (mostly from service charges on deposit accounts). In some years, we recognize income from the sale of loans and securities. We have recently sought to increase non-interest income by expanding the insurance and investment products we can offer our customers. In 2005, Beneficial Insurance Services, LLC, a subsidiary of Beneficial Mutual Savings Bank, acquired the assets of Paul Hertel & Co., Inc., an insurance agency and brokerage that has provided insurance services since 1908.
Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.
Expenses. The non-interest expenses we incur in operating our business consist of salaries and employee benefits expenses, occupancy expenses, depreciation, amortization and maintenance expenses and other miscellaneous expenses, such as advertising, insurance, professional services and printing and supplies expenses.
Our largest non-interest expense is salaries and employee benefits, which consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for health insurance, retirement plans and other employee benefits. Our salaries and employee benefits expense has increased in recent periods as a result of the addition of staff for our new branch offices. Following the offering, we will recognize additional annual employee compensation expenses stemming from the adoption of new equity benefit plans. For an illustration of expenses associated with new equity benefit plans, see Pro Forma Data.
Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of furniture and equipment expenses, maintenance, real estate taxes and costs of utilities. Our occupancy expenses have increased in recent periods because of the new branch offices we have opened in our market area. We expect non-interest expense to continue to increase, as we have added one branch office in Camden County, New Jersey and one in Montgomery County, Pennsylvania. Beneficial Mutual Savings Bank expects to open one additional branch office in Montgomery County, Pennsylvania in 2007.
Effective at the beginning of 2007, the Federal Deposit Insurance Corporation began assessing most insured depository institutions for deposit insurance at a rate between five cents and seven cents for every $100 of deposits. Assessment credits have been provided to institutions that paid high premiums in the past. According to information provided by the Federal Deposit Insurance Corporation, Beneficial Mutual Savings Bank will receive an assessment credit of approximately $1.72 million. We expect this credit will offset our deposit insurance premiums in 2007.
Following the offering, we will incur additional non-interest expenses as a result of operating as a public company. These additional expenses will consist primarily of legal and accounting fees, expenses of shareholder communications and meetings and expenses related to the addition of personnel.
Critical Accounting Policies
In the preparation of our consolidated financial statements, we have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States. Our significant accounting policies are described in the notes to our consolidated financial statements, beginning on page _____ of this prospectus.
Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgments and
87
estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.
Allowance for Loan Losses. We consider the allowance for loan losses to be a critical accounting policy. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: value of collateral; loss exposure at default; the amount and timing of future cash flows on impacted loans; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings. See note 5 of the notes to the consolidated financial statements included in this prospectus.
Deferred Income Taxes. We use the asset and liability method of accounting for income taxes as prescribed in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings.
Business Strategy
Our business strategy is to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:
|
|
|
|
|
Expanding our franchise through acquisition opportunities, including our merger with FMS Financial, and through the opening of additional branch offices in our primary market area; |
|
|
|
|
|
Pursuing opportunities to increase commercial lending in our primary market area; |
|
|
|
|
|
Continuing to use conservative underwriting practices to maintain the high quality of our loan portfolio; |
|
|
|
|
|
Growing non-interest income by expanding the products and services we offer our customers, including the expansion of our insurance services; and |
|
|
|
|
|
Building profitable business and consumer relationships by providing superior customer service with an emphasis on growing transaction deposit accounts and deposit balances. |
Expanding our franchise through acquisition opportunities, including our merger with FMS Financial, and through the opening of additional branch offices in our primary market area
88
Beneficial Mutual Savings Bank has sought to expand its franchise in recent years through acquisition opportunities and by opening new branch offices. In November 2005, we acquired Northwood Savings Bank, an $8.8 million Pennsylvania-chartered mutual savings bank with one branch office located in Philadelphia, Pennsylvania. This acquisition enabled Beneficial Mutual Savings Bank to acquire nearly $8.0 million in deposits. Beneficial Mutual Savings Bank has actively sought to expand its franchise through the opening of new branch offices. In 2005, we opened three new branch offices in Northeast Philadelphia. In 2006, we opened one new branch in Bucks County, Pennsylvania and relocated two branches, one to Philadelphia, Pennsylvania and another to Delaware County, Pennsylvania. Our branch expansion has been within our existing market area as we have sought to penetrate more of our primary market area. We opened a new branch office in Camden County, New Jersey in January 2007 and another in Montgomery County, Pennsylvania in March 2007. We intend to open one additional branch office in Montgomery County, Pennsylvania in 2007 as well.
On October 12, 2006, we entered into a merger agreement pursuant to which FMS Financial will merge with and into Beneficial Mutual Bancorp. In connection with the merger, FMS Financials wholly owned subsidiary, Farmers & Mechanics Bank, will merge with and into Beneficial Mutual Savings Bank. Farmers & Mechanics Bank has a network of 42 branch offices located primarily in Burlington County, New Jersey. Farmers & Mechanics Bank also has branches in parts of Camden and Mercer Counties, New Jersey. The merger will solidify Beneficials position as the largest Philadelphia-based bank operating solely in the greater metropolitan area, with more than $3.5 billion in assets and a greatly expanded network of neighborhood banking offices throughout the region. Farmers & Mechanics Bank intends to close ten branch offices located in Burlington County, New Jersey, and one branch office located in Mercer County, New Jersey, prior to consummation of the merger. Many of the offices to be closed are very close to other existing Farmers & Mechanics Bank offices. Notwithstanding the closure of these offices, a substantial branch network will exist for the convenience of our customers. The combined bank will offer a full array of financial products encompassing retail and commercial banking, real estate, consumer and commercial lending, insurance and brokerage operations.
Pursuing opportunities to increase commercial lending in our primary market area
We have a diversified loan portfolio which includes commercial real estate and commercial business loans. At December 31, 2006, we had $409.7 million and $98.6 million of commercial real estate and commercial business loans representing 24.38% and 5.87% of total loans, respectively. Commercial loans provide diversification to our loan portfolio and, because our commercial loans are based upon rate indices that are higher than those used for one-to -four family loans, improve the interest sensitivity of our assets. With the additional capital raised in the offering, we intend to continue to pursue the larger lending relationships associated with commercial lending.
Continuing to use conservative underwriting practices to maintain the high quality of our loan portfolio
We believe that maintaining high asset quality is a key to long-term financial success. We have sought to grow and diversify our loan portfolio while keeping nonperforming assets to a minimum. We use underwriting standards that we believe are conservative and we diligently monitor collection efforts. At December 31, 2006, our nonperforming loans were 0.48% of our total loan portfolio. Although we intend to continue our efforts to originate commercial real estate and commercial business loans after the offering, we intend to maintain our philosophy of managing large loan exposures through our conservative approach to lending.
Growing non-interest income by expanding the products and services we offer our customers, including the expansion of our insurance services
We are seeking to expand the non-traditional financial products that we offer to serve the insurance and investment needs of our customers. In 2005, Beneficial Insurance Services, LLC, a wholly owned subsidiary of Beneficial Mutual Savings Bank, acquired the assets of Philadelphia-based Paul Hertel & Co., Inc., an insurance brokerage firm that provides property, casualty, life, health and benefits insurance services to individuals and business customers. We intend to continue to seek opportunities to expand the products and services we make available to our customers.
89
Building profitable business and consumer relationships by providing superior customer service with an emphasis on growing transaction deposit accounts and deposit balances
We are a full-service financial services company offering our customers a broad range of loan and deposit products. On the lending side, we continue to seek to increase the commercial real estate and commercial business loans we originate and hope to serve a greater percentage of the small businesses in our market area. Following our merger with FMS Financial, we intend to aggressively seek lending relationships with the former customers of Farmers & Mechanics Bank and to capitalize on the reputation of Farmers & Mechanics Bank in the market area it serves throughout Burlington County and parts of Camden and Mercer Counties, New Jersey, particularly with small businesses throughout those counties. On the deposit side, we offer a broad array of services, including internet banking, which enables our customers to pay bills on-line, among other conveniences. We recently began offering remote deposit, an electronic device that is essentially a virtual branch office, to our commercial loan customers, which enables businesses to make deposits and conduct other banking business with us at their place of business.
As a community-oriented financial institution, we emphasize providing superior customer service as a means to attract and retain customers. We deliver personalized service and respond with flexibility to customer needs. We believe that our community orientation is attractive to our customers and distinguishes us from the large banks that operate in our area.
Finally, we believe a solid banking relationship is best expressed in the form of the primary transaction account. For consumers, this is the household checking account from which they pay their bills. For businesses, it is one or more operating accounts and related cash management services. The primary transaction account provides us with a low-cost source of funds and enables us to build relationships with our customers. We intend to focus our resources on growing profitable business and consumer relationships by emphasizing the primary transaction account. This is becoming increasingly difficult as more of our competitors realize the inherent value of the primary consumer and business transaction account in solidifying banking relationships and growing the products and services that can be provided to a customer. The primary transaction account becomes linked to automated payment links in the form of direct debits and direct deposits and, coupled with superior customer service, tend to create a relationship between the bank and the customer. We believe that many opportunities remain to deliver what our customers want in the form of exceptional service and convenience and intend to continue to promote our transaction accounts, particularly when we originate loans for our customers.
Balance Sheet Analysis
Loans. At December 31, 2006,
total
loans, net, were $1.67 billion, or 72.7% of total assets. In recent years, we have sought to decrease
the automobile loans we originate and purchase for portfolio, which carry a
lower yield than our real estate loans, and have placed an emphasis on
originating commercial real estate and commercial business loans. In 2005, our total loan portfolio increased
10%, while our commercial real estate loan portfolio increased 31.69%, as we increased marketing efforts
designed towards commercial real estate and commercial business loan
origination. In
2006, although our total loan portfolio decreased, our commercial real estate
and commercial business loan portfolios continued to increase. In the year ended December 31, 2006, the
loan portfolio decreased $42.5 million, or 2.5%,
while commercial real estate loans and commercial business loans increased
10.70% and 47.58%, respectively, resulting from a 50% increase in our commercial lending staff as well
as continued marketing efforts. Our one-to-four
family loan portfolio decreased slightly to 16.6% of our loan portfolio at
December 31, 2006 compared to 17.1% at December 31, 2005. Our home equity loan portfolio also remained
relatively stable at 22.9% of our loan portfolio at December 31, 2006 compared
to 22.9% and 22.2% at December 2005 and 2004, respectively.
90
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
||||||||||||||||||||
|
|||||||||||||||||||||||||||||||
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
|||||||||||
|
|||||||||||||||||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
278,970 |
|
16.61 |
% |
|
$ |
294,960 |
|
17.12 |
% |
|
$ |
278,011 |
|
17.75 |
% |
|
$ |
292,708 |
|
19.66 |
% |
|
$ |
279,837 |
|
20.24 |
% |
|
Commercial real estate (1) |
|
|
409,702 |
|
24.38 |
|
|
|
370,086 |
|
21.48 |
|
|
|
281,038 |
|
17.95 |
|
|
|
208,090 |
|
13.98 |
|
|
|
157,773 |
|
11.41 |
|
|
Residential construction |
|
|
9,967 |
|
0.59 |
|
|
|
16,529 |
|
0.96 |
|
|
|
10,404 |
|
0.67 |
|
|
|
7,102 |
|
0.48 |
|
|
|
2,913 |
|
0.21 |
|
|
|
|
||||||||||||||||||||||||||||||
Total real estate loans |
|
|
698,639 |
|
41.58 |
|
|
|
681,575 |
|
39.56 |
|
|
|
569,453 |
|
36.37 |
|
|
|
507,900 |
|
34.11 |
|
|
|
440,523 |
|
31.86 |
|
|
|
|||||||||||||||||||||||||||||||
Commercial business loans |
|
|
98,612 |
|
5.87 |
|
|
|
66,818 |
|
3.88 |
|
|
|
48,898 |
|
3.12 |
|
|
|
31,429 |
|
2.11 |
|
|
|
34,086 |
|
2.47 |
|
|
|
|||||||||||||||||||||||||||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit |
|
|
384,370 |
|
22.88 |
|
|
|
394,432 |
|
22.90 |
|
|
|
347,727 |
|
22.20 |
|
|
|
263,079 |
|
17.67 |
|
|
|
212,569 |
|
15.37 |
|
|
Automobile loans |
|
|
232,675 |
|
13.85 |
|
|
|
271,209 |
|
15.74 |
|
|
|
265,048 |
|
16.93 |
|
|
|
269,533 |
|
18.10 |
|
|
|
254,790 |
|
18.43 |
|
|
Other consumer loans (2) |
|
|
265,878 |
|
15.82 |
|
|
|
308,605 |
|
17.92 |
|
|
|
334,834 |
|
21.38 |
|
|
|
417,066 |
|
28.01 |
|
|
|
440,686 |
|
31.87 |
|
|
|
|
||||||||||||||||||||||||||||||
Total consumer loans |
|
|
882,923 |
|
52.55 |
|
|
|
974,246 |
|
56.56 |
|
|
|
947,609 |
|
60.51 |
|
|
|
949,678 |
|
63.78 |
|
|
|
908,045 |
|
65.67 |
|
|
|
|
||||||||||||||||||||||||||||||
Total loans |
|
|
1,680,174 |
|
100.00 |
% |
|
|
1,722,639 |
|
100.00 |
% |
|
|
1,565,960 |
|
100.00 |
% |
|
|
1,489,007 |
|
100.00 |
% |
|
|
1,382,654 |
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|||||||||||||||||||||||||||||||
Net deferred loan costs |
|
|
8,651 |
|
|
|
|
|
10,514 |
|
|
|
|
|
9,340 |
|
|
|
|
|
9,160 |
|
|
|
|
|
8,920 |
|
|
|
|
Allowance for losses |
|
|
(17,368 |
) |
|
|
|
|
(17,096 |
) |
|
|
|
|
(17,141 |
) |
|
|
|
|
(16,944 |
) |
|
|
|
|
(16,804 |
) |
|
|
|
|
|||||||||||||||||||||||||||||||
Loans, net |
|
$ |
1,671,457 |
|
|
|
|
$ |
1,716,057 |
|
|
|
|
$ |
1,558,159 |
|
|
|
|
$ |
1,481,223 |
|
|
|
|
$ |
1,374,770 |
|
|
|
|
__________
|
|
(1) |
At December 31, 2006, includes loans totaling $95.7 originated for the acquisition and development of real estate. |
|
|
(2) |
At December 31, 2006, includes $1.5 million in personal loans, $14.8 million in automobile lease financing, $9.3 million in loans secured by manufactured housing, $70.0 million in loans secured by recreational vehicles, $84.1 million in loans secured by boats and $84.6 million in guaranteed student loans. |
91
Loan Maturity
The following tables set forth certain information at December 31, 2006 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The tables do not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. The amounts shown below exclude applicable loans in process and unearned interest in consumer loans and include net deferred loan costs. Our adjustable-rate mortgage loans generally do not provide for downward adjustments below the initial discounted contract rate. When market interest rates rise, as has occurred in recent periods, the interest rates on these loans may increase based on the contract rate (the index plus the margin) exceeding the initial interest rate floor.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
One-to-Four |
|
Commercial |
|
Residential |
|
Commercial |
|
Home |
|
Auto- |
|
Other |
|
Total |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less |
|
$ |
19,282 |
|
$ |
100,146 |
|
$ |
9,967 |
|
$ |
24,104 |
|
$ |
2,097 |
|
$ |
7,007 |
|
$ |
15,371 |
|
$ |
177,974 |
|
More than one to five years |
|
|
46,412 |
|
|
61,713 |
|
|
|
|
|
14,854 |
|
|
47,458 |
|
|
209,784 |
|
|
10,600 |
|
|
390,821 |
|
More than five to ten years |
|
|
28,663 |
|
|
17,203 |
|
|
|
|
|
4,141 |
|
|
139,410 |
|
|
20,987 |
|
|
49,786 |
|
|
260,190 |
|
More than ten years |
|
|
184,406 |
|
|
228,390 |
|
|
|
|
|
54,972 |
|
|
197,211 |
|
|
13 |
|
|
194,848 |
|
|
859,840 |
|
Total |
|
$ |
278,763 |
|
$ |
407,452 |
|
$ |
9,967 |
|
$ |
98,071 |
|
$ |
386,176 |
|
$ |
237,791 |
|
$ |
270,605 |
|
$ |
1,688,825 |
|
The following table sets forth the dollar amount of all loans at December 31, 2006 that are due after December 31, 2007 and have either fixed interest rates or floating or adjustable interest rates.
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Fixed Rates |
|
Floating or |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
199,709 |
|
$ |
59,772 |
|
$ |
259,481 |
|
Commercial real estate |
|
|
20,827 |
|
|
286,479 |
|
|
307,306 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
13,135 |
|
|
60,832 |
|
|
73,967 |
|
Consumer |
|
|
865,630 |
|
|
4,467 |
|
|
870,097 |
|
Total |
|
$ |
1,099,301 |
|
$ |
411,550 |
|
$ |
1,510,851 |
|
92
Loan Activity
The following table shows loans originated, purchased and sold during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, (In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans at beginning of period |
|
$ |
1,733,153 |
|
$ |
1,575,300 |
|
$ |
1,498,167 |
|
$ |
1,391,574 |
|
$ |
1,333,754 |
|
Originations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
|
27,306 |
|
|
43,505 |
|
|
65,205 |
|
|
160,085 |
|
|
100,080 |
|
Commercial real estate |
|
|
185,246 |
|
|
176,874 |
|
|
147,612 |
|
|
96,393 |
|
|
60,141 |
|
Residential construction |
|
|
8,978 |
|
|
18,048 |
|
|
14,317 |
|
|
9,398 |
|
|
5,167 |
|
|
|
|||||||||||||||
Total real estate loans |
|
|
221,530 |
|
|
238,427 |
|
|
227,134 |
|
|
265,876 |
|
|
165,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
44,588 |
|
|
31,926 |
|
|
25,682 |
|
|
14,557 |
|
|
12,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit |
|
|
87,377 |
|
|
153,824 |
|
|
199,099 |
|
|
207,217 |
|
|
147,677 |
|
Automobile loans |
|
|
92,926 |
|
|
148,738 |
|
|
139,570 |
|
|
152,786 |
|
|
159,266 |
|
Other consumer loans |
|
|
64,469 |
|
|
102,041 |
|
|
63,548 |
|
|
154,523 |
|
|
173,860 |
|
|
|
|||||||||||||||
Total consumer loans |
|
|
244,772 |
|
|
404,603 |
|
|
402,217 |
|
|
514,526 |
|
|
480,803 |
|
|
|
|||||||||||||||
Total loans originated |
|
|
510,890 |
|
|
674,956 |
|
|
655,033 |
|
|
794,959 |
|
|
659,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
|
5,064 |
|
|
38,283 |
|
|
|
|
|
1,744 |
|
|
653 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments and repayments |
|
|
551,351 |
|
|
545,565 |
|
|
561,693 |
|
|
648,949 |
|
|
574,167 |
|
Loan sales |
|
|
8,592 |
|
|
9,371 |
|
|
16,066 |
|
|
40,841 |
|
|
27,566 |
|
Transfers to foreclosed real estate |
|
|
339 |
|
|
450 |
|
|
141 |
|
|
320 |
|
|
288 |
|
Total loans at end of period |
|
$ |
1,688,825 |
|
$ |
1,733,153 |
|
$ |
1,575,300 |
|
$ |
1,498,167 |
|
$ |
1,391,574 |
|
93
Securities. At December 31, 2006, the investment securities portfolio excluding FHLB stock was $461.2 million, or 20.05% of total assets. At December 31, 2006, 69.94% of the investment portfolio was invested in mortgage-backed securities issued by the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA) and government agency mortgage-backed securities (GNMA), including collateralized mortgage obligations (CMO) securities issued by the FHLMC, FNMA, and private issuer CMOs securities rated AAA by Standard & Poors. Private issuer CMOs totaled $106 million or 22.98% of our total securities portfolio at December 31, 2006. The remainder was invested primarily in United States government sponsored enterprises and agency note securities, municipal bonds, corporate bonds and equity securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
||||||||||||
|
|
||||||||||||||||||
December 31, (In thousands) |
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored enterprise and agency notes |
|
$ |
72,644 |
|
$ |
71,786 |
|
$ |
54,507 |
|
$ |
53,649 |
|
$ |
31,624 |
|
$ |
31,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA guaranteed mortgage certificates |
|
|
26,438 |
|
|
26,348 |
|
|
37,332 |
|
|
36,972 |
|
|
45,800 |
|
|
45,990 |
|
FNMA and FHLMC mortgage-backed securities |
|
|
53,759 |
|
|
52,962 |
|
|
54,988 |
|
|
53,967 |
|
|
60,002 |
|
|
60,552 |
|
Collateralized mortgage obligations |
|
|
144,339 |
|
|
140,400 |
|
|
156,196 |
|
|
152,480 |
|
|
237,218 |
|
|
237,297 |
|
|
|
||||||||||||||||||
Total mortgage-backed securities |
|
|
224,536 |
|
|
219,710 |
|
|
248,516 |
|
|
243,419 |
|
|
343,020 |
|
|
343,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and other bonds |
|
|
31,632 |
|
|
31,732 |
|
|
29,875 |
|
|
29,917 |
|
|
13,273 |
|
|
13,694 |
|
Equity securities |
|
|
6,453 |
|
|
7,639 |
|
|
13,066 |
|
|
14,119 |
|
|
18,646 |
|
|
21,465 |
|
|
|
||||||||||||||||||
Total available for sale |
|
|
335,265 |
|
|
330,867 |
|
|
345,964 |
|
|
341,104 |
|
|
406,563 |
|
|
410,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored enterprise and agency notes |
|
|
27,499 |
|
|
26,880 |
|
|
37,494 |
|
|
36,550 |
|
|
42,494 |
|
|
42,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNMA guaranteed mortgage certificates |
|
|
912 |
|
|
881 |
|
|
1,300 |
|
|
1,289 |
|
|
2,014 |
|
|
2,058 |
|
FNMA and FHLMC mortgage-backed securities |
|
|
101,946 |
|
|
99,472 |
|
|
122,757 |
|
|
120,355 |
|
|
159,257 |
|
|
159,984 |
|
|
|
||||||||||||||||||
Total mortgage-backed securities |
|
|
102,858 |
|
|
100,353 |
|
|
124,057 |
|
|
121,644 |
|
|
161,271 |
|
|
162,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal and other bonds |
|
|
|
|
|
|
|
|
1,769 |
|
|
1,756 |
|
|
1,819 |
|
|
1,792 |
|
|
|
||||||||||||||||||
Total held to maturity |
|
|
130,357 |
|
|
127,233 |
|
|
163,320 |
|
|
159,950 |
|
|
205,584 |
|
|
205,982 |
|
Total |
|
$ |
465,622 |
|
$ |
458,100 |
|
$ |
509,284 |
|
$ |
501,054 |
|
$ |
612,147 |
|
$ |
616,702 |
|
Mortgage-backed securities are a type of asset-backed security that is secured by a mortgage, or a collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by an accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from regulated and authorized financial institutions. The contractual cash flows of those investments in government sponsored enterprises mortgage-backed securities are debt obligations of FHLMC and FNMA. The cash flows related to GNMA securities are direct obligations of the U.S. Government. Mortgage-backed securities are also known as mortgage pass-throughs. CMOs are a type of mortgage-backed security that creates separate pools of pass-through rates for different classes of bondholders with varying maturities, called tranches. The repayments from the pool of pass-through securities are used to retire the bonds in the order specified by the bonds prospectus. At December 31,2006, we had no investments in a single company or entity (other than United States government sponsored enterprise securities) that had an aggregate book value in excess of 10% of our equity at December 31, 2006.
As with any type of investment there are risk factors to consider. The risks included with mortgage-backed securities and CMOs but not limited to include interest rate risk, which would affect the market value of the security, and prepayment risk, which would affect the cash flow and average life of the security. All of these risk factors are taken into consideration during prepurchase analysis of a security.
94
The following table sets forth the stated maturities and weighted average yields of the investment securities at December 31, 2006. Certain securities have adjustable interest rates and will reprice monthly, quarterly or annually within the various maturity ranges. These repricing schedules are not reflected in the table below. All but approximately $75.3 million of the securities listed have fixed rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year or Less |
|
More than One |
|
More than Five |
|
More than Ten |
|
Total |
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
December
31, 2006 |
|
Carrying |
|
Weighted |
|
Carrying |
|
Weighted |
|
Carrying |
|
Weighted |
|
Carrying |
|
Weighted |
|
Carrying |
|
Weighted |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored enterprise and agency notes |
|
$ |
18,914 |
|
4.90 |
% |
|
$ |
50,699 |
|
4.21 |
% |
|
$ |
2,173 |
|
6.48 |
% |
|
$ |
|
|
|
% |
|
$ |
71,786 |
|
4.46 |
% |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
34,985 |
|
4.07 |
|
|
|
5,292 |
|
4.16 |
|
|
|
179,433 |
|
5.06 |
|
|
|
219,710 |
|
4.88 |
|
|
Municipal and other bonds |
|
|
50 |
|
4.93 |
|
|
|
7,104 |
|
5.24 |
|
|
|
24,578 |
|
3.81 |
|
|
|
|
|
|
|
|
|
31,732 |
|
4.13 |
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,639 |
|
2.01 |
|
|
|
7,639 |
|
2.01 |
|
|
|
|
||||||||||||||||||||||||||||||
Total available for sale |
|
|
18,964 |
|
4.90 |
|
|
|
92,788 |
|
4.24 |
|
|
|
32,043 |
|
4.05 |
|
|
|
187,072 |
|
4.94 |
|
|
|
330,867 |
|
4.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored enterprise and agency notes |
|
|
|
|
|
|
|
|
27,499 |
|
4.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,499 |
|
4.15 |
|
|
Mortgage-backed securities |
|
|
703 |
|
4.01 |
|
|
|
18,341 |
|
4.08 |
|
|
|
13,382 |
|
4.56 |
|
|
|
70,432 |
|
5.04 |
|
|
|
102,858 |
|
4.80 |
|
|
|
|
||||||||||||||||||||||||||||||
Total held to maturity |
|
|
703 |
|
4.01 |
|
|
|
45,840 |
|
4.12 |
|
|
|
13,382 |
|
4.56 |
|
|
|
70,432 |
|
5.04 |
|
|
|
130,357 |
|
4.66 |
|
|
Total |
|
$ |
19,667 |
|
4.86 |
% |
|
$ |
138,628 |
|
4.20 |
% |
|
$ |
45,425 |
|
4.20 |
% |
|
$ |
257,504 |
|
4.97 |
% |
|
$ |
461,224 |
|
4.66 |
% |
|
Deposits. Our deposit base is comprised of demand deposits, money market and passbook accounts and time deposits. We consider demand deposits and money market and passbook accounts to be core deposits. At December 31, 2006, core deposits were 46.4% of total deposits. Deposits increased $12.8 million, or 0.78%, in the year ended December 31, 2006, as core deposits decreased $33.2 million, and time deposits increased $46.0 million. Our efforts to grow core deposits have been focused on the promotion of interest earning checking accounts. We have experienced an increase in our time deposit accounts as we have selectively competed for certain deposit maturities by adjusting our rates. However, we believe we are most successful attracting and retaining deposits by offering superior customer service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
||||||||||||
|
|
||||||||||||||||||
At December 31, (Dollars in thousands) |
|
Amount |
|
Percent of |
|
Amount |
|
Percent of |
|
Amount |
|
Percent of |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-interest bearing deposits |
|
$ |
79,862 |
|
5 |
% |
|
$ |
84,989 |
|
5 |
% |
|
$ |
75,019 |
|
5 |
% |
|
Interest-earning checking accounts |
|
|
162,955 |
|
10 |
|
|
|
170,712 |
|
10 |
|
|
|
137,590 |
|
9 |
|
|
Money market accounts |
|
|
281,044 |
|
17 |
|
|
|
263,973 |
|
16 |
|
|
|
373,563 |
|
23 |
|
|
Savings accounts |
|
|
250,109 |
|
15 |
|
|
|
287,444 |
|
18 |
|
|
|
312,672 |
|
19 |
|
|
Time deposits |
|
|
893,906 |
|
53 |
|
|
|
847,915 |
|
51 |
|
|
|
699,089 |
|
44 |
|
|
Total |
|
$ |
1,667,876 |
|
100 |
% |
|
$ |
1,655,033 |
|
100 |
% |
|
$ |
1,597,933 |
|
100 |
% |
|
95
The following table indicates the amount of certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2006. From time to time we have solicited brokered time deposits as an alternative source of funds. The table below excludes brokered deposits. At December 31, 2006, we had $35.0 million in brokered deposits.
|
|
|
|
|
December 31, 2006 (In thousands) |
|
Certificates |
|
|
|
|
|
|
|
Maturity Period: |
|
|
|
|
Three months or less |
|
$ |
70,594 |
|
Over three through six months |
|
|
30,889 |
|
Over six through twelve months |
|
|
37,161 |
|
Over twelve months |
|
|
25,283 |
|
Total |
|
$ |
163,927 |
|
The following table sets forth the time deposits classified by rates at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
At December 31, (In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
0.00 - 1.00% |
|
$ |
7 |
|
$ |
2,564 |
|
$ |
72,148 |
|
1.01 - 2.00% |
|
|
108 |
|
|
30,389 |
|
|
236,011 |
|
2.01 - 3.00% |
|
|
93,997 |
|
|
269,875 |
|
|
203,004 |
|
3.01 - 4.00% |
|
|
264,228 |
|
|
404,457 |
|
|
97,658 |
|
4.01 - 5.00% |
|
|
267,819 |
|
|
139,222 |
|
|
71,205 |
|
5.01 - 6.00% |
|
|
267,687 |
|
|
1,181 |
|
|
2,755 |
|
6.01 - 7.00% |
|
|
60 |
|
|
227 |
|
|
16,308 |
|
Total |
|
$ |
893,906 |
|
$ |
847,915 |
|
$ |
699,089 |
|
The following table sets forth the amount and maturities of time deposits classified by rates at December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Due |
|
|
|
|
|
|||||||
(In thousands) |
|
Less Than |
|
More Than |
|
More Than |
|
More Than |
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
0.00 - 1.00% |
|
$ |
4 |
|
$ |
3 |
|
$ |
|
|
$ |
|
|
$ |
7 |
|
1.01 - 2.00% |
|
|
99 |
|
|
|
|
|
|
|
|
9 |
|
|
108 |
|
2.01 - 3.00% |
|
|
84,519 |
|
|
7,005 |
|
|
2,429 |
|
|
44 |
|
|
93,997 |
|
3.01 - 4.00% |
|
|
191,522 |
|
|
43,101 |
|
|
11,373 |
|
|
18,232 |
|
|
264,228 |
|
4.01 - 5.00% |
|
|
243,747 |
|
|
23,503 |
|
|
124 |
|
|
445 |
|
|
267,819 |
|
5.01 - 6.00% |
|
|
226,164 |
|
|
41,497 |
|
|
26 |
|
|
|
|
|
267,687 |
|
6.01 - 7.00% |
|
|
39 |
|
|
|
|
|
|
|
|
21 |
|
|
60 |
|
Total |
|
$ |
746,094 |
|
$ |
115,109 |
|
$ |
13,952 |
|
$ |
18,751 |
|
$ |
893,906 |
|
96
The following table sets forth the deposit activity for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, (In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
|||
Beginning balance |
|
$ |
1,655,033 |
|
$ |
1,597,933 |
|
$ |
1,546,412 |
|
Increase (decrease) before interest credited |
|
|
(31,545 |
) |
|
25,109 |
|
|
25,991 |
|
Interest credited |
|
|
44,388 |
|
|
31,991 |
|
|
25,530 |
|
Net increase (decrease) in deposits |
|
|
12,843 |
|
|
57,100 |
|
|
51,521 |
|
Ending balance |
|
$ |
1,667,876 |
|
$ |
1,655,033 |
|
$ |
1,597,933 |
|
Borrowings. We use borrowings from the Federal Home Loan Bank of Pittsburgh, as well as repurchase agreements and other sources of borrowings, to supplement our supply of funds for loans and investments.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
|||
Maximum amount outstanding at any month-end during period: |
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
$ |
255,697 |
|
$ |
340,397 |
|
$ |
371,484 |
|
Repurchase agreements |
|
|
125,350 |
|
|
92,918 |
|
|
19,869 |
|
Federal Home Loan Bank overnight borrowings |
|
|
70,000 |
|
|
102,507 |
|
|
49,770 |
|
Other |
|
|
52,496 |
(1) |
|
2,496 |
|
|
|
|
Average outstanding balance during period: |
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
$ |
231,604 |
|
$ |
324,966 |
|
$ |
354,861 |
|
Repurchase agreements |
|
|
101,883 |
|
|
45,650 |
|
|
17,607 |
|
Federal Home Loan Bank overnight borrowings |
|
|
9,880 |
|
|
47,634 |
|
|
13,171 |
|
Other |
|
|
29,930 |
|
|
2,496 |
|
|
|
|
Weighted average interest rate during period: |
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
4.88 |
% |
|
4.67 |
% |
|
4.47 |
% |
Repurchase agreements |
|
|
4.92 |
|
|
3.77 |
|
|
1.41 |
|
Federal Home Loan Bank overnight borrowings |
|
|
4.63 |
|
|
3.24 |
|
|
1.90 |
|
Other |
|
|
5.05 |
|
|
2.40 |
|
|
|
|
Balance outstanding at end of period: |
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
$ |
196,550 |
|
$ |
262,897 |
|
$ |
345,334 |
|
Repurchase agreements |
|
|
88,600 |
|
|
92,918 |
|
|
14,232 |
|
Federal Home Loan Bank overnight borrowings |
|
|
|
|
|
49,900 |
|
|
49,770 |
|
Other |
|
|
9,746 |
|
|
2,496 |
|
|
|
|
Weighted average interest rate at end of period: |
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
5.01 |
% |
|
4.68 |
% |
|
4.48 |
% |
Repurchase agreements |
|
|
4.93 |
|
|
4.43 |
|
|
2.26 |
|
Federal Home Loan Bank overnight borrowings |
|
|
|
|
|
4.17 |
|
|
2.21 |
|
Other |
|
|
4.47 |
|
|
2.38 |
|
|
|
|
|
|
(1) |
The $50.0 million increase in borrowings during the period ended December 31, 2006 related to the federal funds purchased on May 31, 2006 to fund temporary liquidity needs. |
97
Results of Operations for the Years Ended December 31, 2006, 2005 and 2004
Financial Highlights. Net income decreased $1.6 million to $11.6 million for the year ended December 31, 2006, from $13.2 million for the year ended December 31, 2005. The decrease reflected a $1.3 million decrease in net interest income and a $2.5 million increase in higher non-interest expenses, which were partially offset by a $2.4 million decrease in income tax expense. In 2005, net income increased $1.6 million from $11.6 million for the year ended December 31, 2004. The increase reflected a $7.7 million increase in non-interest income and a $700,000 decrease in the provision for loan losses, which were partially offset by a decrease in net interest income of $408,000 and an increase of $6.4 million in non-interest expense.
Summary Income Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2006/2005 |
|
Change 2005/2004 |
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Year Ended December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
$ Change |
|
% Change |
|
$ Change |
|
% Change |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net interest income |
|
$ |
64,427 |
|
$ |
65,725 |
|
$ |
66,133 |
|
$ |
(1,298 |
) |
(1.97 |
)% |
|
$ |
(408 |
) |
(0.62 |
)% |
|
Provision for loan losses |
|
|
1,575 |
|
|
1,703 |
|
|
2,400 |
|
|
(128 |
) |
(7.52 |
) |
|
|
(697 |
) |
(29.04 |
) |
|
Non-interest income |
|
|
10,531 |
|
|
10,862 |
|
|
3,168 |
|
|
(331 |
) |
(3.05 |
) |
|
|
7,694 |
|
242.87 |
|
|
Non-interest expenses |
|
|
59,436 |
|
|
56,956 |
|
|
50,573 |
|
|
2,480 |
|
4.35 |
|
|
|
6,383 |
|
12.62 |
|
|
Net income |
|
|
11,625 |
|
|
13,200 |
|
|
11,624 |
|
|
(1,575 |
) |
(11.93 |
) |
|
|
1,576 |
|
13.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity |
|
|
4.04 |
% |
|
4.83 |
% |
|
4.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.49 |
% |
|
0.56 |
% |
|
0.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income.
2006 vs. 2005. Net interest income decreased $1.3 million or 2.0%, to $64.4 million for 2006 from $65.7 million for 2005. Total interest income increased $10.2 million or 8.7% to $127.3 million for 2006 as increases in interest and fees on loans were partially offset by decreases in interest and dividends on investment securities. Interest income and fees on loans increased 12.9% to $104.1 million primarily due to an increase in the average balance of loans and a 49 basis point increase in the yield. Total interest expense increased $11.5 million or 22.5% to $63.0 million for 2006 primarily due to an increase in the average balance of interest-bearing deposits of $29.7 million, and an increase in yields on interest-bearing deposits of 70 basis points. During 2006, the average balance of our time deposits increased $96.4 million and the yield on time deposits increased 85 basis points.
2005 vs. 2004. Net interest income decreased by $408,000 or 0.62% to $65.7 million in 2005. Total interest income increased $9.0 million or 8.34% to $117.1 million for 2005 as increases in interest and fees on loans were partially offset by decreases in interest and dividends on investment securities. Interest income and fees on loans increased 11.9% to $92.2 million primarily due to an increase in the average balance of loans and a 16 basis point increase in the yield. Interest and dividends on investment securities decreased 3.7% to $24.5 million due to a decrease in the average balance of investment securities, and an increase in the yield on investment securities of 13 basis points. Total interest expense increased $9.4 million, or 22.5% to $51.4 million for 2005 primarily due to an increase in the average balance of interest-bearing deposits of $53.3 million and an increase in yields on interest-bearing deposits of 41 basis points. During 2005, the average balance of our time deposits increased $84.9 million and the yield on time deposits increased 54 points.
98
Analysis of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2006/2005 |
|
Change 2005/2004 |
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
$ Change |
|
% Change |
|
$ Change |
|
% Change |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Components of net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
104,143 |
|
$ |
92,208 |
|
$ |
82,432 |
|
$ |
11,935 |
|
12.94 |
% |
|
$ |
9,776 |
|
11.86 |
% |
|
Investment securities |
|
|
23,012 |
|
|
24,450 |
|
|
25,379 |
|
|
(1,438 |
) |
(5.88 |
) |
|
|
(929 |
) |
(3.66 |
) |
|
Other interest-earning assets |
|
|
171 |
|
|
433 |
|
|
269 |
|
|
(262 |
) |
(60.51 |
) |
|
|
164 |
|
60.97 |
|
|
Total interest income |
|
|
127,326 |
|
|
117,091 |
|
|
108,080 |
|
|
10,235 |
|
8.74 |
|
|
|
9,011 |
|
8.34 |
|
|
Deposits |
|
|
44,622 |
|
|
32,878 |
|
|
25,592 |
|
|
11,744 |
|
35.72 |
|
|
|
7,286 |
|
28.47 |
|
|
Borrowings |
|
|
18,277 |
|
|
18,488 |
|
|
16,355 |
|
|
(211 |
) |
(1.14 |
) |
|
|
2,133 |
|
13.04 |
|
|
Total interest expense |
|
|
62,899 |
|
|
51,366 |
|
|
41,947 |
|
|
11,533 |
|
22.45 |
|
|
|
9,419 |
|
22.45 |
|
|
Net interest income |
|
|
64,427 |
|
|
65,725 |
|
|
66,133 |
|
|
(1,298 |
) |
(1.97 |
) |
|
|
(408 |
) |
(0.62 |
) |
|
Average yield and rates paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets |
|
|
5.67 |
% |
|
5.17 |
% |
|
4.95 |
% |
|
0.50 |
% |
9.67 |
% |
|
|
0.22 |
% |
4.44 |
% |
|
Interest-bearing liabilities |
|
|
3.21 |
|
|
2.60 |
|
|
2.22 |
|
|
0.61 |
|
23.46 |
|
|
|
0.38 |
|
17.12 |
|
|
Interest rate spread |
|
|
2.45 |
|
|
2.57 |
|
|
2.73 |
|
|
(0.12 |
) |
(4.67 |
) |
|
|
(0.16 |
) |
(5.86 |
) |
|
Net interest margin |
|
|
2.87 |
|
|
2.90 |
|
|
3.03 |
|
|
(0.03 |
) |
(1.03 |
) |
|
|
(0.13 |
) |
(4.29 |
) |
|
Average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
1,740,606 |
|
|
1,678,697 |
|
|
1,546,377 |
|
|
61,909 |
|
3.69 |
|
|
|
132,320 |
|
8.56 |
|
|
Investment securities |
|
|
502,623 |
|
|
575,146 |
|
|
616,471 |
|
|
(72,523 |
) |
(12.61 |
) |
|
|
(41,325 |
) |
(6.70 |
) |
|
Other interest-earning assets |
|
|
4,207 |
|
|
12,915 |
|
|
20,247 |
|
|
(8,708 |
) |
(67.43 |
) |
|
|
(7,332 |
) |
(36.21 |
) |
|
Deposits |
|
|
1,583,450 |
|
|
1,553,735 |
|
|
1,500,456 |
|
|
29,715 |
|
1.91 |
|
|
|
53,279 |
|
3.55 |
|
|
Borrowings |
|
|
373,297 |
|
|
420,746 |
|
|
385,639 |
|
|
(47,449 |
) |
(11.28 |
) |
|
|
35,107 |
|
9.10 |
|
|
|
Provision for Loan Losses.
Based
on our evaluation of loan loss factors, management made a provision of $1.6
million for the year ended December 31, 2006, a provision of $1.7 million for
the year ended December 31, 2005, and a provision of $2.4 million for the year
ended December 31, 2004. We had $1.3 million in net charge-offs for the year
ended December 31, 2006 compared to net charge-offs of $1.7 million for the
year ended December 31, 2005 and $2.2 million for the year ended December 31,
2004. We used the same methodology and generally similar assumptions to
determine the provision for all three periods. The provision for loan losses
was determined by management to be an amount necessary to maintain a balance of
allowance for loan losses at a level that considers all known and current
losses in the loan portfolio. Changes in the provision were based on managements
analysis of various factors such as estimated fair value of underlying
collateral, recent loss experience in particular segments of the portfolio,
levels and trends in delinquent loans, and changes in general economic and
business conditions.
The allowance for loan losses was $17.4 million, or 1.03% of total loans outstanding as of December 31, 2006, as compared with $17.1 million, or 0.99% as of December 31, 2005 and $17.1 million, or 1.09% as of December 31, 2004. An analysis of the changes in the allowance for loan losses is presented under Risk Management Analysis and Determination of the Allowance for Loan Losses.
Non-interest Income. Non-interest income decreased $331,000 to $10.5 million in fiscal 2006. The decrease in non-interest income in 2006 was primarily a result of a decrease in the gain on sales of $398,000 compared to 2005. Offsetting the decrease in the gain on sale of securities was a $495,000 increase in income from service charges and fees, which increased to $7.9 million, or 6.7%, compared to 2005 primarily due to an increase in insurance commission income. Non-interest income increased in 2005 compared to 2004 due primarily to a $3.3 million increase in service charges and fees due to an increase in the insurance commission income generated by our insurance services subsidiary, Beneficial Insurance Services, LLC, which acquired the assets of the insurance brokerage firm of Paul Hertel & Co., Inc. in 2005, and the lack of an impairment change on securities, which occurred in 2004 due to the write-down of our holdings of FNMA and FHLMC preferred stock of $3.25 million.
99
Non-interest Income Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2006/2005 |
|
Change 2005/2004 |
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Year Ended December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
$ Change |
|
% Change |
|
$ Change |
|
% Change |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Service charges and fees |
|
$ |
7,910 |
|
$ |
7,415 |
|
$ |
4,071 |
|
$ |
495 |
|
6.68 |
% |
|
$ |
3,344 |
|
82.14 |
% |
|
Gain (loss) on sale of securities |
|
|
672 |
|
|
1,070 |
|
|
1,262 |
|
|
(398 |
) |
(37.20 |
) |
|
|
(192 |
) |
(15.21 |
) |
|
Impairment charge on securities |
|
|
|
|
|
|
|
|
(3,250 |
) |
|
|
|
|
|
|
|
3,250 |
|
100.00 |
|
|
Other |
|
|
1,949 |
|
|
2,377 |
|
|
1,085 |
|
|
(428 |
) |
(18.01 |
) |
|
|
1,292 |
|
119.08 |
|
|
Totals |
|
$ |
10,531 |
|
$ |
10,862 |
|
$ |
3,168 |
|
$ |
(331 |
) |
(3.05 |
) |
|
$ |
7,694 |
|
242.87 |
% |
|
Non-interest Expenses. Non-interest expenses increased $2.5 million, or 4.35%, in fiscal 2006 over the prior year and $6.4 million or 12.62% from 2004 to 2005. The increase in salaries and employee benefits, as well as occupancy expense, which accounted for much of the increase, was due primarily to the opening of one and three additional branch offices in 2006 and 2005, respectively. Advertising and printing and supplies also increased as a result of our expansion efforts.
Non-interest Expense Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change 2006/2005 |
|
Change 2005/2004 |
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Year Ended December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
$ Change |
|
% Change |
|
$ Change |
|
% Change |
|
|||||||
Salaries and employee benefits |
|
$ |
34,412 |
|
$ |
32,589 |
|
$ |
28,318 |
|
$ |
1,823 |
|
5.59 |
% |
|
$ |
4,271 |
|
15.08 |
% |
|
Occupancy expense |
|
|
7,566 |
|
|
7,339 |
|
|
6,301 |
|
|
227 |
|
3.09 |
|
|
|
1,038 |
|
16.47 |
|
|
Depreciation, amortization and maintenance |
|
|
5,269 |
|
|
5,093 |
|
|
4,526 |
|
|
176 |
|
3.46 |
|
|
|
567 |
|
12.53 |
|
|
Advertising |
|
|
2,049 |
|
|
1,994 |
|
|
1,881 |
|
|
55 |
|
2.76 |
|
|
|
113 |
|
6.01 |
|
|
Insurance and protection |
|
|
1,531 |
|
|
1,700 |
|
|
1,669 |
|
|
(169 |
) |
(9.94 |
) |
|
|
31 |
|
1.86 |
|
|
Professional fees |
|
|
1,439 |
|
|
1,345 |
|
|
1,003 |
|
|
94 |
|
6.99 |
|
|
|
342 |
|
34.10 |
|
|
Printing and supplies |
|
|
1,041 |
|
|
1,034 |
|
|
994 |
|
|
7 |
|
0.68 |
|
|
|
40 |
|
4.02 |
|
|
Correspondent Bank/ATM charges |
|
|
1,086 |
|
|
1,030 |
|
|
1,111 |
|
|
56 |
|
5.44 |
|
|
|
(81 |
) |
(7.29 |
) |
|
Postage |
|
|
595 |
|
|
544 |
|
|
538 |
|
|
51 |
|
9.38 |
|
|
|
6 |
|
1.12 |
|
|
Other |
|
|
4,448 |
|
|
4,288 |
|
|
4,232 |
|
|
160 |
|
3.73 |
|
|
|
56 |
|
1.32 |
|
|
Total |
|
$ |
59,436 |
|
$ |
56,956 |
|
$ |
50,573 |
|
$ |
2,480 |
|
4.35 |
% |
|
$ |
6,383 |
|
12.62 |
% |
|
Income Tax Expense. The provision for income taxes was $2.3 million for 2006, reflecting an effective tax rate of 16.6%, compared to $4.7 million for 2005, reflecting an effective tax rate of 26.4% and $4.7 million for 2004, reflecting an effective tax rate of 28.8%. The change in 2006 from 2005 is due primarily to a decrease in income before income taxes of $4.0 million along with increased tax-exempt income and federal income tax credits. Tax-exempt income increased $700,000 to $2.7 million in 2006 from $2.0 million in 2005 while income tax credits increased to $1.6 million in 2006 from $1.5 million in 2005. These credits relate to investments maintained by Beneficial Mutual Savings Bank as a limited partner in partnerships that sponsor affordable housing projects utilizing low-income housing tax credits pursuant to section 42 of the Internal Revenue Code.
100
Average Balance Table
The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented. Loan fees are included in interest income on loans and are not material. In addition, non-accrual loans are included in the average balances but are not deemed material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
(Dollars in thousands) |
|
Average |
|
Interest |
|
Yield/ |
|
Average |
|
Interest |
|
Yield/ |
|
Average |
|
Interest |
|
Yield/ |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
2,519 |
|
$ |
93 |
|
3.69 |
% |
|
$ |
865 |
|
$ |
51 |
|
5.90 |
% |
|
$ |
259 |
|
$ |
6 |
|
2.32 |
% |
|
Loans |
|
|
1,740,606 |
|
|
104,143 |
|
5.98 |
|
|
|
1,678,697 |
|
|
92,208 |
|
5.49 |
|
|
|
1,546,377 |
|
|
82,432 |
|
5.33 |
|
|
Investment securities |
|
|
160,493 |
|
|
6,755 |
|
4.21 |
|
|
|
144,769 |
|
|
5,201 |
|
3.59 |
|
|
|
122,737 |
|
|
3,969 |
|
3.23 |
|
|
Mortgage-backed securities |
|
|
200,967 |
|
|
9,249 |
|
4.60 |
|
|
|
241,216 |
|
|
10,478 |
|
4.34 |
|
|
|
337,015 |
|
|
15,451 |
|
4.58 |
|
|
Collateralized mortgage obligations |
|
|
141,163 |
|
|
7,008 |
|
4.96 |
|
|
|
189,161 |
|
|
8,771 |
|
4.64 |
|
|
|
156,719 |
|
|
5,959 |
|
3.80 |
|
|
Other interest-earning assets |
|
|
1,688 |
|
|
78 |
|
4.62 |
|
|
|
12,050 |
|
|
382 |
|
3.17 |
|
|
|
19,988 |
|
|
263 |
|
1.32 |
|
|
Total interest-earning assets |
|
|
2,247,436 |
|
|
127,326 |
|
5.67 |
|
|
|
2,266,758 |
|
|
117,091 |
|
5.17 |
|
|
|
2,183,095 |
|
|
108,080 |
|
4.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets |
|
|
114,102 |
|
|
|
|
|
|
|
|
105,778 |
|
|
|
|
|
|
|
|
94,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total assets |
|
|
2,361,538 |
|
|
127,326 |
|
|
|
|
|
2,372,536 |
|
|
117,091 |
|
|
|
|
|
2,277,566 |
|
|
108,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning checking accounts |
|
|
165,278 |
|
|
1,750 |
|
1.06 |
|
|
|
147,979 |
|
|
1,088 |
|
0.74 |
|
|
|
134,586 |
|
|
719 |
|
0.53 |
|
|
Money market accounts |
|
|
263,703 |
|
|
6,906 |
|
2.62 |
|
|
|
316,202 |
|
|
5,973 |
|
1.89 |
|
|
|
345,317 |
|
|
5,283 |
|
1.53 |
|
|
Savings accounts |
|
|
267,426 |
|
|
1,991 |
|
0.74 |
|
|
|
298,958 |
|
|
2,243 |
|
0.75 |
|
|
|
314,834 |
|
|
2,342 |
|
0.74 |
|
|
Time deposits |
|
|
887,043 |
|
|
33,975 |
|
3.83 |
|
|
|
790,596 |
|
|
23,574 |
|
2.98 |
|
|
|
705,719 |
|
|
17,248 |
|
2.44 |
|
|
Total interest-bearing deposits |
|
|
1,583,450 |
|
|
44,622 |
|
2.82 |
|
|
|
1,553,735 |
|
|
32,878 |
|
2.12 |
|
|
|
1,500,456 |
|
|
25,592 |
|
1.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
231,604 |
|
|
11,294 |
|
4.88 |
|
|
|
324,966 |
|
|
15,164 |
|
4.67 |
|
|
|
354,861 |
|
|
15,856 |
|
4.47 |
|
|
Repurchase agreements |
|
|
101,883 |
|
|
5,014 |
|
4.92 |
|
|
|
45,650 |
|
|
1,722 |
|
3.77 |
|
|
|
17,607 |
|
|
249 |
|
1.41 |
|
|
Federal Home Loan Bank overnight borrowings |
|
|
9,880 |
|
|
457 |
|
4.63 |
|
|
|
47,634 |
|
|
1,542 |
|
3.24 |
|
|
|
13,171 |
|
|
250 |
|
1.90 |
|
|
Other borrowings |
|
|
29,930 |
|
|
1,512 |
|
5.05 |
|
|
|
2,496 |
|
|
60 |
|
2.40 |
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,956,747 |
|
|
62,899 |
|
3.21 |
|
|
|
1,974,481 |
|
|
51,366 |
|
2.60 |
|
|
|
1,886,095 |
|
|
41,947 |
|
2.22 |
|
|
Non-interest-bearing deposits |
|
|
80,380 |
|
|
|
|
|
|
|
|
77,317 |
|
|
|
|
|
|
|
|
70,968 |
|
|
|
|
|
|
|
Other non-interest-bearing liabilities |
|
|
36,379 |
|
|
|
|
|
|
|
|
47,544 |
|
|
|
|
|
|
|
|
58,704 |
|
|
|
|
|
|
|
Total liabilities |
|
|
2,073,506 |
|
|
62,899 |
|
|
|
|
|
2,099,342 |
|
|
51,366 |
|
|
|
|
|
2,015,767 |
|
|
41,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
288,032 |
|
|
|
|
|
|
|
|
273,194 |
|
|
|
|
|
|
|
|
261,799 |
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
2,361,538 |
|
|
|
|
|
|
|
$ |
2,372,536 |
|
|
|
|
|
|
|
$ |
2,277,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net interest income |
|
|
|
|
$ |
64,427 |
|
|
|
|
|
|
|
$ |
65,725 |
|
|
|
|
|
|
|
$ |
66,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest rate spread |
|
|
|
|
|
|
|
2.45 |
% |
|
|
|
|
|
|
|
2.57 |
% |
|
|
|
|
|
|
|
2.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net interest margin |
|
|
|
|
|
|
|
2.87 |
% |
|
|
|
|
|
|
|
2.90 |
% |
|
|
|
|
|
|
|
3.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
114.86 |
% |
|
|
|
|
|
|
|
114.80 |
% |
|
|
|
|
|
|
|
115.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2006 |
|
Year Ended
December 31, 2005 |
|
||||||||||||||
|
|
|
|
||||||||||||||||
|
|
Increase
(Decrease) |
|
|
|
|
Increase
(Decrease) |
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
(In thousands) |
|
Volume |
|
Rate |
|
Net |
|
Volume |
|
Rate |
|
Net |
|
||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
61 |
|
$ |
(19 |
) |
$ |
42 |
|
$ |
36 |
|
$ |
9 |
|
$ |
45 |
|
Loans receivable |
|
|
3,704 |
|
|
8,238 |
|
|
11,942 |
|
|
7,264 |
|
|
2,497 |
|
|
9,761 |
|
Investment securities |
|
|
662 |
|
|
898 |
|
|
1,560 |
|
|
791 |
|
|
442 |
|
|
1,233 |
|
Mortgage-backed securities |
|
|
(1,851 |
) |
|
627 |
|
|
(1,224 |
) |
|
(4,158 |
) |
|
(809 |
) |
|
(4,967 |
) |
Collateralized mortgage obligations |
|
|
(2,383 |
) |
|
605 |
|
|
(1,778 |
) |
|
1,504 |
|
|
1,316 |
|
|
2,820 |
|
Other interest-earning assets |
|
|
(479 |
) |
|
172 |
|
|
(307 |
) |
|
(252 |
) |
|
371 |
|
|
119 |
|
|
|
||||||||||||||||||
Total interest-earning assets |
|
|
(286 |
) |
|
10,521 |
|
|
10,225 |
|
|
5,185 |
|
|
3,826 |
|
|
9,011 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning checking accounts |
|
|
183 |
|
|
474 |
|
|
657 |
|
|
99 |
|
|
283 |
|
|
382 |
|
Money market |
|
|
(1,375 |
) |
|
2,308 |
|
|
933 |
|
|
(550 |
) |
|
1,243 |
|
|
693 |
|
Savings accounts |
|
|
(235 |
) |
|
(30 |
) |
|
(265 |
) |
|
(119 |
) |
|
31 |
|
|
(88 |
) |
Time deposits |
|
|
3,694 |
|
|
6,725 |
|
|
10,410 |
|
|
2,531 |
|
|
3,768 |
|
|
6,299 |
|
|
|
||||||||||||||||||
Total interest-bearing deposits |
|
|
2,267 |
|
|
9,477 |
|
|
11,744 |
|
|
1,961 |
|
|
5,325 |
|
|
7,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
(4,556 |
) |
|
687 |
|
|
(3,869 |
) |
|
(1,395 |
) |
|
703 |
|
|
(692 |
) |
Repurchase agreements |
|
|
2,768 |
|
|
524 |
|
|
3,292 |
|
|
1,058 |
|
|
415 |
|
|
1,473 |
|
Federal Home Loan Bank overnight borrowings |
|
|
(1,748 |
) |
|
663 |
|
|
(1,085 |
) |
|
1,116 |
|
|
176 |
|
|
1,292 |
|
Other borrowings |
|
|
1,385 |
|
|
66 |
|
|
1,451 |
|
|
60 |
|
|
|
|
|
60 |
|
|
|
||||||||||||||||||
Total interest-bearing liabilities |
|
|
116 |
|
|
11,417 |
|
|
11,533 |
|
|
2,800 |
|
|
6,619 |
|
|
9,419 |
|
Net change in net interest income |
|
$ |
(402 |
) |
$ |
(896 |
) |
$ |
(1,298 |
) |
$ |
2,385 |
|
$ |
(2,793 |
) |
$ |
(408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management
Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for on a mark-to-market basis. Other risks that we face are operational risks, liquidity risks and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors, technology and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.
Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans.
When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status, including contacting the borrower by letter and phone at regular intervals beginning on the seventh day of delinquency. When the borrower is in default, we may commence collection proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. Generally, when a consumer loan becomes 45 days past due, we institute collection proceedings and attempt to repossess any
102
personal property that secures the loan. Management informs the Board of Trustees monthly of the amount of nonperforming loans to total loans and regarding charge-offs. More detailed information regarding delinquencies by loan type is provided to the Board of Trustees on a quarterly basis.
Analysis of Nonperforming and Classified Assets. We consider repossessed assets and loans that are 90 days or more past due, except guaranteed student loans, to be nonperforming assets. Residential real estate loans are generally placed on nonaccrual status when they become 90 days delinquent and are not well secured and in the process of collection at which time the accrual of interest ceases and the allowance for any uncollectible accrued interest is established and charged against operations. Commercial loans are placed on non-accrual when the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Typically, payments received on a nonaccrual loan are applied to the outstanding principal and interest as determined at the time of collection of the loan.
Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired it is recorded at the lower of its cost, which is the unpaid balance of the loan plus foreclosure costs, or fair market value at the date of foreclosure less estimated costs to sell. Holding costs and declines in fair value after acquisition of the property result in charges against income.
We had no troubled debt restructurings in the periods presented.
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nonaccrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total real estate loans |
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Commercial business loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans |
|
|
171 |
|
|
385 |
|
|
363 |
|
|
500 |
|
|
336 |
|
Other consumer loans |
|
|
|
|
|
|
|
|
74 |
|
|
26 |
|
|
136 |
|
|
|
|||||||||||||||
Total consumer loans |
|
|
171 |
|
|
385 |
|
|
437 |
|
|
526 |
|
|
472 |
|
|
|
|||||||||||||||
Total nonaccrual loans |
|
|
534 |
|
|
385 |
|
|
437 |
|
|
526 |
|
|
472 |
|
|
||||||||||||||||
Accruing loans past due 90 days or more: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
|
2,425 |
|
|
2,540 |
|
|
3,185 |
|
|
3,374 |
|
|
3,005 |
|
Commercial real estate |
|
|
2,662 |
|
|
|
|
|
52 |
|
|
752 |
|
|
25 |
|
Residential construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total real estate loans |
|
|
5,087 |
|
|
2,540 |
|
|
3,237 |
|
|
4,126 |
|
|
3,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
83 |
|
|
|
|
|
12 |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
|
54 |
|
|
1 |
|
|
1 |
|
|
41 |
|
|
29 |
|
Automobile loans |
|
|
130 |
|
|
179 |
|
|
102 |
|
|
112 |
|
|
134 |
|
Other consumer loans |
|
|
2,263 |
|
|
2,055 |
|
|
2,373 |
|
|
1,845 |
|
|
2,882 |
|
|
|
|||||||||||||||
Total consumer loans |
|
|
2,447 |
|
|
2,235 |
|
|
2,476 |
|
|
1,998 |
|
|
3,045 |
|
|
|
|||||||||||||||
Total accruing loans past due 90 days or more |
|
|
7,617 |
|
|
4,775 |
|
|
5,725 |
|
|
6,174 |
|
|
6,075 |
|
|
|
|||||||||||||||
Total of nonaccrual and 90 days or more past due loans |
|
|
8,151 |
|
|
5,160 |
|
|
6,162 |
|
|
6,700 |
|
|
6,547 |
|
|
||||||||||||||||
Real estate owned |
|
|
2,809 |
|
|
3,146 |
|
|
2,939 |
|
|
3,167 |
|
|
3,159 |
|
|
|
|||||||||||||||
|
||||||||||||||||
Total nonperforming assets |
|
|
10,960 |
|
|
8,306 |
|
|
9,101 |
|
|
9,867 |
|
|
9,706 |
|
|
|
|||||||||||||||
|
||||||||||||||||
Total nonperforming loans to total loans |
|
|
0.48 |
% |
|
0.30 |
% |
|
0.39 |
% |
|
0.45 |
% |
|
0.47 |
% |
Total nonperforming loans to total assets |
|
|
0.35 |
% |
|
0.22 |
% |
|
0.26 |
% |
|
0.30 |
% |
|
0.30 |
% |
Total real estate owned to total assets |
|
|
0.12 |
% |
|
0.13 |
% |
|
0.13 |
% |
|
0.14 |
% |
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
Interest income that would have been recorded for the year ended December 31, 2006, had nonaccruing loans been current according to their original terms, amounted to approximately $260,000. No interest related to nonaccrual loans was included in interest income for the year ended December 31, 2006.
Federal regulations require us to review and classify our assets on a regular basis. In addition, the Federal Deposit Insurance Corporation has the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. Substandard assets must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a special mention category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as substandard or doubtful we establish a specific allowance for loan losses. If we classify an asset as loss, we charge off an amount equal to 100% of the portion of the asset classified loss.
The following table shows the aggregate amounts of our criticized assets at the dates included.
|
|
|
|
|
|
|
|
|
|
|
At December 31, (In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
|||
|
||||||||||
Special mention assets |
|
$ |
|
|
$ |
1,000 |
|
$ |
1,000 |
|
Substandard assets |
|
|
7,015 |
|
|
1,056 |
|
|
1,111 |
|
Doubtful assets |
|
|
|
|
|
|
|
|
|
|
Loss assets |
|
|
|
|
|
|
|
|
|
|
Total classified assets |
|
$ |
7,015 |
|
$ |
2,056 |
|
$ |
2,111 |
|
Other than disclosed in the above tables, there are no other loans that management has serious doubts about the ability of the borrowers to comply with the present loan repayment terms.
Loan Delinquencies. The following table provides information about delinquencies in our loan portfolio at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
December 31, (In thousands) |
|
30-59 |
|
60-89 |
|
30-59 |
|
60-89 |
|
30-59 |
|
60-89 |
|
30-59 |
|
60-89 |
|
30-59 |
|
60-89 |
|
||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
2,712 |
|
$ |
1,281 |
|
$ |
2,474 |
|
$ |
859 |
|
$ |
3,566 |
|
$ |
1,611 |
|
$ |
4,720 |
|
$ |
1,452 |
|
$ |
7,091 |
|
$ |
2,543 |
|
Commercial real estate |
|
|
673 |
|
|
666 |
|
|
45 |
|
|
3 |
|
|
2,452 |
|
|
620 |
|
|
399 |
|
|
327 |
|
|
927 |
|
|
278 |
|
Residential construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||
Total real estate |
|
|
3,385 |
|
|
1,947 |
|
|
2,519 |
|
|
862 |
|
|
6,018 |
|
|
2,231 |
|
|
5,119 |
|
|
1,779 |
|
|
8,018 |
|
|
2,821 |
|
|
|
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
5,700 |
|
|
|
|
|
8 |
|
|
1 |
|
|
427 |
|
|
108 |
|
|
60 |
|
|
49 |
|
|
200 |
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
|
68 |
|
|
7 |
|
|
183 |
|
|
16 |
|
|
53 |
|
|
68 |
|
|
151 |
|
|
18 |
|
|
163 |
|
|
8 |
|
Automobile loans |
|
|
1,028 |
|
|
217 |
|
|
1,014 |
|
|
310 |
|
|
963 |
|
|
194 |
|
|
799 |
|
|
295 |
|
|
880 |
|
|
277 |
|
Other consumer loans |
|
|
2,756 |
|
|
1,147 |
|
|
2,728 |
|
|
1,148 |
|
|
2,700 |
|
|
1,269 |
|
|
2,447 |
|
|
1,144 |
|
|
3,285 |
|
|
1,057 |
|
|
|
||||||||||||||||||||||||||||||
Total consumer |
|
|
3,852 |
|
|
1,371 |
|
|
3,925 |
|
|
1,474 |
|
|
3,716 |
|
|
1,531 |
|
|
3,397 |
|
|
1,457 |
|
|
4,328 |
|
|
1,342 |
|
Total |
|
$ |
12,937 |
|
$ |
3,318 |
|
$ |
6,452 |
|
$ |
2,337 |
|
$ |
10,161 |
|
$ |
3,870 |
|
$ |
8,576 |
|
$ |
3,285 |
|
$ |
12,546 |
|
$ |
4,223 |
|
105
Analysis and Determination of the Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the adequacy of the allowances for loan losses balance on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.
Our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a specific valuation allowance on identified problem loans; (2) a general valuation allowance on the remainder of the loan portfolio; and (3) an unallocated component. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available to absorb losses in the loan portfolio.
We evaluate all classified loans and establish a specific reserve if a determination is made that full collectibility may not be reasonably assured. When this occurs, we consider the estimated fair value of the underlying collateral, less selling costs and other market conditions. If a shortfall exists, we establish a specific allowance amount. In previous years, we established a specific reserve balance based on our asset review and classified loan list. Each loan category was assigned a percentage. Loans classified as loss were assigned a percentage of 100%, loans classified as doubtful were assigned a percentage of 50%, and loans classified as substandard were assigned a percentage of 25%.
We
establish a general allowance for loans that are not evaluated separately for
impairment to recognize the inherent losses associated with lending activities.
This general valuation allowance is determined by segregating the loans by loan
category and assigning allowance percentages to each category. The percentages
may be adjusted for significant factors that, in managements judgment, affect
the collectibility of the portfolio as of the evaluation date. These significant
risk factors may include recent loss experience in particular segments of the
portfolio, trends in loan volumes, levels and trends in delinquent loans,
changes in existing general economic and business conditions affecting our
primary lending areas, as well as other factors such as: concentrations,
seasoning of the loan portfolio, and bank regulatory examination results. The
applied loss factors are reevaluated periodically to ensure their relevance in
the current economic environment. An unallocated component covers uncertainties
that could affect our estimate of probable losses.
We
identify loans that may need to be charged off as a loss by reviewing all
delinquent loans, classified loans and other loans that management may have
concerns about collectibility. For individually reviewed loans, the borrowers
inability to make payments under the terms of the loan as well as a shortfall
in collateral value may result in a write down to managements estimate of net
realizable value. Personal loans are typically charged off at 120 days
delinquent.
The Federal Deposit Insurance Corporation and Pennsylvania Department of Banking, as an integral part of their examination process, periodically review our allowance for loan losses. The Federal Deposit Insurance Corporation and Pennsylvania Department of Banking may require us to make additional provisions for loan losses based on judgments different from ours.
106
The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
||||||||||||
|
|
||||||||||||||||||
December 31, (Dollars in thousands) |
|
Amount of |
|
Loan |
|
Amount of |
|
Loan |
|
Amount of |
|
Loan |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
970 |
|
|
16.61 |
% |
$ |
942 |
|
|
17.12 |
% |
$ |
894 |
|
|
17.75 |
% |
Commercial real estate |
|
|
8,124 |
|
|
24.38 |
|
|
7,261 |
|
|
21.48 |
|
|
6,905 |
|
|
17.95 |
|
Residential construction |
|
|
|
|
|
0.59 |
|
|
|
|
|
0.96 |
|
|
|
|
|
0.67 |
|
|
|
||||||||||||||||||
Total real estate |
|
|
9,094 |
|
|
41.58 |
|
|
8,203 |
|
|
39.56 |
|
|
7,799 |
|
|
36.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
1,955 |
|
|
5.87 |
|
|
1,311 |
|
|
3.88 |
|
|
1,201 |
|
|
3.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit |
|
|
2,326 |
|
|
22.88 |
|
|
2,623 |
|
|
22.90 |
|
|
2,659 |
|
|
22.20 |
|
Automobile loans |
|
|
2,532 |
|
|
13.85 |
|
|
3,150 |
|
|
15.74 |
|
|
3,081 |
|
|
16.93 |
|
Other consumer loans |
|
|
1,304 |
|
|
15.82 |
|
|
1,735 |
|
|
17.92 |
|
|
1,752 |
|
|
21.38 |
|
|
|
||||||||||||||||||
Total consumer |
|
|
6,162 |
|
|
52.55 |
|
|
7,508 |
|
|
56.56 |
|
|
7,492 |
|
|
60.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
157 |
|
|
|
|
74 |
|
|
|
|
649 |
|
|
|
|
||
Total allowance for loan losses |
|
$ |
17,368 |
|
|
100.00 |
% |
$ |
17,096 |
|
|
100.00 |
% |
$ |
17,141 |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
2002 |
|
||||||||
|
|
||||||||||||
December 31, (Dollars in thousands) |
|
Amount of |
|
Loan |
|
Amount of Allowance Allocated to Loan Category |
|
Loan Category as a % of Total Loans |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
1,074 |
|
|
19.66 |
% |
$ |
882 |
|
|
20.24 |
% |
Commercial real estate |
|
|
5,907 |
|
|
13.98 |
|
|
5,310 |
|
|
11.41 |
|
Residential construction |
|
|
|
|
|
0.48 |
|
|
|
|
|
0.21 |
|
|
|
||||||||||||
Total real estate |
|
|
6,981 |
|
|
34.11 |
|
|
6,192 |
|
|
31.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
892 |
|
|
2.11 |
|
|
1,148 |
|
|
2.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans and lines of credit |
|
|
2,815 |
|
|
17.67 |
|
|
2,249 |
|
|
15.37 |
|
Automobile loans |
|
|
3,138 |
|
|
18.10 |
|
|
3,619 |
|
|
18.43 |
|
Other consumer loans |
|
|
2,026 |
|
|
28.01 |
|
|
2,428 |
|
|
31.87 |
|
|
|
||||||||||||
Total consumer |
|
|
7,979 |
|
|
63.78 |
|
|
8,296 |
|
|
65.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
1,092 |
|
|
|
|
1,168 |
|
|
|
|
|
Total allowance for loan losses |
|
$ |
16,944 |
|
|
100.00 |
% |
$ |
16,804 |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors
107
discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|||||
|
||||||||||||||||
Allowance at beginning of period |
|
$ |
17,096 |
|
$ |
17,141 |
|
$ |
16,944 |
|
$ |
16,804 |
|
$ |
16,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,575 |
|
|
1,703 |
|
|
2,400 |
|
|
2,775 |
|
|
1,950 |
|
Charge offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
|
44 |
|
|
76 |
|
|
42 |
|
|
68 |
|
|
90 |
|
Commercial real estate |
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total real estate loans |
|
|
44 |
|
|
123 |
|
|
42 |
|
|
68 |
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
12 |
|
|
110 |
|
|
109 |
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
|
81 |
|
|
93 |
|
|
185 |
|
|
134 |
|
|
117 |
|
Automobile loans |
|
|
1,347 |
|
|
1,427 |
|
|
1,915 |
|
|
1,760 |
|
|
1,986 |
|
Other consumer loans |
|
|
813 |
|
|
1,157 |
|
|
904 |
|
|
1,554 |
|
|
274 |
|
|
|
|||||||||||||||
Total consumer loans |
|
|
2,241 |
|
|
2,677 |
|
|
3,004 |
|
|
3,448 |
|
|
2,377 |
|
|
|
|||||||||||||||
Total charge-offs |
|
|
2,297 |
|
|
2,910 |
|
|
3,155 |
|
|
3,636 |
|
|
2,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
|
36 |
|
|
8 |
|
|
59 |
|
|
23 |
|
|
63 |
|
Commercial real estate |
|
|
|
|
|
47 |
|
|
76 |
|
|
7 |
|
|
57 |
|
|
|
|||||||||||||||
Total real estate loans |
|
|
36 |
|
|
55 |
|
|
135 |
|
|
30 |
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
1 |
|
|
8 |
|
|
1 |
|
|
20 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
|
123 |
|
|
223 |
|
|
90 |
|
|
160 |
|
|
198 |
|
Automobile loans |
|
|
467 |
|
|
586 |
|
|
510 |
|
|
533 |
|
|
532 |
|
Other consumer loans |
|
|
367 |
|
|
290 |
|
|
216 |
|
|
258 |
|
|
146 |
|
|
|
|||||||||||||||
Total consumer loans |
|
|
957 |
|
|
1,099 |
|
|
816 |
|
|
951 |
|
|
876 |
|
|
|
|||||||||||||||
Total recoveries |
|
|
994 |
|
|
1,162 |
|
|
952 |
|
|
1,001 |
|
|
997 |
|
|
|
|||||||||||||||
Net charge-offs |
|
$ |
1,303 |
|
$ |
1,748 |
|
$ |
2,203 |
|
$ |
2,635 |
|
$ |
1,470 |
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of period |
|
$ |
17,368 |
|
$ |
17,096 |
|
$ |
17,141 |
|
$ |
16,944 |
|
$ |
16,804 |
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance to nonperforming loans |
|
|
213.09 |
% |
|
331.32 |
% |
|
278.17 |
% |
|
252.90 |
% |
|
256.67 |
% |
Allowance to total loans outstanding at the end of the period |
|
|
1.03 |
% |
|
0.99 |
% |
|
1.09 |
% |
|
1.13 |
% |
|
1.21 |
% |
Net charge-offs (recoveries) to average loans outstanding during the period |
|
|
0.07 |
% |
|
0.10 |
% |
|
0.14 |
% |
|
0.18 |
% |
|
0.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Risk Management. Interest rate risk is defined as the expose of current and future earnings, and capital that arises from adverse movements in interest rates. Depending on a banks asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate loans, and short-term deposits could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer-term liabilities could be negatively affected by falling rates. This is referred to as repricing or maturity mismatch risk.
Interest rate risk also arises from changes in the slope of the yield curve (yield curve risk); from imperfect correlations in the adjustment of rates earned and paid on different instruments with otherwise similar repricing characteristics (basis risk); and from interest rate related options imbedded in the banks assets and liabilities (option risk).
108
Our goal is to manage our interest rate risk by determining whether a given movement in interest rates affects our net income and the market value of our portfolio equity in a positive or negative way, and to execute strategies to maintain interest rate risk within established limits.
Model Simulation Analysis. We view interest rate risk from two different perspectives. The traditional accounting perspective, which defines and measures interest rate risk as the change in net interest income and earnings caused by a change in interest rates, provides the best view of short-term interest rate risk exposure. We also view interest rate risk from an economic perspective, which defines and measures interest rate risk as the change in the market value of portfolio equity caused by changes in the values of assets and liabilities, which were changed due to changes in interest rates. The market value of portfolio equity, also referred to as the economic value of equity is defined as the present value of future cash flows from exiting assets, minus the present value of future cash flows from existing liabilities.
These two perspectives give rise to income simulation and economic value simulation, each of which presents a unique picture of our risk of any movement in interest rates. Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one year). Economic value simulation captures more information and reflects the entire asset and liability maturity spectrum. Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods. It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the equity of Beneficial Mutual Savings Bank. Both types of simulation assist in identifying, measuring, monitoring and controlling interest rate risk and are employed by management to ensure that variations in interest rate risk exposure will be maintained within policy guidelines.
The Asset/Liability Management Committee produces reports on a quarterly basis, which compare baseline (no interest rate change) current positions showing forecasted net income, the economic value of equity and the duration of individual asset and liability classes, and of equity. Duration is defined as the weighted average time to the receipt of the present value of future cash flows. These baseline forecasts are subjected to a series of interest rate changes, in order to demonstrate or model the specific impact of the interest rate scenario tested on income, equity and duration. The model, which incorporates all asset and liability rate information, simulates the effect of various interest rate movements on income and equity value. The reports identify and measure our interest rate risk exposure present in our current asset/liability structure. If the results produce quantifiable interest rate risk exposure beyond our limits, then the testing will have served as a monitoring mechanism to allow us to initiate asset/liability strategies designed to reduce and therefore control interest rate risk.
The tables below set forth an approximation of our interest rate risk exposure. The simulation uses projected repricing of assets and liabilities at December 31, 2006 and at December 31, 2005. The primary interest rate exposure measurement applied to the entire balance sheet is the effect on net interest income and earnings of a gradual change in market interest rates of plus or minus 200 basis points over a one year time horizon, and the effect on economic value of equity of an instantaneous, parallel change in market interest rates of plus or minus 200 basis points for all projected future chase flows. Various assumptions are made regarding the prepayment speed and optionality of loans, investments and deposits, which are based on analysis, market information and in-house studies. The assumptions regarding optionality, such as prepayments of loans and the effective maturity of non-maturity deposit products are documented periodically through evaluation under varying interest rate scenarios.
Because prospective effects of hypothetical interest rate changes are based on a number of assumptions, these computations should not be relied upon as indicative of actual results. While we believe such assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security, collateralized mortgage obligation and loan repayment activity. Further the computation does not reflect any actions that management may undertake in response to changes in interest rates. Management periodically reviews its rate assumptions based on existing and projected economic conditions.
109
As of December 31, 2006:
Basis point change in rates |
|
-200 |
|
Base Forecast |
|
+200 |
|
|||
|
||||||||||
Net Interest Income at Risk: |
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
71,952 |
|
$ |
70,480 |
|
$ |
69,612 |
|
% change |
|
|
2.09 |
% |
|
|
|
|
(1.23 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net Income at Risk: |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,773 |
|
$ |
10,841 |
|
$ |
10,277 |
|
% change |
|
|
8.60 |
% |
|
|
|
|
(5.20 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Economic Value at Risk: |
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
393,596 |
|
$ |
378,781 |
|
$ |
321,776 |
|
% change |
|
|
3.91 |
% |
|
|
|
|
(15.05 |
)% |
As of December 31, 2005:
Basis point change in rates |
|
-200 |
|
Base Forecast |
|
+200 |
|
|||
|
||||||||||
Net Interest Income at Risk: |
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
70,269 |
|
$ |
71,806 |
|
$ |
72,242 |
|
% change |
|
|
(2.14 |
)% |
|
|
|
|
(0.61 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net Income at Risk: |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,133 |
|
$ |
14,133 |
|
$ |
14,416 |
|
% change |
|
|
(7.08 |
)% |
|
|
|
|
2.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
Economic Value at Risk: |
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
334,897 |
|
$ |
396,247 |
|
$ |
409,368 |
|
% change |
|
|
(15.48 |
)% |
|
|
|
|
3.31 |
% |
As of December 31, 2006, based on the scenarios above, net interest income, net income and economic value would be adversely affected over a one-year time horizon in a rising rate environment.
The net interest income at risk results indicate a slightly liability sensitive profile, which provides net interest margin benefits and a decline in risk in declining rate scenarios. The economic value at risk remains limited in magnitude and indicates potential moderate exposures in increasing rate environments.
As of December 31, 2005, based on the scenarios above, net interest income, net income and economic value would be adversely affected over a one-year time horizon in a declining rate environment.
The net interest income profile as of December 31, 2005 is indirect and indicates an increase in income when interest rates rise and a decrease in income when rates decline. Our economic value of equity risk profile was also direct and indicates that economic value declines when rates decline and increases when rates increase.
For both years, the present value of equity remains at a premium to book value and our results indicate that we are well positioned with limited net interest income and economic value at risk and that all interest risk results continue to be within our policy guidelines.
Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities of and payments on investment securities and borrowings from the Federal Home Loan Bank of Pittsburgh. While
110
maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.
Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At December 31, 2006, cash and cash equivalents totaled $23.1 million. In addition, at December 31, 2006, we had arrangements to borrow up to $969.8 million from the Federal Home Loan Bank of Pittsburgh. On December 31, 2006, we had $196.6 million of advances outstanding.
A significant use of our liquidity is the funding of loan originations. At December 31, 2006, we had $118.8 million in loan commitments outstanding, which consisted of $52.5 million and $2.5 million in commercial and consumer commitments to fund loans, respectively, $46.1 million and $12.2 million in commercial and consumer unused lines of credit, respectively, and $5.5 million in standby letters of credit. Historically, many of the commitments expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements. Another significant use of our liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of December 31, 2006 totaled $746.1 million, or 83.5% of certificates of deposit. The large percentage of certificates of deposit that mature within one year reflects customers hesitancy to invest their funds for long periods in the recent low interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2007. We believe, however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
The following table presents certain of our contractual obligations at December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|||||||||||||||||
|
|
|
|
|||||||||||||||||||
(In thousands) |
|
Total |
|
Less than
One |
|
One to |
|
Three to |
|
More Than |
|
|||||||||||
|
||||||||||||||||||||||
Commitments to fund loans |
|
$ |
55,077 |
|
$ |
55,077 |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
Unused lines of credit |
|
|
58,275 |
|
|
42,276 |
|
|
|
3,842 |
|
|
|
|
|
|
|
|
|
12,157 |
|
|
Standby letters of credit |
|
|
5,492 |
|
|
5,033 |
|
|
|
459 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
|
25,871 |
|
|
4,247 |
|
|
|
8,034 |
|
|
|
|
5,050 |
|
|
|
|
8,540 |
|
|
Purchase obligations |
|
|
2,948 |
|
|
1,488 |
|
|
|
941 |
|
|
|
|
519 |
|
|
|
|
|
|
|
Total |
|
$ |
147,663 |
|
$ |
108,121 |
|
|
$ |
13,276 |
|
|
|
$ |
5,569 |
|
|
|
$ |
20,697 |
|
|
Our primary investing activities are the origination and purchase of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts and Federal Home Loan Bank advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.
111
The following table presents our primary investing and financing activities during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, (In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
|||
|
||||||||||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
Loan purchases |
|
$ |
|
|
$ |
(38,283 |
) |
$ |
|
|
Loan originations |
|
|
(507,085 |
) |
|
(661,965 |
) |
|
(637,847 |
) |
Principal repayments on loans |
|
|
550,048 |
|
|
544,164 |
|
|
559,473 |
|
Purchases of investment securities available for sale |
|
|
(55,779 |
) |
|
(61,767 |
) |
|
(371,067 |
) |
Purchases of investment securities held to maturity |
|
|
(474 |
) |
|
(555 |
) |
|
(10,952 |
) |
Proceeds from sales and maturities of investment securities available for sale |
|
|
67,130 |
|
|
129,593 |
|
|
315,654 |
|
Proceeds from maturities, calls or repayments of investment securities held to maturity |
|
|
33,162 |
|
|
42,345 |
|
|
69,472 |
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in deposits |
|
|
12,925 |
|
|
49,679 |
|
|
51,520 |
|
Increase (decrease) in Federal Home Loan Bank advances |
|
|
(66,347 |
) |
|
(82,437 |
) |
|
(26,150 |
) |
Increase (decrease) in repurchase agreements |
|
|
(4,318 |
) |
|
78,686 |
|
|
(5,768 |
) |
Increase (decrease) in Federal Home Loan Bank overnight borrowings |
|
|
(49,900 |
) |
|
130 |
|
|
49,770 |
|
Increase (decrease) in other borrowings |
|
|
7,250 |
|
|
|
|
|
|
|
Capital Management. We are subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2006, we exceeded all of our regulatory capital requirements. We are considered well capitalized under regulatory guidelines. See Regulation and SupervisionBank RegulationPrompt Corrective Regulatory Action, Regulatory Capital Compliance and note 11 of the notes to the consolidated financial statements.
This offering is expected to increase our equity by $247.7 million to $555.1 million. See Capitalization. Following completion of this offering, we also will manage our capital for maximum stockholder benefit. The capital from the offering will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of lending activities. Our financial condition and results of operations will be enhanced by the capital from the offering, resulting in increased net interest-earning assets and net income. However, the large increase in equity resulting from the capital raised in the offering will, initially, have an adverse impact on our return on equity. Following the offering, we may use capital management tools such as cash dividends and common share repurchases. However, under Office of Thrift Supervision regulations, we will not be allowed to repurchase any shares during the first year following the offering, except: (1) in extraordinary circumstances, we may make open market repurchases of up to 5% of our outstanding stock if we receive the prior non-objection of the Office of Thrift Supervision of such repurchases; (2) repurchases of qualifying shares of a director or if we conduct an Office of Thrift Supervision-approved offer to repurchase made to all shareholders; (3) if we repurchase to fund a restricted stock award plan that has been approved by shareholders; or (4) if we repurchase stock to fund a tax-qualified employee stock benefit plan. All repurchases are prohibited, however, if the repurchase would reduce Beneficial Mutual Savings Banks regulatory capital below regulatory required levels.
Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers requests for funding and take the form of loan commitments and lines of credit. For information about our loan commitments and unused lines of credit, see note 14 of the notes to the consolidated financial statements.
112
For the year ended December 31, 2006, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.
Impact of Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see note 2 of the notes to the consolidated financial statements included in this prospectus.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented in this prospectus have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institutions performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
113
General
FMS Financial, a New Jersey corporation, headquartered in Burlington, New Jersey, is the holding company for Farmers & Mechanics Bank. FMS Financial conducts no significant business or operations of its own other than holding all of the outstanding common stock of Farmers & Mechanics Bank. As a result, references to FMS Financial generally refer to the consolidated entity which includes the main operating company, Farmers & Mechanics Bank, unless the context indicates otherwise.
FMS Financial principally operates through its 42 banking offices located in Burlington, Camden and Mercer Counties, New Jersey. FMS Financial is primarily engaged in the business of attracting deposits from the general public and originating loans which are secured by residential real estate. To a lesser extent, FMS Financial also originates consumer, commercial business loans and construction loans and invests in United States government securities and mortgage-related securities.
Competition
FMS Financials primary market area consists of Burlington, Camden and Mercer Counties, New Jersey, and is one of many financial institutions serving this market area. The competition for deposit products comes from other insured financial institutions such as commercial banks, thrift institutions and credit unions in FMS Financials market area. Deposit competition also includes a number of insurance products sold by local agents and investment products such as mutual funds and other securities sold by local and regional brokers. Loan competition comes from other insured financial institutions such as commercial banks, thrift institutions and credit unions.
114
Lending Activities
Analysis of Loan Portfolio
The following table sets forth the composition of FMS Financials loan portfolio in dollar amounts and in percentages of the respective portfolios at the dates indicated. Except as shown below, there were no concentrations of loans exceeding 10% of FMS Financials assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
December 31, |
|
Carrying |
|
Percent |
|
Carrying |
|
Percent |
|
Carrying |
|
Percent |
|
Carrying |
|
Percent |
|
Carrying |
|
Percent |
|
||||||||||
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
288,052 |
|
63.24 |
% |
|
$ |
286,476 |
|
63.97 |
% |
|
$ |
275,843 |
|
65.08 |
% |
|
$ |
280,664 |
|
68.84 |
% |
|
$ |
272,777 |
|
74.38 |
% |
|
Commercial real estate |
|
|
132,217 |
|
29.02 |
|
|
|
127,704 |
|
28.52 |
|
|
|
116,380 |
|
27.46 |
|
|
|
104,352 |
|
25.60 |
|
|
|
76,354 |
|
20.82 |
|
|
Commercial construction |
|
|
2,956 |
|
.65 |
|
|
|
6,942 |
|
1.55 |
|
|
|
11,971 |
|
2.82 |
|
|
|
5,994 |
|
1.47 |
|
|
|
1,157 |
|
.32 |
|
|
Construction |
|
|
3,760 |
|
.83 |
|
|
|
1,775 |
|
.40 |
|
|
|
897 |
|
.21 |
|
|
|
1,324 |
|
.32 |
|
|
|
306 |
|
.08 |
|
|
|
|
|
|||||||||||||||||||||||||||||
Total mortgage loans |
|
|
426,985 |
|
93.74 |
|
|
|
422,897 |
|
94.44 |
|
|
|
405,091 |
|
95.57 |
|
|
|
392,334 |
|
96.23 |
|
|
|
350,594 |
|
95.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
2,251 |
|
.49 |
|
|
|
2,356 |
|
.53 |
|
|
|
2,472 |
|
.58 |
|
|
|
3,187 |
|
.78 |
|
|
|
3,522 |
|
.96 |
|
|
Commercial business |
|
|
26,276 |
|
5.77 |
|
|
|
22,550 |
|
5.03 |
|
|
|
16,312 |
|
3.85 |
|
|
|
12,180 |
|
2.99 |
|
|
|
12,621 |
|
3.44 |
|
|
|
|
|
|||||||||||||||||||||||||||||
Total consumer and other loans |
|
|
28,527 |
|
6.26 |
|
|
|
24,906 |
|
5.56 |
|
|
|
18,784 |
|
4.43 |
|
|
|
15,367 |
|
3.77 |
|
|
|
16,143 |
|
4.40 |
|
|
Total loans |
|
$ |
455,512 |
|
100.00 |
% |
|
$ |
447,803 |
|
100.00 |
% |
|
$ |
423,875 |
|
100.00 |
% |
|
$ |
407,701 |
|
100.00 |
% |
|
$ |
366,737 |
|
100.00 |
% |
|
115
Loan Maturity
The following table sets forth maturities and interest rate sensitivity for all categories of loans as of December 31, 2006. Scheduled repayments are reported in the maturity category in which payment is due. Demand loans, loans having no stated maturity, and overdrafts are reported as due in one year or less.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
One-to-Four |
|
Commercial |
|
Commercial |
|
Construction |
|
Consumer |
|
Commercial |
|
Total |
|
Total |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less |
|
|
$ 2,603 |
|
|
$ 5,095 |
|
|
$2,493 |
|
|
$3,760 |
|
|
$ 876 |
|
|
$13,635 |
|
|
$6,253 |
|
|
$ 28,462 |
|
One to five years |
|
|
12,551 |
|
|
7,759 |
|
|
463 |
|
|
|
|
|
785 |
|
|
6,692 |
|
|
463 |
|
|
28,250 |
|
More than five years |
|
|
272,898 |
|
|
119,363 |
|
|
|
|
|
|
|
|
590 |
|
|
5,949 |
|
|
|
|
|
398,800 |
|
Total due after one year |
|
|
285,449 |
|
|
127,122 |
|
|
463 |
|
|
|
|
|
1,375 |
|
|
12,641 |
|
|
463 |
|
|
427,050 |
|
Total |
|
|
$288,052 |
|
|
$132,217 |
|
|
$2,956 |
|
|
$3,760 |
|
|
$2,251 |
|
|
$26,276 |
|
|
$6,716 |
|
|
$455,512 |
|
Loan Sensitivity
The following table sets forth, as of December 31, 2006, the dollar amount of all loans due after December 31, 2007, based upon fixed rates of interest or floating or adjustable interest rates.
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Fixed Rates |
|
Floating or |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
248,500 |
|
$ |
36,949 |
|
$ |
285,449 |
|
Commercial real estate |
|
|
47,830 |
|
|
79,292 |
|
|
127,122 |
|
Commercial construction |
|
|
457 |
|
|
6 |
|
|
463 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
1,040 |
|
|
335 |
|
|
1,375 |
|
Commercial business |
|
|
10,286 |
|
|
2,355 |
|
|
12,641 |
|
Total |
|
$ |
308,113 |
|
$ |
118,937 |
|
$ |
427,050 |
|
FMS Financial presently offers residential loans that adjust every year after an initial fixed term of one, two, five or seven years, at an interest rate indexed higher than the corresponding United States Treasury security index. The interest rates on these mortgages adjust annually after the one, two, five or seven-year anniversary date of the loan with an interest rate adjustment cap of 1.5% per year and presently not to exceed a rate of 11.5% over the life of the loan. At December 31, 2006, adjustable-rate residential first mortgage loans amounted to $21.9 million or 4.82% of the total residential loan portfolio. These loans are generally not originated under terms, conditions and documentation which permit their sale in the secondary mortgage market to FreddieMac and FannieMae.
Fixed-rate mortgage loans are generally underwritten according to FreddieMac and FannieMae guidelines. FMS Financial periodically sells selected fixed-rate residential loans, without recourse, to provide additional funds for lending and to restructure the loan portfolio to improve interest rate risk. Generally, if the property is not owner-occupied, a higher rate of interest is charged on such loans. At December 31, 2006, $225.2 million, or 49.45% of the total residential loan portfolio, consisted of long-term fixed-rate first mortgage loans, none of which were classified as held for sale.
FMS Financials lending policies generally limit the maximum loan-to-value ratio on owner-occupied residential first mortgage loans to 97% of the lesser of the appraised value or purchase price, with the condition that private mortgage insurance is required on loans with loan-to-value ratios in excess of 80%. Mortgage loans on
116
investment properties are made at loan-to-value ratios up to 70%. The loan-to-value ratio, maturity and other provisions of the loans made by FMS Financial have generally reflected the policy of making less than the maximum loan permissible under applicable regulations, in accordance with established lending practices, market conditions and underwriting standards maintained by FMS Financial. FMS Financial requires fire and casualty insurance on all properties securing real estate loans and also performs title searches to ensure its lien position.
FMS Financial actively solicits and originates home equity loans and home equity lines of credit secured by the equity in the borrowers primary residence. These loans generally have terms of 10 to 15 years, some of which are fixed rates and some of which have rates that adjust based upon the prime rate. At December 31, 2006, FMS Financial had home equity loans in the amount of $25.7 million, or 5.64%, of its residential loan portfolio and approved $38.2 million in home equity lines of credit, of which $15.2 million was outstanding.
Commercial Real Estate Loans. Commercial real estate loans are loans secured by commercial real estate (e.g., shopping centers, medical buildings, retail offices) and multi-family dwelling units (e.g., apartment projects with more than four units), in FMS Financials market area. Commercial real estate loans and multi-family residential loans have been made in amounts up to $6.6 million, with most of such loans ranging in size from $100,000 to $2.0 million. Loans on commercial properties are generally originated in amounts up to 75% of the appraised value of the property. Commercial real estate loans and multi-family residential loans are generally made at rates which adjust above the prime interest rate (generally 1% to 2%) or a specified treasury index or are balloon loans with fixed interest rates which mature in three to five years with principal amortization for a period of up to 25 years. At December 31, 2006, FMS Financials commercial real estate loan portfolio consisted of $128.3 million of commercial real estate and $3.9 million of multi-family loans.
Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the propertys value at completion of construction and development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, FMS Financial may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, FMS Financial may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment.
Consumer Loans. Regulations permit federally chartered thrift institutions to make secured and unsecured consumer loans up to 35% of the institutions assets. FMS Financial makes various types of secured and unsecured consumer loans including education loans, lines of credit, automobile loans (new and used) and loans secured by deposit accounts. Consumer loans generally have terms of six months to five years, some of which are at fixed rates and some of which have rates that adjust periodically.
Consumer loans may entail greater risk than residential loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not be sufficient for repayment of the outstanding loan, and the remaining deficiency may not be collectible.
117
Commercial Business Loans. Commercial business loans are underwritten on the basis of the borrowers ability to service such debt from income and are generally made to small and mid-sized companies located within FMS Financials primary lending area. Generally, FMS Financial requires additional collateral of equipment, chattel or other assets before making a commercial business loan.
Loan Commitments. FMS Financial issues loan origination commitments to real estate developers and qualified borrowers primarily for the construction, purchase and refinancing of residential real estate and commercial real estate. Such commitments are made on specified terms and conditions, including in most cases, the payment of a non-refundable commitment fee based on a percentage of the amount of committed funds. Generally, the commitment requires acceptance within 15 days of the date of issuance. At December 31, 2006, FMS Financial had $6.0 million of commitments to cover originations and $29.5 million in undisbursed funds on outstanding lines of credit. Management believes that virtually all of FMS Financials commitments will be funded.
Origination of Loans
Commercial loan origination comes from a variety of sources, including FMS Financials existing customer base, referrals from real estate offices, accountants, financial advisers, attorneys, builders and walk in business as well as solicitations by FMS Financials business development officers. Residential mortgage loan customers are derived in a similar manner. Consumer loans are directly obtained through FMS Financials network of branch offices and advertising.
All applications are processed in accordance with established policies of FMS Financial, including the review of credit references, verification of information provided and, where real estate is involved, the review of an appraisal completed by an independent third party appraiser from a list of approved appraisers that FMS Financial maintains.
Loan approvals may be approved by loan officers up to their individually assigned lending limit, which are established and modified periodically to reflect the officers expertise and experience. Certain officers have joint lending authorities that exceed their individual authorities. The board of directors approves loans above the individual and joint authorities of the officers. The board reviews on an annual basis the loan approval authorities.
Non-Performing and Problem Assets
When a loan is more than 30 days delinquent, the borrower is contacted by mail or phone and payment is requested. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower. In certain instances, FMS Financial may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize their financial affairs. If the loan continues in a delinquent status for 90 days or more, FMS Financial generally will initiate foreclosure proceedings.
Loans are generally placed on non-accrual status when either principal or interest is 90 days or more past due. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Such interest, when ultimately collected, is credited to income in the period received. At December 31, 2006, Farmers & Mechanics Bank had $2.9 million of loans that were held on a non-accrual basis. Gross interest income of $184,000 would have been recorded during the year ended December 31, 2006 if these loans had been performing in accordance with their terms. Interest income of $142,000 was recorded on these loans during the year ended December 31, 2006.
118
Non-Performing Assets. The following table sets forth information regarding non-accrual loans, troubled debt restructured and real estate owned assets by FMS Financial at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|||||
Loans accounted for on a non-accrual basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
1,056 |
|
$ |
794 |
|
$ |
819 |
|
$ |
507 |
|
$ |
960 |
|
Commercial real estate |
|
|
1,800 |
|
|
985 |
|
|
985 |
|
|
1,189 |
|
|
1,786 |
|
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|||||||||||||||
Total mortgage non-accrual loans |
|
|
2,856 |
|
$ |
1,779 |
|
$ |
1,804 |
|
$ |
1,696 |
|
$ |
2,758 |
|
|
|
|||||||||||||||
Troubled debt restructurings |
|
|
33 |
|
$ |
176 |
|
$ |
718 |
|
$ |
1,027 |
|
$ |
987 |
|
Real estate owned, net |
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
291 |
|
Other non-performing assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|||||||||||||||
Total non-performing assets |
|
$ |
2,889 |
|
$ |
1,955 |
|
$ |
2,522 |
|
$ |
2,771 |
|
$ |
4,124 |
|
|
|
|||||||||||||||
Total non-accrual loans to net loans |
|
|
0.63 |
% |
|
0.40 |
% |
|
0.43 |
% |
|
0.42 |
% |
|
0.76 |
% |
Total non-accrual loans to total assets |
|
|
0.24 |
% |
|
0.14 |
% |
|
0.14 |
% |
|
0.14 |
% |
|
0.24 |
% |
Total non-performing assets to total assets |
|
|
0.24 |
% |
|
0.16 |
% |
|
0.20 |
% |
|
0.23 |
% |
|
0.37 |
% |
Classified Assets.The Office of Thrift Supervision regulations provide for a classification system for problem assets of insured institutions which covers all problem assets. Under this classification system, problem assets of insured institutions are classified as substandard, doubtful, or loss. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets may be designated special mention because of potential weaknesses that do not currently warrant classification in one of the aforementioned categories.
When an insured institution classifies problem assets as loss, it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institutions determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Office of Thrift Supervision.
Managements evaluation of the classification of assets and the adequacy of the reserve for loan losses is reviewed by the board on a regular basis and by the regulatory agencies as part of their examination process.
The following table sets forth FMS Financials classified assets in accordance with its classification system.
|
|
|
|
|
|
|
|
At December 31, (In thousands) |
|
2006 |
|
2005 |
|
||
Special mention |
|
$ |
860 |
|
$ |
3,134 |
|
Substandard |
|
|
5,659 |
|
|
4,917 |
|
Doubtful |
|
|
755 |
|
|
|
|
Total |
|
$ |
7,274 |
|
$ |
8,051 |
|
At December 31, 2006, FMS Financial did not have any loans not classified as non-accrual, 90 days past due or restructured, but where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and may result in disclosure as non-accrual, 90 days past due or restructured.
Provision for Loan Losses. A provision for loan losses is charged to operations based on managements evaluation of the probable losses in FMS Financials loan portfolio. Such evaluation, which includes a review of all loans of which full collectibility of interest and principal may not be reasonably assured, considers
119
FMS Financials past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral, and current economic conditions.
Management will continue to review the entire loan portfolio to determine the extent, if any, to which further additional loss provisions may be deemed necessary. There can be no assurance that the allowance for losses will be adequate to cover losses which may in fact be realized in the future and that additional provisions for losses will not be required.
The following table sets forth an analysis of FMS Financials allowance for loan losses for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, (Dollars in thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
|||||
Balance at beginning of period |
|
$ |
5,063 |
|
$ |
4,719 |
|
$ |
4,408 |
|
$ |
4,317 |
|
$ |
4,231 |
|
Loans charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
|
|
|
|
(9 |
) |
|
(3 |
) |
|
|
|
|
(10 |
) |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
(9 |
) |
|
(45 |
) |
|
(6 |
) |
|
(4 |
) |
|
(10 |
) |
Commercial business |
|
|
|
|
|
(4 |
) |
|
(14 |
) |
|
(184 |
) |
|
(58 |
) |
|
|
|||||||||||||||
Total charge-offs |
|
|
(9 |
) |
|
(58 |
) |
|
(23 |
) |
|
(188 |
) |
|
(78 |
) |
Recoveries |
|
|
7 |
|
|
42 |
|
|
4 |
|
|
9 |
|
|
15 |
|
|
|
|||||||||||||||
Net loans charged-off |
|
|
(2 |
) |
|
(16 |
) |
|
(19 |
) |
|
(179 |
) |
|
(63 |
) |
|
|
|||||||||||||||
Provision for loan losses |
|
|
330 |
|
|
360 |
|
|
330 |
|
|
270 |
|
|
149 |
|
|
|
|||||||||||||||
Balance at end of period |
|
$ |
5,391 |
|
$ |
5,063 |
|
$ |
4,719 |
|
$ |
4,408 |
|
$ |
4,317 |
|
Ratio of net charge-offs to average loans outstanding during the period |
|
|
.0004 |
% |
|
0.005 |
% |
|
0.005 |
% |
|
0.046 |
% |
|
0.017 |
% |
120
Analysis of the Allowance for Loan Losses
The following table sets forth the breakdown of the allowance for loan losses by loan category and the percent of loans in each category to total loans receivable for the periods indicated. The allocation of the allowance to each category is not necessarily indicative of future losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||||||
December 31, |
|
Amount |
|
Percent of |
|
Amount |
|
Percent of |
|
Amount |
|
Percent of |
|
Amount |
|
Percent of |
|
Amount |
|
Percent of |
|
||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
1,580 |
|
63.24 |
% |
|
$ |
1,694 |
|
63.97 |
% |
|
$ |
986 |
|
65.08 |
% |
|
$ |
1,446 |
|
68.84 |
% |
|
$ |
1,672 |
|
74.38 |
% |
|
Commercial real estate |
|
|
3,243 |
|
29.02 |
|
|
|
2,792 |
|
28.52 |
|
|
|
2,883 |
|
27.46 |
|
|
|
2,540 |
|
25.60 |
|
|
|
2,284 |
|
20.82 |
|
|
Commercial construction |
|
|
107 |
|
0.65 |
|
|
|
279 |
|
1.55 |
|
|
|
582 |
|
2.82 |
|
|
|
194 |
|
1.47 |
|
|
|
69 |
|
0.32 |
|
|
Construction |
|
|
90 |
|
0.83 |
|
|
|
8 |
|
0.40 |
|
|
|
2 |
|
0.21 |
|
|
|
25 |
|
0.32 |
|
|
|
34 |
|
0.08 |
|
|
Consumer and other |
|
|
18 |
|
0.49 |
|
|
|
19 |
|
0.53 |
|
|
|
22 |
|
0.58 |
|
|
|
24 |
|
0.78 |
|
|
|
28 |
|
0.96 |
|
|
Commercial business |
|
|
353 |
|
5.77 |
|
|
|
271 |
|
5.03 |
|
|
|
244 |
|
3.85 |
|
|
|
179 |
|
2.99 |
|
|
|
230 |
|
3.44 |
|
|
Total allowance for loan losses |
|
$ |
5,391 |
|
100.00 |
% |
|
$ |
5,063 |
|
100.00 |
% |
|
$ |
4,719 |
|
100.00 |
% |
|
$ |
4,408 |
|
100.00 |
% |
|
$ |
4,317 |
|
100.00 |
% |
|
121
Investment Activities
FMS Financial is required under federal regulations to maintain a minimum amount of liquid assets which may be invested in specified short-term securities and certain other investments. The level of liquid assets varies depending upon several factors, including: (i) the yields on investment alternatives, (ii) managements judgment as to the attractiveness of the yields then available in relation to other opportunities, (iii) expectation of future yield levels, and (iv) managements projections as to the short-term demand for funds to be used in loan origination and other activities. Investment securities, including mortgage-backed securities, are classified at the time of purchase, based upon managements intentions and abilities, as securities held to maturity or securities available for sale. Debt securities acquired with the intent and ability to hold to maturity are classified as held to maturity and are stated at cost and adjusted for amortization of premium and accretion of discount, which are computed using the level yield method and recognized as adjustments of interest income. All other debt securities are classified as available for sale to serve principally as a source of liquidity.
Current regulatory and accounting guidelines regarding investment securities (including mortgage-backed securities) require FMS Financial to categorize securities as held to maturity, available for sale, or trading. As of December 31, 2006, FMS Financial had securities classified as held to maturity and available for sale in the amount of $428.4 million and $146.0 million, respectively, and had no securities classified as trading. Securities classified as available for sale are reported for financial reporting purposes at the fair market value with their net unrealized gain or loss included as a separate component of stockholders equity, net of income taxes. At December 31, 2006, FMS Financials securities available for sale had an amortized cost of $148.1 million and market value of $146.0 million (net unrealized loss of $1.2 million, net of income taxes). The changes in market value in FMS Financials available for sale portfolio reflect normal market conditions and vary, either positively or negatively, based primarily on changes in general levels of market interest rates relative to the yields of the portfolio. Additionally, changes in the market value of securities available for sale do not affect FMS Financials income nor does it affect Farmers & Mechanics Banks regulatory capital requirements or its loan-to-one borrower limit.
FMS Financials investment securities available-for-sale and held-to-maturity portfolios at December 31, 2006, did not contain securities of any issuer with an aggregate book value in excess of 10% of FMS Financials equity, excluding those issued by the United States government agencies.
At December 31, 2006, FMS Financials investment portfolio policy allowed investments in instruments such as: (i) United States Treasury obligations, (ii) United States federal agency or federally sponsored agency obligations, (iii) local municipal obligations, (iv) mortgage-backed securities, (v) bankers acceptances, (vi) certificates of deposit, and (vii) investment grade corporate bonds and commercial paper. The board of directors may authorize additional investments.
As a source of liquidity and to supplement its lending activities, FMS Financial has invested in residential mortgage-backed securities. Mortgage-backed securities can serve as collateral for borrowings and, through repayments, as a source of liquidity. Mortgage-backed securities represent a participation interest in a pool of single-family or other type of mortgages. Principal and interest payments are passed from the mortgage originators, through intermediaries (generally quasi-governmental agencies) that pool and repackage the participation interests in the form of securities, to investors, like FMS Financial. The quasi-governmental agencies guarantee the payment of principal and interest to investors and include Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) and Federal Home Loan Mortgage Corporation (FHLMC).
Mortgage-backed securities typically are issued with stated principal amounts. The securities are backed by pools of mortgages that have loans with interest rates that are within a set range and have varying maturities. The underlying pool of mortgages can be composed of either fixed-rate or adjustable-rate mortgage loans. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates. The interest rate risk characteristics of the underlying pool of mortgages (i.e., fixed-rate or adjustable-rate) and the prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying mortgages. Expected maturities will differ from contractual maturities due to scheduled repayments and because borrowers may have the right to call or prepay obligations with or without
122
prepayment penalties. Mortgage-backed securities issued by GNMA, FNMA and FHLMC make up a majority of the pass-through certificates market.
FMS Financial also invests in mortgage-related securities, primarily collateralized mortgage obligations (CMOs), issued or sponsored by GNMA, FNMA and FHLMC, as well as private issuers. CMOs are a type of debt security that aggregates pools of mortgages and mortgage-backed securities and creates different classes of CMO securities with varying maturities and amortization schedules as well as a residual interest with each class having different risk characteristics. The cash flows from the underlying collateral are usually divided into tranches or classes whereby tranches have descending priorities with respect to the distribution of principal and interest repayment of the underlying mortgages and mortgage-backed securities as opposed to pass-through mortgage-backed securities where cash flows are distributed pro rata to all security holders. Unlike mortgage-backed securities from which cash flow is received and prepayment risk is shared pro rata by all securities holders, cash flows from the mortgages and mortgage-backed securities underlying CMOs are paid in accordance with a predetermined priority to investors holding various tranches of such securities or obligations. A particular tranche or class may carry prepayment risk which may be different from that of the underlying collateral and other tranches. CMOs attempt to moderate reinvestment risk associated with conventional mortgage-backed securities resulting from unexpected prepayment activity. Management believes these securities represent attractive alternatives relative to other investments due to the wide variety of maturity, repayment and interest rate options available.
The following table sets forth the carrying value of FMS Financials investment securities held to maturity, securities available for sale, Federal Home Loan Bank stock and interest-bearing deposits and overnight investments at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
At December 31, (In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
|||
Investment securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
United States government and agency securities |
|
$ |
197,326 |
|
$ |
192,328 |
|
$ |
164,381 |
|
CMOs |
|
|
60,058 |
|
|
71,621 |
|
|
87,413 |
|
Municipal bonds |
|
|
6,591 |
|
|
11,391 |
|
|
3,039 |
|
Mortgage-backed securities |
|
|
164,467 |
|
|
208,196 |
|
|
269,222 |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
United States government and agency securities |
|
|
64,481 |
|
|
59,581 |
|
|
30,317 |
|
CMOs |
|
|
18,420 |
|
|
21,990 |
|
|
37,602 |
|
Mortgage-backed securities |
|
|
63,104 |
|
|
74,060 |
|
|
74,081 |
|
|
|
|||||||||
Total investment securities |
|
|
574,447 |
|
|
639,167 |
|
|
666,055 |
|
Federal Home Loan Bank stock |
|
|
6,314 |
|
|
8,248 |
|
|
10,250 |
|
Interest-bearing deposits and overnight investments |
|
|
54,491 |
|
|
39,296 |
|
|
64,142 |
|
Total investments |
|
$ |
635,252 |
|
$ |
686,711 |
|
$ |
740,447 |
|
123
The following table sets forth the scheduled maturities, carrying values, market values and average yields for FMS Financials investment securities at December 31, 2006. The following table does not take into consideration the effects of unscheduled repayments or the effects of possible prepayments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year or Less |
|
One to Five Years |
|
Five to Ten Years |
|
More than Ten Years |
|
Total Investment Securities |
|
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||
(Dollars in thousands) |
|
Carrying |
|
Average |
|
Carrying |
|
Average |
|
Carrying |
|
Average |
|
Carrying |
|
Average |
|
Carrying |
|
Market |
|
Average |
|
|||||||||||
Investment securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations |
|
$ |
9,999 |
|
4.00 |
% |
|
$ |
19,996 |
|
4.66 |
% |
|
$ |
76,749 |
|
5.29 |
% |
|
$ |
90,582 |
|
5.91 |
% |
|
$ |
197,326 |
|
$ |
194,548 |
|
5.45 |
% |
|
Municipal bonds |
|
|
6,491 |
|
4.00 |
|
|
|
100 |
|
4.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,591 |
|
|
6,592 |
|
4.00 |
|
|
CMOs |
|
|
|
|
|
|
|
|
1,004 |
|
4.00 |
|
|
|
4,669 |
|
3.93 |
|
|
|
54,385 |
|
4.49 |
|
|
|
60,058 |
|
|
58,155 |
|
4.44 |
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
19,076 |
|
4.29 |
|
|
|
5,704 |
|
5.53 |
|
|
|
94,134 |
|
5.45 |
|
|
|
118,914 |
|
|
117,980 |
|
5.27 |
|
|
Pass through certificates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,553 |
|
4.74 |
|
|
|
45,553 |
|
|
44,354 |
|
4.74 |
|
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations |
|
|
|
|
|
|
|
|
34,746 |
|
4.50 |
|
|
|
14,359 |
|
5.04 |
|
|
|
15,376 |
|
5.47 |
|
|
|
64,481 |
|
|
64,481 |
|
4.85 |
|
|
CMOs |
|
|
|
|
|
|
|
|
404 |
|
4.25 |
|
|
|
2,836 |
|
4.59 |
|
|
|
15,180 |
|
4.78 |
|
|
|
18,420 |
|
|
18,420 |
|
4.74 |
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
2,378 |
|
4.72 |
|
|
|
1,508 |
|
5.00 |
|
|
|
39,920 |
|
5.37 |
|
|
|
43,806 |
|
|
43,806 |
|
5.32 |
|
|
Pass through certificates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,298 |
|
5.07 |
|
|
|
19,298 |
|
|
19,298 |
|
5.07 |
|
|
Federal Home Loan Bank stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,314 |
|
6.25 |
|
|
|
6,314 |
|
|
6,314 |
|
6.25 |
|
|
Interest-bearing deposits and overnight investments |
|
|
54,491 |
|
5.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,491 |
|
|
54,491 |
|
5.20 |
|
|
Total |
|
$ |
70,981 |
|
|
|
|
$ |
77,704 |
|
|
|
|
$ |
105,825 |
|
|
|
|
$ |
380,742 |
|
|
|
|
$ |
635,252 |
|
$ |
628,439 |
|
|
|
|
124
Sources of Funds
General. Deposits are the major external source of FMS Financials funds for lending and other investment purposes. Funds are derived from amortization and prepayment of loans and maturities of investment securities, borrowings, mortgage-backed securities and operations. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.
Deposits.Deposits are attracted from within FMS Financials market areas of Burlington, Camden and Mercer Counties, New Jersey, through the offering of a broad selection of deposit instruments including regular checking accounts, noninterest checking accounts, money market accounts, regular passbook accounts, certificates of deposit and IRA accounts. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. FMS Financial regularly evaluates the internal cost of funds, surveys rates offered by competing institutions, reviews FMS Financials cash flow requirements for lending and liquidity and executes rate changes when deemed appropriate. FMS Financial does not have any brokered deposits and has no present intention to accept or solicit such deposits.
Certificates of Deposit in Excess of $100,000.The following table indicates the amount of FMS Financials certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2006.
|
|
|
|
|
|
|
Maturity Period of Deposits (In thousands) |
|
Certificates of Deposit |
|
|||
Three months or less |
|
|
$ |
17,332 |
|
|
Three through six months |
|
|
|
14,291 |
|
|
Six through twelve months |
|
|
|
5,705 |
|
|
Over twelve months |
|
|
|
6,620 |
|
|
Total |
|
|
$ |
43,948 |
|
|
125
Deposit Rate. The following table sets forth the distribution of FMS Financials average balance of deposit accounts at the dates indicated and the weighted average nominal interest rates on each category of deposits presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
|
2004 |
|
|||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
At December 31, |
|
Average |
|
Percent of |
|
Weighted |
|
Average |
|
Percent |
|
Weighted |
|
Average |
|
Percent of |
|
Weighted |
|
|||||||||
Passbook and regular savings |
|
$ |
177,914 |
|
19.14 |
% |
|
0.45 |
% |
|
$ |
185,680 |
|
19.61 |
% |
|
0.43 |
% |
|
$ |
182,873 |
|
19.95 |
% |
|
0.43 |
% |
|
Checking accounts |
|
|
214,569 |
|
23.09 |
|
|
2.93 |
|
|
|
219,153 |
|
23.14 |
|
|
1.88 |
|
|
|
198,700 |
|
21.68 |
|
|
0.86 |
|
|
Non-interest checking |
|
|
185,343 |
|
19.94 |
|
|
|
|
|
|
180,803 |
|
19.09 |
|
|
|
|
|
|
167,638 |
|
18.29 |
|
|
|
|
|
Money market deposit accounts |
|
|
127,365 |
|
13.70 |
|
|
1.22 |
|
|
|
142,137 |
|
15.01 |
|
|
0.89 |
|
|
|
139,038 |
|
15.17 |
|
|
0.72 |
|
|
Certificates of deposit |
|
|
214,651 |
|
23.09 |
|
|
3.31 |
|
|
|
208,825 |
|
22.05 |
|
|
2.34 |
|
|
|
216,906 |
|
23.67 |
|
|
1.83 |
|
|
Surrogate statement |
|
|
9,687 |
|
1.04 |
|
|
3.45 |
|
|
|
10,350 |
|
1.10 |
|
|
3.45 |
|
|
|
11,373 |
|
1.24 |
|
|
2.55 |
|
|
Total deposits |
|
$ |
929,529 |
|
100.00 |
% |
|
1.73 |
% |
|
$ |
946,948 |
|
100.00 |
% |
|
1.21 |
% |
|
$ |
916,528 |
|
100.00 |
% |
|
0.84 |
% |
|
Securities Sold Under Agreements to Repurchase. The following table sets forth information regarding the balances and rates on our securities sold under agreement to repurchase.
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Year Ended December 31, |
|
|||||||
|
|
|
||||||||
(In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Average balance outstanding during the period |
|
$ |
152,709 |
|
$ |
164,513 |
|
$ |
211,725 |
|
Maximum amount outstanding at any month-end during the period |
|
|
175,000 |
|
|
175,000 |
|
|
225,000 |
|
Balance outstanding at the end of period |
|
|
115,000 |
|
|
175,000 |
|
|
195,000 |
|
Weighted average interest rate during the period |
|
|
5.01 |
% |
|
4.93 |
% |
|
4.24 |
% |
Weighted average interest rate at end of period |
|
|
5.24 |
% |
|
4.93 |
% |
|
4.49 |
% |
126
Personnel
As of December 31, 2006, FMS Financial had 344 full-time employees and 240 part-time employees. The employees are not represented by a collective bargaining unit. Management believes its relationship with its employees is good.
Regulation of FMS Financial
Set forth below is a brief description of certain laws which relate to the regulation of FMS Financial. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
General. FMS Financial is a unitary savings and loan holding company, subject to regulation and supervision by the OTS. In addition, the OTS has enforcement authority over FMS Financial and any non-savings institution subsidiaries. This permits the OTS to restrict or prohibit activities that it determines to be a serious risk to Farmers & Mechanics Bank. This regulation is intended primarily for the protection of the depositors and not for the benefit of stockholders of FMS Financial.
Activities Restrictions. As a grandfathered unitary savings and loan holding company under the Gramm-Leach-Bliley Act (the GLB Act), FMS Financial is generally not subject to any restrictions on its business activities or those of its non-savings institution subsidiaries. However, if FMS Financial were to fail to meet the Qualified Thrift Lender Test, then it would become subject to the activities restrictions of the Home Owners Loan Act applicable to multiple holding companies. See Qualified Thrift Lender Test.
If FMS Financial were to acquire control of another savings association, it would lose its grandfathered status under the GLB Act and its business activities would be restricted to certain activities specified by OTS regulation, which include performing services and holding properties used by a savings institution subsidiary, certain activities authorized for savings and loan holding companies as of March 5, 1987, and nonbanking activities permissible for bank holding companies pursuant to the Bank Holding Company Act of 1956 (the BHC Act) or authorized for financial holding companies pursuant to the GLB Act. Furthermore, no company may acquire control of FMS Financial unless the acquiring company was a unitary savings and loan holding company on May 4, 1999 (or became a unitary savings and loan holding company pursuant to an application pending as of that date) or the acquiring company is only engaged in activities that are permitted for multiple savings and loan holding companies or for financial holding companies under the BHC Act as amended by the GLB Act.
Mergers and Acquisitions. FMS Financial must obtain approval from the OTS before acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or holding company by merger, consolidation or purchase of its assets. In evaluating an application for FMS Financial to acquire control of a savings institution, the OTS would consider the financial and managerial resources and future prospects of FMS Financial and the target institution, the effect of the acquisition on the risk to the insurance funds, the convenience and the needs of the community and competitive factors.
The USA Patriot Act. In response to the events of September 11, 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA Patriot Act, was signed into law on October 26, 2001. The USA Patriot Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the USA Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act.
Among other requirements, Title III of the USA Patriot Act imposes the following requirements with respect to financial institutions:
127
|
|
|
|
|
Pursuant to Section 352, all financial institutions must establish anti-money laundering programs that include, at minimum: (i) internal policies, procedures, and controls; (ii) specific designation of an anti-money laundering compliance officer; (iii) ongoing employee training programs; and (iv) an independent audit function to test the anti-money laundering program. |
|
|
|
|
|
Section 326 authorizes the Secretary of the Department of Treasury, in conjunction with other bank regulators, to issue regulations that provide for minimum standards with respect to customer identification at the time new accounts are opened. |
|
|
|
|
|
Section 312 requires financial institutions that establish, maintain, administer or manage private banking accounts or correspondence accounts in the United States for non-United States persons or their representatives (including foreign individuals visiting the United States) to establish appropriate, specific, and, where necessary, enhanced due diligence policies, procedures and controls designed to detect and report money laundering. |
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Effective December 25, 2001, financial institutions are prohibited from establishing, maintaining, administering or managing correspondent accounts for foreign shell banks (foreign banks that do not have a physical presence in any country), and will be subject to certain record keeping obligations with respect to correspondent accounts of foreign banks. |
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Bank regulators are directed to consider a holding companys effectiveness in combating money laundering when ruling on Federal Reserve Act and Bank Merger Act applications. |
Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 (the Act), which implemented legislative reforms intended to address corporate and accounting fraud. In addition to the establishment of a new accounting oversight board to enforce auditing, quality control and independence standards and which is funded by fees from all publicly traded companies, the Act places certain restrictions on the scope of services that may be provided by accounting firms to their public company audit clients. Any non-audit services being provided to a public company audit client will require preapproval by the companys audit committee. In addition, the Act makes certain changes to the requirements for partner rotation after a period of time. The Act requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willingly violate this certification requirement. In addition, under the Act, counsel is required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.
Under the Act, longer prison terms apply to corporate executives who violate federal securities laws; the period during which certain types of suits can be brought against a company or its officers is extended; and bonuses issued to top executives prior to restatement of a companys consolidated financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan blackout periods, and loans to company executives (other than loans by financial institutions permitted by federal rules and regulations) are restricted. In addition, a provision directs that civil penalties levied by the SEC as a result of any judicial or administrative action under the Act be deposited to a fund for the benefit of harmed investors. The Federal Accounts for Investor Restitution provision also requires the SEC to develop methods of improving collection rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a companys securities within two business days of the change.
The Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the companys registered public accounting firm. Audit Committee members must be independent and are absolutely barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies must disclose whether at least one member of the committee is a financial expert (as such term is defined by the SEC) and if not, why not. Under the Act, a companys registered public accounting firm will be prohibited from performing statutorily mandated audit services for a company if such
128
companys chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent positions had been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. The Act also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent accountant engaged in the audit of the companys consolidated financial statements for the purpose of rendering the consolidated financial statements materially misleading. The Act also requires the SEC to prescribe rules requiring inclusion of any internal control report and assessment by management in the annual report to shareholders. The Act requires the companys registered public accounting firm that issues the audit report to attest to and report on managements assessment of the companys internal controls. It is anticipated that FMS Financial will be subject to all of the requirements of the Act during 2008.
Regulation of Farmers & Mechanics Bank
General. As a federally chartered savings bank with deposits insured by the FDIC, Farmers & Mechanics Bank is subject to extensive regulation by the OTS and FDIC. Lending activities and other investments must comply with federal and state statutory and regulatory requirements. Farmers & Mechanics Bank is also subject to reserve requirements of the Federal Reserve System. Federal regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the Deposit Insurance Fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
The OTS regularly examines Farmers & Mechanics Bank and prepares reports for consideration by Farmers & Mechanics Banks Board of Directors on deficiencies, if any, found in Farmers & Mechanics Banks operations. Farmers & Mechanics Banks relationship with its depositors and borrowers is also regulated by federal and state law, especially in such matters as the ownership of savings accounts and the form and content of Farmers & Mechanics Banks mortgage documents.
Farmers & Mechanics Bank must file reports with the OTS concerning its activities and financial condition, and must obtain regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. Any change in such regulations, whether by the OTS, the FDIC or the United States Congress, could have a material adverse impact on Farmers & Mechanics Bank, FMS Financial, and their operations.
Deposit Insurance. Farmers & Mechanics Banks deposits are insured to applicable limits by the Federal Deposit Insurance Corporation. Although the FDIC is authorized to assess premiums under a risk-based system for such deposit insurance, most insured depository institutions have not been required to pay premiums for the last ten years. The Federal Deposit Insurance Reform Act of 2005, which was signed into law on February 15, 2006, has resulted in significant changes to the federal deposit insurance program: (i) effective March 31, 2006, the Bank Insurance Fund (which formerly insured the deposits of banks) and the Savings Association Insurance Fund (which formerly insured the deposits of savings associations like Farmers & Mechanics Bank) were merged into a new combined fund, called the Deposit Insurance Fund; (ii) the current $100,000 deposit insurance coverage will be indexed for inflation (with adjustments every five years, commencing January 1, 2011); and (iii) deposit insurance coverage for retirement accounts has been increased to $250,000 per participant subject to adjustment for inflation. The FDIC has been given greater latitude in setting the assessment rates for insured depository institutions, which could be used to impose minimum assessments.
The FDIC is authorized to set the reserve ratio for the Deposit Insurance Fund annually at between 1.15% and 1.5% of estimated insured deposits. If the Deposit Insurance Funds reserves exceed the designated reserve ratio, the FDIC is required to pay out all or, if the reserve ratio is less than 1.5%, a portion of the excess as a dividend to insured depository institutions based on the percentage of insured deposits held on December 31, 1996 adjusted for subsequently paid premiums. Insured depository institutions that were in existence on December 31, 1996 and paid assessments prior to that date (or their successors) are entitled to a one-time credit against future assessments based on their past contributions to the Bank Insurance Fund or the Savings Association Insurance Fund.
129
In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (FICO), an agency of the Federal government established to recapitalize the predecessor to the Savings Association Insurance Fund. The FICO assessment rates, which are determined quarterly, averaged 0.0128% of insured deposits in fiscal 2006. These assessments will continue until the FICO bonds mature in 2017.
Pursuant to the Reform Act, the FDIC has determined to maintain the designated reserve ratio at its current 1.25%. The FDIC has also adopted a new risk-based premium system that provides for quarterly assessments based on an insured institutions ranking in one of four risk categories based on their examination ratings and capital ratios. Beginning in 2007, well-capitalized institutions with the CAMELS ratings of 1 or 2 will be grouped in Risk Category I and will be assessed for deposit insurance at an annual rate of between five and seven basis points with the assessment rate for an individual institution to be determined according to a formula based on a weighted average of the institutions individual CAMEL component ratings plus either five financial ratios or the average ratings of its long-term debt. Institutions in Risk Categories II, III and IV will be assessed at annual rates of 10, 28 and 43 basis points, respectively.
Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of adjusted total assets, (2) Tier 1, or core, capital equal to at least 4% (3% if the institution has received the highest rating, composite 1 CAMELS, on its most recent examination) of adjusted total assets, and (3) risk-based capital equal to 8% of total risk-weighted assets.
Tangible capital is defined as core capital less all intangible assets (including supervisory goodwill), less certain mortgage servicing rights and less certain investments. Core capital is defined as common stockholders equity (including stockholders equity), noncumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual savings associations and qualifying supervisory goodwill, less nonqualifying intangible assets, certain mortgage servicing rights, certain investments and unrealized gains and losses on certain available-for-sale securities.
The risk-based capital standard for savings institutions requires the maintenance of total risk-based capital (which is defined as core capital plus supplementary capital) of 8% of risk-weighted assets. The components of supplementary capital include, among other items, cumulative perpetual preferred stock, perpetual subordinated debt, mandatory convertible subordinated debt, intermediate-term preferred stock, and the portion of the allowance for loan losses not designated for specific loan losses (up to a maximum of 1.25% of risk-weighted assets) and up to 45% of unrealized gains on equity securities. Overall, supplementary capital is limited to 100% of core capital. A savings association must calculate its risk-weighted assets by multiplying each asset and off-balance sheet item by various risk factors as determined by the OTS, which range from 0% for cash to 100% for delinquent loans, property acquired through foreclosure, commercial loans, and other assets.
Dividend and Other Capital Distribution Limitations. The OTS imposes various restrictions or requirements on the ability of savings institutions to make capital distributions including cash dividends.
A savings association that is a subsidiary of a savings and loan holding company, such as Farmers & Mechanics Bank, must file an application or a notice with the OTS at least 30 days before making a capital distribution. A savings association is not required to file an application for permission to make a capital distribution and need only file a notice if the following conditions are met: (1) it is eligible for expedited treatment under OTS regulations, (2) it would remain adequately capitalized after the distribution, (3) the annual amount of its capital distributions does not exceed net income for that year to date added to retained net income for the two preceding years, and (4) the capital distribution would not violate any agreements between the OTS and the savings association or any OTS regulations. Any other situation would require an application to the OTS.
In addition, the OTS could prohibit a proposed capital distribution if, after making the distribution, which would otherwise be permitted by the regulation, the OTS determines that the distribution would constitute an unsafe or unsound practice.
130
A federal savings institution is prohibited from making a capital distribution if, after making the distribution, the institution would be unable to meet any one of its minimum regulatory capital requirements. Further, a federal savings institution cannot distribute regulatory capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a qualified thrift lender (QTL) test or they become subject to the business activity restrictions and branching rules applicable to national banks. To qualify as a QTL, a savings institution must either (i) be deemed a domestic building and loan association under the Internal Revenue Code by maintaining at least 60% of its total assets in specified types of assets, including cash, certain government securities, loans secured by and other assets related to residential real property, educational loans and investments in premises of the institution or (ii) satisfy the statutory QTL test set forth in the Home Owners Loan Act by maintaining at least 65% of its portfolio assets in certain Qualified Thrift Investments (defined to include residential mortgages and related equity investments, certain mortgage-related securities, small business loans, student loans and credit card loans, and 50% of certain community development loans). For purposes of the statutory QTL test, portfolio assets are defined as total assets minus intangible assets, property used by the institution in conducting its business, and liquid assets up to 20% of total assets. A savings institution must maintain its status as a QTL on a monthly basis in at least nine out of every 12 months. As of December 31, 2006, Farmers & Mechanics Bank was in compliance with its QTL requirement.
Federal Home Loan Bank System. Farmers & Mechanics Bank is a member of the FHLB of New York, which is one of 12 regional FHLBs that administer the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB.
As a member, Farmers & Mechanics Bank is required to purchase and maintain stock in the FHLB of New York in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year, or 5% of its outstanding advances.
Federal Reserve System. The Federal Reserve System requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve System may be used to satisfy the liquidity requirements that are imposed by the OTS. At December 31, 2006, Farmers & Mechanics Bank was in compliance with these requirements.
131
Managements Discussion and Analysis
of FMS Financial
General
The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words believes, anticipates, contemplates, expects, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, credit risk, risks associated with the effect of opening a new branch, the ability to control costs and expenses and general economic conditions.
Earnings of FMS Financial are primarily dependent on the earnings of Farmers & Mechanics Bank because FMS Financial engages in no significant operations of its own. Accordingly, the earnings of FMS Financial are largely dependent on the receipt of earnings from Farmers & Mechanics Bank in the form of dividends.
Farmers & Mechanics Bank also derives income from service charges on customer deposit accounts and fees on loans. In addition to interest expense, Farmers & Mechanics Bank incurs operating expenses such as salaries, employee benefits, deposit insurance premiums, depreciation, property maintenance and advertising.
Market and Liquidity Risk
132
total unrealized losses of $9.5
million on its investment portfolio. The unrealized losses were due to changes
in market value stemming from changes in the general level of interest rates
and are considered to be temporary and not material to FMS Financial.
Interest Rate Risk
Interest rate risk is the risk of loss in value due to changes in interest rates. This risk is addressed by the Funds Management Committee (FMC), which includes senior management. The FMC monitors and considers methods of managing interest rate risk by monitoring changes in the interest rate repricing gap (GAP), the net portfolio values (NPV) and net interest income under various interest rate scenarios. The FMC attempts to manage the various components of Farmers & Mechanics Banks balance sheet to minimize the impact of sudden and sustained changes in interest rates through GAP, NPV and net interest income scenarios.
Farmers & Mechanics Banks exposure to interest rate risk is reviewed on a periodic basis by the board of directors and the FMC. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time.
The difference, or the interest rate repricing GAP, provides an indication of the extent to which an institutions interest rate spread will be affected by changes in interest rates over a period of time. A GAP is considered positive when the amount of interest rate sensitive assets maturing or repricing over a specified period of time exceeds the amount of interest rate sensitive liabilities maturing or repricing within that period and is considered negative when the amount of interest rate sensitive liabilities maturing or repricing over a specified period of time exceeds the amount of interest rate sensitive assets maturing or repricing within that period. Generally, during a period of rising interest rates, a negative GAP within a given period of time would adversely affect net interest income, while a positive GAP within such period of time may result in an increase in net interest income; during a period of falling interest rates, a negative GAP within a given period of time may result in an increase in net interest income while a positive GAP within such period of time may have the opposite effect. At December 31, 2006, Farmers & Mechanics Banks GAP position for net assets repricing for one year cumulative totaled a negative $151.8 million or 12.8%.
Interest rate risk exposure is also measured using interest rate sensitivity analysis to determine Farmers & Mechanics Banks change in NPV in the event of hypothetical changes in interest rates. The board of directors may direct management to adjust its asset and liability mix to bring interest rate risk within board approved limits if potential changes to NPV and net interest income resulting from hypothetical interest rate changes are not within the limits established.
Farmers & Mechanics Bank has developed strategies to manage its liquidity, shorten the effective maturities of certain interest-earning assets and increase the effective maturities of certain liabilities to reduce the exposure to interest rate fluctuations. These strategies include focusing its investment activities on short and medium-term securities, maintaining and increasing the transaction deposit accounts, as these accounts are considered to be relatively resistant to changes in interest rates, and utilizing Federal Home Loan Bank (FHLB) borrowings and deposit marketing programs to adjust the repricing intervals of its liabilities.
Farmers & Mechanics Bank measures its interest rate risk using the Office of Thrift Supervisions NPV method. NPV is calculated based on the net present value of estimated cash flows utilizing market prepayment assumptions and market rates of interest provided by independent broker quotations and other public sources. An institutions interest rate risk is measured as the change to its NPV as a result of a hypothetical immediate 200 basis point change in market interest rates. Based on this analysis at December 31, 2006, Farmers & Mechanics Bank would experience a 390 basis point decrease in its NPV as a percent of assets if rates rise by 200 basis points in comparison to a flat rate scenario.
133
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|
December 31, 2006 |
|
|||||||||||||||||
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|
|||||||||||||||||||
Changes in |
|
$ Amount |
|
$ Change |
|
% Change |
|
NPV Ratio (1) |
|
|||||||||||
|
||||||||||||||||||||
+300 |
|
|
|
$ |
79,524 |
|
|
|
$ |
(79,184 |
) |
|
|
(50 |
)% |
|
|
6.84 |
% |
|
+200 |
|
|
|
|
104,835 |
|
|
|
|
(53,873 |
) |
|
|
(34 |
) |
|
|
8.81 |
|
|
+100 |
|
|
|
|
133,522 |
|
|
|
|
(25,186 |
) |
|
|
(16 |
) |
|
|
10.94 |
|
|
0 |
|
|
|
|
158,708 |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
12.71 |
|
|
(100 |
) |
|
|
|
166,976 |
|
|
|
|
8,269 |
|
|
|
5 |
|
|
|
13.24 |
|
|
(200 |
) |
|
|
|
163,170 |
|
|
|
|
4,463 |
|
|
|
3 |
|
|
|
12.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
December 31, 2005 |
|
|||||||||||||||||
|
|
|||||||||||||||||||
Changes in |
|
$ Amount |
|
$ Change |
|
% Change |
|
NPV Ratio (1) |
|
|||||||||||
+300 |
|
|
|
$ |
69,534 |
|
|
|
$ |
(84,249 |
) |
|
|
(55 |
)% |
|
|
5.78 |
% |
|
+200 |
|
|
|
|
98,609 |
|
|
|
|
(55,174 |
) |
|
|
(36 |
) |
|
|
8.00 |
|
|
+100 |
|
|
|
|
128,179 |
|
|
|
|
(25,604 |
) |
|
|
(17 |
) |
|
|
10.14 |
|
|
0 |
|
|
|
|
153,783 |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
11.89 |
|
|
(100 |
) |
|
|
|
161,736 |
|
|
|
|
7,953 |
|
|
|
(5 |
) |
|
|
12.37 |
|
|
(200 |
) |
|
|
|
153,229 |
|
|
|
|
(554 |
) |
|
|
0 |
|
|
|
11.73 |
|
|
|
|
(1) |
Calculated as the estimated NPV divided by present value of total assets. |
Although the NPV calculation provides an indication of Farmers & Mechanics Banks interest rate risk at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on Farmers & Mechanics Banks net interest income and will differ from actual results.
Financial Condition
Total assets of FMS Financial decreased $43.2 million or 3.5% to $1.19 billion at December 31, 2006 from $1.23 billion at December 31, 2005. Short-term funds increased $14.2 million or 36.1% to $53.4 million at December 31, 2006 from $39.3 million at December 31, 2005, primarily due to an increase in short-term money market accounts. Investment securities held to maturity decreased $55.1 million or 11.4% to $428.4 million at December 31, 2006 from $483.5 million at December 31, 2005 primarily due to $43.1 million in principal paydowns and $27.8 million in investment calls and maturities, partially offset by purchases of $5.0 million of United States government agency notes and $11.0 million of municipal bonds. Investment securities available for sale decreased $9.6 million or 6.2% to $146.0 million during the year ended December 31, 2006 from $155.6 million at December 31, 2005, due to principal paydowns of $14.2 million and calls and maturities of $5.0 million, partially offset by purchases of $10.0 million in United States government agency notes. Loans receivable increased $7.5 million or 1.7% to $450.1 million at December 31, 2006 from $442.6 million at December 31, 2005 primarily due to $105.1 million of loans originated, partially offset by $97.0 million of principal collected on loans. Federal Home Loan Bank stock decreased $1.9 million or 23.5% to $6.3 million at December 31, 2006 from $8.2 million at December 31, 2005 due to mandatory redemption by the Federal Home Loan Bank as a result of Farmers & Mechanics Banks repayment of Federal Home Loan Bank borrowings during the year.
Total liabilities decreased $46.4 million or 4.0% to $1.11 billion at December 31, 2006 from $1.16 billion at December 31, 2005. Deposits decreased $14.0 million or 1.5% to $933.1 million at December 31, 2006 from $947.1 million at December 31, 2005. The decrease in total deposits during the year was due to decreases in money market accounts of $18.3 million, savings accounts of $13.8 million and checking accounts of $1.8 million, partially
134
offset by an increase in time deposits of $19.9 million. Securities sold under agreements to repurchase decreased $60.0 million or 34.3% to $115.0 million at December 31, 2006 from $175.0 million at December 31, 2005 due to the repayment of these borrowings during the year. These borrowings are collateralized by United States government agency notes, MBSs and CMOs and had a weighted average rate of 5.24% and 4.93% at December 31, 2006 and 2005, respectively. FMS Statutory Trust I and II debentures increased $25.8 million or 100% to $51.5 million at December 31, 2006 from $25.8 million at December 31, 2005. FMS Financial established FMS Statutory Trust II in June 2006 and issued $25.0 million of floating rate capital securities to institutional investors and $774,000 of common securities to FMS Financial.
Stockholders equity increased $3.3 million or 4.4% to $78.4 million at December 31, 2006 from $75.1 million at December 31, 2005. The increase was due to net income of $5.3 million and the exercise of stock options of $165,000 partially offset by $782,000 of dividends declared on common stock and a decrease of $1.4 million in accumulated comprehensive income ($136,000 increase in the net unrealized loss on available for sale securities and a $1.3 million net increase in underfunded pension and post-retirement liabilities).
135
Results of Operations
Net Interest Income
The earnings of FMS Financial depend primarily upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, on a tax equivalent basis and the interest paid on interest-bearing liabilities, such as deposits including noninterest-bearing checking accounts and borrowings. Net interest income is a function of the interest rate spread, which is the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, as well as the average balance of interest-earning assets as compared to interest-bearing liabilities. Net income is also affected by non-interest income and expenses, such as gains and losses on the sale of investments, provision for loan losses, service charges and other fees, and operating expenses.
The following table sets forth certain information relating to FMS Financials average balance sheet and reflects the average yield on assets and average rates paid on liabilities for the periods indicated. Such yields and rates are derived by dividing interest income or expense, on a tax-equivalent basis, by the average balance of interest-earning assets or interest-bearing liabilities, respectively for the periods presented.
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|
2006 |
|
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|
2005 |
|
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|
|
2004 |
|
|
|
|
|||||||||
Years
Ended December 31, |
|
Average |
|
Interest |
|
Average |
|
Average |
|
Interest |
|
Average |
|
Average |
|
Interest |
|
Average |
|
|||||||||||||||
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||||||
Interest-earning assets: |
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|
|
|
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|
|
|
|
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|
|
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|
|
|
|
|
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|
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|
|
||||||
Loans receivable |
|
$ |
456,185 |
|
$ |
27,082 |
|
|
|
6.09 |
% |
|
$ |
436,338 |
|
$ |
25,906 |
|
|
|
5.94 |
% |
|
$ |
418,354 |
|
$ |
24,634 |
|
|
|
5.89 |
% |
|
Interest-bearing deposits |
|
|
40,739 |
|
|
2,107 |
|
|
|
5.17 |
|
|
|
46,693 |
|
|
1,338 |
|
|
|
2.87 |
|
|
|
50,928 |
|
|
667 |
|
|
|
1.31 |
|
|
Mortgage-backed securities |
|
|
250,778 |
|
|
12,559 |
|
|
|
5.01 |
|
|
|
308,078 |
|
|
14,630 |
|
|
|
4.75 |
|
|
|
396,962 |
|
|
17,389 |
|
|
|
4.38 |
|
|
Investment securities |
|
|
366,474 |
|
|
18,719 |
|
|
|
5.11 |
|
|
|
340,922 |
|
|
16,124 |
|
|
|
4.73 |
|
|
|
281,314 |
|
|
13,149 |
|
|
|
4.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total interest-earning assets |
|
|
1,114,176 |
|
|
61,187 |
|
|
|
5.49 |
|
|
|
1,132,031 |
|
|
57,998 |
|
|
|
5.12 |
|
|
|
1,147,558 |
|
|
55,839 |
|
|
|
4.87 |
|
|
|
|
|
||||||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking deposits |
|
|
399,912 |
|
|
6,293 |
|
|
|
1.57 |
|
|
|
399,956 |
|
|
4,125 |
|
|
|
1.03 |
|
|
|
366,338 |
|
|
1,717 |
|
|
|
0.47 |
|
|
Savings deposits |
|
|
187,601 |
|
|
1,138 |
|
|
|
0.61 |
|
|
|
196,030 |
|
|
1,149 |
|
|
|
0.59 |
|
|
|
194,246 |
|
|
1,071 |
|
|
|
0.55 |
|
|
Money market deposits |
|
|
127,365 |
|
|
1,548 |
|
|
|
1.22 |
|
|
|
142,137 |
|
|
1,266 |
|
|
|
0.89 |
|
|
|
139,038 |
|
|
1,001 |
|
|
|
0.72 |
|
|
Time deposits |
|
|
214,651 |
|
|
7,105 |
|
|
|
3.31 |
|
|
|
208,825 |
|
|
4,878 |
|
|
|
2.34 |
|
|
|
216,906 |
|
|
3,965 |
|
|
|
1.83 |
|
|
Borrowings |
|
|
152,725 |
|
|
7,753 |
|
|
|
5.08 |
|
|
|
167,402 |
|
|
8,293 |
|
|
|
4.95 |
|
|
|
221,883 |
|
|
9,291 |
|
|
|
4.19 |
|
|
Long-term debt |
|
|
39,735 |
|
|
3,578 |
|
|
|
9.00 |
|
|
|
25,774 |
|
|
1,826 |
|
|
|
7.08 |
|
|
|
25,774 |
|
|
1,369 |
|
|
|
5.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total interest-bearing liabilities |
|
$ |
1,121,989 |
|
|
27,415 |
|
|
|
2.44 |
|
|
$ |
1,140,124 |
|
|
21,537 |
|
|
|
1.89 |
|
|
$ |
1,164,185 |
|
|
18,414 |
|
|
|
1.58 |
|
|
|
|
|
||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
$ |
33,772 |
|
|
|
|
|
|
|
|
|
$ |
36,461 |
|
|
|
|
|
|
|
|
|
$ |
37,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
3.05 |
|
|
|
|
|
|
|
|
|
|
3.23 |
|
|
|
|
|
|
|
|
|
|
3.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net yield on average interest-earning assets |
|
|
|
|
|
|
|
|
|
3.03 |
|
|
|
|
|
|
|
|
|
|
3.22 |
|
|
|
|
|
|
|
|
|
|
3.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
99.30 |
% |
|
|
|
|
|
|
|
|
|
99.29 |
% |
|
|
|
|
|
|
|
|
|
98.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
136
Rate/Volume Analysis
The table below sets forth certain information regarding changes in Farmers & Mechanics Banks interest income and interest expense, on a tax-equivalent basis, for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (changes in average volume multiplied by old rate); (ii) changes in rates (changes in rate multiplied by old average volume); (iii) changes in rate-volume (changes in rate multiplied by the change in average volume).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 vs. 2005 |
|
2005 vs. 2004 |
|
||||||||||||||
|
|
|
|||||||||||||||||
|
|
Increase (Decrease) |
|
Increase (Decrease) |
|
||||||||||||||
|
|
|
|||||||||||||||||
Years
Ended December 31, |
|
Rate |
|
Volume |
|
Total |
|
Rate |
|
Volume |
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
718 |
|
$ |
1,178 |
|
$ |
1,896 |
|
$ |
213 |
|
$ |
1,059 |
|
$ |
1,272 |
|
Interest-bearing deposits |
|
|
940 |
|
|
(171 |
) |
|
769 |
|
|
726 |
|
|
(55 |
) |
|
671 |
|
Mortgage-backed securities |
|
|
650 |
|
|
(2,721 |
) |
|
(2,071 |
) |
|
1,135 |
|
|
(3,894 |
) |
|
(2,759 |
) |
Investment securities |
|
|
1,387 |
|
|
1,208 |
|
|
2,595 |
|
|
189 |
|
|
2,786 |
|
|
2,975 |
|
|
|
|
|||||||||||||||||
Total change interest income |
|
|
3,695 |
|
|
(506 |
) |
|
3,189 |
|
|
2,263 |
|
|
(104 |
) |
|
2,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking deposits |
|
|
2,168 |
|
|
|
|
|
2,168 |
|
|
2,250 |
|
|
158 |
|
|
2,408 |
|
Savings deposits |
|
|
38 |
|
|
(49 |
) |
|
(11 |
) |
|
68 |
|
|
10 |
|
|
78 |
|
Money market deposits |
|
|
414 |
|
|
(132 |
) |
|
282 |
|
|
243 |
|
|
22 |
|
|
265 |
|
Time deposits |
|
|
2,091 |
|
|
136 |
|
|
2,227 |
|
|
1,061 |
|
|
(148 |
) |
|
913 |
|
Borrowings |
|
|
187 |
|
|
(727 |
) |
|
(540 |
) |
|
1,283 |
|
|
(2,281 |
) |
|
(998 |
) |
Long-term debt |
|
|
763 |
|
|
989 |
|
|
1,752 |
|
|
457 |
|
|
|
|
|
457 |
|
|
|
|
|||||||||||||||||
Total change - interest expense |
|
|
5,661 |
|
|
217 |
|
|
5,878 |
|
|
5,362 |
|
|
(2,239 |
) |
|
3,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income |
|
$ |
(1,966 |
) |
$ |
(723 |
) |
$ |
(2,689 |
) |
$ |
(3,099 |
) |
$ |
2,135 |
|
$ |
(964 |
) |
Comparisons of Years Ended December 31, 2006 and 2005
Net Income
FMS Financial and its subsidiary recorded net income of $5.3 million for the year ended December 31, 2006, or $0.81 diluted earnings per share, as compared to net income of $6.7 million, or $1.03 diluted earnings per share for the year ended December 31, 2005. Net interest income on a tax equivalent basis was $33.8 million in 2006 compared to $36.5 million in 2005. Provisions for loan losses were $330,000 in 2006 and $360,000 in 2005. Non-interest income was $7.2 million in 2006 compared to $5.4 million in 2005. Total non-interest expenses for the year ended December 31, 2006 were $31.7 million compared to $30.1 million in the previous year. During 2006, FMS Financial declared cash dividends, which totaled $782,000 or $0.12 per share, which resulted in a dividend payout ratio of 14.81%.
Interest Income
Total interest income on a tax-equivalent basis increased $3.2 million to $61.2 million in 2006 from $58.0 million in 2005. The increase in 2006 is attributable to increases in interest income on investment securities of $2.6 million, loans of $1.9 million and interest-bearing deposits of $769,000, partially offset by a decrease in interest income on mortgage-backed securities of $2.1 million.
Interest income on investment securities increased $2.6 million to $18.7 million in 2006 from $16.1 million in 2005. The average yield on the portfolio increased 38 basis points to 5.11% in 2006 from 4.73% in 2005, which resulted in an increase in interest income of $1.4 million. The average balance of the portfolio increased $25.6
137
million to $366.5 million in 2006 from $340.9 million in 2005, which resulted in an increase in interest income of $1.2 million in 2006. The investment portfolio increased primarily due to purchases of $15.0 million of United States government agency notes and $11.0 million in municipal bonds during the year ended December 31, 2006. These increases were partially offset by principal paydowns of CMOs of $15.0 million and calls of $5.0 million of United States government agency notes during the year.
Interest income on loans increased $1.9 million to $27.8 million in 2006 from $25.9 million in 2005. The average balance of the loan portfolio increased $19.9 million to $456.2 million in 2006 from $436.3 million in 2005. The increase in the average balance in 2006 was primarily due to $105.1 million in loans originated, partially offset by $97.0 million in principal collected. The increase in the loan volume during 2006 resulted in a volume increase in interest income of $1.2 million. The average yield on the loan portfolio increased 15 basis points to 6.09% in 2006 from 5.94% in 2005, which resulted in an increase in interest income of $718,000.
Interest income on interest-bearing deposits increased $769,000 to $2.1 million in 2006 from $1.3 million in 2005. The increase was primarily due to an increase in the average yield on the portfolio of 230 basis points to 5.17% in 2006 from 2.87% in 2005, which resulted in an increase in interest income of $940,000. The average balance decreased $6.0 million to $40.7 million in 2006 from $46.7 million in 2005, which resulted in a decrease in interest income of $171,000.
Interest income on mortgage-backed securities decreased $2.0 million to $12.6 million in 2006 from $14.6 million in 2005. The average balance of the portfolio decreased $57.3 million to $250.8 million in 2006 from $308.1 million in 2005, resulting in a decrease in interest income of $2.7 million. The average balance decrease in 2006 was due to $31.6 million in principal paydowns on mortgage-backed securities and security sales of $12.0 million. The average yield on the portfolio increased 26 basis points to 5.01% in 2006 from 4.75% in 2005, which resulted in an increase in interest income of $650,000.
Interest Expense
Total interest expense increased $5.9 million to $27.4 million in 2006 from $21.5 million in 2005. The increase in interest expense on time deposits of $2.2 million, checking deposits of $2.2 million, long-term debt of $1.8 million and money market deposits of $282,000 were partially offset by decreases in interest expense on borrowings of $540,000 and savings deposits of $11,000.
Interest expense on time deposits increased $2.2 million to $7.1 million in 2006 from $4.9 million in 2005. The average rate on time deposits increased 97 basis points to 3.31% in 2006 from 2.34% in 2005, resulting in a $2.1 million increase in interest expense due to changes in rate. The average balance of time deposits increased $5.9 million to $214.7 million in 2006 from $208.8 million in 2005, resulting in a $136,000 increase in interest expense due to volume.
Interest expense on checking deposits increased $2.2 million to $6.3 million in 2006 from $4.1 million in 2005. The average rate on checking deposits increased 54 basis points to 1.57% in 2006 from 1.03% in 2005, which resulted in an increase in interest expense of $2.2 million from higher rates. The average balance of checking deposits remained constant at $400.0 million in 2006 and 2005.
Interest expense on long-term debt increased $1.8 million to $3.6 million in 2006 from $1.8 million in 2005. The average balance on debentures increased $13.9 million to $39.7 million in 2006 from $25.8 million in 2005, which resulted in an increase in interest expense of $989,000. This increase is primarily due to the Trust II issuance in June 2006 of $25.0 million of floating rate debentures. The average rate increased 192 basis points to 9.00% in 2006 from 7.08% in 2005, which increased interest expense on long-term debt $763,000.
Interest expense on money market deposits increased $282,000 to $1.5 million in 2006 from $1.3 million in 2005. The average rate on money market deposits increased 33 basis points to 1.22% in 2006 from 0.89% in 2005, which resulted in an increase in interest expense of $414,000. The average balance of money market deposits decreased $14.7 million to $127.4 million in 2006 from $142.1 million in 2005, which resulted in a volume decrease in interest expense of $132,000.
138
Interest expense on borrowings decreased $540,000 to $7.8 million in 2006 from $8.3 million in 2005. The average balance of borrowings decreased $14.7 million to $152.7 million in 2006 from $167.4 million in 2005, which resulted in a decrease in interest expense of $727,000. The average rate paid on borrowings increased 13 basis points to 5.08% in 2006 from 4.95% in 2005, which resulted in an increase in interest expense of $187,000 due to rate changes.
Interest expense on savings deposits decreased $11,000 to $1.1 million in 2006 from $1.1 million in 2005. The average balance of savings deposits decreased $8.4 million to $187.6 million in 2006 from $196.0 million in 2005, which resulted in a decrease in interest expense of $49,000. The average rate on savings deposits increased 2 basis points to 0.61% in 2006 from 0.59% in 2005, which resulted in an increase in interest expense of $38,000.
Critical Accounting EstimateProvision For Loan Losses
A critical accounting estimate of Farmers & Mechanics Bank is the provision for loan losses. The provision for loan losses decreased $30,000 to $330,000 in 2006 from $360,000 in 2005. The decrease in the provision was due to the moderate to low actual loan loss experienced over the last several years along with allowance for loan loss approaching 1.20% of total loans. The amount of the allowance for loan losses is based on managements analysis of risk characteristics of various classifications of loans, previous loan loss experience, estimated fair value of the underlying collateral and current economic conditions. The net charge-offs for 2006 and 2005 totaled $2,000 and $16,000, respectively. Farmers & Mechanics Bank will continue to monitor its allowance for loan losses and make future adjustments to the allowance through the provision for loan losses. Management continues to offer a wider variety of loan products coupled with the continued change in the mix of the products offered in the loan portfolio from lower yielding loans (i.e., one-to-four family loans) to higher yielding loans (i.e., commercial real estate mortgage, commercial construction, consumer, and commercial business) which have a higher degree of risk than one-to-four family loans. Although Farmers & Mechanics Bank maintains its allowance for loan losses at a level that it considers to be adequate to provide for the probable existing loss in the loan portfolio, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods due to the higher degree of credit risk which might result from the change in the mix of the loan portfolio.
Most of Farmers & Mechanics Banks lending activity is with customers located within southern New Jersey. Generally, the loans are secured by real estate consisting of single-family residential properties. While this represents a concentration of credit risk, the credit losses arising from this type of lending compare favorably with the Farmers & Mechanics Banks credit loss experience on its portfolio as a whole. The ultimate repayment of these loans is dependent to a certain degree on the local economy and real estate market.
FMS Financial recognizes deferred tax assets and liabilities for the future tax effects of temporary differences. Deferred tax assets are subject to managements judgment based upon available evidence that future realization is more likely than not. If management determines that FMS Financial may be unable to realize all or part of net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the expected realizable amount.
Non-interest Income
Non-interest income from operations increased $1.8 million to $7.2 million in 2006 compared with $5.4 million in 2005. The increase is primarily due to the gain on the sale of fixed assets of $837,000 and the gain on the sale of investment securities of $365,000 during 2006.
Service charges on accounts increased $537,000 to $5.8 million in 2006 from $5.3 million in 2005. This is primarily due to a new fee structure for retail banking fees, effective April 2006, resulting in an increase of $362,000 to $3.3 million in 2006 from $2.9 million in 2005. Check card income increased $175,000 to $1.8 million in 2006 from $1.6 million in 2005 due to increased customer activity.
Non-interest Expense
Non-interest expense increased $1.6 million to $31.7 million in 2006 from $30.1 million in 2005.
139
Salaries and benefits increased $1.0 million to $19.0 million in 2006 from $18.0 million in 2005. The increase was primarily due to a $981,000 increase in retirement and health insurance costs in 2006. Average full time equivalent employees were 519 during 2006 as compared to 525 during 2005.
Occupancy and equipment expense increased $516,000 to $6.1 million in 2006 from $5.6 million in 2005. Maintenance expense increased $259,000, property taxes increased $152,000 and light, heat and utilities expense increased $93,000 during 2006.
Telecommunications expense increased $100,000 to $556,000 in 2006 from $456,000 in 2005. This increase was due to enhancing our network lines to provide more efficient service to our customers.
Comparisons of Years Ended December 31, 2005 and 2004
Net Income
FMS Financial and its subsidiary recorded net income of $6.7 million for the year ended December 31, 2005, or $1.03 diluted earnings per share, as compared to net income of $8.8 million, or $1.34 diluted earnings per share for the year ended December 31, 2004. Net interest income on a tax equivalent basis was $36.4 million in 2005 compared to $37.4 million in 2004. Provisions for loan losses were $360,000 in 2005 and $330,000 in 2004. Non-interest income was $5.4 million in 2005 compared to $6.1 million in 2004. Total non-interest expenses for the year ended December 31, 2005 were $30.1 million compared to $28.4 million in the previous year. During 2005, FMS Financial declared cash dividends of 780,000 or $0.12 per share, which resulted in a dividend payout ratio of 11.65%.
Interest Income
Total interest income on a tax equivalent basis increased $2.2 million to $58.0 million in 2005 from $55.8 million in 2004. The increase in 2005 is attributable to increases in interest income on investment securities of $3.0 million, loans of $1.3 million and interest-bearing deposits of $671,000, partially offset by a decrease in interest income on mortgage-backed securities of $2.8 million.
Interest income on investment securities increased $3.0 million in 2005. The average balance of the portfolio increased $59.6 million to $340.9 million in 2005 from $281.3 million in 2004. The investment portfolio increased in 2005 primarily due to purchases of $123.0 million of U. S. Government agency notes and $9.4 million of CMOs. These increases in 2005 were partially offset by calls of $94.7 million of United States government agency notes and principal paydowns of CMOs of $25.2 million. The increase in the average balance of investment securities resulted in an increase in interest income of $2.8 million in 2005. The average yield on the portfolio increased 6 basis points to 4.73% in 2005 from 4.67% in 2004, which resulted in an increase in interest income of $189,000.
Interest income on loans increased $1.3 million to $25.9 million in 2005 from $24.6 million in 2004. The average balance of the loan portfolio increased $17.9 million to $436.3 million in 2005 from $418.4 million in 2004. Loans originated during the year totaled $117.4 million and principal collected on loans totaled $93.3 million in 2005. The increase in the loan volume during 2005 resulted in a volume increase in interest income of $1.1 million. The average yield on the loan portfolio increased 5 basis points to 5.94% in 2005 from 5.89% in 2004, which resulted in an increase in interest income of $213,000.
Interest income on interest-bearing deposits increased $671,000 to $1.3 million in 2005 from $667,000 in 2004. The increase was due to an increase in the average yield on the portfolio of 156 basis points to 2.87% in 2005 from 1.31% in 2004, which resulted in an increase in interest income of $726,000. The average balance decreased $4.2 million to $46.7 million in 2005 from $50.9 million in 2004. This decrease was primarily due to a $5.8 million decline in the average balance of the money market investment account during the year, which resulted in a decrease in interest income of $55,000.
Interest income on mortgage-backed securities decreased $2.8 million in 2005 due to volume decreases in
140
the portfolio. The average balance of the portfolio decreased $88.9 million to $308.1 million in 2005 from $397.0 million in 2004, resulting in a decrease in interest income of $3.9 million. The average balance decrease in 2005 was due to principal paydowns on mortgage-backed securities of $63.1 million, partially offset by purchases of $3.0 million in FHLMC securities. The average yield on the portfolio increased 37 basis points to 4.75% in 2005 from 4.38% in 2004, which resulted in an increase in interest income of $1.1 million.
Interest Expense
Total interest expense increased $3.1 million to $21.5 million in 2005 from $18.4 million in 2004. The increase in interest expense on checking deposits of $2.4 million, time deposits of $913,000, long-term debt of $457,000, money market deposits of $26,000 and savings deposits of $78,000, was partially offset by a decrease in interest expense on borrowings of $998,000.
Interest expense on checking deposits increased $2.4 million to $4.1 million in 2005 from $1.7 million in 2004. The average rate on time deposits increased 56 basis points to 1.03% in 2005 from 0.47% in 2004, which resulted in an increase in interest expense of $2.3 million from higher rates. The average balance of checking deposits increased $33.7 million to $400.0 million in 2005 from $366.3 million in 2004, which resulted in an increase in interest expense of $158,000.
Interest expense on time deposits increased $913,000 to $4.9 million in 2005 from $4.0 million in 2004. The average rate on time deposits increased 51 basis points to 2.34% in 2005 from 1.83% in 2004, resulting in a $1.1 million increase in interest expense due to changes in rate. The average balance of time deposits decreased $8.1 million to $208.8 million in 2005 from $216.9 million in 2004, resulting in a $148,000 decrease in interest expense due to volume.
Interest expense on long-term debt increased $457,000 to $1.8 million in 2005 from $1.4 million in 2004. The average rate on long-term debt increased 177 basis points to 7.08% in 2005 from 5.31% in 2004, which resulted in an increase in interest expense of $457,000. The average balance of long-term debt remained constant at $25.8 million in 2005 and 2004.
Interest expense on money market deposits increased $265,000 to $1.3 million in 2005 from $1.0 million in 2004. The average rate on money market deposits increased 17 basis points to 0.89% in 2005 from 0.72% in 2004, which resulted in an increase in interest expense of $243,000. The average balance of money market deposits increased $3.1 million to $142.1 million in 2005 from $139.0 million in 2004, which resulted in an increase in interest expense of $22,000.
Interest expense on savings deposits increased $78,000 to $1.1 million in 2005 from $1.1 million in 2004. The average rate on savings deposits increased 4 basis points to 0.59% in 2005 from 0.55% in 2004, which resulted in an increase in interest expense of $68,000. The average balance of savings deposits increased $1.8 million to $196.0 million in 2005 from $194.2 million in 2004, which resulted in an increase in interest expense of $10,000.
Interest expense on borrowings decreased $998,000 to $8.3 million in 2005 from $9.3 million in 2004. The average balance of borrowings decreased $54.5 million to $167.4 million in 2005 from $221.9 million in 2004, resulting in a $2.3 million volume decrease in interest expense. The average rate on borrowings increased 76 basis points to 4.95% in 2005 from 4.19% in 2004, resulting in a $1.3 million increase in interest expense due to rate changes.
Critical Accounting EstimateProvision For Loan Losses
A critical accounting estimate of Farmers & Mechanics Bank is the provision for loan losses. The provision for loan losses increased $30,000 to $360,000 in 2005 from $330,000 in 2004. The increase in the provision was due to increases in the total loan portfolio and particularly increases in commercial construction and commercial real estate loans, which have a higher risk of loss than residential mortgages. The net charge-offs for 2005 and 2004 totaled $16,000 and $19,000, respectively.
141
Non-interest Income
Non-interest income from operations decreased $636,000 to $5.4 million in 2005 compared with $6.1 million in 2004. The decrease is primarily due to the absence of a $683,000 gain on the sale of investment securities recorded in 2004.
Service charges on accounts increased $109,000 to $5.3 million in 2005 from $5.2 million in 2004. This is primarily the result of an increase in check card income of $218,000 to $1.6 million in 2005 from $1.4 million in 2004, partially offset by a $90,000 reduction in returned item charges to $1.8 million in 2005 from $1.9 million in 2004.
Non-interest Expense
Non-interest expense increased $1.7 million to $30.1 million in 2005 from $28.4 million in 2004.
Salaries and benefits increased $1.1 million to $18.0 million in 2005 from $16.9 million in 2004. The increase was primarily due to annual pay rate increases of $359,000 and an increase of $472,000 in retirement and health insurance costs in 2005. Average full time equivalent employees during 2005 were 525 as compared to 515 during 2004.
Occupancy and equipment expense increased $203,000 to $5.6 million in 2005 from $5.4 million in 2004. Furniture, fixture and equipment expense increased $104,000, light, heat and utilities expense increased $58,000 and maintenance expense increased $57,000. These increases were due to the addition of the Cherry Hill Walmart branch opened in 2005, and other facility and equipment additions and improvements during the year.
Telecommunications expense increased $153,000 to $456,000 in 2005 from $303,000 in 2004. This increase was due to enhancing our network to provide more efficient service to our customers.
Impact of Inflation and Changing Prices
Unlike most industrial companies, substantially all the assets of FMS Financial are monetary in nature. As a result, movements in interest rates have a greater impact on FMS Financials performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.
Liquidity and Capital Resources
Farmers
& Mechanics Banks liquidity is a measure of its ability to fund loans,
withdrawals of deposits and other cash outflows in a cost effective manner.
Farmers & Mechanics Banks primary sources of funds are deposits and
scheduled repayments and prepayments of loan principal. Farmers & Mechanics
Bank also obtains funds from the sale and maturity of investment securities and
short-term investments as well as the maturity of mortgage-backed securities
and funds provided by operations. During the past several years, Farmers &
Mechanics Bank has used such funds primarily to meet its ongoing commitments to
fund maturing time deposits and savings withdrawals, to fund existing and
continuing loan commitments and to maintain liquidity. Farmers & Mechanics
Bank has periodically supplemented its funding needs with securities sold under
agreements to repurchase (repurchase agreements) and advances from the
Federal Home Loan Bank. At December 31, 2006, Farmers & Mechanics Bank had
$115.0 million in repurchase agreements. While loan payments, maturing
investments and mortgage-backed securities are relatively predictable sources
of funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. Farmers & Mechanics
Banks liquidity is also influenced by the level of demand for funding loan
originations. Liquidity may be adversely affected by unexpected deposit
outflows, excessive interest rates paid by competitors, adverse publicity relating
to the banking industry and similar matters. Management monitors projected
liquidity needs and determines the level desirable, based in part on FMS
Financials commitment to make loans and managements assessment of FMS
Financials ability to generate funds.
142
Farmers
& Mechanics Bank is also subject to federal regulations that impose certain
minimum capital requirements. At December 31, 2006 and 2005, Farmers &
Mechanics Bank was in compliance with all of these requirements. A reconciliation
of GAAP capital to regulatory capital is as follows:
|
|
|
|
|
|
|
||
|
|
|
December 31, 2006 |
|
December 31, 2005 |
|
||
|
|
|||||||
|
Bank GAAP Capital |
|
$ |
94,220,043 |
|
$ |
91,137,726 |
|
|
Accumulated other comprehensive loss |
|
|
2,485,410 |
|
|
1,099,630 |
|
|
Less: |
|
|
|
|
|
|
|
|
Subsidiary investments not includable |
|
|
(745,645 |
) |
|
(745,645 |
) |
|
Core deposit intangible |
|
|
(1,159,614 |
) |
|
(1,875,822 |
) |
|
|
|||||||
|
Tier 1, Tier 1 Risk-Based and Tangible Capital |
|
$ |
94,800,194 |
|
$ |
89,615,889 |
|
|
|
|||||||
|
Less: |
|
|
|
|
|
|
|
|
General Valuation allowance |
|
|
4,977,001 |
|
|
4,649,217 |
|
|
|
|||||||
|
Risk-Based Capital |
|
$ |
99,777,195 |
|
$ |
94,265,106 |
|
|
|
The amount of time deposit accounts which are scheduled to mature during the twelve months ending December 31, 2007 is approximately $180.4 million. To the extent these deposits do not remain at Farmers & Mechanics Bank upon maturity, Farmers & Mechanics Bank believes it can replace these funds with deposits, FHLB advances or outside borrowings. It has been Farmers & Mechanics Banks experience that a substantial portion of such maturing deposits remain with Farmers & Mechanics Bank.
Contractual Obligations
FMS Financial is subject to certain contractual obligations at December 31, 2006 as shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations (In thousands) |
|
Less than |
|
One to |
|
Three to |
|
More Than |
|
Total |
|
|||||
Securities sold under agreements to repurchase (1) |
|
$ |
20,000 |
|
$ |
|
|
$ |
80,000 |
|
$ |
15,000 |
|
$ |
115,000 |
|
FMS Statutory Trust I and II debentures |
|
|
|
|
|
|
|
|
|
|
|
51,548 |
|
|
51,548 |
|
Operating leases |
|
|
375 |
|
|
557 |
|
|
217 |
|
|
609 |
|
|
1,758 |
|
Commitments to fund loans |
|
|
6,017 |
|
|
|
|
|
|
|
|
|
|
|
6,017 |
|
Unused lines of credit |
|
|
|
|
|
|
|
|
|
|
|
29,531 |
|
|
29,531 |
|
Standby letters of credit |
|
|
6,569 |
|
|
|
|
|
|
|
|
|
|
|
6,569 |
|
Software maintenance contracts |
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
90 |
|
|
|
(1) |
Subject to prepayment calls, which may accelerate the payment of these obligations. |
143
Boards of Directors and Trustees
Currently,
the boards of directors of Beneficial Savings Bank MHC and Beneficial Mutual
Bancorp and the board of trustees of Beneficial Mutual Savings Bank are each
composed of fourteen (14) persons who are elected for a term of one year, and
re-elected annually. Upon consummation of the offering and the merger, the
boards of directors of Beneficial Savings Bank MHC and Beneficial Mutual
Bancorp will be placed in classes and serve for three year terms. The board of
trustees of Beneficial Mutual Savings Bank, who are elected for a one year
term, are elected by Beneficial Mutual Bancorp, as the sole shareholder of
Beneficial Mutual Savings Bank. The board of directors of Beneficial Mutual
Bancorp is currently elected by Beneficial Savings Bank MHC, as the sole
shareholder of Beneficial Mutual Bancorp; however, following the offering, all
shareholders will have the opportunity to elect Beneficial Mutual Bancorps
directors. Beneficial Savings Bank MHC has no members. Consequently, the Board
of Directors of Beneficial Savings Bank MHC has the sole power to elect
directors and amend Beneficial Savings Bank MHCs charter and bylaws. The same
individuals comprise the boards of Beneficial Savings Bank MHC, Beneficial
Mutual Bancorp and Beneficial Mutual Savings Bank. Upon consummation of our
merger with FMS Financial, Messrs. Craig W. Yates, the current President and
Chief Executive Officer of FMS Financial, and Roy D. Yates, a current director
of FMS Financial, will be appointed to the boards of Beneficial Savings Bank
MHC, Beneficial Mutual Bancorp and Beneficial Mutual Savings Bank. All of our
directors are independent under the current listing standards of the Nasdaq
Stock Market, except for Mr. George Nise, whom we employed as President and
Chief Executive Officer until January 1, 2007, and Mr. Gerard Cuddy, whom we
currently employ as President and Chief Executive Officer. Information
regarding the directors is provided below. Unless otherwise stated, each person
has held his or her current occupation for the last five years. Ages presented
are as of December 31, 2006.
R. Joseph Barnes, Jr. is the retired President of R.J. Barnes & Son, Inc., a commodities futures company, and Tidewater Grain Company, a grain export company. Age 81. Trustee of Beneficial Mutual Savings Bank since 1968 and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their formation.
Edward G. Boehne is a Senior Economic Advisor for Haverford Trust Company, an asset management company. Age 66. Trustee of Beneficial Mutual Savings Bank since 2000 and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their formation. He is also a director of Toll Brothers, Inc. (NYSE: TOL) and the privately held companies of Haverford Trust Company, Penn Mutual Life Insurance Company and AAA Mid-Atlantic. Mr. Boehne also served as the President of Federal Reserve Bank of Philadelphia.
Gerard P. Cuddy is our President and Chief Executive Officer, effective January 1, 2007, and also serves as the Chairman of the Board. Mr. Cuddy is a twenty-five year veteran with broad experience in commercial and private banking. From May 2005 to November 2006, Mr. Cuddy was a senior lender at Commerce Bank and from 2002 to 2005, Mr. Cuddy served as a Senior Vice President of Fleet/Bank of America. Prior to Mr. Cuddys service with Fleet/Bank of America, Mr. Cuddy held senior management positions with First Union National Bank and Citigroup. Age 47. Trustee of Beneficial Mutual Savings Bank and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since December 2006.
Frank A. Farnesi is a retired partner of KPMG, LLP. Age 59. Trustee of Beneficial Mutual Savings Bank and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since 2004.He is also a director of RAIT Investment Trust (NYSE: RAS) and a Trustee of Immaculata College.
Elizabeth H. Gemmill serves as the President of the Warwick Foundation, a private family foundation. Age 61. Trustee of Beneficial Mutual Savings Bank and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since 2005. She is also a director of Universal Display Corporation (Nasdaq: PANL), a director of Philadelphia Insurance Companies (Nasdaq: PHLY) and the Chairman of the board of directors of Philadelphia University.
144
Thomas F. Hayes is the retired President of Philadelphia Gear Corporation, a power transmission company. Age 84. Trustee of Beneficial Mutual Savings Bank since 1974 and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their formation.
Paul M. Henkels serves as the Chairman of Henkels & McCoy, Inc., an engineering and construction company. Age 82. Trustee of Beneficial Mutual Savings Bank since 1978 and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their formation.
William J. Henrich, Jr., Esq. is a partner at the law firm of Dilworth Paxson LLP. Age 77. Trustee of Beneficial Mutual Savings Bank since 1989 and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their formation.
Charles Kahn, Jr. serves as the Chairman of Kahn & Co., Inc., a real estate company. Age 82. Trustee of Beneficial Mutual Savings Bank since 1974 and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their formation.
Thomas J. Lewis is the President and Chief Executive Officer of Thomas Jefferson University Hospitals, Inc. Age 54. Trustee of Beneficial Mutual Savings Bank and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since 2005.
Joseph J.
McLaughlin is the retired President of Beneficial Mutual Savings
Bank. Age 78. Trustee of Beneficial Mutual Savings Bank since 1974 and director
of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their
formation.
Michael J. Morris is the retired President and Chief Executive Officer of Transport International Pool Inc., a transport trailer company. Age 72. Trustee of Beneficial Mutual Savings Bank since 1989 and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their formation. He is also a director of Philadelphia Insurance Companies (Nasdaq: PHLY) and Met-Pro Corporation (NYSE: MPR).
George W. Nise served as our President and Chief Executive Officer until his retirement effective January 1, 2007. Age 64. Trustee of Beneficial Mutual Savings Bank since 2000 and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their formation.
Donald F. ONeill is the Chairman of PM Company, a paper converting company. Age 67. Trustee of Beneficial Mutual Savings Bank since 1988 and director of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp since their formation.
Craig W. Yates has been the President and Chief Executive Officer of FMS Financial and Farmers & Mechanics Bank since 1990. Age 64.
Roy D. Yates serves as the Chairman of the Board of FMS Financial. Mr. Yates is a Professor of Electrical and Computer Engineering at Rutgers University in Piscataway, New Jersey. Age 44. Roy D. Yates is the nephew of Craig W. Yates.
Executive Officers
The executive officers of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp are elected annually by their respective boards of directors and serve at the boards discretion. There will be no change in the management structure of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp in connection with the offering and merger. Currently, the executive officers of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp are:
|
|
|
|
|
Name |
|
Position |
|
|
||
|
Gerard P. Cuddy |
|
President and Chief Executive Officer |
|
Joseph F. Conners |
|
Executive Vice President and Chief Financial Officer |
|
Paul R. Driscoll |
|
Executive Vice President, Secretary |
|
Andrew J. Miller |
|
Executive Vice President and Chief Lending Officer |
|
Robert J. Bush |
|
Senior Vice President |
145
The officers of Beneficial Mutual Savings Bank are elected annually by the board of trustees and serve at the boards discretion. There will be no change in the management structure of Beneficial Mutual Savings Bank in connection with the offering and merger. The executive officers and key employees of Beneficial Mutual Savings Bank are:
|
|
|
|
|
Name |
|
Position |
|
|
||
|
Gerard P. Cuddy |
|
President and Chief Executive Officer |
|
Joseph F. Conners |
|
Executive Vice President and Chief Financial Officer |
|
Paul R. Driscoll |
|
Executive Vice President, Secretary |
|
Andrew J. Miller |
|
Executive Vice President and Chief Lending Officer |
|
Robert J. Bush |
|
Senior Vice President |
Below is information regarding our executive officers who are not also directors. Each executive officer has held his or her current position for at least the last five years, unless otherwise stated. Ages presented are as of December 31, 2006.
Joseph F. Conners has been Executive Vice President and Chief Financial Officer of Beneficial Mutual Savings Bank since 2000. He joined Beneficial Mutual Savings Bank in 1994. Age 49.
Paul R. Driscoll has been Executive Vice President of Beneficial Mutual Savings Bank since 2000. He joined Beneficial Mutual Savings Bank in 1972. Age 57.
Andrew J. Miller has been Executive Vice President and Chief Lending Officer of Beneficial Mutual Savings Bank since 2000. He joined Beneficial Mutual Savings Bank in 1973. Age 51.
Robert J. Bush has been Senior Vice President of Beneficial Mutual Savings Bank and President of Beneficial Insurance Services since our acquisition of Paul Hertel & Co., Inc. in January 2005. Prior to that time, Mr. Bush served as the President and Chief Executive Officer of Paul Hertel & Co., Inc. Age 48.
Meetings and Committees of the Boards of Directors and Trustees
We conduct business through meetings of our boards of directors and trustees and their committees. During the year ended December 31, 2006, the board of directors of Beneficial Mutual Bancorp and the board of trustees of Beneficial Mutual Savings Bank met three and 14 times, respectively.
Committees of Beneficial Mutual Savings Bank
The board of trustees of Beneficial Mutual Savings Bank has standing Audit, Corporate Governance/ Compensation and Executive Committees, among others.
The Audit Committee, consisting of Messrs. Farnesi, McLaughlin, Boehne, ONeill and Henrich and Ms. Gemmill, is responsible for assisting the board in fulfilling its responsibilities concerning Beneficial Mutual Savings Banks accounting and reporting practices, and facilitating open communication among the committee, board, internal auditor, independent auditors and management. Mr. Farnesi is the Audit Committee Chairman. This committee met five times during the year ended December 31, 2006.
The
Corporate Governance/Compensation Committee, consisting of Messrs. Lewis,
Boehne, Henkels, Henrich and Kahn, is responsible for both (i) determining
annual grade and salary levels for employees and establishing personnel
policies, and (ii) selecting managements nominees for election as trustees.
Mr. Boehne is the
146
Corporate Governance/Compensation Committee Chairman. This committee met 13 times during the year ended December 31, 2006.
The Executive Committee, consisting of Messrs. Morris, Farnesi, Hayes, Kahn, ONeill and Cuddy and Ms. Gemmill, is responsible for overseeing Beneficial Mutual Savings Banks strategic direction. Mr. Morris is the Executive Committee Chairperson. This committee met eight times during the year ended December 31, 2006.
In addition, the board of trustees has other committees, including Community Reinvestment, Investment Oversight, Pension, Real Estate and Senior Loan Committees.
Committees of Beneficial Mutual Bancorp
In connection with our stock offering, we are forming the following committees:
The Audit Committee will consist of Messrs. Farnesi, McLaughlin, Boehne, ONeill and Henrich and Ms. Gemmill. The Audit Committee will be responsible for providing oversight relating to our consolidated financial statements and financial reporting process, systems of internal accounting and financial controls, internal audit function, annual independent audit and the compliance and ethics programs established by management and the board. Each member of the Audit Committee is independent in accordance with the listing standards of the Nasdaq Stock Market. The board of directors of Beneficial Mutual Bancorp has designated Mr. Farnesi as an audit committee financial expert under the rules of the Securities and Exchange Commission.
The
Corporate Governance Committee will consist of Messrs. Lewis, Boehne, Farnesi,
Henkels, Henrich and Kahn. The Corporate Governance Committee will be
responsible for the annual selection of managements nominees for election as
directors and developing and implementing policies and practices relating to
corporate governance, including implementation of and monitoring adherence to
our corporate governance policy. Mr. Boehne will be the Corporate Governance
Committee Chairman. Each member of the Corporate Governance Committee is
independent in accordance with the listing standards of the Nasdaq Stock
Market.
The
Compensation Committee will consist of Messrs. Lewis, Boehne, Farnesi, Henkels,
Henrich and Kahn. The Compensation Committee will be responsible for
determining annual grade and salary levels for our employees and establishing
our personnel policies. Mr. Boehne will be the Compensation Committee Chairman.
Each member of the Compensation Committee is independent in accordance with the
listing standards of the Nasdaq Stock Market.
Each of the committees listed above will operate under a written charter, which will govern their composition, responsibilities and operations.
Corporate Governance Policies and Procedures
In addition to establishing committees of the board of directors, Beneficial Mutual Bancorp will also adopt several policies to govern our activities, including a corporate governance policy and a code of business conduct and ethics. The corporate governance policy will set forth:
|
|
|
|
(1) |
the duties and responsibilities of each director; |
|
|
|
|
(2) |
the composition, responsibilities and operation of the board of directors; |
|
|
|
|
(3) |
the establishment and operation of board committees; |
|
|
|
|
(4) |
succession planning; |
|
|
|
|
(5) |
convening executive sessions of independent directors; |
|
|
|
|
(6) |
the board of directors interaction with management and third parties; and |
147
|
|
|
|
(7) |
the evaluation of the performance of the board of directors and of the chief executive officer. |
The code of business conduct and ethics, which will apply to all employees, officers and board members, will address conflicts of interest, the treatment of confidential information, general employee conduct and compliance with applicable laws, rules and regulations. In addition, the code of business conduct and ethics will be designed to deter wrongdoing and to promote honest and ethical conduct, the avoidance of conflicts of interest, full and accurate disclosure and compliance with all applicable laws, rules and regulations.
Compensation Discussion and Analysis
Our Compensation Philosophy
Our compensation philosophy starts from the premise that the success of Beneficial Mutual Bancorp depends, in large part, on the dedication and commitment of the people we place in key operating positions to drive our business strategy. We strive to satisfy the demands of our business model by providing our management team with incentives tied to the successful implementation of our corporate objectives. However, we recognize that the company operates in a competitive environment for talent. Therefore, our approach to compensation considers the full range of compensation techniques that enable us to compare favorably with our peers as we seek to attract and retain key personnel.
We intend to base our compensation decisions as a public company on four basic principles:
|
|
|
|
|
Meeting the Demands of the Market Our goal is to compensate our employees at competitive levels that position us as the employer of choice among our peers who provide similar financial services in the markets we serve. |
|
|
|
|
|
Aligning with Shareholders We intend to use equity compensation as a key component of our compensation mix to develop a culture of ownership among our key personnel and to align their individual financial interest with the interests of our shareholders. |
|
|
|
|
|
Driving Performance We will structure compensation around the attainment of company-wide, business unit and individual targets that return positive results to our bottom line. |
|
|
|
|
|
Reflecting our Business Philosophy Our approach to compensation reflects our values and the way we do business in the communities we serve. |
Prior to our initial public offering, our compensation program relied on two primary elements: (i) base compensation or salary and (ii) discretionary cash-based, short-term incentive compensation. Following our initial public offering, we expect that equity-based, long-term incentive compensation will also become an important element of our executive compensation program. Our ability to introduce equity awards to our compensation mix will be depend on shareholder approval of an equity compensation program and compliance with applicable regulatory guidelines relating to such programs. As a public company, we believe that we can meet the objectives of our compensation philosophy by achieving a balance among these three elements that is competitive with our industry peers and creates appropriate incentives for our management team. To achieve the necessary balance, we expect that the Compensation Committee of our board of directors will work closely with Pearl Meyer and Associates independent compensation consultants who provide us with their special expertise on competitive compensation practices and help us to benchmark our compensation program and our financial performance to our peers.
Base
Compensation. The salaries of
our executive and other officers are reviewed at least annually to assess our
competitive position and make any necessary adjustments. Our goal is to
maintain salary levels for our officers at a level consistent with base pay
received by those in comparable positions at our peers. To further that goal,
we obtain peer group information from a variety of sources including survey
data gathered by Peter R. Johnson & Company, an independent compensation
consultant. We also evaluate salary levels at the time of promotion or
148
other change in responsibilities or as a result of specific commitments we made when a specific officer was hired. Individual performance and retention risk are also considered as part of our annual assessment.
Cash-Based
Incentive Compensation. During 2006, the board of directors of
Beneficial Mutual Savings Bank authorized bonuses for key personnel on an
occasional and discretionary basis utilizing incentive compensation survey data
provided by Peter R. Johnson & Company. For 2007, Beneficial Mutual Savings
Bank has established a formal short-term, cash-based incentive program to
reward the attainment of annual company-wide financial objectives at specified
levels and individual performance relative to the specific tasks we expect
members of our senior management team to accomplish during the year. The
objective of the new management incentive plan is to drive annual performance
at both the company, bank and individual levels to the highest attainable
levels by establishing floor, target and ceiling thresholds tied to increasing
levels of incentive awards. See Executive Compensation Management Incentive Plan
for a discussion of the terms and conditions of the new plan.
Long-Term
Equity-Based Compensation. Following our initial
public offering, we intend to establish a long-term incentive compensation
program based on the delivery of competitive equity awards to our management
team. We expect to use an equity-based, long-term incentive compensation
program to reward outstanding performance with incentives that focuses our
management team on the task of creating long-term shareholder value. By
increasing the equity holdings of our management team, we will provide them
with a continuing stake in our long-term success. The nature and size of awards
under our equity-based program will be based on a number of factors including
regulatory guidelines, awards made to those holding comparable positions in our
peer group and the tax or accounting treatment of specific equity compensation
techniques.
Role of the Compensation Committee
Prior
to our initial public offering, the Compensation Committee of the Board of
Directors of Beneficial Mutual Savings Bank developed and administered the
executive compensation program with the assistance of an independent
compensation consultant. See Role of Compensation Consultant below.
The Beneficial Mutual Savings Bank Compensation Committee does not operate
under a formal charter. As a public company, we have established a Compensation
Committee of the Board of Directors of Beneficial Mutual Bancorp to work with
the Beneficial Mutual Savings Bank Compensation Committee to monitor the
success of the overall compensation program in achieving the objectives of our
compensation philosophy. The Beneficial Mutual Bancorp Compensation Committee
consists of six independent directors. The Compensation Committees will be
responsible for the administration of our compensation programs and policies,
including the administration of our cash-based and future equity-based
incentive programs. Our Compensation Committee will review and approve all
compensation decisions relating to our named executive officers. Our
Compensation Committee will operate under the mandate of a formal charter that
establishes a framework for the fulfillment of its responsibilities.
Role of the Compensation Consultant
Prior
to our initial public offering, Beneficial Mutual Savings Bank engaged Peter R.
Johnson & Company, an independent compensation consultant, to gather cash
compensation data for peer institutions to assist the Beneficial Mutual Savings
Bank Compensation Committee in benchmarking base salary and bonus levels. See
Peer
Group Analysis below. In 2007, Beneficial Mutual Savings Bank
engaged Pearl Meyer & Partners to prepare an annual cash-based incentive
plan to recognize and reward executives for their collective and individual
contributions to Beneficial Mutual Savings Bank. See Executive Compensation Management
Incentive Plan. We intend to continue to work closely with Pearl
Meyer & Partners to ensure that our compensation program is consistent with
prevailing practice in our industry. During 2007, Pearl Meyer & Partners
will prepare a comprehensive executive compensation review which will cover all
aspects of compensation for our senior management team, including our chief
executive officer, chief financial officer and other named executive officers,
as well as a review of board compensation.
Role of Management
Our CEO and other named executive officers will, from time to time, make recommendations to the Compensation Committee regarding the appropriate mix and level of compensation for their subordinates. Those recommendations consider the objectives of our compensation philosophy and the range of compensation programs
149
authorized by the Compensation Committee. Our senior management team will not participate in Committee discussions or the review of Committee documents relating to the determination of their own compensation.
Peer Group Analysis
We
firmly believe that the cornerstone of our compensation program is the
maintenance of a competitive compensation program relative to the companies
with whom we compete for talent. During 2006, we engaged Peter R. Johnson &
Company, an independent consulting firm, to benchmark base compensation and
cash bonuses for the chief executive officer of Beneficial Mutual Savings Bank,
as well as other named executive officers. The 2006 survey sources included the
Economic Research Institute Executive Compensation Assessor, proxy statement
data for publicly traded commercial banks and thrifts located in Pennsylvania,
Maryland, Delaware and New Jersey ranging in asset size between $2 billion and
$12 billion, and the Watson Wyatt Data Services Financial Institutions
Compensation Survey for national institutions ranging between $2 billion and
$9.9 billion. Beneficial Mutual Savings Bank used this data to set base
salaries at the lowest third of the salary range for new hires and incumbents
in a learning stage or newly promoted officers. Competent incumbent performers
were set at the midpoint or middle third of the salary range and top performers
who consistently exceed expectations were set at the highest third of the
salary range. In 2007, Beneficial Mutual Savings Bank engaged Pearl Meyer &
Partners to establish a peer group in connection with the implementation of a
cash-based incentive plan. The peer group was designed to include
publicly-traded institutions of the same asset size, geographic location,
operating characteristics and financial performance. The Compensation Committee
utilized the peer group data on net income and efficiency ratios to establish
competitive cash incentives under the management incentive plan. See Executive
Compensation Management Incentive Plan for a discussion of the
terms and conditions of the new cash-based incentive plan. Cash awards will be
made under the new plan based on how Beneficial Mutual Savings Bank performs
relative to its peers. The following institutions constitute the peer group for
purposes of the management incentive program:
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NewAlliance Bancshares,, Inc. |
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Northwest Bancorp, Inc (MHC) |
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First Commonwealth Financial Corp. |
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Provident Financial Services, Inc. |
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Investors Bancorp, Inc. (MHC) |
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National Penn Bancshares, Inc. |
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NBT Bancorp Inc. |
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Community Bank System, Inc. |
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Partners Trust Financial Group, Inc. |
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Community Banks, Inc. |
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Harleysville National Corporation |
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S&T Bancorp, Inc. |
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Sun Bancorp, Inc. |
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Sterling Financial Corporation |
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Dime Community Bancshares, Inc. |
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U.S.B. Holding Co., Inc. |
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Yardville National Bancorp |
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TrustCo Bank Corp NY |
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WSFS Financial Corporation |
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KNBT Bancorp, Inc. |
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Provident New York Bancorp |
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Flushing Financial Corporation |
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We intend to
continue to utilize this peer group for our overall cash-based compensation
program.
Allocation Among Compensation Components
Under our present structure, base salary has represented the largest component of compensation for our executive officers. As a public company, we expect that the mix of base salary, bonus and equity compensation
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will vary depending upon the role of the individual officer in the organization. In allocating compensation among these elements, we believe that the compensation of our senior-most levels of management should be predominately performance-based, while lower levels of management should receive a greater portion of their compensation in base salary.
Severance and Change in Control Benefits
Prior
to our initial public offering, we generally did not maintain formal employment
or severance agreements with our executive officers, other than in connection
with the hiring of our new chief executive officer in 2006. As a public
company, we expect to enter into a new employment agreement with out chief
executive officer similar to his current agreement. The severance payments
under the employment agreement with our chief executive officer, which will be
contingent on the occurrence of certain termination events, are intended to
provide our chief executive officer with a sense of security in making the
commitment to dedicate his professional career to the success of our company
and Beneficial Mutual Savings Bank.
Tax and Accounting Considerations
In consultation with our advisors, we evaluate the tax and accounting treatment of each of our compensation programs at the time of adoption and on an annual basis to ensure that understand the financial impact of the program. Our analysis includes a detailed review of recently adopted and pending changes in tax and accounting requirement. As part of our review, we consider modifications and/or alternatives to existing programs to take advantage of favorable changes in the tax or accounting environment or to avoid adverse consequences. To preserve maximum flexibility in the design and implementation of our compensation program, we have not adopted a formal policy that requires all compensation to be tax deductible. However, to the greatest extent possible, it is our intent to structure our compensation programs in a tax efficient manner.
Retirement Benefits; Employee Welfare Benefits
We offer our employees tax-qualified retirement and savings plans. Our primary pension vehicle is our defined benefit pension plan, which is funded on an annual basis at levels recommended by our actuaries. The pension plan is complemented by a 401(k) plan that enables our employees to supplement their retirement savings with elective deferral contributions that we match at specified levels. Consistent with industry practice, we supplement our tax-qualified plans with nonqualified arrangements that provide benefits to certain officers who are affected by Internal Revenue Code limits applicable to tax-qualified plans.
In addition to retirement programs, we provide our employees with coverage under medical, life insurance and disability plans on terms consistent with industry practice.
Perquisites
We annually review the perquisites that we make available to our senior management. The primary perquisites for senior managers include an automobile allowance, computer and communications equipment and certain club dues.
Director Compensation
Our outside directors are compensated through a combination of retainers and meeting fees. Directors who are also employees of Beneficial Mutual Bancorp do not receive additional compensation for service on the board. The level and mix of director compensation is revised by the Compensation Committee on a periodic basis to ensure consistency with the objectives of our overall compensation philosophy. We expect that, in the future, our review of director compensation will also consider the increased responsibility and liability of directors at publicly traded companies due to changes in the regulatory environment and the heightened scrutiny of corporate governance practices.
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Stock Compensation Grant and Award Practices
As a mutual holding company without public shareholders, we have not been able to make equity-based awards to our officers and employees. As a public company, we expect that, following our implementation of an equity compensation program, our Compensation Committees grant-making process will be independent of any consideration of the timing of the release of material nonpublic information, including with respect to the determination of grant dates or stock option exercise prices. Similarly, we expect that the release of material nonpublic information will never be timed with the purpose or intent to affect the value of executive compensation
Stock Ownership Requirements
We have not adopted formal stock ownership requirements for our senior officers and board members. We expect that, following our initial public offering, the Compensation Committee will review prevailing practices among peer companies with respect to stock ownership guidelines and determine whether such guidelines are appropriate.
Compensation for the Named Executive Officers
in 2006
Chief Executive Officer Compensation. In 2006, Mr. Nise announced that he would be retiring as chief executive officer of Beneficial Mutual Savings Bank effective January 31, 2007. Following Mr. Nises retirement announcement, the Compensation Committee initiated an executive search for a new chief executive officer. After interviewing several candidates, Beneficial Mutual Savings Bank offered Mr. Cuddy the position of president and chief executive officer in November 2006. Mr. Cuddy was offered a compensation package similar to the compensation package provided to Mr. Nise prior to his retirement. The terms and conditions of Mr. Cuddys employment with Beneficial Mutual Savings Bank were outlined in a letter agreement. See Executive CompensationCurrent Employment Agreement for a description of the compensation and benefits provided to Mr. Cuddy in connection with his employment as president and chief executive officer of Beneficial Mutual Savings Bank. The Compensation Committee believes that the market is highly competitive for executive talent and that our CEO compensation package ensures stability in the chief executive officer position. The difference between the compensation paid to our CEO versus the other named executive officers is reflective of historical differences between the compensation of our CEO and our other named executive officers. The differences also reflect the strategic role of the CEO in developing and implementing our business plan as compared to the ___ roles played by the other named executive officers. Our CEO is our chief spokesperson for Beneficial Mutual Savings Bank and works directly with our board of directors on the strategic plans and growth opportunities for Beneficial Mutual Savings Bank and its affiliates.
Compensation for our Other Named Executive
Officers.
In determining compensation for Messrs. Conners, Driscoll, Keddie, Jr. and
Miller the Compensation Committee reviewed the performance appraisals presented
by Mr. Nise and the salary and bonus survey data provided by Peter R. Johnson
& Company. On November 30, 2006, the Compensation Committee adjusted base
salaries for Messrs. Conners, Driscoll and Miller by 10.2%, 4.36%, and 10.2%,
respectively. Based on these adjustments, Messrs. Conners, Driscoll and Miller
currently receive a base salary of $270,000, $239,556 and $270,000,
respectively. The salary increases became effective January 31, 2007. Mr.
Keddie, Jr. retired effective January 1, 2007, therefore the Compensation
Committee took no action with regards to his compensation. In addition to a
salary increase, the Board of Directors awarded Messrs. Conners, Driscoll and
Miller a cash bonus in 2006. See Executive Compensation-Summary Compensation Table
for the bonuses paid in 2006. The cash bonuses awarded in 2006 were in
recognition of the executives work in connection with the FMS Financial
merger. The Compensation Committee believes that the compensation for our named
executive officers is consistent with our compensation objectives and rewards
the individuals for their contribution to the overall performance of Beneficial
Mutual Savings Bank.
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Executive Compensation
Summary Compensation Table
The following information is furnished for all individuals serving as the principal executive officer and principal financial officer of Beneficial Mutual Bancorp or its subsidiaries for the 2006 fiscal year and the three most highly compensated executive officers of Beneficial Mutual Bancorp or its subsidiaries whose total compensation for the 2006 fiscal year exceeded $100,000.
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Name and
Principal |
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Year |
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Salary |
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Bonus |
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Change in Pension |
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All Other |
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Total |
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Gerard P. Cuddy |
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2006 |
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49,038 |
(1) |
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50,000 |
(6) |
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99,038 |
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George W. Nise (2) |
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2006 |
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485,000 |
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50,000 |
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510,088 |
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5,232 |
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1,050,320 |
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Joseph F. Conners |
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2006 |
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245,000 |
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50,000 |
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128,648 |
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1,728 |
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425,376 |
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Paul R. Driscoll |
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2006 |
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229,362 |
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15,000 |
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149,422 |
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2,383 |
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396,167 |
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Robert W. Keddie, Jr. (3) |
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2006 |
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275,000 |
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211,481 |
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4,167 |
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490,648 |
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Andrew J. Miller |
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2006 |
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245,000 |
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15,000 |
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122,387 |
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1,883 |
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384,270 |
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(1) |
While Mr. Cuddys annual base salary in 2006 was $425,000, the amount shown represents his partial year compensation from his start date on November 13, 2006. |
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(2) |
Mr. Nise retired as Chief Executive Officer effective January 2007. |
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(3) |
Mr. Keddie, Jr. retired effective January 2007. |
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(4) |
Represents the actuarial change in pension value in the executives accounts from December 31, 2005 to December 31, 2006 under the Beneficial Mutual Savings Bank Employees Pension and Retirement Plan, the Beneficial Mutual Savings Bank Supplemental Pension and Retirement Plan and the life insurance portion of each executives salary continuation agreement. See the Pension Benefits for a further discussion of these arrangements. |
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(5) |
Consists of a $1,000 employer contribution to the 401(k) Plan for each of the officers participating in the plan. Also includes income recognized under the Banks split dollar life insurance arrangements for Messrs. Nise, Conners, Driscoll, Keddie, Jr. and Miller equal to $4,232, $728, $1,383, $3,167, and $883, respectively. Excludes perquisites, which were less than $10,000 for each executive officer. |
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(6) |
Mr. Cuddy received a $50,000 hiring bonus pursuant to his written offer of employment from Beneficial Mutual Savings Bank |
Current
Employment Arrangement. In
connection with the hiring of Gerard P. Cuddy as our new President and Chief Executive
Officer, we outlined in writing the key terms of Mr. Cuddys at-will employment
arrangement. In his capacity as President and Chief Executive Officer of
Beneficial Mutual Savings Bank, Mr. Cuddy is paid an annual salary of $425,000,
and in connection with his hiring, received a $50,000 cash bonus. Mr. Cuddy is
also eligible for additional cash compensation upon satisfaction of certain
performance-based goals established by us in coordination with Mr. Cuddy. Upon
satisfaction of the performance goals, Mr. Cuddys incentive compensation
potential would be $75,000, $100,000 and $125,000 for the 2007, 2008 and 2009
calendar years, respectively. In addition to cash compensation, Mr. Cuddy is
eligible to participate in all standard benefit
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programs sponsored by us, including family health insurance coverage. Mr. Cuddy is also entitled to certain fringe benefits including use of a bank-owned automobile, payment of membership fees for certain social clubs, a laptop computer and cellular phone. In the event Mr. Cuddys employment is terminated by us for reasons other than cause or in connection with a change in control of Beneficial Mutual Savings Bank that is initiated by us prior to the third anniversary of the commencement of his employment, or if Mr. Cuddy voluntarily terminates his employment as a result of a job demotion at any time through the third anniversary of his employment, we shall provide Mr. Cuddy with the following severance benefits: (i) one years base salary payable in installments as of Mr. Cuddys termination of employment, (ii) continued health insurance coverage (including family coverage) for one year following his termination of employment and (iii) continued payment of membership dues in Mr. Cuddys social clubs for one year following his termination of employment. In the event a change in control occurs during the period commencing on November 13, 2006 and ending on November 12, 2009 and Mr. Cuddys employment is terminated, he will be entitled to change in control benefits equal to the greater of: (i) Mr. Cuddys base salary or projected base salary for three years, less any gross salary actually paid during his employment, and/or (ii) Mr. Cuddys base salary for 18 months. All change in control benefits are payable in installments in accordance with our regular payroll practices. In addition to Mr. Cuddys employment arrangement, we have entered into a non-competition and non-solicitation agreement with Mr. Cuddy which restricts him from competing with us and soliciting business and employees from us during the period he is employed by us and for one year thereafter.
Proposed Employment Agreement. Upon
completion of the offering, Beneficial Mutual Savings Bank and Beneficial
Mutual Bancorp intend to enter into a new employment agreement with Mr. Cuddy
which will replace his current employment agreement in its entirety. The new
employment agreement will provide for a three-year term, subject to annual
renewal by the board of directors for an additional year beyond the
then-current expiration date. The initial base salary under the new employment
agreement will be $425,000. All other terms of the new agreement will be
substantially similar to Mr. Cuddys current employment arrangement. Mr.
Cuddys new employment agreement provides for the reduction of any change in
control payments to the executive to the extent necessary to ensure that the
executive will not receive excess parachute payments under Section 280G of
the Internal Revenue Code, and therefore will not be subject to the 20% excise
tax imposed on such payments under Section 4999 of the Internal Revenue Code.
If Mr. Cuddy had been terminated in connection with a change of control on
December 31, 2006, under the terms of the new employment agreement, he would
have been entitled to receive his base salary of $425,000 for one year in
monthly installments, continued health insurance coverage for one year valued
at $16,752 and continued payment of club dues for a year valued at $6,600. The
payment of these benefits in December 2006 would not have resulted in any
excess parachute payments under Section 280G of the Internal Revenue Code.
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Pension Benefits
The following table sets forth the actuarial present value of each executives accumulated benefit under our tax-qualified and non tax-qualified defined benefit plans, along with the number of years of credited service under the Pension Plan. No payments were made under the plans in 2006. Mr. Cuddy was ineligible to participate in the plans in 2006.
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Name |
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Plan |
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Number of |
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Present |
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George W. Nise |
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Employees Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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36 |
$ |
1,020,403 |
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Supplemental Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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1,045,051 |
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Salary Continuation Agreement |
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186,110 |
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Joseph F. Conners |
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Employees Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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24 |
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340,772 |
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Supplemental Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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35,252 |
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Salary Continuation Agreement |
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7,255 |
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Paul R. Driscoll |
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Employees Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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34 |
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598,743 |
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Supplemental Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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20,248 |
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Salary Continuation Agreement |
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31,743 |
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Robert W. Keddie, Jr. |
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Employees Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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30 |
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1,020,403 |
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Supplemental Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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303,163 |
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Salary Continuation Agreement |
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131,038 |
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Andrew J. Miller |
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Employees Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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33 |
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421,068 |
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Supplemental Pension and Retirement Plan of Beneficial Mutual Savings Bank |
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28,897 |
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Salary Continuation Agreement |
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12,367 |
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(1) |
Number of years of credited service used only to determine the benefit under the Pension Plan. |
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(2) |
The present value of each executives accumulated benefit assumes normal retirement (age 65), the election of a single life form of pension and is based on a 6% discount rate. |
Benefit Plans
Beneficial Mutual
Savings Bank 401(k) Plan. We
maintain the Beneficial Mutual Savings Bank 401(k) Plan, a tax-qualified
defined contribution plan, for all salaried employees of Beneficial Mutual
Savings Bank who have satisfied the 401(k) Plans eligibility requirements.
Salaried eligible employees can begin participation in the 401(k) Plan on the
January 1st or July 1st that coincides with or next
follows their attainment of age 21 and completion of one year of service.
Participants may contribute up to 20% of their compensation to the 401(k) Plan
on a pre-tax basis, subject to limitations imposed by the Internal Revenue Code
of 1986, as amended. For 2007, the salary deferral contribution limit is
$15,500; provided, however, that participants over age 50 may contribute an
additional $5,000 to the 401(k) Plan. Participants are always 100% vested in
their salary deferral contributions. In addition to salary deferral
contributions, the 401(k) Plan provides that we can make matching contributions
and
155
nonelective
employer contributions to the accounts of plan participants. During the 2006
plan year, we matched 60% of the first $1,000 a participant deferred into the
401(k) Plan and 40% of an additional $1,000. We did not make any nonelective
contributions during 2006. Participants are 100% vested in their employer
matching contributions and other employer contributions upon the earlier of:
three years of service with Beneficial Mutual Savings Bank, or upon their
death, termination of employment due to a disability or attainment of age 65.
Participants have individual accounts under the 401(k) Plan and may direct the investment of their accounts among a variety of investment funds. In connection with the offering, the 401(k) Plan has added another investment alternative, the Beneficial Mutual Bancorp Stock Fund. The Stock Fund permits participants to invest their 401(k) Plan funds in Beneficial Mutual Bancorp common stock. A participant who elects to purchase Beneficial Mutual Bancorp common stock in the offering through the 401(k) Plan will receive the same subscription priority, and be subject to the same individual purchase limitations, as if the participant had elected to purchase the common stock using funds outside the 401(k) Plan. See The Stock OfferingSubscription Offering and Subscription Rights and Limitations on Purchases of Shares. An independent trustee will purchase the common stock in the offering on behalf of plan participants, to the extent that shares are available. Participants have the right to direct the trustee regarding the voting of shares purchased for their plan accounts.
Beneficial Insurance Services LLC 401(k) Plan. Beneficial Insurance Services LLC, a subsidiary of Beneficial Mutual Savings Bank, maintains a tax-qualified defined contribution plan for the benefit of its employees. An employee can begin participation in the 401(k) Plan on the January 1st or July 1st following the employees attainment of age 21 and completion of two months of service with Beneficial Insurance Services LLC. Participants may contribute up to 20% of their compensation to the 401(k) plan on a pre-tax basis, subject to the limitations imposed by the Internal Revenue Code of 1986, as amended. See Beneficial Mutual Savings Bank 401(k) Plan for a discussion of the elective deferral limitations. Participants are always 100% vested in their elective deferrals. Beneficial Insurance Services LLC will match up to 10% of the first 6% of a participants elective deferrals for a maximum matching contribution of 0.6% of a participants compensation. In addition, the 401(k) Plan provides for discretionary profit-sharing contributions. In 2006, Beneficial Insurance Services, LLC made a profit-sharing contribution equal to approximately 2% of each participants plan compensation. Employer matching contributions and profit-sharing contributions vest over a 6 year period at the rate of 20% after the first two years and 20% each year thereafter.
Like
the Beneficial Mutual Savings Bank 401(k) Plan, participants in the Beneficial
Insurance Services LLC 401(k) plan have individual accounts under their plan
and may direct the investment of their accounts in a variety of investment
funds. The Beneficial Mutual Bancorp Stock Fund investment will also be added
to the Beneficial Insurance Services LLC 401(k) Plan in connection with the
offering. See Beneficial Mutual Savings Bank 401(k) Plan for a discussion
of the Beneficial Mutual Bancorp Stock Fund and the terms and conditions of
investing in the offering.
Employees Pension and Retirement Plan. We maintain the Employees Pension and Retirement Plan of Beneficial Mutual Savings Bank to provide retirement benefits for eligible employees. Employees are eligible to participate in the retirement plan on the January 1st or July 1st that coincides with or next follows their attainment of age 21 and completion of 1,000 hours of service during a twelve consecutive month period. For plan years beginning prior to July 1, 1994, an active participant may retire on or after the date the participant attains age 65 and upon retirement, after twenty accrual years of service as a participant, receive a monthly pension in the form of a straight life annuity equal to 50% (60% if any portion of the participants service commenced before December 8, 1960) of the participant average monthly compensation. If the participants service is less than 20 years, his or her pension will be adjusted by the ratio of service to 20 years. For plan years beginning after July 1, 1994, an active participant may retire on or after the date the participant attains age 65 and upon retirement, after twenty-five accrual years of service as a participant, receive a monthly pension in the form of a straight life annuity equal to 50% of his or her average monthly compensation. If the participants service is less than 25 years, his or her pension will be adjusted by the ratio of service to 25 years. After attainment of age 55 and the completion of five years of service, an active participant may elect early retirement. Upon early retirement a participant will be entitled to receive his or her accrued pension commencing on his or her normal retirement date or, if the participant desires, he or she may elect to receive a reduced pension which can commence on the first day of the month concurrent with or next following the participants early retirement date. If the employment of an active participant is terminated because of total and permanent disability, the participant will be entitled to receive a disability pension equal to the
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participants accrued pension, without actuarial reduction, commencing on the date the participant terminates employment due to disability and continuing until his death or until recovery from his total and permanent disability, if prior to age 65.
Participants generally have no vested interest in retirement plan benefits prior to the completion of five years of service. Following the completion of five years of vesting service, or in the event of a participants attainment of age 65, death or termination of employment due to disability, a participant will become 100% vested in the accrued benefit under the retirement plan. The retirement plan provides that a participant may receive his or her pension benefit in any of the following forms: (i) life annuity, (ii) reduced life annuity for the participants life with 120 monthly payments guaranteed if the participant dies prior to receiving the 120 payments, (iii) a 100%, 75% or 50% joint and survivor annuity, or (iv) a lump sum distribution if the value of the accrued pension benefit is less than $5,000.
Employee
Stock Ownership Plan. In
connection with the offering, Beneficial Mutual Savings Bank has adopted an
employee stock ownership plan for eligible salaried employees. Eligible
salaried employees who have attained age 21 and are employed by us as of
the closing date of the offering will begin participation in the 401(k) Plan on
the later of: the effective date of the 401(k) Plan or upon the eligible
employees completion of an hour of service with Beneficial Mutual Savings Bank.
Thereafter, new employees who have attained age 21 and completed 1,000
hours of service during a continuous 12-month period will enter the 401(k) Plan
on the January 1st or July 1st following
satisfaction of the 401(k) Plans eligibility requirements.
We expect to engage a third party trustee to purchase, on behalf of the employee stock ownership plan, 3.92% of the total number of shares of Beneficial Mutual Bancorp common stock issued in the offering and in connection with the merger, including shares issued to Beneficial Savings Bank MHC and The Beneficial Foundation (15,172,500, 17,850,000, and 20,527,500 shares at the minimum, midpoint and maximum of the offering range, respectively). We anticipate that the employee stock ownership plan will fund its stock purchase through a loan from Beneficial Mutual Bancorp equal to 100% of the aggregate purchase price of the common stock. The loan will be repaid principally through Beneficial Mutual Savings Banks contribution to the employee stock ownership plan and dividends payable on common stock held by the 401(k) Plan over the anticipated 20-year term of the loan. The fixed interest rate for the employee stock ownership plan loan is expected to be the prime rate, as published in The Wall Street Journal, on the closing date of the offering. See Pro Forma Data.
The trustee will hold the shares purchased by the employee stock ownership plan in a loan suspense account, and shares will be released from the suspense account on a pro rata basis as Beneficial Mutual Savings Bank repays the loan. The trustee will allocate the shares released among participants on the basis of each participants proportional share of compensation. Participants will vest in their employee stock ownership plan allocations over a 6-year period at the rate of 20% after the first two years and 20% each year thereafter. Participants also will become fully vested automatically upon normal retirement, death or disability, a change in control, or termination of the 401(k) Plan. Generally, participants will receive distributions from the employee stock ownership plan upon separation from service. The 401(k) Plan reallocates any unvested shares forfeited upon termination of employment among the remaining participants in the 401(k) Plan.
The employee stock ownership plan permits participants to direct the 401(k) Plan trustee how to vote the shares of common stock allocated to their accounts. The trustee votes unallocated shares and allocated shares for which participants do not provide instructions on any matter in the same ratio as those shares for which participants provide instructions, subject to fulfillment of the trustees fiduciary responsibilities.
Under applicable accounting requirements, Beneficial Mutual Savings Bank will record a compensation expense for a leveraged employee stock ownership plan at the fair market value of the shares when they are committed to be released from the suspense account to participants accounts under the 401(k) Plan.
Supplemental Pension and Retirement Plan. We
established the Supplemental Pension and Retirement Plan of Beneficial Mutual
Savings Bank for the purpose of providing benefits which would have been
payable to certain officers under the Employees Pension and Retirement Plan of
Beneficial Mutual Savings Bank but for certain IRS limitations. Currently,
Messrs. Nise, Conners, Driscoll, Keddie and Miller are participants in the
401(k) Plan. The supplemental pension and retirement plan is intended to
constitute an unfunded plan primarily for
157
the purpose of
providing deferred compensation for a select group of management or highly
compensated employees. Upon termination of employment with Beneficial Mutual
Savings Bank, a plan participant who is eligible to receive benefits under the
Employees Pension and Retirement Plan of Beneficial Mutual Savings Bank
immediately upon his or termination of employment will receive benefits under
our supplemental pension and retirement plan equal to the excess, if any, of
(i) the benefits which would have been payable to the participant under the
Employees Pension and Retirement Plan of Beneficial Mutual Savings Bank if (A)
the IRS limitations were not applicable and (B) the participants deferred
compensation under the Elective Deferred Compensation Plan were counted as
compensation under the Employees Pension and Retirement Plan of Beneficial
Mutual Savings Bank, over (ii) benefits actually paid under the Employees
Pension and Retirement Plan of Beneficial Mutual Savings Bank. We established a
grantor trust to hold the assets of the supplemental pension and retirement
plan. The assets of the 401(k) Plan trust are subject to the claims of our
creditors in the event of insolvency until paid to the 401(k) Plan participants
and their beneficiaries as set forth in the 401(k) Plan.
Salary Continuation Arrangements. We have entered into salary continuation agreements with Messrs. Nise, Conners, Driscoll, Keddie and Miller to provide the executives with additional compensation at retirement or upon termination of employment by reason of death. In the event death occurs while an executive is in active service with Beneficial Mutual Savings Bank and prior to attaining age 55, the beneficiary for Messrs. Nise, Conners, Driscoll, Keddie and Miller shall receive a monthly death benefit equal to $40,417, $20,417, $19,130, $22,917 and $20,417, respectively for the twelve months commencing with the first month following the date of his death and $26,958, $13,618, $12,759, $15,285 and $13,618 per month, respectively commencing with the thirteenth month following his death through the month the executive would have attained age 65 had the executive lived to such date. In the event death occurs after attaining age 55, but prior to attaining age 65, the beneficiaries for Messrs. Nise, Conners, Driscoll, Keddie and Miller shall receive a monthly death benefit equal to $40,417, $20,417, $19,130, $22,917 and $20,417 per month, respectively, for the twelve months commencing with the first month following the date of the executives death and $26,958, $13,618, $12,759, $15,285 and $13,618 per month, respectively commencing on the thirteenth month following his death through the one hundred and twentieth month following his death. In addition to the death benefit, the salary continuation agreements provide the executives with a life insurance benefit upon retirement at or after attainment of age 65. Messrs. Nise, Conners, Driscoll, Keddie and Miller shall receive a life insurance benefit in the form of a life insurance policy in the amount of $970,000, $490,000, $459,112, $550,000 and $490,000 respectively. In the event an executive terminates employment for reasons other than death or retirement at or after attainment of 65, the agreements will terminate and the executive will receive his accrued benefits as of his termination date. Beneficial Mutual Savings Bank has purchased several insurance policies to fund the benefits provided under the salary continuation arrangements.
Management Incentive Plan.
Beneficial Mutual Savings Bank maintains the Management Incentive Plan to
recognize and reward executives for their individual and collective
contributions to the success of Beneficial Mutual Savings Bank. The management
incentive plan focuses on performance measures that are critical to the
profitability and growth of Beneficial Mutual Savings Bank. Only senior
management who are in a position to successfully execute the Beneficial Mutual
Savings Bank strategic plan may participate in the management incentive plan.
The performance measurement period for incentive awards will be January 1st
through December 31st each year. Awards will be determined based on
a combination of the financial performance of Beneficial Mutual Savings Bank
and a participants individual performance. Each plan participant will have a
target incentive opportunity based on competitive market practice for his or
her position. The target incentive will reflect a percentage of base salary and
be determined consistent with competitive market practices. Actual awards will
vary based on performance and range from 0% of target (no achieving minimal
performance) to 15-% of target for exception performance. If awards are earned,
payouts will be made in cash at the completion of the annual performance
period. No payouts will be made until Beneficial Mutual Savings Bank can
determine its annual financial performance.
Nonqualified Deferred Compensation
The following table discloses contributions made under the Beneficial Mutual Savings Bank Elective Deferred Compensation Plan, a non-qualified defined contribution plan, for each named executive officer who participated in the plan in 2006, along with the earnings and balances on each executives account as of December 31, 2006. We made no contributions to the plan on behalf of the executives during 2006 and no distributions or withdrawals were made from the plan in 2006.
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Executive |
|
Aggregate |
|
Aggregate |
|
|||||||||
|
||||||||||||||||
Gerard P. Cuddy (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
George W. Nise |
|
|
|
133,510 |
|
|
|
|
39,898 |
|
|
|
|
464,954 |
|
|
|
||||||||||||||||
Joseph F. Conners |
|
|
|
14,735 |
|
|
|
|
1,015 |
|
|
|
|
15,751 |
|
|
|
||||||||||||||||
Robert W. Keddie |
|
|
|
43,985 |
|
|
|
|
27,664 |
|
|
|
|
339,059 |
|
|
|
|
|
|
|
(1) |
Mr. Cuddy was ineligible to participate in the Elective Deferred Compensation Plan in 2006. |
Elective Deferred Compensation Plan. We established the Beneficial Mutual Savings Bank Elective Deferred Compensation Plan, amended and restated effective January 1, 2004, to assist certain employees designated by a committee of the board of trustees as participants in maximizing their ability to save on a tax-deferred basis. The plan is intended to constitute an unfunded plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. The committee has designated Messrs. Nise, Keddie and Conners as participants in the elective deferred compensation plan. Each participant has submitted a deferral election agreement and distribution form to the Human Resources department outlining the amount of their deferrals and form of distribution. Each participant is 100% vested in his deferred compensation account. Participants receive distributions under the plan upon separation of service on account of disability, early, normal or late retirement. Messrs. Nise and Keddie retired in January 2007 and are currently receiving monthly distributions from the plan. We established a grantor trust to hold the assets of the elective deferred compensation plan. The assets of the plan trust are subject to the claims of our creditors in the event of insolvency until paid to the plan participants and their beneficiaries as set forth in the plan.
Stock-Based Deferral Plan. In
connection with the offering, we established a stock-based deferral plan for
participants in the Elective Deferred Compensation Plan that wanted to direct
the investment of their accumulated Elective Deferred Compensation Plan
balances to purchase shares of Beneficial Mutual Bancorp common stock. Under
the terms of the stock-based deferral plan, participants are permitted to make
a one time election to transfer all or a portion of their account balances from
the Elective Deferred Compensation Plan into the stock-based deferral plan to
purchase common stock in the offering. For purposes of the stock purchase
priorities in the offering, the stock purchases by participants through the new
stock-based deferral plan will be treated in the same manner as an individual
stock purchase outside the plan and will be subject to each participants
individual eligibility to purchase stock in the offering.
Future Equity
Incentive Plan. Following
the stock offering, Beneficial Mutual Bancorp plans to adopt an equity
incentive plan that will provide for grants of stock options and restricted
stock. In accordance with applicable regulations, Beneficial Mutual Bancorp
anticipates that the plan will authorize a number of stock options equal to
4.9% of the total shares issued in the stock offering and in connection with
the merger, including shares issued to Beneficial Savings Bank MHC and The
Beneficial Foundation, and a number of shares of restricted stock equal to
1.96% of the total shares issued in the stock offering and in connection with
the merger. Therefore, the number of shares reserved under the plan will range
from 1,099,309 shares, assuming 15,172,500 shares are issued in the offering,
to 1,428,367 shares, assuming 20,527,500 shares are issued in the offering.
The Office of Thrift Supervision has proposed amendments to its existing regulations regarding stock-based benefit plans that are intended to clarify and simplify such regulations. Specifically, the amendments would clarify that we may grant options and award shares of common stock under one or more equity incentive plans in
159
excess of 4.90% and 1.96%, respectively, of our total outstanding shares if the equity incentive plans are adopted more than one year following the stock offering, provided shares used to fund the plans in excess of these amounts are obtained through stock repurchases. The proposed amendments would also require that if the equity incentive plans are adopted less than one year following the stock offering, the equity incentive plans must be approved by a majority of the votes of Beneficial Mutual Bancorp stockholders cast at an annual or special meeting of stockholders, excluding votes eligible to be cast by Beneficial Saving Bank MHC. Under the proposed amendments, there would be no separate vote required of minority shareholders if the equity incentive plans are adopted more than one year following the stock offering. The proposed amendments would further clarify that the current regulatory restrictions set forth above regarding the amount of individual and group awards, and restrictions on accelerated vesting of awards, would not apply if the equity incentive plans are adopted more than one year following the stock offering.
In the event the Office of Thrift Supervision adopts these regulations as proposed, or otherwise changes its existing regulations or policies, we may implement equity incentive plans that exceed the current limits applicable to the overall size of such plans and individual awards thereunder, and otherwise grant awards with terms that are different than those required by current Office of Thrift Supervision regulations and policy. Moreover, to the extent that any new regulations or policies contain a more flexible voting standard for stockholder approval than that currently required, we intend to use the more flexible voting standard, which could result in the vote of Beneficial Savings Bank MHC controlling the outcome of a stockholder vote on our equity incentive plans.
Director Compensation
The
following table provides the compensation received by individuals who served as
non-employee directors of Beneficial Mutual Savings Bank during the 2006 fiscal
year.
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Fees Earned or |
|
All Other |
|
Total |
|
|||
R. Joseph Barnes, Jr. |
|
|
$37,100 |
|
|
$1,399 |
|
|
$38,499 |
|
Edward G. Boehne |
|
|
72,300 |
|
|
2,727 |
|
|
75,027 |
|
Frank A. Farnesi |
|
|
67,200 |
|
|
2,535 |
|
|
69,735 |
|
Elizabeth H. Gemmill |
|
|
57,200 |
|
|
2,157 |
|
|
59,357 |
|
Thomas F. Hayes |
|
|
42,500 |
|
|
1,603 |
|
|
44,103 |
|
Paul M. Henkels |
|
|
50,500 |
|
|
1,905 |
|
|
52,405 |
|
William J. Henrich, Jr. Esq. |
|
|
59,300 |
|
|
2,237 |
|
|
61,537 |
|
Charles Kahn, Jr. |
|
|
65,700 |
|
|
2,478 |
|
|
68,178 |
|
Thomas J. Lewis |
|
|
42,600 |
|
|
1,607 |
|
|
44,207 |
|
James J. Maguire (2) |
|
|
67,000 |
|
|
2,527 |
|
|
69,527 |
|
Joseph J. McLaughlin |
|
|
41,400 |
|
|
1,561 |
|
|
42,961 |
|
Michael J. Morris |
|
|
66,800 |
|
|
2,519 |
|
|
69,319 |
|
Donald F. ONeill |
|
|
50,000 |
|
|
1,886 |
|
|
51,886 |
|
|
|
|
|
|
(1) |
These amounts represent the Philadelphia city wage tax that the directors incurred in connection with their board and committee fees. Beneficial Mutual Savings Bank reimbursed the directors for the wage tax. |
|
|
|
|
(2) |
Mr. Maguire retired from the board of directors in April 2007. |
160
Cash Retainer and Meeting Fees For Non-Employee
Directors. The
following table sets forth the applicable retainers and fees that will be paid
in 2007 to the non-employee directors of Beneficial Mutual Savings Bank for their service
on the board of directors during 2007. Directors do not receive any additional
fees for their service on the boards of directors of Beneficial Savings Bank
MHC or Beneficial Mutual Bancorp.
|
|
|
|
|
Board of Trustees of Beneficial Mutual Savings Bank: |
|
|
|
|
|
||||
Annual Retainer |
|
$ |
16,000 |
|
Fee per Board Meeting |
|
|
1,000 |
|
Fee per Committee Meeting: |
|
|
|
|
Executive Committee |
|
|
1,000 |
|
Audit Committee |
|
|
1,000 |
|
All Other Committees |
|
|
900 |
|
161
Corporate Governance/Compensation Committee Interlocks and Insider Participation
Transactions with Management
Loans and Extensions of Credit. The aggregate amount of loans by Beneficial Mutual Savings Bank to its executive officers and directors, and members of their immediate families, was $592,000 at December 31, 2006. As of that date, these loans were performing according to their original terms. The outstanding loans made to our directors and executive officers, and members of their immediate families, were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to Beneficial Mutual Savings Bank, and did not involve more than the normal risk of collectibility or present other unfavorable features. For information about restrictions on our ability to make loans to insiders, see Regulation and SupervisionBank RegulationTransactions with Related Parties.
Other Transactions. Executive officer Robert Bush, as a former selling shareholder of Paul Hertel & Co., Inc., received final payments of $125,000 in the aggregate in 2006 related to the purchase of Paul Hertel & Co., Inc. pursuant to the asset purchase agreement dated January 14, 2005 by and among Beneficial Insurance Services, LLC, as buyer, and Paul Hertel & Co., Inc., as seller, and the shareholders of Paul Hertel & Co., Inc., as the selling shareholders. Mr. Bush owned 21,045 shares of common stock, or 43.2%, of the former company and had served as its President and Chief Executive Officer prior to its acquisition by Beneficial Insurance Services, LLC.
Indemnification for Directors and Officers
Beneficial Mutual Bancorps bylaws provide that Beneficial Mutual Bancorp shall indemnify all officers, directors and employees of Beneficial Mutual Bancorp to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by them in connection with or arising out of any action, suit or proceeding in which they may be involved by reason of their having been a director or officer of Beneficial Mutual
162
Bancorp. Such indemnification may include the advancement of funds to pay for or reimburse reasonable expenses incurred by an indemnified party to the fullest extent permitted under federal law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Beneficial Mutual Bancorp pursuant to its bylaws or otherwise, Beneficial Mutual Bancorp has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
163
Subscriptions by Executive Officers and Directors
The
following table presents certain information as to the approximate purchases of
common stock by our directors and executive officers, including their
associates, if any, as defined by applicable regulations. No individual has
entered into a binding agreement to purchase these shares and, therefore,
actual purchases could be more or less than indicated. Directors and executive
officers and their associates may not purchase more than 25% in the aggregate
of the shares sold in the offering. Like all of our depositors, our directors
and officers have subscription rights based on their deposits. For purposes of
the following table, sufficient shares are assumed to be available to satisfy
subscriptions in all categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Name |
|
Proposed Purchases of Stock |
|
|
Percentage of |
|
|
Percentage of |
|
||||||||||
|
|
|
|
||||||||||||||||
|
|
Number of |
|
Dollar |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R. Joseph Barnes, Jr. |
|
|
|
2,500 |
|
|
$ |
25,000 |
|
|
|
0.01 |
% |
|
|
|
0.01 |
% |
|
Edward G. Boehne |
|
|
|
10,000 |
|
|
|
100,000 |
|
|
|
0.07 |
|
|
|
|
0.05 |
|
|
Gerard P. Cuddy |
|
|
|
20,000 |
|
|
|
200,000 |
|
|
|
0.13 |
|
|
|
|
0.10 |
|
|
Frank A. Farnesi |
|
|
|
20,000 |
|
|
|
200,000 |
|
|
|
0.13 |
|
|
|
|
0.10 |
|
|
Elizabeth H. Gemmill |
|
|
|
14,000 |
|
|
|
140,000 |
|
|
|
0.09 |
|
|
|
|
0.07 |
|
|
Thomas F. Hayes |
|
|
|
20,000 |
|
|
|
200,000 |
|
|
|
0.13 |
|
|
|
|
0.10 |
|
|
Paul M. Henkels |
|
|
|
10,000 |
|
|
|
100,000 |
|
|
|
0.07 |
|
|
|
|
0.04 |
|
|
William J. Henrich, Jr., Esq. |
|
|
|
2,500 |
|
|
|
25,000 |
|
|
|
0.01 |
|
|
|
|
0.01 |
|
|
Charles Kahn, Jr. |
|
|
|
30,000 |
|
|
|
300,000 |
|
|
|
0.20 |
|
|
|
|
0.15 |
|
|
Thomas J. Lewis |
|
|
|
7,500 |
|
|
|
75,000 |
|
|
|
0.05 |
|
|
|
|
0.04 |
|
|
Joseph J. McLaughlin |
|
|
|
10,000 |
|
|
|
100,000 |
|
|
|
0.07 |
|
|
|
|
0.05 |
|
|
Michael J. Morris |
|
|
|
50,000 |
|
|
|
500,000 |
|
|
|
0.33 |
|
|
|
|
0.24 |
|
|
George W. Nise |
|
|
|
40,000 |
|
|
|
400,000 |
|
|
|
0.26 |
|
|
|
|
0.19 |
|
|
Donald F. ONeill |
|
|
|
20,000 |
|
|
|
200,000 |
|
|
|
0.13 |
|
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officers Who Are Not Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Bush |
|
|
|
40,000 |
|
|
|
400,000 |
|
|
|
0.26 |
|
|
|
|
0.19 |
|
|
Joseph F. Conners |
|
|
|
10,000 |
|
|
|
100,000 |
|
|
|
0.07 |
|
|
|
|
0.04 |
|
|
Paul R. Driscoll |
|
|
|
10,000 |
|
|
|
100,000 |
|
|
|
0.07 |
|
|
|
|
0.04 |
|
|
Andrew J. Miller |
|
|
|
10,000 |
|
|
|
100,000 |
|
|
|
0.07 |
|
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (18 persons) |
|
|
|
326,500 |
|
|
$ |
3,265,000 |
|
|
|
2.15 |
% |
|
|
|
1.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors of FMS Financial Who Will Become Directors of Beneficial Mutual Bancorp: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|||||||||||||||||||
Craig W. Yates (1) |
|
|
|
3,883,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roy D. Yates (1) |
|
|
|
1,308,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
It is expected that Craig W. Yates
and Roy D. Yates, both directors of FMS Financial who will become directors
of Beneficial Mutual Bancorp following the
consummation
of the merger, will elect to receive shares of Beneficial
Mutual Bancorp in exchange for their FMS Financial common stock in the merger.
Based upon their ownership of FMS Financial shares, Craig W. Yates and Roy D. Yates may receive up to
a maximum of 3,883,289 and 1,308,036 shares, respectively, in the merger, however, there can be no guarantee that their elections will
be fully satisfied. Neither Craig W. Yates nor Roy D.
Yates will purchase stock in the offering. |
164
The following discussion describes elements of an extensive regulatory framework applicable to savings and loan holding companies and banks and specific information about Beneficial Mutual Savings Bank, Beneficial Mutual Bancorp and Beneficial Savings Bank MHC. Federal and state regulation of banks and bank holding companies is intended primarily for the protection of depositors and the Deposit Insurance Fund, rather than for the protection of potential shareholders and creditors.
General
Beneficial Mutual Savings Bank is a Pennsylvania-chartered savings bank that is subject to extensive regulation, examination and supervision by the Pennsylvania Department of Banking (the Department), as its primary regulator, and the Federal Deposit Insurance Corporation, as its deposits insurer. Beneficial Mutual Savings Bank is a member of the Federal Home Loan Bank system and, with respect to deposit insurance, of the Deposit Insurance Fund managed by the Federal Deposit Insurance Corporation. Beneficial Mutual Savings Bank must file reports with the Department and the Federal Deposit Insurance Corporation concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other savings institutions. The Department and/or the Federal Deposit Insurance Corporation conduct periodic examinations to test Beneficial Mutual Savings Banks safety and soundness and compliance with various regulatory requirements. This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in the regulatory requirements and policies, whether by the Department, the Federal Deposit Insurance Corporation or Congress, could have a material adverse impact on Beneficial Mutual Savings Bank, Beneficial Mutual Bancorp, Beneficial Savings Bank MHC and their operations.
Certain regulatory requirements applicable to Beneficial Mutual Savings Bank, Beneficial Mutual Bancorp and Beneficial Savings Bank MHC are referred to below or elsewhere herein. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on Beneficial Mutual Savings Bank, Beneficial Mutual Bancorp and Beneficial Savings Bank MHC and is qualified in its entirety by reference to the actual statutes and regulations.
Bank Regulation
Pennsylvania Savings Bank Law. The Pennsylvania Banking Code of 1965, as amended (the 1965 Code), and the Pennsylvania Department of Banking Code, as amended (the Department Code, and collectively, the Codes), contain detailed provisions governing the organization, location of offices, rights and responsibilities of directors, officers and employees, as well as corporate powers, savings and investment operations and other aspects of the Bank and its affairs. The Codes delegate extensive rule-making power and administrative discretion to the Department so that the supervision and regulation of state-chartered savings banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices. Specifically, under the Department Code, the Department is given the authority to exercise such supervision over state-chartered savings banks as to afford the greatest safety to creditors, shareholders and depositors, ensure business safety and soundness, conserve assets, protect the public interest and maintain public confidence in such institutions.
The 1965 Code provides, among other powers, that state-chartered savings banks may engage in any activity permissible for a national banking association or federal savings association, subject to regulation by the Department (which shall not be more restrictive than the regulation imposed upon a national banking association or federal savings association, respectively). Before it engages in such an activity allowable for a national banking association or federal savings association, a state-chartered savings bank must either obtain prior approval from the Department or provide at least 30 days prior written notice to the Department. The authority of Beneficial Mutual Savings Bank under Pennsylvania law, however, may be constrained by federal law and regulation. See Investments and Activities.
165
Regulatory Capital Requirements. Under Federal Deposit Insurance Corporation regulations, federally insured state-chartered banks that are not members of the Federal Reserve System (state non-member banks), such as Beneficial Mutual Savings Bank, are required to comply with minimum leverage capital requirements. For an institution determined by the Federal Deposit Insurance Corporation to not be anticipating or experiencing significant growth and to be in general a strong banking institution, rated composite 1 under the Uniform Financial Institutions Rating System established by the Federal Financial Institutions Examinations Council, the minimum capital leverage requirement is a ratio of Tier 1 capital to total assets of 3%. For all other institutions, the minimum leverage capital ratio is not less than 4%. Tier 1 capital is the sum of common stockholders equity, noncumulative perpetual preferred stock (including any related surplus) and minority investments in certain subsidiaries, less intangible assets (except for certain servicing rights and credit card relationships) and a percentage of certain nonfinancial equity investments.
Beneficial Mutual Savings Bank must also comply with the Federal Deposit Insurance Corporation risk-based capital guidelines. The Federal Deposit Insurance Corporation guidelines require state non-member banks to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as representing greater risk.
State non-member banks must maintain a minimum ratio of total capital to risk-weighted assets of at least 8%, of which at least one-half must be Tier 1 capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock, long-term preferred stock, hybrid capital instruments, including mandatory convertible debt securities, term subordinated debt and certain other capital instruments and a portion of the net unrealized gain on equity securities. The includable amount of Tier 2 capital cannot exceed the amount of the institutions Tier 1 capital. At December 31, 2006, Beneficial Mutual Savings Bank met each of these capital requirements. As savings and loan holding companies regulated by the Office of Thrift Supervision, Beneficial Mutual Bancorp and Beneficial Savings Bank MHC are not subject to any separate regulatory capital requirements.
Restrictions on Dividends. Beneficial Mutual Bancorps ability to declare and pay dividends may depend in part on dividends received from Beneficial Mutual Savings Bank. The 1965 Code regulates the distribution of dividends by savings banks and provides that dividends may be declared and paid only out of accumulated net earnings and may be paid in cash or property other than its own shares. Dividends may not be declared or paid unless stockholders equity is at least equal to contributed capital.
Interstate Banking and Branching. Federal law permits a bank, such as Beneficial Mutual Savings Bank, to acquire an institution by merger in a state other than Pennsylvania unless the other state has opted out. Federal law also authorizes de novo branching into another state if the host state enacts a law expressly permitting out of state banks to establish such branches within its borders. Beneficial Mutual Savings Bank currently has two full-service locations in Burlington and Camden Counties, New Jersey. Additionally, the Bank expects to acquire additional New Jersey branch locations in connection with its merger with Farmers & Mechanics Bank. See The Acquisition of FMS Financial for further discussion of the merger. At its interstate branches, Beneficial Mutual Savings Bank may conduct any activity that is authorized under Pennsylvania law that is permissible either for a New Jersey savings bank (subject to applicable federal restrictions) or a New Jersey branch of an out-of-state national bank. The New Jersey Department of Banking and Insurance may exercise certain regulatory authority over the Banks New Jersey branches.
Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulatory authorities take prompt corrective action with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes three categories of capital deficient institutions: undercapitalized, significantly undercapitalized and critically undercapitalized.
The Federal Deposit Insurance Corporation has adopted regulations to implement the prompt corrective action legislation. An institution is deemed to be well capitalized if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater. An institution is adequately capitalized if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of
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4% or greater and generally a leverage ratio of 4% or greater. An institution is undercapitalized if it has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or generally a leverage ratio of less than 4% (3% or less for institutions with the highest examination rating). An institution is deemed to be significantly undercapitalized if it has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%. An institution is considered to be critically undercapitalized if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%. As of December 31, 2006, Beneficial Mutual Savings Bank met the conditions to be classified as a well capitalized institution.
Undercapitalized banks must adhere to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan. No institution may make a capital distribution, including payment as a dividend, if it would be undercapitalized after the payment. A banks compliance with such plans is required to be guaranteed by its parent holding company in an amount equal to the lesser of 5% of the institutions total assets when deemed undercapitalized or the amount needed to comply with regulatory capital requirements. If an undercapitalized bank fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the Federal Deposit Insurance Corporation to sell sufficient voting stock to become adequately capitalized, requirements to reduce assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. Critically undercapitalized institutions must comply with additional sanctions including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.
Investments and Activities. Under federal law, all state-chartered Federal Deposit Insurance Corporation-insured banks have generally been limited to activities as principal and equity investments of the type and in the amount authorized for national banks, notwithstanding state law. The Federal Deposit Insurance Corporation Improvement Act and the Federal Deposit Insurance Corporation permit exceptions to these limitations. For example, state chartered banks, such as Beneficial Mutual Savings Bank, may, with Federal Deposit Insurance Corporation approval, continue to exercise grandfathered state authority to invest in common or preferred stocks listed on a national securities exchange or the Nasdaq Global Select Market and in the shares of an investment company registered under federal law. All non-subsidiary equity investments, unless otherwise authorized or approved by the Federal Deposit Insurance Corporation, must have been divested by December 19, 1996, under a Federal Deposit Insurance Corporation-approved divesture plan, unless such investments were grandfathered by the Federal Deposit Insurance Corporation. Beneficial Mutual Savings Bank received grandfathering authority from the Federal Deposit Insurance Corporation to invest in listed stocks and/or registered shares. The maximum permissible investment is 100% of Tier I capital, as specified by the Federal Deposit Insurance Corporations regulations, or the maximum amount permitted by Pennsylvania Banking Law, whichever is less. Such grandfathering authority may be terminated upon the Federal Deposit Insurance Corporations determination that such investments pose a safety and soundness risk to Beneficial Mutual Savings Bank or if Beneficial Mutual Savings Bank converts its charter or undergoes a change in control. In addition, the Federal Deposit Insurance Corporation is authorized to permit such institutions to engage in other state authorized activities or investments (other than non-subsidiary equity investments) that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the Deposit Insurance Fund. As of December 31, 2006, Beneficial Mutual Savings Bank held no marketable equity securities under such grandfathering authority.
Transactions with Related Parties. Federal law limits Beneficial Mutual Savings Banks authority to lend to, and engage in certain other transactions with (collectively, covered transactions), affiliates (e.g., any company that controls or is under common control with an institution, including Beneficial Mutual Bancorp, Beneficial Savings Bank MHC and their non-savings institution subsidiaries). The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings institution. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type specified by federal law. The purchase of low quality assets from affiliates is generally prohibited. Transactions with affiliates must generally be on terms and under circumstances, that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.
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The Sarbanes-Oxley Act of 2002 generally prohibits loans by Beneficial Mutual Savings Bank to its executive officers and directors. However, the law contains a specific exception for loans by Beneficial Mutual Savings Bank to its executive officers and directors in compliance with federal banking laws. Under such laws, Beneficial Mutual Savings Banks authority to extend credit to executive officers, directors and 10% shareholders (insiders), as well as entities such persons control, is limited. The law limits both the individual and aggregate amount of loans Beneficial Mutual Bancorp may make to insiders based, in part, on Beneficial Mutual Bancorps capital position and requires certain board approval procedures to be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees.
Enforcement. The Federal Deposit Insurance Corporation has extensive enforcement authority over insured savings banks, including Beneficial Mutual Savings Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices. The Federal Deposit Insurance Corporation has authority under federal law to appoint a conservator or receiver for an insured bank under limited circumstances.
Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted Interagency Guidelines prescribing Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the Federal Deposit Insurance Corporation determines that a savings institution fails to meet any standard prescribed by the guidelines, the Federal Deposit Insurance Corporation may require the institution to submit an acceptable plan to achieve compliance with the standard.
Insurance of Deposit Accounts. Beneficial Mutual Savings Banks deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. The Deposit Insurance Fund is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which were merged in 2006. The Federal Deposit Insurance Corporation recently amended its risk-based assessment system for 2007 to implement authority granted by the Federal Deposit Insurance Reform Act of 2005 (the Reform Act). Under the revised system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors by which institutions are assigned to one of three categories based on their capitalization and one of three subcategories based on examination ratings and other supervisory information. An institutions assessment rate depends upon the category to which it is assigned. Risk Category I, which contains the least risky depository institutions, is expected to include more than 90% of all institutions. Unlike the other categories, Risk Category I contains further risk differentiation based on the Federal Deposit Insurance Corporations analysis of financial ratios, examination component ratings and other information. Assessment rates are determined semi-annually by the Federal Deposit Insurance Corporation and currently range from five to seven basis points for the healthiest institutions (Risk Category I) to 43 basis points of assessable deposits for the riskiest (Risk Category IV). The Federal Deposit Insurance Corporation may adjust rates uniformly from one quarter to the next, except that no single adjustment can exceed three basis points.
The Reform Act also provides for a one-time credit for eligible institutions based on their assessment base as of December 31, 1996. Subject to certain limitations with respect to institutions that are exhibiting weaknesses, credits can be used to offset assessments until exhausted. Beneficial Mutual Savings Banks one-time credit is expected to approximate $1.7 million. The Reform Act also provides for the possibility that the Federal Deposit Insurance Corporation may pay dividends to insured institutions once the Deposit Insurance Fund reserve ratio equals or exceeds 1.35% of estimated insured deposits.
In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. This payment is established quarterly and during the calendar year ending December 31, 2006 averaged 1.28 basis points of assessable deposits.
The Reform Act provides the Federal Deposit Insurance Corporation with authority to adjust the Deposit Insurance Fund ratio to insured deposits within a range of 1.15% and 1.50%, in contrast to the prior statutorily fixed
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ratio of 1.25%. The ratio, which is viewed by the Federal Deposit Insurance Corporation as the level that the fund should achieve, was established by the agency at 1.25% for 2007.
The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Beneficial Mutual Savings Bank. Management cannot predict what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation or the Office of Thrift Supervision. The management of Beneficial Mutual Savings Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.
Federal Home Loan Bank System. Beneficial Mutual Savings Bank is a member of the Federal Home Loan Bank system, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Beneficial Mutual Savings Bank, as a member of the Federal Home Loan Bank of Pittsburgh, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. Beneficial Mutual Savings Bank was in compliance with this requirement with an investment in Federal Home Loan Bank stock at December 31, 2006 of $15.5 million.
Community Reinvestment Act. Under the Community Reinvestment Act, as implemented by the Federal Deposit Insurance Corporation regulations, a state non-member bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The Community Reinvestment Act neither establishes specific lending requirements or programs for financial institutions nor limits an institutions discretion to develop the types of products and services that it believes are best suited to its particular community. The Community Reinvestment Act requires the Federal Deposit Insurance Corporation, in connection with its examination of an institution, to assess the institutions record of meeting the credit needs of its community and to consider such record when it evaluates applications made by such institution. The Community Reinvestment Act requires public disclosure of an institutions Community Reinvestment Act rating. Beneficial Mutual Savings Banks latest Community Reinvestment Act rating received from the Federal Deposit Insurance Corporation was satisfactory.
Other Regulations
Interest and other charges collected or contracted for by Beneficial Mutual Savings Bank are subject to state usury laws and federal laws concerning interest rates. Beneficial Mutual Savings Banks operations are also subject to federal laws applicable to credit transactions, such as the:
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Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; |
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Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; |
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Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; |
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Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; |
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Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by collection agencies; and |
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rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. |
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The operations of Beneficial Mutual Savings Bank also are subject to the: |
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Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; |
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Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers rights and liabilities arising from the use of automated teller machines and other electronic banking services; |
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Check Clearing for the 21st Century Act (also known as Check 21), which gives substitute checks, such as digital check images and copies made from that image, the same legal standing as the original paper check; |
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Title III of The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the USA PATRIOT Act), and the related regulations of the Office of Thrift Supervision, which require savings associations operating in the United States to develop new anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering; and |
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The Gramm-Leach-Bliley Act, which placed limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. |
Holding Company Regulation
General. Beneficial Mutual Bancorp and Beneficial Savings Bank MHC are savings and loan holding companies within the meaning of federal law. As such, they are registered with the Office of Thrift Supervision and are subject to Office of Thrift Supervision regulations, examinations, supervision, reporting requirements and regulations concerning corporate governance and activities. In addition, the Office of Thrift Supervision has enforcement authority over Beneficial Mutual Bancorp and Beneficial Savings Bank MHC and their non-savings institution subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to Beneficial Mutual Savings Bank.
The OTS also takes the position that its capital distribution regulations apply to state savings banks in savings and loan holding company structures. Those regulations impose limitations upon all capital distributions by an institution, including cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger. Under the regulations, an application to and prior approval of the Office of Thrift Supervision is required prior to any capital distribution if the institution does not meet the criteria for expedited treatment of applications under Office of Thrift Supervision regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the Office of Thrift Supervision. If an application is not required, the institution must still provide prior notice to the Office of Thrift Supervision of the capital distribution if, like Beneficial Mutual Savings Bank, it is a subsidiary of a holding company. In the event Beneficial Mutual Savings Banks capital fell below its regulatory requirements or the Office of Thrift Supervision notified it that it was in need of increased supervision, Beneficial Mutual Savings Banks ability to make capital distributions could be restricted. In addition, the Office of Thrift Supervision could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the Office of Thrift Supervision determines that such distribution would constitute an unsafe or unsound practice.
To be regulated as a savings and loan holding company by the Office of Thrift Supervision (rather than as a bank holding company by the Federal Reserve Board), Beneficial Mutual Savings Bank must qualify as a Qualified
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Thrift Lender. To qualify as a Qualified Thrift Lender, Beneficial Mutual Savings Bank must maintain compliance with the test for a domestic building and loan association, as defined in the Internal Revenue Code, or with a Qualified Thrift Test. Under the Qualified Thrift Lender Test, a savings institution is required to maintain at least 65% of its portfolio assets (total assets less: (1) specified liquid assets up to 20% of total assets; (2) intangibles, including goodwill; and (3) the value of property used to conduct business) in certain qualified thrift investments (primarily residential mortgages and related investments, including mortgage-backed and related securities) in at least nine months out of each 12-month period. At year end 2006, Beneficial Mutual Savings Bank maintained __% of its portfolio assets in qualified thrift investments. Beneficial Mutual Savings Bank also met the QTL test in each of the prior four quarters.
Restrictions Applicable to Mutual Holding Companies. According to federal law and Office of Thrift Supervision regulations, a mutual holding company, such as Beneficial Savings Bank MHC, may generally engage in the following activities: (1) investing in the stock of a stock savings association; (2) acquiring a mutual association through the merger of such association into a stock savings association subsidiary of such holding company or an interim savings association subsidiary of such holding company; (3) merging with or acquiring another mutual or stock savings and loan holding company; (4) investing in a corporation the capital stock of which could be purchased by a federal savings association or a state savings association under Pennsylvania law; and (5) any activity approved by the Federal Reserve Board for a bank holding company or financial holding company or approved by Office of Thrift Supervision for multiple savings and loan holding companies.
Federal law prohibits a savings and loan holding company, including a federal mutual holding company, from directly or indirectly, or through one or more subsidiaries, acquiring more than 5% of the voting stock of another savings institution, or its holding company, without prior written approval of the Office of Thrift Supervision. Federal law also prohibits a savings and loan holding company from acquiring more than 5% of a company engaged in activities other than those authorized for savings and loan holding companies by federal law; or acquiring or retaining control of a depository institution that is not insured by the Federal Deposit Insurance Corporation. In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors.
The Office of Thrift Supervision is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, except: (1) the approval of interstate supervisory acquisitions by savings and loan holding companies, and (2) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.
If the savings institution subsidiary of a savings and loan holding company fails to meet the qualified thrift lender test, the holding company must register with the Federal Reserve Board as a bank holding company within one year of the savings institutions failure to so qualify.
Stock Holding Company Subsidiary Regulation. The Office of Thrift Supervision has adopted regulations governing the two-tier mutual holding company form of organization and subsidiary stock holding companies that are controlled by mutual holding companies. We have adopted this form of organization and it will continue in place after the proposed offering. Beneficial Mutual Bancorp is the stock holding company subsidiary of Beneficial Savings Bank MHC. Beneficial Mutual Bancorp is permitted to engage in activities that are permitted for Beneficial Savings Bank MHC subject to the same restrictions and conditions.
Waivers of Dividends by Beneficial Savings Bank MHC. Office of Thrift Supervision regulations require Beneficial Savings Bank MHC to notify the Office of Thrift Supervision if it proposes to waive receipt of dividends from Beneficial Mutual Bancorp. The Office of Thrift Supervision reviews dividend waiver notices on a case-by-case basis, and, in general, does not object to a waiver if: (1) the waiver would not be detrimental to the safe and sound operation of the savings association; and (2) the mutual holding companys board of directors determines that such waiver is consistent with such directors fiduciary duties to the mutual holding companys
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members. We anticipate that Beneficial Savings Bank MHC will waive dividends that Beneficial Mutual Bancorp may pay, if any.
Conversion of Beneficial Savings Bank MHC to Stock Form. Office of Thrift Supervision regulations permit Beneficial Savings Bank MHC to convert from the mutual form of organization to the capital stock form of organization. There can be no assurance when, if ever, a conversion transaction will occur, and the board of directors has no current intention or plan to undertake a conversion transaction. In a conversion transaction, a new holding company would be formed as the successor to Beneficial Mutual Bancorp, Beneficial Savings Bank MHCs corporate existence would end, and certain depositors of Beneficial Mutual Savings Bank would receive the right to subscribe for additional shares of the new holding company. In a conversion transaction, each share of common stock held by stockholders other than Beneficial Savings Bank MHC would be automatically converted into a number of shares of common stock of the new holding company based on an exchange ratio determined at the time of conversion that ensures that stockholders other than Beneficial Savings Bank MHC own the same percentage of common stock in the new holding company as they owned in Beneficial Mutual Bancorp immediately before conversion. The total number of shares held by stockholders other than Beneficial Savings Bank MHC after a conversion transaction would be increased by any purchases by such stockholders in the stock offering conducted as part of the conversion transaction.
Acquisition of Control. Under the federal Change in Bank Control Act, a notice must be submitted to the Office of Thrift Supervision if any person (including a company), or group acting in concert, seeks to acquire control of a savings and loan holding company. An acquisition of control can occur upon the acquisition of 10% or more of the voting stock of a savings and loan holding company or as otherwise defined by the Office of Thrift Supervision. Under the Change in Bank Control Act, the Office of Thrift Supervision has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control would then be subject to regulation as a savings and loan holding company.
Federal Securities Laws. Beneficial Mutual Bancorp has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the common stock to be issued pursuant to the offering. Upon completion of the offering, Beneficial Mutual Bancorp common stock will continue to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Beneficial Mutual Bancorp will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
The registration, under the Securities Act of 1933, of the shares of common stock to be issued in the offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of Beneficial Mutual Bancorp may be resold without registration. Shares purchased by an affiliate of Beneficial Mutual Bancorp will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If Beneficial Mutual Bancorp meets the current public information requirements of Rule 144, each affiliate of Beneficial Mutual Bancorp that complies with the other conditions of Rule 144, including those that require the affiliates sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Beneficial Mutual Bancorp or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, Beneficial Mutual Bancorp may permit affiliates to have their shares registered for sale under the Securities Act of 1933.
Federal Income Taxation
General. We report our income on a fiscal year basis using the accrual method of accounting. The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal
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income tax returns have been either audited or closed under the statute of limitations through tax year 2002. For its 2006 fiscal year, Beneficial Mutual Savings Banks maximum federal income tax rate was 35%.
Beneficial Mutual Bancorp and Beneficial Mutual Savings Bank have entered into a tax allocation agreement. Because Beneficial Mutual Bancorp owns 100% of the issued and outstanding capital stock of Beneficial Mutual Savings Bank, Beneficial Mutual Bancorp and Beneficial Mutual Savings Bank are members of an affiliated group within the meaning of Section 1504(a) of the Internal Revenue Code, of which group Beneficial Mutual Bancorp is the common parent corporation. As a result of this affiliation, Beneficial Mutual Savings Bank may be included in the filing of a consolidated federal income tax return with Beneficial Mutual Bancorp and, if a decision to file a consolidated tax return is made, the parties agree to compensate each other for their individual share of the consolidated tax liability and/or any tax benefits provided by them in the filing of the consolidated federal income tax return.
Bad Debt Reserves. For fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and required savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves as of December 31, 1987. Approximately $2.3 million of our accumulated bad debt reserves would not be recaptured into taxable income unless Beneficial Mutual Savings Bank makes a non-dividend distribution to Beneficial Mutual Bancorp as described below.
Distributions. If Beneficial Mutual Savings Bank makes non-dividend distributions to Beneficial Mutual Bancorp, the distributions will be considered to have been made from Beneficial Mutual Savings Banks unrecaptured tax bad debt reserves, including the balance of its reserves as of December 31, 1987, to the extent of the non-dividend distributions, and then from Beneficial Mutual Savings Banks supplemental reserve for losses on loans, to the extent of those reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be included in Beneficial Mutual Savings Banks taxable income. Non-dividend distributions include distributions in excess of Beneficial Mutual Savings Banks current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of Beneficial Mutual Savings Banks current or accumulated earnings and profits will not be so included in Beneficial Mutual Savings Banks taxable income.
The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if Beneficial Mutual Savings Bank makes a non-dividend distribution to Beneficial Mutual Bancorp, approximately one and one-half times the amount of the distribution not in excess of the amount of the reserves would be includable in income for federal income tax purposes, assuming a 35% federal corporate income tax rate. Beneficial Mutual Savings Bank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.
State Taxation
Pennsylvania Taxation. Beneficial Mutual Savings Bank, as a savings bank conducting business in Pennsylvania, is subject to tax under the Pennsylvania Mutual Thrift Institutions Tax Act, as amended to include thrift institutions having capital stock. Pursuant to the Mutual Thrift Institutions Tax, the tax rate is 11.5%. The Mutual Thrift Institutions Tax exempts Beneficial Mutual Savings Bank from other taxes imposed by the Commonwealth of Pennsylvania for state income tax purposes and from all local taxation imposed by political subdivisions, except taxes on real estate and real estate transfers. The Mutual Thrift Institutions Tax is a tax upon net income, determined in accordance with generally accepted accounting principles with certain adjustments. The Mutual Thrift Institutions Tax, in computing income according to generally accepted accounting principles, allows for the deduction of interest earned on state, federal and local obligations, while disallowing a portion of a thrifts interest expense associated with tax-exempt income. Net operating losses, if any, can be carried forward a maximum of three years for Mutual Thrift Institutions Tax purposes.
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Philadelphia Taxation. In addition, as a savings bank conducting business in Philadelphia, Beneficial Mutual Savings Bank is also subject to the City of Philadelphia Business Privilege Tax. The City of Philadelphia Business Privilege Tax is a tax upon net income or taxable receipts imposed on persons carrying on or exercising for gain or profit certain business activities within Philadelphia. Pursuant to the City of Philadelphia Business Privilege Tax, the 2006 tax rate is 6.5% on net income and 0.1665% on gross receipts. For regulated industry taxpayers, the tax is the lesser of the tax on net income or the tax on gross receipts. The City of Philadelphia Business Privilege Tax allows for the deduction by financial businesses from receipts of (a) the cost of securities and other intangible property and monetary metals sold, exchanged, paid at maturity or redeemed, but only to the extent of the total gross receipts from securities and other intangible property and monetary metals sold, exchanged, paid out at maturity or redeemed; (b) moneys or credits received in repayment of the principal amount of deposits, advances, credits, loans and other obligations; (c) interest received on account of deposits, advances, credits, loans and other obligations made to persons resident or having their principal place of business outside Philadelphia; (d) interest received on account of other deposits, advances, credits, loans and other obligations but only to the extent of interest expenses attributable to such deposits, advances, credits, loans and other obligations; and (e) payments received on account of shares purchased by shareholders. An apportioned net operating loss may be carried forward for three tax years following the tax year for which it was first reported.
The Acquisition of FMS Financial
General
On October 12, 2006, Beneficial Mutual Bancorp entered into an Agreement and Plan of Merger pursuant to which FMS Financial will merge with and into Beneficial Mutual Bancorp, with Beneficial Mutual Bancorp as the surviving entity. Immediately following the merger of FMS Financial with Beneficial Mutual Bancorp, Farmers & Mechanics Bank will merge with and into Beneficial Mutual Savings Bank, with Beneficial Mutual Savings Bank as the surviving entity.
In connection with the merger, FMS Financials shareholders will be given the opportunity to exchange their shares of FMS Financial common stock for $28.00 in cash, 2.80 shares of Beneficial Mutual Bancorp common stock for each share of FMS Financial stock, or a combination thereof, subject to the election and proration procedures set forth in the merger agreement. To facilitate the merger, Beneficial Mutual Bancorp intends to form Merger Corp., a federally chartered interim company. Pursuant to the terms of the merger agreement, at the effective time of the merger, FMS Financial will merge with and into Merger Corp. with Merger Corp. as the surviving entity. Merger Corp. will then merge with and into Beneficial Mutual Bancorp with Beneficial Mutual Bancorp as the surviving entity. The charter and bylaws of Beneficial Mutual Bancorp will continue to be the charter and bylaws of the surviving corporation. Immediately following the merger of FMS Financial into Merger Corp. and Merger Corp. with and into Beneficial Mutual Bancorp, Farmers & Mechanics Bank with merge with and into Beneficial Mutual Savings Bank with Beneficial Mutual Savings Bank as the surviving entity.
To be able to offer FMS Financial shareholders shares of Beneficial Mutual Bancorp common stock as part of the merger consideration, Beneficial Mutual Bancorp is conducting an initial public offering. The offering and the merger will occur simultaneously. Failure to complete either the offering or the merger will result in the termination of both transactions. Among the conditions that must be satisfied before the merger can be consummated is the receipt of all required regulatory approvals and the approval of FMS Financial shareholders. Beneficial Mutual Bancorp has filed applications with the Office of Thrift Supervision, Federal Deposit Insurance Corporation and Pennsylvania Department of Banking in connection with the merger.
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Reasons for the Merger
Our board of directors believes that the merger will enhance the competitive position of Beneficial Mutual Bancorp by enabling us to expand into Burlington and Camden Counties, New Jersey where we currently only have one branch office in each such County, as well as into Mercer County, New Jersey.
The merger with FMS Financial will facilitate a key step in the execution of Beneficial Mutual Savings Banks management strategy; that is to increase market share in Beneficial Mutual Banks primary market area through the acquisition or purchase of deposits. The combination of both Beneficial Mutual Savings Bank and Farmers & Mechanics Bank will provide customers of both with convenient access to their accounts by increasing the number of branches available in Beneficial Mutual Savings Banks primary market area. Farmers & Mechanics Bank intends to close eleven of its existing branch offices prior to consummation of the merger. Notwithstanding the closing of these offices, many of which are located near other Farmers & Mechanics Bank offices that will remain open, a substantial branch network will exist for the convenience of our customers, including access to our convenient internet banking and substantial branch network throughout the Delaware Valley.
The merger with FMS Financial will increase Beneficial Mutual Savings Banks deposit base and its loan portfolio. In addition, the merger, combined with the stock offering, will permit Beneficial Mutual Savings Bank to use a significant portion of its capital, while continuing to well exceed each of its regulatory capital requirements. In addition to enabling Beneficial Mutual Savings Bank to expand its franchise, which will enhance its ability to compete in its market area, the merger is also expected to reduce the pressure to leverage its balance sheet that typically exists when institutions with high capital levels engage in stock offerings. Accordingly, the stock offering is contingent upon the satisfaction or waiver of each of the conditions to the completion of the merger. In the event that such conditions are not satisfied or waived and the merger cannot be completed, Beneficial Mutual Bancorp will terminate the public stock offering and promptly return your funds with interest at our passbook savings rate.
The terms of the merger agreement were the result of arms length negotiations between the representatives of Beneficial Mutual Bancorp and FMS Financial. In its deliberations and in making its determination, Beneficial Mutual Bancorps board of directors considered many factors including, without limitation, the factors described above, as well as the following:
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information concerning the financial condition, results of operations, capital levels, asset quality and prospects of Beneficial Mutual Bancorp and FMS Financial, including consideration of both companies historical and projected results of operation and financial condition and a review of FMS Financials financial performance by comparison to peer group; |
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Beneficial Mutual Bancorps access to capital and managerial resources relative to that of FMS Financial; |
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the anticipated short-term and long-term impact the offering and merger will have on Beneficial Mutual Bancorps consolidated results of operations; |
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the general structure of the transaction and the perceived compatibility of the respective management teams and business philosophies of Beneficial Mutual Savings Bank and Farmers & Mechanics Bank, which Beneficial Mutual Savings Banks board believed would make it easier to integrate the operations of the two companies; |
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the belief that the merger will enhance Beneficial Mutual Savings Banks franchise value by the expansion of its branch network (on a consolidated basis) in the New Jersey market and by enhancing its ability to compete in its primary market area; and |
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Beneficial Mutual Savings Banks long-term growth strategy. |
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The discussion of the information and factors considered by our board of directors is not intended to be exhaustive, but includes all material factors considered by our board of directors. In reaching its determination to approve the merger, out board of directors did not assign any specific or relative weights to any of the foregoing factors, and individual directors may have weighed factors differently.
Consideration to be Received in the Merger
Although shareholders of FMS Financial are being given the option to elect whether to receive cash, Beneficial Mutual Bancorp common stock, or a combination of the two, in exchange for their shares of FMS Financial common stock, all cash and stock elections will be subject to the allocation and proration procedures, as well as other provisions in the merger agreement. In particular, subject to adjustment, the maximum number of FMS Financial shares converted into the right to receive cash consideration will be 42.5% of the total outstanding FMS Financial stock and the total number of FMS Financial shares converted into the right to receive stock consideration shall be 57.5% of the total outstanding FMS Financial shares. To the extent necessary to maintain the aggregate pro forma tangible book value of the shares of Beneficial Mutual Bancorp common stock issued in the merger at not less than $65.6 million, the amount of FMS Financial common stock that will be converted into the right to receive cash will decrease to 35% and the maximum amount of FMS Financial common stock that may be converted into the right to receive Beneficial Mutual Bancorp common stock will increase to up to 65% of the outstanding FMS Financial shares. Based upon the current offering range, a maximum of 10,512,194, 10,953,103, 11,550,890 and 11,883,350 shares of Beneficial Mutual Bancorp stock will be issued in exchange for FMS Financial stock at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range.
FMS Financials shareholders will not receive fractional shares of Beneficial Mutual Bancorp common stock. Instead, they will receive a cash payment for any fractional shares in an amount equal to the product of such fractional amount multiplied by $28.00.
Treatment of FMS Financial Stock Options
Accounting Treatment
Beneficial Mutual Bancorp will account for the merger under the purchase method of accounting in accordance with United States generally accepted accounting principles. Using the purchase method of accounting, the assets and liabilities of FMS Financial will be recorded by Beneficial Mutual Bancorp at their respective fair values at the time of the completion of the merger. The excess of FMS Financials purchase price over the net fair value of the assets acquired and liabilities assumed will then be allocated to identified intangible assets, with any remaining unallocated cost recorded as goodwill.
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Tax Aspects
Muldoon Murphy & Aguggia LLP, our counsel, has delivered to us its opinion, dated as of the date of this prospectus, that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and that, consequently, the merger will be tax-free to Beneficial Savings Bank MHC, Beneficial Mutual Bancorp, FMS Financial, Farmers & Mechanics Bank, Beneficial Mutual Savings Bank and Beneficial Mutual Savings Banks account holders.
Regulatory Approvals Needed to Complete the Merger and Offering
General. The merger cannot proceed in the absence of the requisite regulatory approvals. See The Acquisition of FMS FinancialConditions to Completion of the Merger and Termination. There can be no assurance that the requisite regulatory approvals will be obtained, and if obtained, there can be no assurance as to the date of any approval. There can also be no assurance that any regulatory approvals will not contain a condition or requirement that causes the approvals to fail to satisfy the condition set forth in the merger agreement and described under The Acquisition of FMS FinancialConditions to Completion of the Merger.
The approval of an application merely implies the satisfaction of regulatory criteria for approval, which does not include review of the merger from the standpoint of the adequacy of the cash consideration or the exchange ratio for converting FMS Financial common stock to Beneficial Mutual Bancorp common stock. Furthermore, regulatory approvals do not constitute an endorsement or recommendation of the merger.
Merger Approvals. Completion of the merger is subject to prior approval of the Federal Deposit Insurance Corporation, the Office of Thrift Supervision and the Pennsylvania Department of Banking. In reviewing applications for transactions of this type, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision must consider, among other factors, the financial and managerial resources and future prospects of the existing and resulting institutions, the convenience and needs of the communities to be served, and competitive factors. Similarly, the Pennsylvania Department of Banking must consider, among other factors, whether the merger will be consistent with adequate and sound banking practices and in the public interest on the basis of the following: (i) the financial history and condition of the parties; (ii) their prospects; (iii) the character of their management; (iv) the potential effect of the merger on competition; and (v) the convenience and needs of the area primarily to be served by the resulting institution. In addition, the Federal Deposit Insurance Corporation may not approve a transaction if it will result in a monopoly or otherwise be anticompetitive. Beneficial Mutual Bancorp filed applications with the Federal Deposit Insurance Corporation, the Office of Thrift Supervision and the Pennsylvania Department of Banking on _______________, 2007.
Under the Community Reinvestment Act of 1977, the Federal Deposit Insurance Corporation must take into account the record of performance of Farmers & Mechanics Bank and Beneficial Mutual Savings Bank in meeting the credit needs of the entire community, including low- and moderate-income neighborhoods, served by each institution. As part of the review process, bank regulatory agencies frequently receive comments and protests from community groups and others. Farmers & Mechanics Bank received an Outstanding rating during its last Community Reinvestment Act examination by the Office of Thrift Supervision and Beneficial Mutual Savings Bank received a Satisfactory rating during its last Community Reinvestment Act examination conducted by the Federal Deposit Insurance Corporation.
In addition, a period of 15 to 30 days must expire following approval by the Federal Deposit Insurance Corporation before completion of the merger of Beneficial Mutual Savings Bank and Farmers & Mechanics Bank is allowed, within which period the United States Department of Justice may file objections to the merger under the federal antitrust laws. While FMS Financial and Beneficial Mutual Bancorp believe that the likelihood of objection by the Department of Justice is remote in this case, there can be no assurance that the Department of Justice will not initiate proceedings to block the merger of the two banks, or that the Attorney General of the State of Pennsylvania will not challenge the merger of the two banks, or if any proceeding is instituted or challenge is made, as to the result of the challenge.
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Offering Approvals. We have adopted a plan of stock issuance pursuant to which we are offering a minority of shares to the public and shareholders of FMS Financial. Consummation of the merger is subject to certain conditions, including the receipt of Beneficial Mutual Bancorp of all approvals necessary to complete its stock offering. Specifically, the offering must be approved by the Office of Thrift Supervision. Beneficial Mutual Bancorps offering applications were filed with the Office of Thrift Supervision on _________________, 2007. Beneficial Mutual Bancorp also filed a Registration Statement on Form S-1 with the Securities and Exchange Commission on ______________, 2007.
Interests of Certain Persons in the Merger
As described below, certain of FMS Financials officers and directors have interests in the merger that are in addition to, or different from, the interests of FMS Financials shareholders generally. FMS Financials board of directors was aware of these conflicts of interest and took them into account in approving the merger.
Appointment of Directors to the Beneficial Mutual Bancorp Board of Directors. Beneficial Mutual Bancorp will appoint two members of FMS Financials directors to the board of trustees of Beneficial Mutual Savings Bank and the boards of directors of Beneficial Mutual Bancorp and Beneficial Savings Bank MHC. Those individuals will be Craig W. Yates and Roy D. Yates.
Creation of an Advisory Board. Beneficial Mutual Savings Bank has agreed to establish an advisory board for the purposes of both (i) assisting and advising in the integration of the operations of Farmers & Mechanics Bank with and into those of Beneficial Mutual Bancorp, and (ii) advising with respect to the operations of Beneficial Mutual Savings Bank. Each director of FMS Financial, other than Craig W. Yates and Roy D. Yates, will be invited to serve on the advisory board. Each advisory director will be paid an amount equal to the aggregate regular board fees paid to a member of both the FMS Financial and Farmers & Mechanics Bank boards of directors for the 12-month period immediately prior to the effectiveness of the merger. Beneficial Mutual Savings Bank has agreed to maintain the advisory board for a term of one year.
Retention/Change in Control Bonuses. In connection with the merger, Beneficial Mutual Bancorp has agreed to pay change in control bonuses or retention bonuses to certain officers and key employees of FMS Financial or Farmers & Mechanics Bank (including Chief Executive Officer Craig Yates and other senior officers) totaling $2.05 million in aggregate. In addition, by June 1, 2007 or an otherwise mutually agreed upon time, FMS Financial will identify to Beneficial Mutual Bancorp certain additional employees of FMS Financial or Farmers & Mechanics Bank to receive change in control or retention bonuses in an aggregate amount not to exceed an additional $750,000.
With respect to officers and employees scheduled to receive a change in control bonus, Beneficial Mutual Bancorp expects to enter into a separate agreement prior to the closing of the merger related to the payment of the agreed upon bonus within 30 days of the effective time of the merger. Such agreements will be guaranteed as long as the employee continues employment through the effective time of the merger. However, no change in control bonus would be payable to any officer or employee who terminates employment with FMS Financial or Farmers & Mechanics Bank prior to the effective time of the merger.
With respect to officers and employees scheduled to receive a retention bonus, Beneficial Mutual Bancorp expects to enter into a separate retention agreement prior to the closing of the merger relating to the payment of the agreed upon bonus upon the completion of a period of employment specified by Beneficial Mutual Bancorp, in its sole discretion, but not to exceed six months after the merger. Such agreement will provide for payment of the bonus upon completion of the specified period of employment except in the event of the employees termination for cause on terms to be specified in the agreement. The agreement will further provide for payment of the bonus in the event of the employees termination without cause or by reason of death or disability prior to the expiration of the specified employment period. Except to the extent of any specific rights created by an individual retention agreement, an officer or employee covered by a retention bonus agreement would be an at-will employee of Beneficial Mutual Bancorp or one of its subsidiaries following the effective time of the merger. However, no retention bonus would be payable to any officer or employee covered by an agreement who terminates employment with FMS Financial or Farmers & Mechanics Bank prior to the effective time of the merger.
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Employee Severance. Except in the circumstances described below, an employee of FMS Financial or Farmers & Mechanics Bank who continues as an employee of Beneficial Mutual Bancorp or any of its subsidiaries but is involuntarily terminated, other than for cause (as defined in the preceding section), within twelve months of the effective time of the merger, will receive a lump sum payment within five business days of their termination date equal to the product of two weeks base pay (as defined below) and the employees years of service with FMS Financial, Farmers & Mechanics Bank and Beneficial Mutual Bancorp or any of its subsidiaries (including partial years of service), but not exceeding a total severance amount equal to 26 weeks of base pay. However, unless otherwise specified in an individual retention agreement or change in control bonus agreement, a senior officer or officer of FMS Financial or Farmers & Mechanics Bank who is eligible to receive a retention bonus or a change in control bonus will not be eligible to receive a separate severance benefit regardless of when such officer terminates employment with FMS Financial, Farmers & Mechanics Bank, Beneficial Mutual Bancorp or any of its subsidiaries and without regard to the reasons for such termination.
Continued Director and Officer Liability Coverage. For a period of six years following the effective time of the merger, Beneficial Mutual Bancorp has agreed to indemnify, and advance expenses in matters that may be subject to indemnification to, persons who served as directors or officers of FMS Financial, Farmers & Mechanics Bank or any of their subsidiaries with respect to liabilities and claims (and related expenses, including fees and disbursements of counsel) made against them resulting from their service as such prior to the effective time of the merger to the same extent as FMS Financial currently provides for indemnification of its officers and directors. Beneficial Mutual Bancorp has also agreed to purchase and keep in force for a period of six years following the effective time of the merger directors and officers liability insurance to provide coverage for acts or omissions of the type and in the amount currently covered by FMS Financials and Farmers & Mechanics Banks existing directors and officers liability insurance for acts or omissions occurring on or prior to the effective time of the merger.
Employee Matters
Cost efficiencies are being identified by management of Beneficial Mutual Bancorp and as decisions are made regarding the consolidation of certain Farmers & Mechanics Bank branch offices, decisions will also be made regarding certain FMS Financial and Farmers & Mechanics Bank management and employee positions that may be eliminated. Each person who is an employee of Farmers & Mechanics Bank as of the closing of the merger (whose employment is not specifically terminated upon the closing) will become an employee of Beneficial Mutual Savings Bank. Beneficial Mutual Bancorp or its subsidiaries will make available employer provided health and other employee welfare benefit plans to each continuing employee on the same basis that such employees received coverage from Farmers & Mechanics Bank until Beneficial Mutual Savings Bank alters such benefits to make them consistent with the benefits being offered by Beneficial Mutual Savings Bank. Former employees of Farmers & Mechanics Bank who become employees of Beneficial Mutual Savings Bank in connection with the merger will be eligible to participate in the Beneficial Mutual Savings Banks Employees Savings Plan and the Beneficial Mutual Savings Bank Employee Stock Ownership Plan in accordance with the eligibility provisions of the respective plans. The FMS Financial defined benefit plan shall continue, except to the extent inconsistent with law, after the merger, for former Farmers & Mechanics Bank employees, until Beneficial Mutual Bancorp elects to take alternative action. Beneficial Mutual Bancorp has also agreed to honor all vested benefits or other vested amounts earned or accrued under Farmers & Mechanics Bank employee benefit plans, contracts and arrangements.
Time of Completion
The closing of the merger will take place on a date the parties agree upon that occurs as promptly as practicable following the date on which the conditions to closing as described in the merger agreement have been satisfied. See Conditions to Completion of the Merger. On the closing date, FMS Financial will merge with and into Merger Corp., a federally chartered interim corporation to be formed as a subsidiary of Beneficial Mutual
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Bancorp, with Merger Corp. as the surviving entity. Beneficial Mutual Bancorp will file articles of combination with the Office of Thrift Supervision merging Merger Corp. into Beneficial Mutual Bancorp and a certificate of merger with the New Jersey Secretary of State. The merger will become effective at the time stated in such articles of combination and certificate of merger.
Beneficial Mutual Bancorp and FMS Financial are working hard to complete the merger quickly. It is currently expected that the merger will be completed at the beginning of the third calendar quarter of 2007. However, because completion of the merger is subject to regulatory approvals and other conditions, the parties cannot be certain of the actual timing. Furthermore, either company may terminate the merger agreement if, among other reasons, the merger has not been completed on or before December 31, 2007, unless failure to complete the merger by that time is due to a failure to fulfill any material obligation under the merger agreement by the party seeking to terminate the agreement. See Terminating the Merger Agreement.
Conditions to Completing the Merger
Beneficial Mutual Bancorps and FMS Financials obligations to consummate the merger are conditioned on the following:
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approval of the merger agreement by FMS Financial shareholders; |
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receipt of all required regulatory approvals, the satisfaction of all conditions required by the terms of such approvals and the expiration of all statutory waiting periods (and further, that no such approval shall contain any condition applicable to Beneficial Mutual Bancorp that is, in the reasonable judgment of Beneficial Mutual Bancorp, materially burdensome upon its conduct of business or would so adversely impact the economic and business benefits of the merger to Beneficial Mutual Bancorp so as to render it inadvisable to proceed with the merger); |
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no party to the merger being subject to any pending or overtly threatened suit, action or other proceeding before any court in which the consummation of the transactions contemplated by the merger agreement are restrained or enjoined or in which the relief requested is to restrain, enjoin or prohibit the consummation of such transaction and, in either case, where in the reasonable judgment of either Beneficial Mutual Bancorp or FMS Financial, such suit, action or other proceeding is likely to have a material adverse effect with respect to such partys interest; |
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the occurrence of the minority stock offering; |
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the registration statement of which this prospectus is a part of being declared effective by the Securities and Exchange Commission and the absence of any instituted or threatened proceeding by the Securities and Exchange Commission to suspend the effectiveness of the registration statement; |
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each party having performed and complied in all material respect with all of its covenants, agreements and other obligations under the merger agreement; |
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each party having ensured that all proceedings, corporate or otherwise, to be taken in connection with the transactions contemplated by the merger agreement, and all related documents, shall be reasonably satisfactory in form and substance to the other party, and shall have been made available to the other party for examination the originals or true and correct copies of all documents the other party may reasonably request in connection with the transactions contemplated by the merger agreement; |
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each partys representations and warranties being true and correct (except to the extent any breaches of a representation or warranty, either individually or in the aggregate, do not or would not be reasonably likely to have a material adverse effect on the other party); |
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neither party having sustained a material adverse effect or change to its financial condition or results of operations since the execution of the merger agreement; |
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each partys receipt of such certificates and documents of officers of the other party and public officials as shall be reasonably requested to establish the existence of the other party and the due authorization of the merger agreement and the transactions contemplated thereby; |
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the receipt by Beneficial Mutual Bancorp of a customary comfort letter from FMS Financials independent auditors regarding the financial condition of FMS Financial; |
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FMS Financials continued listing on the Nasdaq Global Market; |
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Beneficial Mutual Bancorps approval for listing on the Nasdaq Global Market or Nasdaq Global Select Market; |
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FMS Financial having used its best efforts to cause all of its outstanding stock options to have been terminated or cancelled; |
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Beneficial Mutual Bancorps cash payment for the outstanding FMS Financial options; |
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each party having received all required third party consents, the absence of which would materially and adversely affect such party; |
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receipt by Beneficial Mutual Bancorp and FMS Financial of an opinion from Beneficial Mutual Bancorps legal counsel to the effect that the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368 of the Internal Revenue Code; |
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receipt by FMS Financial of an opinion from Ryan Beck dated as of the date of the proxy statement to be used in connection with the FMS Financial stockholders meeting that the merger consideration to be paid to FMS Financials shareholders in the merger is fair from a financial point of view; and |
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the exchange agent shall have certified receipt of the aggregate merger consideration for all shares of FMS Financial common stock to be acquired in connection with the merger. |
Beneficial Mutual Bancorp and FMS Financial cannot guarantee whether all of the conditions to the merger will be satisfied or waived by the party permitted to do so.
Conduct of Business Before the Merger
FMS Financial has agreed that, until completion of the merger and unless permitted by Beneficial Mutual Bancorp, it and its subsidiaries will:
General Business
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conduct its business in the usual, regular and ordinary course consistent with past practice (including ongoing review, testing, maintenance and assessment of disclosure controls and procedures and internal control over financial reporting); |
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maintain its books in accordance with GAAP; |
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conduct its business and operations only in accordance with safe and sound banking and business practices; |
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preserve intact its business organization, generally keep available the services of its officers and employees and preserve its relationships with customers, suppliers, agents, brokers and others having business dealings with them to the end that its goodwill and going businesses will be unimpaired at the effective time of the merger; |
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promptly advise Beneficial Mutual Bancorp orally and in writing of any event or series of events which has a material adverse effect on the financial condition or results of operations of FMS Financial; |
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Compliance with Law |
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use its best efforts to comply promptly with all requirements imposed by state or federal law with respect to the merger; |
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promptly cooperate with and furnish information to Beneficial Mutual Bancorp in connection with any such requirements imposed upon any of them in connection with the merger; |
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use its best efforts to obtain (and cooperate with Beneficial Mutual Bancorp in obtaining) any consent, authorization or approval of, or any exemption by, any governmental authority or agency, or other third party, required to be obtained or made by any of them in connection with the merger or the taking of any action contemplated thereby; |
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not knowingly or willfully take any action that would adversely affect the ability of such party to perform its obligations under this merger agreement; |
In addition to maintaining its business in the usual and ordinary course and complying with applicable laws, FMS Financial and Farmers & Mechanics Bank have agreed to restrict certain activities including, but not limited to the following:
Cash Dividends
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not declare or pay any cash dividends on or make other distributions with respect to capital stock, except that FMS Financial will be permitted to declare and pay a regular quarterly cash dividend not exceeding $0.03 per share; |
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Assets |
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not sell, lease or otherwise dispose of any assets, except in the ordinary course of business, which are material, individually or in the aggregate, to the business or financial condition of FMS Financial on a consolidated business, nor acquire the assets of another entity; |
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Capital Stock |
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not increase the shares of capital stock FMS Financial has outstanding; |
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Liabilities |
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not create or incur any liabilities, in a single transaction or series of related transaction, in excess of $50,000 other than liabilities incurred in the ordinary course of business or consistent with past practices; |
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Compensation |
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generally not increase the compensation paid to its directors, officers and employees, except in accordance with past practices for those employees who are not executive or senior management; |
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Properties |
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not take steps to relocate operations from existing locations, nor enter into, renew, extend, amend or modify any lease or license with respect to any property, whether real or personal, with a term of more than one year or payments greater than $50,000; |
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must use its best efforts to maintain its properties and assets in their present states of repair, order and condition; |
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Governing Documents |
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not amend its articles of incorporation or bylaws; |
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Loans |
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Farmers & Mechanics Banks lending activities are restricted and Farmers & Mechanics Bank may not enter into, renew, modify or increase (i) any loan secured by lease receivables; (ii) any loan secured by commercial real estate involving an amount in excess of $1.25 million or any amount that, when aggregated with any and all loans to the same or related borrowers, would be in excess of $2.5 million (and in any event only if such loan has an existing debt service coverage ratio of not less than 1.20 and a loan value ratio in accordance with regulatory guidelines); (iii) any business loan involving an amount in excess of $250,000, or any amount that, aggregated with any and all loans to the same or related borrowers, would be in excess of $500,000 (and in any event only if such loan has an existing debt service coverage ratio of not less than 1.20); (iv) any loan or credit commitment (including letters of credit) which is secured by property located outside of New Jersey and Pennsylvania: and (v) any loan or credit commitment (including letters of credit) to, or make any investment in, any person or entity or modify any of the material provisions or renew or otherwise extend the maturity date of an existing loan, credit commitment or investment that (1) involves an amount in excess of $1.25 million or in any amount that, when aggregated with any and all loans or credit commitments to such person, would be in excess of $2.5 million (and in any event only if such loan has a loan-to-value ratio of not greater than 80% unless private mortgage insurance is purchased); (2) is to any person other than in accordance with its lending policies as in effect at the date of the merger agreement; or (3) involves any of the loans or other extensions of credit to which, or investments in which, are delinquent, non-performing or on a watch-list or similar internal report of FMS Financial; |
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there are also restrictions on making fixed rate loans, purchasing loans and loan participations and increasing or renewing any loan commitment to an executive officer, director of only 5% or greater shareholder of FMS Financial; |
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Taxation |
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not take any action which would, or fail to take any action contemplated by the merger agreement if such failure would disqualify the merger as a tax-free reorganization under Section 368(a) of the Internal Revenue Code; |
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Portfolio |
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not materially restructure or change its investment securities portfolio through purchases, sales or otherwise, or change the manner in which the portfolio is classified or reported (in accordance with FAS 115 or otherwise); |
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Policies |
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not implement or adopt any material change in its interest rate and other risk management policies, procedures or practices; |
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must follow its existing policies and practices with respect to managing its exposure to interest rate and other risk and may not change in any material respect any basic policies and practices with respect to liquidity management and cash flow planning, marketing, deposit origination, lending, budgeting, profit and tax planning, personnel practices, accounting or any other material aspects of its business or operations, except for such changes as may be required by the rules of the AICPA or the FASB or by governmental authorities or by law; |
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Contracts |
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not knowingly default under the terms of any material contract, enter into any new, or modify, amend or extend the terms of any existing, contracts relating to the purchase or sale of financial or other futures, derivative or synthetic mortgage product or any put or call option relating to cash, securities or commodities or any interest rate swap agreements or other agreement relating to the hedging of interest rate risks, or enter into any contract or agreement to buy, sell, exchange or otherwise deal in any tangible assets in a single transaction or a series of transactions in excess of $75,000 in aggregate value; |
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Indebtedness |
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not create or incur any mortgage, lien, pledge or security interest, against or in respect of any property or right of FMS Financial securing any obligation in excess of $75,000, except for any pledge or security interests given in connection with the acceptance of repurchase agreements or government deposits or if in the ordinary course of business consistent with past practice; |
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not discharge or satisfy any mortgage, lien, charge or encumbrance other than as a result of the payment of liabilities in accordance with the terms thereof, or except in the ordinary course of business, if the cost to FMS Financial to do so is in excess of $75,000, unless such discharge or satisfaction is covered by general or specific reserves; |
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Settling Claims |
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not settle or agree to settle any claim, action or proceeding, whether or not initiated in a court of law, against it for more than $75,000; and |
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Capital Expenditures |
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not make any one capital expenditure or any series of related capital expenditures (other than emergency repairs and replacements), the amount or aggregate amount of which is in excess of $75,000, and provided further that any computer or network equipment acquired by FMS Financial or its subsidiaries shall satisfy certain standards and specifications acceptable to Beneficial Mutual Bancorp. |
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Covenants of Beneficial Mutual Bancorp and FMS Financial in the Merger Agreement
Agreement Not to Solicit Other Proposals. FMS Financial has agreed not to solicit, initiate or encourage any acquisition proposal by a third party, to participate in discussions or negotiations regarding an acquisition proposal or to enter into any agreement requiring it to abandon or terminate the merger agreement with Beneficial Mutual Bancorp. An acquisition proposal includes the making of a proposal by a third party with respect to the following:
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any merger, consolidation, share exchange, business combination, or other similar transaction involving FMS Financial or Farmers & Mechanics Bank; |
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any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 24.9% or more of the assets of FMS Financial or Farmers & Mechanics Bank in a single transaction or a series of related transactions, excluding from this calculation such transactions undertaken in the ordinary course of business and consistent with past practice; |
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any sale of 24.9% or more of the outstanding shares of capital stock of FMS Financial or Farmers & Mechanics Bank (or securities convertible or exchangeable into or otherwise evidencing, or an agreement or instrument evidencing, the right to acquire capital stock); |
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the filing of an acquisition application (or the giving of an acquisition notice), whether in draft or final form, under the Home Owners Loan Act or under any other applicable law with respect to FMS Financial or Farmers & Mechanics Bank; |
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any person who has acquired beneficial ownership or the right to acquire beneficial ownership of, or any group (as such term is defined under Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations of the Securities Exchange Commission promulgated thereunder) which has been formed which beneficially owns or has the right to acquire beneficial ownership of, 24.9% or more of the then outstanding shares of capital stock of FMS Financial; or |
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any public announcement of a proposal, plan or intention to do any of the foregoing. |
Notwithstanding these provisions, if FMS Financial receives an unsolicited acquisition proposal that its board of directors believes is superior to the terms of the merger with Beneficial Mutual Bancorp, then FMS Financial may furnish non-public information concerning FMS Financial to the person making the proposal and may engage in discussions with that person, but only if FMS Financials board of directors determines in good faith, based on advice of legal counsel, that failure to take such action would constitute a breach of its fiduciary duties to FMS Financial stockholders. If FMS Financial determines that it desires to accept a superior proposal, it shall notify Beneficial Mutual Bancorp in writing of its intent to terminate the merger agreement with Beneficial Mutual Bancorp in order to enter into an agreement in connection with the superior proposal. Beneficial Mutual Bancorp shall have three calendar days to evaluate and respond to FMS Financials notice. If Beneficial Mutual Bancorp notifies FMS Financial in writing within the three calendar days that it will at least match the terms of the superior proposal, then FMS Financial may not accept the superior proposal.
Certain Other Covenants. The merger agreement also contains other agreements relating to the conduct of Beneficial Mutual Bancorp and FMS Financial before consummation of the merger, including the following:
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each party shall afford to the others officers, employees, accountants, legal counsel and other representatives access, during normal business hours, to all of its and its subsidiaries, properties, books, contracts, commitments and records; provided that FMS Financial may redact any information from such materials which relates to assessments, analyses or discussions of a possible acquisition prior to the date of the merger agreement with Beneficial Mutual Bancorp, or |
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which relates to matters or issues concerning its evaluation of the merger with Beneficial Mutual Bancorp or that would impair the ability of its board of directors to discharge its fiduciary duties; |
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each party shall (a) to the extent within its control, use best efforts to cause all of its representations and warranties contained in the merger agreement to be true and correct in all material respects at the effective time of the merger as if such representations and warranties had been made on and as of the effective time of the merger and (b) use best efforts to cause all of the conditions precedent set forth in the merger agreement to be satisfied; |
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neither party shall take any action, nor agree or commit to take any action, which would reasonably be expected to (a) adversely affect the ability of either party to obtain necessary regulatory approvals; (b) adversely affect a partys ability to perform its covenants or agreements under the merger agreement; or (c) result in any of the conditions to the merger set forth in the merger agreement not being satisfied; |
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each party shall furnish to the other (a) a copy of each significant report, schedule and other document filed by or received by it or its subsidiaries pursuant to the requirements of federal or state securities laws or banking laws promptly after such documents are available; (b) its consolidated monthly consolidated financial statements (as prepared in accordance with its normal accounting procedures) promptly after such consolidated financial statements are available; (c) a summary of any action taken by its, or its subsidiaries, boards of directors, or any committees thereof; and (d) all significant information concerning it and its subsidiaries business, properties and personnel as the other may reasonably request; |
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each party shall (a) confer with one another on a regular and frequent basis to report on operational matters and the general status of their respective ongoing business operations; (b) discuss with one another any matters directly affecting them in which any state or federal regulator of FMS Financial or Beneficial Mutual Bancorp is involved; and (c) provide prompt notice to the other of any litigation, arbitration, proceeding, governmental investigation, citation or action of any kind which may be commenced, threatened or proposed by any person concerning the legality, validity or propriety of the transactions contemplated by the merger agreement and, if any such litigation is commenced against any party to the merger agreement, the parties shall cooperate in all respects in connection with such litigation; |
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each party shall (a) take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on it with respect to the merger (including making all filings and requests in connection with necessary regulatory approvals and furnishing all information in connection therewith); (b) promptly cooperate with and furnish information to the other party in connection with any such requirements imposed upon any of them in connection with the merger; and (c) take all reasonable actions necessary to obtain (and will cooperate with the other party in obtaining) any consent, authorization, order or approval of, or any exemption by, any governmental entity or other public or private person, required to be obtained by the parties in connection with the merger or the taking of any action contemplated by the merger agreement; |
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each party will use its reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary or advisable to consummate the transactions contemplated by the merger agreement including, but not limited to, the merger; |
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each party, subject to disclosure obligations imposed under applicable law, will cooperate with the other in the development and distribution of all news releases and other public information disclosures with respect to the merger and shall not issue any public announcement or statement with respect to the merger without prior consultation with the other party; |
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FMS Financial shall use its reasonable best efforts to maintain the listing of FMS Financial common stock on the Nasdaq Global Market though the effective time of the merger; |
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Beneficial Mutual Bancorp shall use its best efforts to cause the shares of Beneficial Mutual Bancorp to be issued pursuant to the merger agreement to be approved for listing on the Nasdaq Global Market or Nasdaq Global Select Market prior to the effective time of the merger; |
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Beneficial Mutual Bancorp will file a registration statement, of which this proxy statement/prospectus forms a part, with the Securities and Exchange Commission registering the shares of Beneficial Mutual Bancorp common stock to be issued pursuant to the merger agreement; |
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FMS Financial will use its best efforts to cause to be delivered to Beneficial Mutual Bancorp a letter from Grant Thornton LLP, FMS Financials independent auditors, and/or a letter from PricewaterhouseCoopers LLP, FMS Financials former independent auditors, each dated within three business days before the registration statement is declared effective by the Securities and Exchange Commission, and each addressed to Beneficial Mutual Bancorp, in form and substance reasonably satisfactory to Beneficial Mutual Bancorp, and each customary in scope and substance for letters delivered by independent public accountants in connection with similar registration statements; |
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FMS Financial, between the date of the merger agreement and the effective date of the merger, shall maintain disclosure controls and procedures that are effective to ensure that material information relating to FMS Financial and its shareholders are made known to the President and Chief Executive Officer and Chief Financial Officer of FMS Financial to record, process, summarize and report financial data in a timely and accurate manner and FMS Financial shall take appropriate corrective actions to address any significant deficiencies or material weaknesses identified in the internal controls; |
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FMS Financial will take all actions necessary to convene a meeting of its shareholders to vote on the merger agreement and the FMS Financial board of directors will recommend at the shareholder meeting that the shareholders vote to approve the merger and will use its reasonable best efforts to solicit shareholder approval, unless it determines that such actions would not comply with its fiduciary obligations to FMS Financial shareholders; and |
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FMS Financial will use its reasonable best efforts to cause each person who is an affiliate of it under Rule 145 of the Securities Act to deliver to Beneficial Mutual Bancorp a letter to the effect that such person will comply with Rule 145. |
For information on additional covenants made by Beneficial Mutual Bancorp and FMS Financial in connection with the merger, see Conditions to Completing the Merger and Conduct of Business Before the Merger.
Representations and Warranties Made by Beneficial Mutual
Bancorp and FMS Financial in the Merger Agreement
Beneficial Mutual Bancorp and FMS Financial have made certain customary representations and warranties to each other in the merger agreement relating to their businesses. The representations and warranties must be true in all material respects (except to the extent any breaches of a representation or warranty, either individually or in the aggregate, do not or would not reasonably be likely to have a material adverse effect on the other party) through the completion of the merger. For more information, see Conditions to Completing the Merger.
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The representations and warranties contained in the merger agreement were made only for purposes of such agreement and are made as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed to by the contracting parties, including being qualified by disclosures between the parties. These representations and warranties may have been made for the purpose of allocating risk between the parties to the agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors as statements of factual information.
Terminating the Merger Agreement
The merger agreement may be terminated at any time prior to the completion of the merger, either before or after approval of the merger agreement by FMS Financial shareholders, as follows:
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by the mutual written consent of the parties; |
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by either party if the shareholders of FMS Financial fail to approve the merger agreement; |
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by either party if regulatory approval of the merger or the minority offering has been denied; |
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by either party if the merger is not consummated by December 31, 2007; provided, however, that this right is not available to any party who failed to comply with a provision of the merger agreement that causes the delay; |
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by either party if the other breaches a representation or warranty or breaches a covenant or agreement so that the conditions of closing the merger cannot be satisfied and the breach is not cured within 30 days following written notice to the party committing the breach; |
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by either party if any of the conditions precedent to the obligations of such party cannot be satisfied by December 31, 2007; |
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by Beneficial Mutual Bancorp if FMS Financial fails to call a shareholder meeting and/or fails to recommend the merger or, after recommending approval, the board of directors of FMS Financial withdraws, qualifies or revises such recommendation; |
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by Beneficial Mutual Bancorp if a tender offer or exchange offer for 25% or more of FMS Financial common stock is commenced and the FMS Financial board of directors recommends that FMS Financial shareholders tender their shares or otherwise fails to recommend rejection of the tender offer; |
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by FMS Financial in the event that FMS Financial receives a superior proposal; or |
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by FMS if any required approval or non-objection from the Office of Thrift Supervision relating to change in control filings relating to FMS Financial have not been obtained. |
Termination Fee
FMS Financial Termination Fee. The merger agreement requires FMS Financial to pay Beneficial Mutual Bancorp a fee of up to $7.3 million if:
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(i) |
the merger agreement is terminated by Beneficial Mutual Bancorp because FMS Financials board of directors fails to recommend the merger to shareholders, withdraws such recommendation or fails to call a meeting of shareholders to vote on the merger, or supports a tender offer for FMS Financials common stock (except by Beneficial Mutual Bancorp) or fails to recommend that FMS Financial shareholders reject such a tender offer; |
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(ii) |
the merger agreement is terminated by Beneficial Mutual Bancorp because FMS Financial breaches a representation or warranty or covenant that cannot be cured and within 18 months following the termination FMS Financial enters into an agreement with respect to or consummates an acquisition; |
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(iii) |
the merger agreement is terminated by Beneficial Mutual Bancorp because of a willful breach by FMS Financial of any of its representations or warranties or covenants; |
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(iv) |
the merger agreement is terminated by either Beneficial Mutual Bancorp or FMS Financial because FMS Financials shareholders fail to approve the merger and a third party acquisition proposal shall have been publicly announced; |
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(v) |
FMS Financial terminates the merger agreement upon receipt of a superior proposal; or |
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(vi) |
FMS Financial terminates the merger agreement because it is unable to receive the approval or non-objection of the Office of Thrift Supervision of change in bank control filings described in the merger agreement and FMS Financial enters into an agreement with respect to or consummates an acquisition within 18 months of termination. |
In the event that the termination fee becomes payable pursuant to (i), (iii) or (iv) above, FMS Financial shall pay a fee of $3.7 million immediately following termination and, if within 18 months FMS Financial enters into an agreement with respect to or consummates an acquisition, FMS Financial must pay the balance of the termination fee (i.e., $3.6 million).
In the event that the termination fee becomes payable pursuant to (ii) above, the entire $7.3 million will be payable to Beneficial Mutual Bancorp upon the earliest of the date of execution of the agreement related to an acquisition or consummation of the acquisition; provided that, if the breach results from FMS Financials intentional or willful conduct or gross negligence, a fee of $3.7 million will be immediately payable upon termination and an additional fee of $3.6 million will become payable if within 18 months FMS Financial enters into an agreement with respect to or consummates an acquisition.
In the event that the termination fee becomes payable pursuant to (v) above, the termination fee is due upon termination.
In the event that the termination fee becomes payable pursuant to (vi) above, an amount equal to $1,800,000 shall be due upon the earliest of entering into an agreement related to or upon consummation of an acquisition.
Beneficial Mutual Bancorp Special Payment. The merger agreement provides that Beneficial Mutual Bancorp will pay FMS Financial a termination fee of $5.5 million in the event FMS Financial terminates the merger agreement because Beneficial Mutual Bancorp fails to receive regulatory approval of the merger or the minority stock offering or fails to consummate the merger by December 31, 2007.
Further, Beneficial Mutual Bancorp will pay FMS Financial a termination fee of $3.7 million in the event FMS Financial terminates the merger agreement because of a willful or intentional breach of a representation, warranty or covenant by Beneficial Mutual Bancorp.
Expenses
Each of Beneficial Mutual Bancorp and FMS Financial will pay its own costs and expenses incurred in connection with the merger.
Changing the Terms of the Merger Agreement
The merger agreement may be amended by the parties at any time before or after approval of the merger agreement by the FMS Financial shareholders, except that after such approval no amendment shall be made without
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the further approval of the FMS Financial shareholders if such amendment: (a) alters or changes the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or on conversion of all or any of the shares of FMS Financial common stock; (b) alters or changes any term of Beneficial Mutual Bancorp, Incs charter other than as provided in the merger agreement; or (c) alters or changes any of the terms and conditions of the merger agreement if such alteration or change would adversely affect the FMS Financial shareholders. No amendment, supplement, modification, waiver or termination of the merger agreement shall be binding unless executed in writing by the party to be bound thereby.
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This stock offering is being conducted pursuant to a plan of stock issuance approved by the board of directors of Beneficial Mutual Bancorp. The Office of Thrift Supervision also conditionally approved the plan of stock issuance; however, such approval does not constitute a recommendation or endorsement of the plan of stock issuance by such agency.
General
The following is a brief summary of the pertinent aspects of the offering. A copy of the plan of stock issuance is available from Beneficial Mutual Savings Bank upon request and is available for inspection at the offices of Beneficial Mutual Savings Bank and at the Office of Thrift Supervision. The plan of stock issuance is also filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See Where You Can Find More Information.
Reasons for the Offering
Our primary reasons for this offering are to:
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issue stock and raise capital to provide the stock and funds necessary to acquire FMS Financial and support future expansion through branching and possibly through acquisition; |
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enhance profitability and earnings through investing and leveraging the proceeds, primarily through the acquisition of FMS Financial, and also through traditional funding and lending activities; and |
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implement equity compensation plans to retain and attract qualified directors, officers and staff and to enhance our current incentive-based compensation programs. |
As part of our business planning process, our board of directors concluded that additional capital was needed in order to increase our profitability and support asset growth and that the best way to accomplish this would be through a stock offering. The board of directors determined that a minority offering by Beneficial Mutual Bancorp was appropriate, because engaging in a full mutual-to-stock conversion would raise more capital than we had current plans to deploy. Further, the minority stock issuance permits us to control the amount of capital being raised by selecting the percentage of shares to be sold in the offering. Additionally, the board of directors preferred to remain in the mutual holding company structure because it provides for the continued control of Beneficial Mutual Bancorp by Beneficial Savings Bank MHC through its majority ownership position.
The offering will afford our directors, officers and employees the opportunity to become stockholders, which we believe to be an effective performance incentive and an effective means of attracting and retaining qualified personnel. The offering also will provide our customers and local community members with an opportunity to acquire our stock.
The disadvantages of the offering considered by the board of directors are the additional expense and effort of operating as a public company, the inability of stockholders other than Beneficial Savings Bank MHC to obtain
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majority ownership of Beneficial Mutual Bancorp and Beneficial Mutual Savings Bank, which may result in the perpetuation of our management and board of directors, and that new forms of corporate ownership and regulatory policies relating to the mutual holding company structure may be adopted from time to time which may have an adverse impact on stockholders other than Beneficial Savings Bank MHC.
Following the offering, a majority of our voting stock will still be owned by Beneficial Savings Bank MHC, which will be controlled by its board of directors. While this structure will permit management to focus on our long-term business strategy for growth and capital redeployment without undue pressure from stockholders, it will also serve to perpetuate our existing management and directors. Beneficial Savings Bank MHC will be able to elect all of the members of Beneficial Mutual Bancorps board of directors, and will be able to control the outcome of most matters presented to our stockholders for resolution by vote. The matters as to which stockholders other than Beneficial Savings Bank MHC will be able to exercise voting control are limited and include any proposal to implement a stock-based incentive plan. No assurance can be given that Beneficial Savings Bank MHC will not take action adverse to the interests of other stockholders. For example, Beneficial Savings Bank MHC could prevent the sale of control of Beneficial Mutual Bancorp or defeat a candidate for the board of directors of Beneficial Mutual Bancorp or other proposals put forth by stockholders.
This offering does not preclude the conversion of Beneficial Savings Bank MHC from the mutual to stock form of organization in the future. No assurance can be given when, if ever, Beneficial Savings Bank MHC will convert to stock form or what conditions the Office of Thrift Supervision or other regulatory agencies may impose on such a transaction. See Risk Factors and Summary Possible Conversion of Beneficial Savings Bank MHC to Stock Form.
Subscription Offering and Subscription Rights
Under the plan of stock issuance, we have granted rights to subscribe for our common stock to the following persons in the following order of priority:
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Persons with deposits in Beneficial Mutual Savings Bank with balances aggregating $50 or more (qualifying deposits) as of November 30, 2005 (eligible account holders). For this purpose, deposit accounts include all savings, time and demand accounts; |
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Our employee stock ownership plan; |
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Persons with qualifying deposits in Beneficial Mutual Savings Bank as of [March 31, 2007] (supplemental eligible account holders), other than our officers, directors and their associates; and |
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Depositors of Beneficial Mutual Savings Bank as of [April 30, 2007], who are not eligible or supplemental eligible account holders (other depositors). |
All persons on a joint account will be counted as a single depositor for purposes of determining the maximum amount that may be subscribed for by owners of a joint account. Joint account holders will be required to register stock subscribed for in the offering in the names of all of the joint account holders. We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest.
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Priority 1: Eligible Account Holders. Subject to the purchase limitations as described below under The Stock OfferingLimitations on Purchases of Shares, each eligible account holder has the right to subscribe for up to the greater of:
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$250,000 of common stock (which equals 25,000 shares); |
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one-tenth of 1% of the total offering of common stock in the subscription offering to persons other than Beneficial Savings Bank MHC; or |
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15 times the product, rounded down to the next whole number, obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the eligible account holders and the denominator is the total amount of qualifying deposits of all eligible account holders. The balance of qualifying deposits of all eligible account holders was $_____ million. |
If there are insufficient shares to satisfy all subscriptions by eligible account holders, shares first will be allocated so as to permit each subscribing eligible account holder, if possible, to purchase a number of shares sufficient to make the persons total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible account holders whose subscriptions remain unfilled. Subscription rights of eligible account holders who are also executive officers or directors of Beneficial Mutual Bancorp or Beneficial Mutual Savings Bank or their associates will be subordinated to the subscription rights of other eligible account holders to the extent attributable to increased deposits in Beneficial Mutual Savings Bank in the one year period preceding November 30, 2005.
To ensure a proper allocation of stock, each eligible account holder must list on his or her stock order form all deposit accounts in which such eligible account holder had an ownership interest at November 30, 2005. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscribers stock allocation.
Priority 2: Tax-Qualified Employee Benefit Plans. Subject to the purchase limitations as described below under The Stock OfferingLimitations on Purchases of Shares, our tax-qualified employee benefit plans have the right to purchase up to 10% of the shares of common stock issued in the offering, including shares issued to Beneficial Savings Bank MHC, issued in the merger and contributed to The Beneficial Foundation. As a tax-qualified employee benefit plan, our employee stock ownership plan intends to purchase 3.92% of the shares issued in the offering, including shares issued to Beneficial Savings Bank MHC, issued in the merger and contributed to The Beneficial Foundation. Subscriptions by the employee stock ownership plan will not be aggregated with shares of common stock purchased by any other participants in the offering, including subscriptions by our officers and directors, for the purpose of applying the purchase limitations in the plan of stock issuance. If eligible account holders subscribe for all of the shares being sold, no shares will be available for our tax-qualified employee benefit plans. However, if we increase the number of shares offered above the maximum of the offering range, the employee stock ownership plan will have a first priority right to purchase any shares exceeding that amount up to the amount of its subscription. If the plans subscription is not filled in its entirety, the employee stock ownership plan may purchase shares in the open market or may purchase shares directly from us with the approval of the Office of Thrift Supervision.
Priority 3: Supplemental Eligible Account Holders. Subject to the purchase limitations as described below under The Stock OfferingLimitations on Purchases of Shares, each supplemental eligible account holder has the right to subscribe for up to the greater of:
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$250,000 of common stock (which equals 25,000 shares); |
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one-tenth of 1% of the total offering of common stock to persons in the subscription offering other than Beneficial Savings Bank MHC; or |
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15 times the product, rounded down to the next whole number, obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the supplemental eligible account holder and the denominator is the total amount of qualifying deposits of all supplemental eligible account holders. The balance of qualifying deposits of all supplemental eligible account holders was $_______ million. |
If eligible account holders and the employee stock ownership plan subscribe for all of the shares being sold, no shares will be available for supplemental eligible account holders. If shares are available for supplemental eligible account holders but there are insufficient shares to satisfy all subscriptions by supplemental eligible account holders, shares first will be allocated so as to permit each subscribing supplemental eligible account holder, if possible, to purchase a number of shares sufficient to make the persons total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing supplemental eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining supplemental eligible account holders whose subscriptions remain unfilled.
To ensure a proper allocation of stock, each supplemental eligible account holder must list on his or her stock order form all deposit accounts in which such supplemental eligible account holder had an ownership interest at [March 31, 2007]. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscribers stock allocation.
Priority 4: Other Depositors. Subject to the purchase limitations as described below under The Stock OfferingLimitations on Purchases of Shares, each other depositor has the right to purchase up to the greater of $250,000 of common stock (which equals 25,000 shares) or one-tenth of 1% of the total offering of common stock to persons in the subscription offering other than Beneficial Savings Bank MHC. If eligible account holders, the employee stock ownership plan and supplemental eligible account holders subscribe for all of the shares being sold, no shares will be available for other depositors. If shares are available for other depositors but there are not sufficient shares to satisfy all subscriptions by other depositors, shares first will be allocated so as to permit each subscribing other depositor, if possible, to purchase a number of shares sufficient to make the persons total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing other depositors in the proportion that each other depositors subscription bears to the total subscriptions of all such subscribing other depositors whose subscriptions remain unfilled.
To ensure a proper allocation of stock, each other depositor must list on his or her stock order form all deposit accounts in which such other depositor had an ownership interest at April 30, 2007. Failure to list an account or providing incorrect information could result in the loss of all or part of a subscribers stock allocation.
Expiration Date for the Subscription Offering. The subscription offering, and all subscription rights under the plan of stock issuance, will terminate at 4:00 p.m., Eastern time, on [DATE1], 2007. We will not accept orders for common stock in the subscription offering received after that time. We will make reasonable attempts to provide a prospectus and related offering materials to holders of subscription rights; however, all subscription rights will expire on the expiration date whether or not we have been able to locate each person entitled to subscription rights.
Office of Thrift Supervision regulations require that we complete the sale of common stock within 45 days after the close of the subscription offering. If the sale of the common stock is not completed within that period, all funds received will be returned promptly with interest at our passbook rate and all withdrawal authorizations will be canceled unless we receive approval of the Office of Thrift Supervision to extend the time for completing the offering. If regulatory approval of an extension of the time period has been granted, we will notify all subscribers of the extension and of the duration of any extension that has been granted, and subscribers will have the right to modify or rescind their purchase orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscribers order will be rescinded and all funds received will be returned promptly with interest, or withdrawal authorizations will be canceled. No single extension can exceed 90 days.
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Persons in Non-Qualified States. We will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock under the plan of stock issuance reside. However, we are not required to offer stock in the subscription offering to any person who resides in a foreign country or who resides in a state of the United States in which (1) only a small number of persons otherwise eligible to subscribe for shares of common stock reside; (2) the granting of subscription rights or the offer or sale of shares to such person would require that we or our officers or directors register as a broker, dealer, salesman or selling agent under the securities laws of the state, or register or otherwise qualify the subscription rights or common stock for sale or qualify as a foreign corporation or file a consent to service of process; or (3) we determine that compliance with that states securities laws would be impracticable or unduly burdensome for reasons of cost or otherwise.
Restrictions on Transfer of Subscription Rights and Shares. Subscription rights are nontransferable. You may not transfer, or enter into any agreement or understanding to transfer, the legal or beneficial ownership of your subscription rights issued under the plan of stock issuance or the shares of common stock to be issued upon exercise of your subscription rights. Your subscription rights may be exercised only by you and only for your own account. With the exception of IRA and Keogh account stock purchases, shares purchased in the subscription offering must be registered in the names of all depositors on the qualifying account(s). Deleting names of depositors or adding non-depositors or otherwise altering the form of beneficial ownership of a qualifying account will result in the loss of your subscription rights. When registering your stock purchase on the order form, you should not add the name(s) of persons who have no subscription rights or who qualify in a lower purchase priority than you do. Doing so may jeopardize your subscription rights. If you exercise your subscription rights, you will be required to certify that you are purchasing shares solely for your own account and that you have no agreement or understanding regarding the sale or transfer of such shares. Federal regulations also prohibit any person from offering, or making an announcement of an offer or intent to make an offer, to purchase such subscription rights or shares of common stock before the completion of the offering.
If you sell or otherwise transfer your rights to subscribe for common stock in the subscription offering or subscribe for common stock on behalf of another person, you may forfeit those rights and face possible further sanctions and penalties imposed by the Office of Thrift Supervision or another agency of the United States government. Illegal transfers of subscription rights, including agreements made prior to completion of the offering to transfer shares after the offering, have been subject to enforcement actions by the Securities and Exchange Commission as violations of Rule 10b-5 of the Securities Exchange Act of 1934.
We intend to report to the Office of Thrift Supervision and the Securities and Exchange Commission anyone who we believe sells or gives away their subscription rights. We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights, and we will not honor orders that we believe involve the transfer of subscription rights.
Direct Community Offering
To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, we may, in our discretion, offer shares to the general public in a direct community offering. In the direct community offering, preference will be given to natural persons and trusts of natural persons who are residents of Chester, Delaware, Montgomery, Philadelphia and Bucks Counties, Pennsylvania and Burlington, Gloucester and Camden Counties, New Jersey.
We will consider a person to be resident of Chester, Delaware, Montgomery, Philadelphia and Bucks Counties, Pennsylvania and Burlington, Gloucester and Camden Counties, New Jersey if he or she occupies a dwelling in the county, has the intent to remain for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence together with an indication that such presence is something other than merely transitory in nature. We may utilize depositor or loan records or other evidence provided to us to make a determination as to a persons resident status. In all cases, the determination of residence status will be made by us in our sole discretion.
Purchasers in the community offering are eligible to purchase up to $250,000 of common stock (which equals 25,000 shares). If shares are available for preferred subscribers in the community offering but there are
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insufficient shares to satisfy all orders, the available shares will be allocated first to each preferred subscriber whose order we accept in an amount equal to the lesser of 100 shares or the number of shares ordered by each such subscriber, if possible. After that, unallocated shares will be allocated among the remaining preferred subscribers whose orders remain unsatisfied on an equal number of shares per order basis until all available shares have been allocated. If, after filling the orders of preferred subscribers in the community offering, shares are available for other subscribers in the community offering but there are insufficient shares to satisfy all orders, shares will be allocated in the same manner as for preferred subscribers.
The community offering, if held, may commence concurrently with or subsequent to the subscription offering and will terminate no later than 45 days after the close of the subscription offering unless extended by us, with approval of the Office of Thrift Supervision. If we receive regulatory approval for an extension, all subscribers will be notified of the extension and of the duration of any extension that has been granted, and will have the right to modify or rescind their orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscribers order will be rescinded and all funds received will be promptly returned with interest.
The opportunity to subscribe for shares of common stock in the community offering is subject to our right to reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.
Syndicated Community Offering or Underwritten Public Offering
The plan of stock issuance provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering to be managed by Sandler ONeill, acting as our agent. In such capacity, Sandler ONeill may form a syndicate of other brokers-dealers who are NASD member firms. Alternatively, we may sell any remaining shares in an underwritten public offering. Neither Sandler ONeill nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering; however, Sandler ONeill has agreed to use its best efforts in the sale of shares in any syndicated community offering. We have not selected any particular broker-dealers to participate in a syndicated community offering and will not do so until prior to the commencement of the syndicated community offering. The syndicated community offering would terminate no later than 45 days after the expiration of the subscription offering, unless extended by us, with approval of the Office of Thrift Supervision. See The Stock OfferingCommunity Offering above for a discussion of rights of subscribers in the event an extension is granted.
The opportunity to subscribe for shares of common stock in the syndicated community offering or underwritten public offering is subject to our right in our sole discretion to accept or reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.
Common stock sold in the syndicated community offering also will be sold at the $10.00 per share purchase price. Purchasers in the syndicated community offering are eligible to purchase up to $250,000 of common stock (which equals 25,000 shares). We may begin the syndicated community offering or underwritten public offering at any time following the commencement of the subscription offering.
If we are unable to find purchasers from the general public for all unsubscribed shares, we will make other purchase arrangements, if feasible. Other purchase arrangements must be approved by the Office of Thrift Supervision and may provide for purchases for investment purposes by directors, officers, their associates and other persons in excess of the limitations provided in the plan of stock issuance and in excess of the proposed director and executive officer purchases discussed earlier, although no such purchases are currently intended. If other purchase arrangements cannot be made, we may either: terminate the stock offering and promptly return all funds; promptly return all funds, set a new offering range and give all subscribers the opportunity to place a new order for shares of Beneficial Mutual Bancorp common stock; or take such other actions as may be permitted by the Office of Thrift Supervision and the Securities and Exchange Commission.
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Limitations on Purchases of Shares
In addition to the purchase limitations described above under The Stock OfferingSubscription Offering and Subscription Rights, Community Offering and Syndicated Community Offering or Underwritten Public Offering, the plan of stock issuance provides for the following purchase limitations:
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The aggregate amount of our outstanding common stock owned or controlled by persons other than Beneficial Savings Bank MHC at the close of the offering must be less than 50% of our total outstanding common stock. |
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No individual (or individuals on a single deposit account) may purchase more than $250,000 of common stock (which equals 25,000 shares), subject to increase as described below. |
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Except for our tax-qualified employee benefit plans, no person together with associates of or persons acting in concert with such person may purchase in the aggregate more than $500,000 of common stock (which equals 50,000 shares), subject to increase as described below. |
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Each subscriber must subscribe for a minimum of 25 shares. |
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The aggregate amount of common stock acquired in the offering by any non-tax-qualified employee plan or any management person and his or her associates may not exceed 4.9% of the (i) outstanding shares of common stock at the conclusion of the offering or (ii) the stockholders equity of Beneficial Mutual Bancorp at the conclusion of the offering. In calculating the number of shares held by management persons and their associates, shares held by any tax-qualified or non-tax-qualified employee stock benefit plan that are attributable to such person will not be counted. |
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The aggregate amount of common stock acquired in the offering by any one or more tax-qualified employee plans, exclusive of any shares of common stock acquired by such plans in the secondary market, may not exceed 4.9% of (i) the outstanding shares of common stock at the conclusion of the offering or (ii) the stockholders equity of the Beneficial Mutual Bancorp at the conclusion of the offering. |
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The aggregate amount of common stock acquired in the offering by all of our stock benefit plans, other than employee stock ownership plans, may not exceed 25% of the outstanding common stock held by persons other than Beneficial Savings Bank MHC. |
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The aggregate amount of common stock acquired in the offering by all non-tax-qualified employee plans or management persons and their associates, exclusive of any common stock acquired by such plans or persons in the secondary market, may not exceed 25% of (i) the outstanding shares of common stock held by persons other than Beneficial Savings Bank MHC at the conclusion of the offering or (ii) the stockholders equity of Beneficial Mutual Bancorp held by persons other than Beneficial Savings Bank MHC at the conclusion of the offering. In calculating the number of shares held by management persons and their associates, shares held by any tax-qualified or non-tax-qualified employee stock benefit plan that are attributable to such persons will not be counted. |
We may, in our sole discretion, increase the individual or aggregate purchase limitation to up to 5% of the shares of common stock sold in the offering to persons other than Beneficial Savings Bank MHC. We do not intend to increase the maximum purchase limitation unless market conditions warrant. If we decide to increase the purchase limitations, persons who subscribed for the maximum number of shares of common stock will be given the opportunity to increase their subscriptions accordingly, subject to the rights and preferences of any person who has priority subscription rights. We, in our discretion, also may give other large subscribers the right to increase their subscriptions.
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In the event that we increase the maximum purchase limitation to more than 2% of the shares sold in the offering, orders for common stock in the syndicated community offering will be filled first to a maximum of 2% of the total number of shares sold in the offering and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all available shares have been allocated.
In the event that we increase the maximum purchase limitation to 5% of the shares of common stock sold in the offering, we may further increase the maximum purchase limitation to 9.99%, provided that orders for common stock exceeding 5% of the shares of common stock sold in the offering may not exceed in the aggregate 10% of the total shares of common stock sold in the offering.
The plan of stock issuance defines acting in concert to mean knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not by an express agreement or understanding; or a combination or pooling of voting or other interests in the securities of an issuer for a common purpose under any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. In general, a person who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting in concert with that other party. We may presume that certain persons are acting in concert based upon, among other things, joint account relationships and the fact that persons may have filed joint Schedules 13D or 13G with the Securities and Exchange Commission with respect to other companies. For purposes of the plan of stock issuance, our directors are not deemed to be acting in concert solely by reason of their board membership.
The plan of stock issuance defines associate, with respect to a particular person, to mean:
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a corporation or organization other than Beneficial Savings Bank MHC, Beneficial Mutual Bancorp or Beneficial Mutual Savings Bank or a majority-owned subsidiary of Beneficial Savings Bank MHC, Beneficial Mutual Bancorp or Beneficial Mutual Savings Bank of which a person is a senior officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities of such corporation or organization; |
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a trust or other estate in which a person has a substantial beneficial interest or as to which a person serves as a trustee or a fiduciary; and |
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any person who is related by blood or marriage to such person and who lives in the same home as such person or who is a director or senior officer of Beneficial Savings Bank MHC, Beneficial Mutual Bancorp or Beneficial Mutual Savings Bank or any of their subsidiaries. |
For example, a corporation of which a person serves as an officer would be an associate of that person and, therefore, all shares purchased by the corporation would be included with the number of shares that the person could purchase individually under the purchase limitations described above. We have the right in our sole discretion to reject any order submitted by a person whose representations we believe to be false or who we otherwise believe, either alone or acting in concert with others, is violating or circumventing, or intends to violate or circumvent, the terms and conditions of the plan of stock issuance. Directors and officers are not treated as associates of each other solely by virtue of holding such positions. We have the sole discretion to determine whether prospective purchasers are associates or acting in concert.
Marketing Arrangements
Offering materials have been initially distributed through mailings to those eligible to subscribe in the subscription offering. To assist in the marketing of our common stock, we have retained Sandler ONeill, which is a broker-dealer registered with the National Association of Securities Dealers, Inc. Sandler ONeill will assist us in the offering by:
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Consulting as to the financial and securities market implications of the plan of stock offering and any related corporate documents, including the percentage of common stock, to be offered in the offering; |
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Reviewing with the board the financial impact of the offering on Beneficial Mutual Bancorp, based upon the independent appraisers appraisal of the common stock; |
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Reviewing all offering documents, including this prospectus, stock order forms and related offering materials (although the preparation and filing of such documents is the responsibility of Beneficial Mutual Bancorp and its counsel); |
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Assisting in the design and implementation of a marketing strategy for the offering; |
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Assisting management in scheduling and preparing for meetings with potential investors and/or other broker-dealers in connection with the offering; and |
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Providing such other general advice and assistance as may be requested to promote the successful completion of the offering. |
We will indemnify Sandler ONeill against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933, as amended.
Description of Sales Activities
Beneficial Mutual Bancorp will offer the common stock in the subscription offering and community offering principally by the distribution of this prospectus and through activities conducted at our stock information center. The stock information center is expected to operate during normal business hours throughout the subscription offering and community offering. It is expected that at any particular time one or more Sandler ONeill employees will be working at the stock information center. Employees of Sandler ONeill will be responsible for mailing materials relating to the offering, responding to questions regarding the offering and processing stock orders.
Sales of common stock will be made by registered representatives affiliated with Sandler ONeill or by the selected dealers managed by Sandler ONeill Beneficial Mutual Savings Banks officers and employees may participate in the offering in clerical capacities, providing administrative support in effecting sales transactions or, when permitted by state securities laws, answering questions of a mechanical nature relating to the proper execution of the order form. Beneficial Mutual Savings Banks officers may answer questions regarding our business when permitted by state securities laws. Other questions of prospective purchasers, including questions as to the advisability or nature of the investment, will be directed to registered representatives. Beneficial Mutual Savings Banks officers and employees have been instructed not to solicit offers to purchase common stock or provide advice regarding the purchase of common stock.
None of Beneficial Mutual Savings Banks officers, directors or employees will be compensated, directly or indirectly, for any activities in connection with the offer or sale of securities issued in the reorganization.
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None of Beneficial Mutual Savings Banks personnel participating in the offering is registered or licensed as a broker or dealer or an agent of a broker or dealer. Beneficial Mutual Savings Banks personnel will assist in the above-described sales activities under an exemption from registration as a broker or dealer provided by Rule 3a4-1 promulgated under the Securities Exchange Act of 1934. Rule 3a4-1 generally provides that an associated person of an issuer of securities will not be deemed a broker solely by reason of participation in the sale of securities of the issuer if the associated person meets certain conditions. These conditions include, but are not limited to, that the associated person participating in the sale of an issuers securities not be compensated in connection with the offering at the time of participation, that the person not be associated with a broker or dealer and that the person observe certain limitations on his or her participation in the sale of securities. For purposes of this exemption, associated person of an issuer is defined to include any person who is a director, officer or employee of the issuer or a company that controls, is controlled by or is under common control with the issuer.
Procedure for Purchasing Shares in the Subscription and Community Offerings
Prospectus Delivery. To ensure that each purchaser in the subscription and community offering receives a prospectus at least 48 hours before the expiration date of the offering in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to that date. We are not obligated to deliver a prospectus or order form by means other than United States Mail. Execution of an order form will confirm receipt of delivery of a prospectus in accordance with Rule 15c2-8. Order forms will be distributed only if preceded or accompanied by a prospectus.
Termination of Offering; Rejection of Orders. We reserve the right in our sole discretion to terminate the offering at any time and for any reason. We will terminate the offering in the event the merger with FMS Financial is terminated. In the event we terminate the offering for any reason, we will cancel any deposit account withdrawal holds and promptly return all funds submitted, with interest calculated at Beneficial Mutual Savings Banks applicable passbook savings rate from the date of receipt.
We have the right to reject any order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of stock issuance.
Use of Order Forms. In order to purchase shares of common stock in the subscription offering and direct community offering, you must submit a properly completed and signed original stock order form. We will not be required to accept orders submitted on photocopied or facsimiled stock order forms. All order forms must be received by our stock information center (not postmarked) prior to 4:00 p.m. Eastern time on [DATE1], 2007. Your order form must be accompanied by full payment for all of the shares subscribed for or include appropriate authorization in the space provided on the order form for withdrawal of full payment from a deposit account with Beneficial Mutual Savings Bank. You may submit your order form and payment in one of three ways: by mail using the reply envelope provided; by overnight delivery to the indicated address noted on the form; or by hand delivery to the stock information center located at our main office. Order forms may not be delivered to Beneficial Mutual Savings Banks branch offices. Our interpretation of the terms and conditions of the plan of stock issuance and of the acceptability of the order forms will be final.
We need not accept order forms that are received after the expiration of the subscription offering or community offering, as the case may be, or that are executed defectively or that are received without full payment or without appropriate withdrawal instructions. We have the right to waive or permit the correction of incomplete or improperly executed order forms, but do not represent that we will do so. Once received, an executed order form may not be modified, amended or rescinded without our consent unless the offering has not been completed within 45 days after the end of the subscription offering, unless extended.
To ensure that your stock purchase eligibility and priority are properly identified, you must list all accounts on the order form, giving all names in each account and the account number. We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership
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interest. When entering the stock registration on your stock order form, you should not add the name(s) of persons without subscription rights, or who qualify only in a lower purchase priority than you. Joint registration of shares purchased in the subscription offering will be allowed only if the qualifying deposit account is so registered.
The reverse side of the order form contains a regulatorily mandated certification form. We will not accept order forms where the certification form is not executed. By executing and returning the certification form, you will be certifying that you received this prospectus and acknowledging that the common stock is not a deposit account and is not insured or guaranteed by the federal government. You also will be acknowledging that you received disclosure concerning the risks involved in this offering. The certification form could be used as support to show that you understand the nature of this investment.
Payment for Shares. Payment for all shares of common stock will be required to accompany all completed order forms for the purchase to be valid. Payment for shares may be made only by:
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Personal check, bank draft or money order made payable directly to Beneficial Mutual Bancorp (you may not remit Beneficial Mutual Savings Bank line of credit checks, and we will not accept third party checks, including those payable to you and endorsed over to Beneficial Mutual Bancorp); or |
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Authorization of withdrawal from the types of Beneficial Mutual Savings Bank deposit account(s) provided for on the stock order form. |
In the case of payments made by check or money order, these funds must be available in the account(s) when the order is received. Please do not overdraft your Beneficial Mutual Savings Bank account(s). No wire transfers will be accepted.
Checks and money orders will be cashed immediately and the subscription funds will be held by Beneficial Mutual Savings Bank or, at our discretion, in an escrow account at an independent insured depository institution.
Interest will be paid on payments made by check, bank draft or money order at our passbook rate from the date payment is received at the stock information center until the completion or termination of the offering. If payment is made by authorization of withdrawal from deposit accounts, the funds authorized to be withdrawn from a deposit account will continue to accrue interest at the contractual rates until completion or termination of the offering, unless the certificate matures after the date of receipt of the order form but before closing or termination of the offering, in which case funds will earn interest at the passbook rate from the date of maturity until the offering is completed or terminated, but a hold will be placed on the funds, making them unavailable to the depositor until completion or termination of the offering. When the offering is completed, the funds received in the offering will be used to purchase the shares of common stock ordered. The shares of common stock issued in the offering cannot and will not be insured by the Federal Deposit Insurance Corporation or any other government agency. If the offering is not consummated for any reason, all funds submitted will be promptly refunded with interest as described above.
If a subscriber authorizes us to withdraw the amount of the purchase price from his or her deposit account, we will do so as of the completion of the offering, though the account must contain the full amount necessary for payment at the time the subscription order is received. On your stock order form, please do not designate a withdrawal from accounts with check-writing privileges. Please submit a check instead. We will waive any applicable penalties for early withdrawal from certificate accounts. If the remaining balance in a certificate account is reduced below the applicable minimum balance requirement at the time funds are actually transferred under the authorization, the certificate will be canceled at the time of the withdrawal, without penalty, and the remaining balance will earn interest at our passbook rate. You may not authorize direct withdrawal from a Beneficial Mutual Savings Bank IRA. If you wish to use funds in your Beneficial Mutual Savings Bank IRA to purchase shares of our common stock, please refer to the following section.
The employee stock ownership plan will not be required to pay for the shares subscribed for at the time it subscribes, but rather may pay for shares of common stock subscribed for upon the completion of the offering; provided that there is in force from the time of its subscription until the completion of the offering a loan
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commitment from an unrelated financial institution or from us to lend to the employee stock ownership plan, at that time, the aggregate purchase price of the shares for which it subscribed.
We may, in our sole discretion, permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for such shares of common stock for which they subscribe in the community offering at any time prior to the 48 hours before the completion of the offering. This payment may be made by wire transfer.
Using IRA Funds To Purchase Shares. Our individual retirement accounts (IRAs) do not permit investment in common stock. A depositor interested in using his or her IRA funds to purchase common stock must do so through a self-directed IRA. Since we do not offer those accounts, we will allow a depositor to make a trustee-to-trustee transfer of the IRA funds to a trustee offering a self-directed IRA program with the agreement that the funds will be used to purchase our common stock in the offering. There will be no early withdrawal or Internal Revenue Service interest penalties for such transfers. The new trustee would hold the common stock in a self-directed account in the same manner as we now hold the depositors IRA funds. An annual administrative fee may be payable to the new trustee. Depositors interested in using funds in an IRA with us to purchase common stock should contact the stock information center at least two weeks before [DATE1], 2007 because processing such transactions takes additional time.
How We Determined the Offering Range and the $10.00 Purchase Price
Federal regulations require that the aggregate purchase price of the securities sold in connection with the offering be based upon our estimated pro forma value on a fully converted basis, as determined by an independent appraisal. The term fully converted means that the appraiser assumed that 100% of our stock had been sold to the public. We have retained RP Financial, which is experienced in the evaluation and appraisal of business entities, to prepare the independent appraisal. RP Financial will receive fees totaling $140,000 for the preparation and delivery of the original appraisal report, plus reimbursement of reasonable out-of-pocket expenses and $15,000 for the preparation and delivery of each required updated appraisal report. We have agreed to indemnify RP Financial under certain circumstances against liabilities and expenses, including legal fees, arising out of, related to, or based upon the offering.
RP Financial prepared the appraisal taking into account the pro forma impact of the offering, as well as the merger. For its analysis, RP Financial undertook substantial investigations to learn about our business and operations. We supplied financial information, including annual consolidated financial statements, information on the composition of assets and liabilities, and other financial schedules. In addition to this information, RP Financial reviewed our stock issuance application as filed with the Office of Thrift Supervision and our registration statement as filed with the Securities and Exchange Commission. Furthermore, RP Financial visited our facilities and had discussions with our management. RP Financial did not perform a detailed individual analysis of the separate components of our assets and liabilities. We did not impose any limitations on RP Financial in connection with its appraisal.
In connection with its appraisal, RP Financial reviewed the following factors, among others:
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the impact of the acquisition of FMS Financial by Beneficial Mutual Bancorp; |
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our historical, present and projected operating results and financial condition and the economic and demographic characteristics of our market area; |
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a comparative evaluation of the operating and financial statistics of Beneficial Mutual Savings Bank with those of other similarly-situated, publicly-traded savings associations and savings association holding companies; |
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the effect of the capital raised in this offering on our net worth and earnings potential; |
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the trading market for securities of comparable institutions and general conditions in the market for such securities; |
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the aggregate size of the offering of common stock; and |
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our proposed dividend policy. |
Consistent with the Office of Thrift Supervision appraisal guidelines, the independent appraisal applied three primary methodologies to estimate the pro forma market value of our common stock: the pro forma price-to-book value approach applied to both reported book value and tangible book value after deducting intangible assets; the pro forma price-to-earnings approach applied to reported and estimated core earnings; and the pro forma price-to-assets approach, all of which are described in its report. RP Financials appraisal report is filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See Where You Can Find More Information. The market value ratios applied in the three methodologies were based upon the current market valuations of a peer group of companies considered by RP Financial to be comparable to us after completion of the merger and the offering, subject to valuation adjustments applied by RP Financial to account for differences between Beneficial Mutual Bancorp and the peer group. The peer group analysis conducted by RP Financial included a total of ten publicly-traded mutual holding company institutions with assets between $750 million and $8.3 billion. The peer group is comprised of the largest mutual holding company institutions that have been in public ownership for at least one year. In preparing its appraisal, RP Financial considered the fully converted pricing ratios of the peer group and placed the greatest emphasis on the price-to-earnings approach and price-to-tangible book value approach with lesser emphasis on the price-to-book value and price-to-assets approaches in estimating pro forma market value. The peer group included companies with:
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average assets of $2.8 billion; |
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average non-performing assets of 0.44% of total assets; |
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average loans of 69.0% of total assets; |
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average equity of 14.79% of total assets; and |
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average net income of 0.57% of average assets. |
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The following table presents a summary of selected pricing ratios for Beneficial Mutual Bancorp on a fully-converted basis, for the peer group companies on a fully-converted basis and for all publicly traded thrifts. Compared to the average pricing ratios of the peer group, Beneficial Mutual Bancorps pro forma pricing ratios at the midpoint of the offering range indicated a premium of 6.2% on a price-to-earnings basis and a discount of 11.7% on a price-to-tangible book value basis.
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Price to |
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Price to Book |
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Price to |
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Beneficial Mutual Bancorp (pro forma): |
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Minimum |
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32.04 |
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74.25 |
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91.37 |
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Midpoint |
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34.63 |
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77.88 |
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93.95 |
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Maximum |
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36.96 |
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80.98 |
% |
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96.08 |
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Maximum, as adjusted |
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39.26 |
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83.88 |
% |
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98.02 |
% |
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Peer Group (on a fully-converted basis): |
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Average |
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32.61 |
x |
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103.72 |
% |
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106.37 |
% |
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Median |
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32.94 |
x |
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102.10 |
% |
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103.60 |
% |
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All fully-converted, publicly-traded thrifts: |
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Average |
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19.51 |
x |
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150.95 |
% |
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170.33 |
% |
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Median |
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16.77 |
x |
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138.52 |
% |
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161.35 |
% |
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(1) |
Ratios are based on earnings for the 12 months ended December 31, 2006 and share prices as of February 23, 2007. |
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(2) |
Ratios are based on book value as of December 31, 2007 and share prices as of February 23, 2007. |
Since the outcome of the offering relates in large measure to market conditions at the time of sale, it is not possible for us to determine the exact number of shares that we will issue at this time. The offering range may be amended, with the approval of the Office of Thrift Supervision, if necessitated by developments following the date of the appraisal in, among other things, market conditions, our financial condition or operating results, regulatory guidelines or national or local economic conditions.
If, upon completion of the subscription offering, a number of shares are subscribed for that is, when combined with the shares to be issued in connection with the merger, at least the minimum number of shares, RP Financial, after taking into account factors similar to those involved in its prior appraisal, will determine its estimate of our pro forma market value as of the close of the subscription offering. If, as a result of regulatory
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considerations, demand for the shares or
changes in market conditions, RP Financial determines that our pro forma market
value has increased, we may sell up to 23,606,625 shares without any further
notice to you. In the event
we sell up to 23,606,625 shares in the offering, we would be required to
increase the number of shares we exchange for FMS Financial stock under the
merger agreement to 11,883,350 shares.
No shares will be sold unless RP Financial confirms that, to the best of its knowledge and judgment, nothing of a material nature has occurred that would cause it to conclude that the actual total purchase price of the shares on an aggregate basis was materially incompatible with its appraisal. If, however, the facts do not justify that statement, the offering may be canceled, a new offering range and price per share set and new subscription, community and syndicated community offerings held. Under those circumstances, all funds would be promptly returned and all subscribers would be given the opportunity to place a new order. If the offering is terminated all subscriptions will be cancelled and subscription funds will be returned promptly with interest, and holds on funds authorized for withdrawal from deposit accounts will be released or reduced. If RP Financial establishes a new valuation range, it must be approved by the Office of Thrift Supervision.
In formulating its appraisal, RP Financial relied upon the truthfulness, accuracy and completeness of all documents we furnished to it. RP Financial also considered financial and other information from regulatory agencies, other financial institutions, and other public sources, as appropriate. While RP Financial believes this information to be reliable, RP Financial does not guarantee the accuracy or completeness of the information and did not independently verify the consolidated financial statements and other data provided by us or independently value our assets or liabilities. The appraisal is not intended to be, and must not be interpreted as, a recommendation of any kind as to the advisability of purchasing shares of common stock. Moreover, because the appraisal must be based on many factors that change periodically, there is no assurance that purchasers of shares in the offering will be able to sell shares after the offering at prices at or above the purchase price.
Copies of the appraisal report of RP Financial, including any amendments to the report, and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at our main office and the other locations specified under Where You Can Find More Information.
Delivery of Certificates
Certificates representing the common stock sold in the offering will be mailed by our transfer agent to the persons whose subscriptions or orders are filled at the addresses of such persons appearing on the stock order form as soon as practicable following completion of the offering. We will hold certificates returned as undeliverable until claimed by the persons legally entitled to the certificates or otherwise disposed of in accordance with applicable law. Until certificates for common stock are available and delivered to subscribers, subscribers may not be able to sell their shares, even though trading of the common stock may have commenced.
Restrictions on Repurchase of Stock
Under Office of Thrift Supervision regulations, for a period of one year from the date of the completion of the offering we may not repurchase any of our common stock from any person, except (1) in an offer made to all stockholders to repurchase the common stock on a pro rata basis, approved by the Office of Thrift Supervision, (2) the repurchase of qualifying shares of a director, or (3) repurchases to fund restricted stock plans or tax-qualified employee stock benefit plans. Where extraordinary circumstances exist, the Office of Thrift Supervision may approve the open market repurchase of up to 5% of our common stock during the first year following the offering. To receive such approval, we must establish compelling and valid business purposes for the repurchase to the satisfaction of the Office of Thrift Supervision. Furthermore, repurchases of any common stock are prohibited if they would cause Beneficial Mutual Savings Banks regulatory capital to be reduced below the amount required under the regulatory capital requirements imposed by the Office of Thrift Supervision.
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Restrictions on Transfer of Shares After the Reorganization Applicable to Officers and Directors
Common
stock purchased in the offering will be freely transferable, except for shares
purchased by our directors and executive officers. Purchases by directors and officers
will be for investment purposes only and not for resale.
Shares of common stock purchased by our directors and executive officers and their associates may not be sold for a period of one year following the offering, except upon the death of the stockholder or unless approved by the Office of Thrift Supervision. Shares purchased by these persons in the open market after the offering will be free of this restriction. Shares of common stock issued to directors and executive officers will bear a legend giving appropriate notice of the restriction and, in addition, we will give appropriate instructions to our transfer agent with respect to the restriction on transfers. Any shares issued to directors and executive officers as a stock dividend, stock split or otherwise with respect to restricted common stock will be similarly restricted.
Persons affiliated with us, including our directors and executive officers, received subscription rights based only on their deposits with Beneficial Mutual Savings Bank as account holders. While this aspect of the offering makes it difficult, if not impossible, for insiders to purchase stock for the explicit purpose of meeting the minimum of the offering, any purchases made by persons affiliated with us for the explicit purpose of meeting the minimum of the offering must be made for investment purposes only, and not with a view towards redistribution. Furthermore, as set forth above, Office of Thrift Supervision regulations restrict sales of common stock purchased in the offering by directors and executive officers for a period of one year following the offering.
Purchases of outstanding shares of our common stock by directors, officers, or any person who becomes an executive officer or director after adoption of the plan of stock issuance, and their associates, during the three-year period following the offering may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Office of Thrift Supervision. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to the purchase of stock under stock benefit plans.
We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the common stock to be issued in the offering. This registration does not cover the resale of the shares. Shares of common stock purchased by persons who are not affiliates of us may be resold without registration. Shares purchased by an affiliate of us will have resale restrictions under Rule 144 of the Securities Act. If we meet the current public information requirements of Rule 144, each affiliate of ours who complies with the other conditions of Rule 144, including those that require the affiliates sale to be aggregated with those of certain other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares or the average weekly volume of trading in the shares during the preceding four calendar weeks. We may make future provision to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances.
Material Income Tax Consequences
In connection with the stock offering we have received an opinion of counsel with respect to federal tax laws that no gain or loss will be recognized by account holders receiving subscription rights, except to the extent, if any, that subscription rights are deemed to have fair market value on the date such rights are issued. We believe that the tax opinion summarized below addresses all material federal income tax consequences that are generally applicable to persons receiving subscription rights.
Muldoon Murphy & Aguggia LLP has issued an opinion to us that, for federal income tax purposes:
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it is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of Beneficial Mutual Bancorp to be issued to eligible account holders, supplemental eligible account holders and other depositors is zero and, accordingly, that no income will be realized by eligible account holders, supplemental eligible account holders and other depositors upon the issuance to them of the subscription rights or upon the exercise of the subscription rights; |
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it is more likely than not that the tax basis to the holders of shares of common stock purchased in the stock offering pursuant to the exercise of the subscription rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of completion of the stock offering; and |
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the holding period for shares of common stock purchased in the community offering or syndicated community offering will begin on the day after the date of the purchase. |
The statements set forth in the first and second bullet points above are based on the position that the subscription rights do not have any market value at the time of distribution or at the time they are exercised. Whether subscription rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. According to our counsel, the Internal Revenue Service will not issue rulings on whether subscription rights have a market value. Counsel has also advised us that they are unaware of any instance in which the Internal Revenue Service has taken the position that nontransferable subscription rights have a market value. Counsel also noted that the subscription rights will be granted at no cost to the recipients, will be nontransferable and of short duration, and will afford the recipients the right only to purchase our common stock at a price equal to its estimated fair market value, which will be the same price as the purchase price for the unsubscribed shares of common stock.
Unlike a private letter ruling issued by the Internal Revenue Service, an opinion of counsel is not binding on the Internal Revenue Service and the Internal Revenue Service could disagree with the conclusions reached in the opinion. If there is a disagreement, no assurance can be given that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the Internal Revenue Service.
The opinion of Muldoon Murphy & Aguggia LLP is filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. SeeWhere You Can Find More Information.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations by us of the plan of stock issuance will be final; however, such interpretations have no binding effect on the Office of Thrift Supervision. The plan of stock issuance provides that, if deemed necessary or desirable, we may substantively amend the plan of stock issuance as a result of comments from regulatory authorities or otherwise.
Completion of the offering requires the sale of all shares of the common stock within 90 days following approval of the plan of stock issuance by the Office of Thrift Supervision, unless an extension is granted by the Office of Thrift Supervision. If this condition is not satisfied, the plan of stock issuance will be terminated and we will continue our business as a wholly owned subsidiary of Beneficial Savings Bank MHC. We may terminate the plan of stock issuance at any time. See The Acquisition of FMS FinancialTerminating the Merger Agreement.
General
In furtherance of our commitment to our local community, the plan of stock issuance provides that we will establish a charitable foundation in connection with the offering. We have established The Beneficial Foundation as a nonstock Pennsylvania corporation to serve as the charitable foundation. The foundation will be funded with up to
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$500,000 in cash and 950,000 shares of Beneficial Mutual Bancorp common stock. By further enhancing our visibility and reputation in our local community, we believe that the foundation will enhance the long-term value of our community banking franchise. We believe the offering presents us with a unique opportunity to provide a substantial and continuing benefit to our community and to receive the associated tax benefits.
Purpose of the Charitable Foundation
We emphasize community lending and community activities. The Beneficial Foundation is being formed to complement, not to replace, our existing community activities. Although we intend to continue to emphasize community lending and community activities following the offering, such activities are not our sole corporate purpose. The Beneficial Foundation will be dedicated completely to community activities and the promotion of charitable causes, and may be able to support such activities in manners that are not presently available to us. We believe that The Beneficial Foundation will enable us to assist the communities within our market areas in areas beyond community development and lending and may enhance our current activities under the Community Reinvestment Act.
We further believe that the funding of The Beneficial Foundation with our common stock will allow our community to share in our potential growth and success long after the offering. The Beneficial Foundation will accomplish that goal by providing for continued ties between our community and us, thereby forming a partnership within the communities in which we operate.
The contribution
to The Beneficial Foundation is intended
to complement our traditional community lending and
charitable activities. For the years ended December 31, 2006 and December 31,
2005, we contributed $552,809 and $501,784 respectively, to community
organizations. We expect to continue making charitable contributions and
donations within our community. In connection with the closing of the offering,
we intend to contribute $500,000 in cash and 950,000 shares of our common stock
to The Beneficial Foundation.
Structure of the Charitable Foundation
The Beneficial Foundation will be incorporated under Pennsylvania law as a non-stock corporation. The Articles of Incorporation of The Beneficial Foundation will provide that The Beneficial Foundation is organized exclusively for charitable purposes as set forth in Section 501(c)(3) of the Internal Revenue Code. The Articles of Incorporation will further provide that no part of the net earnings of the foundation will inure to the benefit of, or be distributable to, its directors or officers.
The directors of The Beneficial
Foundation will be elected by the existing board of directors of The Beneficial
Foundation. We have selected four of our employees, one of
whom is also a director, one of our independent directors, and one employee of
FMS Financial to serve on the initial board of directors of the foundation. The
employees who will serve as directors of the foundation are James J. Connor,
Cheryl Giles, Loretta T. Ross and Gerard P. Cuddy, who is also a director.
Elizabeth H. Gemmill, an independent director of Beneficial Mutual Bancorp and
James E. Igo, a current employee of FMS Financial, will also serve as directors
of the foundation. We also will select one additional person to serve on the
foundations board of directors who will not be one of our officers or
directors. As required by Office of Thrift Supervision regulations, this other
director will have experience with local charitable organizations and grant
making. While there are no plans to change the size of the initial board of
directors during the year following the completion of the offering, following
the first anniversary of the offering, the foundation may alter the size and
composition of its board of directors. However, for five years after the
offering, one seat on the foundations board of directors will be reserved for
a person from our local community who has experience with local community
charitable organizations and grant making and who is not one of our officers,
directors or employees, and one seat on the foundations board of directors
will be reserved for one of our directors. It is currently not anticipated that
directors of the foundation will receive compensation for their service.
The board of directors of The Beneficial Foundation will be responsible for establishing its grant and donation policies, consistent with the purposes for which it was established. As directors of a non-profit corporation, directors of The Beneficial Foundation will always be bound by their fiduciary duty to advance the foundations charitable goals, to protect its assets and to act in a manner consistent with the charitable purposes for which the foundation is established. The directors of The Beneficial Foundation also will be responsible for
208
directing the activities of the foundation, including the management and voting of our common stock held by the foundation. However, as required by Office of Thrift Supervision regulations, all shares of common stock held by The Beneficial Foundation must be voted in the same ratio as all other shares of the common stock on all proposals considered by our stockholders.
The Beneficial Foundations place of business will be located at our administrative offices. The board of directors of The Beneficial Foundation will appoint such officers and employees as may be necessary to manage its operations. To the extent applicable, we will comply with the affiliates restrictions set forth in Sections 23A and 23B of the Federal Reserve Act and the Office of Thrift Supervision regulations governing transactions between us and the foundation.
The Beneficial Foundation will receive working capital from: (1) any cash on hand and any dividends that may be paid on our common stock in the future; (2) within the limits of applicable federal and state laws, loans collateralized by the common stock; or (3) the proceeds of the sale of any of the common stock in the open market from time to time. As a private foundation under Section 501(c)(3) of the Internal Revenue Code, The Beneficial Foundation will be required to distribute annually in grants or donations a minimum of 5% of the average fair market value of its net investment assets. One of the conditions imposed on the gift of common stock by us is that the amount of common stock that may be sold by The Beneficial Foundation in any one year shall not exceed 5% of the average market value of the assets held by The Beneficial Foundation, except where the board of directors of the foundation determines that the failure to sell an amount of common stock greater than such amount would result in a long-term reduction of the value of its assets and/or would otherwise jeopardize its capacity to carry out its charitable purposes.
Tax Considerations
Our independent tax advisor has advised us that an organization created for the above purposes should qualify as a Section 501(c)(3) exempt organization under the Internal Revenue Code and should be classified as a private foundation. The Beneficial Foundation will submit a timely request to the Internal Revenue Service to be recognized as an exempt organization. As long as The Beneficial Foundation files its application for tax-exempt status within 15 months from the date of its organization, and provided the Internal Revenue Service approves the application, its effective date as a Section 501(c)(3) organization will be the date of its organization. Our independent tax advisor, however, has not rendered any advice on whether The Beneficial Foundations tax exempt status will be affected by the regulatory requirement that all shares of our common stock held by The Beneficial Foundation must be voted in the same ratio as all other outstanding shares of common stock on all proposals considered by our stockholders.
We are authorized under federal law to make charitable contributions. We believe that the offering presents a unique opportunity to establish and fund a charitable foundation given the substantial amount of additional capital being raised. In making such a determination, we considered the dilutive impact of the contribution of common stock to The Beneficial Foundation on the amount of common stock to be sold in the offering. See Capitalization, Regulatory Capital Compliance, and Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation. The amount of the contribution will not adversely impact our financial condition. We therefore believe that the amount of the charitable contribution is reasonable given our pro forma capital position and does not raise safety and soundness concerns.
We have received an opinion from our independent tax advisor that our contribution of our stock and cash to The Beneficial Foundation should not constitute an act of self-dealing and that we should be entitled to a deduction under federal law in the amount of the fair market value of the stock at the time of the contribution, less the nominal amount that The Beneficial Foundation is required to pay us for such stock, plus the amount of cash contributed. Under the Internal Revenue Code, we are permitted to deduct only an amount equal to 10% of our annual taxable income in any one year. We are permitted under the Internal Revenue Code to carry the excess contribution over the five year period following the contribution to The Beneficial Foundation. We estimate that we will have sufficient income in the year in which the contribution is made and for the five-year period thereafter so that substantially all of the contribution should be deductible under federal law over the six-year period. Pennsylvania law does not provide a similar deduction. However, we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to the foundation. Furthermore, even if the contribution is deductible
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under federal law, we may not have sufficient earnings to be able to use the deduction in full. We do not expect to make any further contributions to The Beneficial Foundation within the first five years following the initial contribution, unless such contributions would be deductible under the Internal Revenue Code. Any such decisions would be based on an assessment of, among other factors, our financial condition at that time, the interests of our stockholders and depositors, and the financial condition and operations of the foundation.
Although we have received an opinion from our independent tax advisor that we should be entitled to a deduction under federal law for the charitable contribution, there can be no assurances that the Internal Revenue Service will recognize The Beneficial Foundation as a Section 501(c)(3) exempt organization or that the deduction will be permitted. In such event, our contribution to The Beneficial Foundation would be expensed without tax benefit, resulting in a reduction in earnings in the year in which the Internal Revenue Service makes such a determination. See Risk FactorsRisks Related to the Formation of the Charitable Foundation.
As a private foundation, earnings and gains, if any, from the sale of common stock or other assets are exempt from federal and state income taxation. However, investment income, such as interest, dividends and capital gains, is generally taxed at a rate of 2.0%. The Beneficial Foundation will be required to file an annual return with the Internal Revenue Service within four and one-half months after the close of its fiscal year. The Beneficial Foundation will be required to make its annual return available for public inspection. The annual return for a private foundation includes, among other things, an itemized list of all grants made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the foundations managers and a concise statement of the purpose of each grant.
Regulatory Conditions Imposed on the Charitable Foundation
Office of Thrift Supervision regulations impose the following conditions on the establishment of The Beneficial Foundation:
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the Office of Thrift Supervision may examine the foundation at the foundations expense; |
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the foundation must comply with all supervisory directives imposed by the Office of Thrift Supervision; |
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the foundation must provide annually to the Office of Thrift Supervision a copy of the annual report that the foundation submits to the Internal Revenue Service; |
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the foundation must operate according to written policies adopted by its board of directors, including a conflict of interest policy; |
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the foundation may not engage in self-dealing and must comply with all laws necessary to maintain its tax-exempt status under the Internal Revenue Code; and |
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the foundation must vote its shares in the same ratio as all of the other shares voted on each proposal considered by our stockholders. |
In addition, within six months of completing the reorganization, The Beneficial Foundation must submit to the Office of Thrift Supervision a three-year operating plan.
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Restrictions on Acquisition of Beneficial Mutual Bancorp,
Beneficial Savings Bank MHC and
Beneficial Mutual Savings Bank
General
Certain provisions in the charter and bylaws of Beneficial Mutual Bancorp may have antitakeover effects. In addition, regulatory restrictions may make it more difficult for persons or companies to acquire control of us.
Mutual Holding Company Structure
Beneficial Savings Bank MHC will own a majority of the outstanding common stock of Beneficial Mutual Bancorp after the offering and, through its board of directors, will be able to exercise voting control over most matters put to a vote of stockholders. For example, Beneficial Savings Bank MHC may exercise its voting control to prevent a sale or merger transaction or to defeat a stockholder nominee for election to the board of directors of Beneficial Mutual Bancorp. It will not be possible for another entity to acquire Beneficial Mutual Bancorp without the consent of Beneficial Savings Bank MHC. Beneficial Savings Bank MHC, as long as it remains in the mutual form of organization, will control a majority of the voting stock of Beneficial Mutual Bancorp.
Charter and Bylaws of Beneficial Mutual Bancorp
Although our board of directors is not aware of any effort that might be made to obtain control of us after the offering, the board of directors believed it appropriate to adopt certain provisions permitted by federal regulations that may have the effect of deterring a future takeover attempt that is not approved by our board of directors. The following description of these provisions is only a summary and does not provide all of the information contained in our charter and bylaws. See Where You Can Find More Information as to where to obtain a copy of these documents.
Beneficial Ownership Limitation. Our charter provides that for a period of five years from the date of the consummation of the initial stock offering of Beneficial Mutual Bancorp, no person other than Beneficial Savings Bank MHC may acquire directly or indirectly the beneficial ownership of more than 10% of any class of an equity security of Beneficial Mutual Bancorp. In the event a person acquires shares in violation of this provision, all shares beneficially owned by such person in excess of 10% will be considered excess shares and will not be counted as shares entitled to vote or counted as voting shares in connection with any matters submitted to the stockholders for a vote. This provision does not apply to a transaction in which Beneficial Mutual Bancorp fully converts from the mutual holding company form of organization.
Board of Directors.
Classified Board. Our board of directors is divided into three classes as nearly as equal in number as possible. The stockholders elect one class of directors each year for a term of three years. The classified board makes it more difficult and time consuming for a stockholder group to fully use its voting power to gain control of the board of directors without the consent of the incumbent board of directors of Beneficial Mutual Bancorp.
Filling of Vacancies; Removal. The bylaws provide that any vacancy occurring in the board of directors, including a vacancy created by an increase in the number of directors, may be filled by a vote of a majority of the remaining directors although less than a quorum of the board of directors then in office. A person elected to fill a vacancy on the board of directors will serve until the next election of directors by the stockholders. Our bylaws provide that a director may be removed from the board of directors prior to the expiration of his or her term only for cause and only upon the vote of a majority of the outstanding shares of voting stock. These provisions make it more difficult for stockholders to remove directors and replace them with their own nominees.
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Elimination of Cumulative Voting. The charter of Beneficial Mutual Bancorp provides that no shares will be entitled to cumulative voting. The elimination of cumulative voting makes it more difficult for a stockholder group to elect a director nominee.
Qualification. The bylaws provide that no person will be eligible to serve on the board of directors who (1) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, or (2) is a person against who a banking agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal, or (3) has been found either by a regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency.
Stockholder Action by Written Consent; Special Meetings of Stockholders. Our stockholders must act only through an annual or special meeting or by unanimous written consent. The bylaws provide that the president, a majority of the board of directors or holders of 10% or more of our outstanding shares may request the calling of a special meeting. The provisions of our charter and bylaws limiting stockholder action by written consent and calling of special meetings of stockholders may have the effect of delaying consideration of a stockholder proposal until the next annual meeting, unless a special meeting is called in accordance with the provisions of the bylaws. These provisions also would prevent the holders of a majority of common stock from unilaterally using the written consent procedure to take stockholder action.
Advance Notice Provisions for Stockholder Nominations and Proposals. Our bylaws establish an advance notice procedure for stockholders to nominate directors or bring other business before an annual meeting of stockholders. Advance notice of nominations or proposed business by stockholders gives the board of directors time to consider the qualifications of the proposed nominees, the merits of the proposals and, to the extent deemed necessary or desirable by the board of directors, to inform stockholders and make recommendations about those matters.
Stockholder Nominations. A person may not be nominated for election as a director unless that person is nominated by or at the direction of the board of directors or by a stockholder who has given appropriate notice to Beneficial Mutual Bancorp before the meeting. Stockholder nominations must be in writing and delivered to the Secretary of Beneficial Mutual Bancorp at least 30 days prior to the date of the annual meeting, provided however, that in the event that less than 40 days notice or prior public disclosure of the date of the meeting is given or made, notice by a stockholder of his or her intention to nominate a director must be received not later than the close of business on the 10th day following the day on which notice of the date of the annual meeting was mailed or such public disclosure of the annual meeting was made.
Stockholder Proposals. A stockholder may not bring new business before an annual meeting unless the stockholder has given Beneficial Mutual Bancorp appropriate notice of its intention to bring that business before the meeting. A stockholder may propose new business at an annual meeting; however, such business must be stated in writing and filed with Beneficial Mutual Bancorps Secretary at least 30 days before the date of the annual meeting, provided however, that when public notice of the date of the annual meeting is less than 40 days, notice by the stockholder of a proposal must not be received later than the close of business on the 10th day following the day on which notice of the date of the annual meeting was made to the public. Additionally, if such proposal is not presented, in writing, to Beneficial Mutual Bancorps Secretary at least 30 days prior to such meeting, such nomination or proposal shall be laid over for action at an adjourned, special or annual meeting taking place 30 days or more thereafter. A stockholder who desires to raise new business must provide certain information to Beneficial Mutual Bancorp concerning the nature of the new business, the stockholder and the stockholders interest in the business matter.
Authorized but Unissued Shares of Capital Stock. Following the offering, we will have authorized but unissued shares of common and preferred stock. Our charter authorizes the board of directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, conversion rates, and liquidation preferences. Although such shares of
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common and preferred stock could be issued by the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, it is anticipated that such uses will be unlikely given that Beneficial Savings Bank MHC must always own a majority of our common stock.
Regulatory Restrictions