SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 000-51078
LINCOLN PARK BANCORP
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(Name of Small Business Issuer in its Charter)
FEDERAL 61-1479859
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
31 BOONTON TURNPIKE, LINCOLN PARK, NEW JERSEY 07035
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(Address of Principal Executive Office) (Zip Code)
(973) 694-0330
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(Issuer's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve months (or for
such shorter period that the Registrant was required to file reports) and (2)
has been subject to such requirements for the past 90 days.
(1) YES X . NO .
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(2) YES X . NO .
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. [X]
The Registrant's revenues for the fiscal year ended December 31, 2004
were $3.8 million.
As of March 11, 2005, there were 1,851,500 shares issued and outstanding
of the Registrant's Common Stock, including 999,810 shares owned by Lincoln Park
Bancorp, MHC. The aggregate value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of the Common Stock
as of March 11, 2005 was $8.2 million.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders (Parts II and IV)
2. Proxy Statement for the 2005 Annual Meeting of Stockholders (Part III)
PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
This Annual Report contains certain "forward-looking statements" which
may be identified by the use of words such as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage, and other loans,
real estate values, competition, changes in accounting principles, policies, or
guidelines, changes in legislation or regulation, and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing products and services.
LINCOLN PARK BANCORP, MHC
Lincoln Park Bancorp, MHC is the federally chartered mutual holding
company parent of Lincoln Park Bancorp. Lincoln Park Bancorp, MHC is not
currently engaged in any business other the holding the majority of the voting
stock of Lincoln Park Bancorp. The executive offices of Lincoln Park Bancorp,
MHC, are located at 31 Boonton Turnpike, Lincoln Park, New Jersey 07035, and its
telephone number is (973) 694-0330. Lincoln Park Bancorp, MHC is subject to
comprehensive regulation and examination by the Office of Thrift Supervision.
LINCOLN PARK BANCORP
Lincoln Park Bancorp is a federally chartered corporation which was
organized in 2004 as part of the mutual holding company reorganization of
Lincoln Park Savings Bank. Our principal asset is our investment in Lincoln Park
Savings Bank. We are a majority owned subsidiary of Lincoln Park Bancorp, MHC.
In connection with the reorganization, which was completed on December 16, 2004,
we sold 851,690 shares of our common stock and issued 999,810 shares to our
mutual holding company parent. The net proceeds from our stock offering totaled
$7.8 million. At December 31, 2004, Lincoln Park Bancorp had consolidated assets
of $86.7 million, deposits of $73.9 million and shareholders' equity of $12.8
million. Lincoln Park Bancorp is subject to comprehensive regulation and
examination by the Office of Thrift Supervision.
LINCOLN PARK SAVINGS BANK
GENERAL
Lincoln Park Savings Bank is a New Jersey chartered savings bank
headquartered in Lincoln Park, New Jersey. Lincoln Park Savings was originally
founded in 1923. In connection with and prior to the mutual holding company
reorganization, Lincoln Park Savings Bank completed its conversion from a New
Jersey chartered savings and loan association to a New Jersey chartered savings
bank. Lincoln Park Savings conducts business from its main office located at 31
Boonton Turnpike in Lincoln Park, New Jersey. The telephone number at its main
office is (973) 694-0330.
Our principal business activity is the origination of mortgage loans
secured by one- to four-family residential real estate and consumer loans
consisting primarily of home equity loans and home equity lines of credit. We
also originate loans secured by multi-family and commercial real estate and, to
a lesser extent, construction loans. We also invest in mortgage-backed and
investment securities. We offer a variety of deposit accounts, including demand
deposits, savings and club accounts and certificates of deposit. We emphasize
personal and efficient service for our customers. Lincoln Park Savings is
subject to comprehensive regulation and examination by the Commissioner of
Banking and Insurance of the State of New Jersey and the Federal Deposit
Insurance Corporation, and we are a member of the Federal Home Loan Bank system.
2
MARKET AREA
We primarily serve communities located in Morris and Passaic Counties,
New Jersey. Our primary market area is concentrated in the Borough of Lincoln
Park and in contiguous towns in Morris and Passaic Counties. During the past
several years, the population and number of households in Morris and Passaic
Counties have increased moderately. Our market area is characterized by a high
proportion of single family and two- to four-family houses. This market has a
diverse economy with a large number of small and medium-size business
establishments as well as corporate headquarters for Fortune 500 companies. The
market area also serves as a bedroom community for nearby New York City as well
as other nearby suburban areas in northern New Jersey and downstate New York.
COMPETITION
We face intense competition within our market area both in making loans
and attracting deposits. Morris and Passaic Counties have a high concentration
of financial institutions, including large money center and regional banks,
community banks and credit unions. Some of our competitors offer products and
services that we currently do not offer, such as trust services and private
banking. As of December 31, 2004, our market share of deposits represented less
than 1% of deposits in each of Morris and Passaic Counties.
Our competition for loans and deposits comes principally from commercial
banks, savings institutions, mortgage banking firms and credit unions. We face
additional competition for deposits from short-term money market funds,
brokerage firms, mutual funds and insurance companies. Our primary focus is to
build and develop profitable customer relationships across all lines of business
while maintaining our role as a community bank.
LENDING ACTIVITIES
Our principal lending activity has been the origination of first
mortgage loans for the purchase or refinancing of one- to four-family
residential real property. We have historically retained all loans that we
originate, although we will occasionally enter into loan participations. One- to
four-family residential real estate mortgage loans represented $38.3 million, or
66.2% of our total loan portfolio at December 31, 2004. Consumer loans totaled
$15.8 million, or 27.3% of the total loan portfolio at December 31, 2004, and
consisted primarily of home equity loans and home equity lines of credit. We
also offer multi-family and commercial real estate loans and to a lesser extent
construction loans. Commercial real estate loans totaled $2.2 million, or 3.8%
of the total loan portfolio at December 31, 2004. On a limited basis, we
originate consumer loans that are not secured by real estate, including
automobile loans, deposit account loans and unsecured personal loans and lines
of credit.
3
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of our loan portfolio by type of loan as of the dates indicated.
AT DECEMBER 31,
-------------------------------------------------------
2004 2003
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AMOUNT PERCENT AMOUNT PERCENT
----------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
REAL ESTATE LOANS:
One- to four-family........... $ 38,296 66.2% $ 33,554 68.40%
Multi-family.................. 313 0.54 323 0.66
Commercial.................... 2,191 3.79 2,060 4.20
Construction.................. 1,230 2.13 380 0.77
---------- ---------- ---------- ----------
Total real estate loans..... 42,030 72.68% 36,317 74.03%
---------- ---------- ---------- ----------
CONSUMER LOANS:
Passbook or certificate...... 68 0.12% 100 0.20%
Home equity lines of credit.. 6,134 10.61 4,638 9.46
Home equity.................. 9,313 16.10 7,670 15.64
Automobile................... 187 0.32 265 0.54
Personal unsecured........... 78 0.13 48 0.10
Overdraft line of credit..... 24 0.04 17 0.03
---------- ---------- ---------- ----------
Total consumer loans........ 15,804 27.32% 12,738 25.97%
---------- ---------- ---------- ----------
Total loans...................... 57,834 100.00% 49,055 100.00%
---------- ========== ---------- ==========
LESS:
Loans in process.............. 625 91
Allowance for loan losses..... 156 126
Deferred loan (costs)......... (101) (75)
---------- ----------
680 142
---------- ----------
Total loans receivable, net... $ 57,154 $ 48,913
========== ==========
4
MATURITY OF LOAN PORTFOLIO. The following table shows the remaining
contractual maturity of our loans at December 31, 2004. Mortgages which have
adjustable interest rates or that have balloon repayment features are shown as
maturing in the periods during which the contract is due. The table does not
include the effect of possible prepayments or due on sale clauses.
ONE- TO FOUR- COMMERCIAL
FAMILY MULTI-FAMILY REAL ESTATE CONSTRUCTION CONSUMER TOTAL
------------- -------------- ------------- -------------- ----------- ----------
(IN THOUSANDS)
One year or less........................ $ 183 $ -- $ -- $ 1,230 $ 277 $ 1,680
---------- ----------- ----------- ---------- ---------- ----------
After one year:
More than one to three years.......... 7 -- -- -- 906 913
More than three to five years......... 410 -- 181 -- 1,147 1,738
More than five to ten years........... 513 -- 345 -- 2,061 2,919
More than ten to twenty years......... 16,060 83 641 -- 1,143 28,197
More than twenty years................ 21,123 230 1,024 -- -- 22,377
---------- ----------- ---------- ---------- ----------- ----------
Total due after one year................ 38,113 313 2,191 -- 15,527 56,144
---------- ----------- ----------- ---------- ---------- ----------
Total due............................... $ 38,296 $ 313 $ 2,191 $ 1,230 $ 15,804 $ 57,834
========== =========== =========== ========== ========== ==========
FIXED- AND ADJUSTABLE-RATE LOAN SCHEDULE. The following table sets forth
at December 31, 2004, the dollar amount of all fixed-rate and adjustable-rate
loans due after December 31, 2005. Adjustable- and floating-rate loans are
included based on contractual maturities.
DUE AFTER DECEMBER 31, 2004
------------------------------------------------
FIXED ADJUSTABLE TOTAL
-------------- ------------------ ------------
(IN THOUSANDS)
One- to four-family.......... $ 29,891 $ 8,222 $ 38,113
Multi-family................. -- 313 313
Commercial real estate....... 345 1,846 2,191
Construction................. -- -- --
Consumer..................... 9,486 6,041 15,527
------------ ------------ ------------
Total loans............. $ 38,722 $ 16,422 $ 56,144
============ ============ ============
5
ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. Our primary lending activity
consists of the origination of one- to four-family residential mortgage loans
that are primarily secured by properties located in Morris and Passaic Counties.
At December 31, 2004, approximately $38.2 million, or 66.2% of our loan
portfolio, consisted of one- to four-family residential loans. Generally, one-
to four-family residential mortgage loans are originated in amounts up to 80% of
the appraised value of the property. However, we make first mortgage loans and
second mortgage loans when we are the first lien holder with a loan-to-value
ratio up to 89% for properties secured by one- to four-family residences located
in our community reinvestment designated area. Private mortgage insurance is not
required on loans with a loan-to-value ratio in excess of 80% in conjunction
with this program. Fixed-rate loans are originated for terms of 15, 20, 25 and
30 years. At December 31, 2004, our largest loan secured by one- to four-family
real estate had a principal balance of $524,000 and was secured by a
single-family residence. This loan was performing in accordance with its terms.
We originate our fixed-rate loans in conformity with Freddie Mac
guidelines. However, our policy has been to retain in portfolio the fixed-rate
loans we originate.
We also offer adjustable-rate mortgage loans for one- to four-family
properties with an interest rate based on the United States Treasury index. The
interest rates on these loans adjust annually or every three years from the
outset of the loan or adjust annually after a five-, seven- or ten-year initial
fixed rate period. We originated $3.3 million of adjustable-rate one- to
four-family residential loans during the year ended December 31, 2004. Our
adjustable rate-mortgage loans provide for maximum rate adjustments of 200 basis
points per adjustment, with a lifetime maximum rate of 12%. Our adjustable rate
mortgage loans amortize over terms of up to 40 years.
Adjustable-rate mortgage loans decrease the risk associated with changes
in market interest rates by periodically repricing, but involve other risks
because, as interest rates increase, the underlying payments by the borrower
increase, thus increasing the potential for default by the borrower. At the same
time, the marketability of the underlying collateral may be adversely affected
by higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the maximum periodic and lifetime interest rate adjustments
permitted by our loan documents, and therefore, is potentially limited in
effectiveness during periods of rapidly rising interest rates. At December 31,
2004, $8.2 million or 21.5% of our one- to four-family residential loans had
adjustable rates of interest.
All one- to four-family residential mortgage loans that we originate
include "due-on-sale" clauses, which give us the right to declare a loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.
Regulations limit the amount that a savings institution may lend
relative to the appraised value of the real estate securing the loan, as
determined by an appraisal of the property at the time the loan is originated.
For all loans, we utilize outside independent appraisers approved by the board
of directors. All borrowers are required to obtain title insurance. We also
require homeowner's insurance and fire and casualty insurance and, where
circumstances warrant, flood insurance on properties securing real estate loans.
COMMERCIAL AND MULTI-FAMILY REAL ESTATE LOANS. At December 31, 2004,
$2.2 million, or 3.8% of our total loan portfolio consisted of commercial real
estate loans secured by mixed use properties (properties combining residential
and commercial space), office buildings and other commercial properties. We
generally originate adjustable rate commercial real estate loans with interest
rates that adjust every five years based upon the five year Federal Home Loan
Bank of New York advance rate, and which amortize over periods of 25 years. The
maximum loan-to-value ratio of our commercial real estate loans is 75%. At
December 31, 2004, we had 10 commercial real estate loans with an average
outstanding balance of $219,000. At December 31, 2004, our largest loan secured
by commercial real estate consisted of a $500,000 loan secured by a 7-unit
office building. At December 31, 2004 all of our loans secured by commercial
real estate were performing in accordance with their terms. All commercial real
estate loans are secured by properties located within our lending area or
contiguous areas.
Loans secured by multi-family real estate (other then mixed use
properties listed above) totaled approximately $313,000 or 0.54%, of the total
loan portfolio at December 31, 2004. Multi-family real estate loans generally
are secured by rental properties, including walk-up apartments. At December 31,
2004, we had three multi-family loans with an average principal balance of
$104,400, and the largest multi-family real estate loan had a
6
principal balance of $115,800. Two of our multi-family loans represent
participation interests in loans originated by the New Jersey Thrift
Institutions Community Investment Corporation. These participation interests are
secured by low and moderate income multi-family properties located in Wayne
Township and in Paterson, New Jersey. As of December 31, 2004, all of our loans
secured by multi-family real estate loans were performing in accordance with
their terms. Multi-family real estate loans generally are offered with interest
rates that adjust after five years. Multi-family loans are originated for terms
of up to 25 years. Multi-family real estate loan adjustments are tied to the
five year FHLB of New York advance rate.
We consider a number of factors in originating commercial and
multi-family real estate loans. We evaluate the qualifications and financial
condition of the borrower (including credit history), profitability and
expertise, as well as the value and condition of the mortgaged property securing
the loan. When evaluating the qualifications of the borrower, we consider the
financial resources of the borrower, the borrower's experience in owning or
managing similar property and the borrower's payment history with us and other
financial institutions. In evaluating the property securing the loan, the
factors we consider include the net operating income of the mortgaged property
before debt service and depreciation, the debt service coverage ratio (the ratio
of net operating income to debt service) to ensure that it is at least 130% of
the monthly debt service, and the ratio of the loan amount to the appraised
value of the mortgaged property. Commercial and multi-family real estate loans
are originated in amounts up to 75% of the appraised value of the mortgaged
property securing the loan. All commercial and multi-family real estate loans
are appraised by outside independent appraisers approved by the board of
directors. Personal guarantees are often obtained from commercial and
multi-family real estate borrowers. We generally do not originate commercial and
multi-family real estate loans secured by industrial properties.
Loans secured by commercial and multi-family real estate generally are
larger than one- to four-family residential loans and involve greater credit
risk. Commercial and multi-family real estate loans often involve large loan
balances to single borrowers or groups of related borrowers. Repayment of these
loans depends to a large degree on the results of operations and management of
the properties securing the loans or the businesses conducted on such property,
and may be affected to a greater extent by adverse conditions in the real estate
market or the economy in general. Accordingly, the nature of these loans makes
them more difficult for management to monitor and evaluate.
CONSUMER LOANS. We are authorized to make loans for a variety of
personal and consumer purposes. As of December 31, 2004, consumer loans totaled
$15.8 million, or 27.3% of our total loan portfolio. Our consumer loans consist
primarily of home equity loans and home equity lines of credit. Our procedure
for underwriting consumer loans includes an assessment of the applicant's credit
history and ability to meet existing obligations and payments of the proposed
loan, as well as an evaluation of the value of the collateral security, if any.
The largest component of our consumer loans consists of home equity
loans and home equity lines of credit which totaled $15.4 million, or 26.7% of
our total loan portfolio, as of December 31, 2004. Home equity loans and home
equity lines of credit are generally made for owner-occupied homes, and are
secured by first or second mortgages on residences. Home equity loans may have a
term of up to 20 years, and are originated at a fixed rate of interest. Home
equity lines of credit are revolving lines of credit and have adjustable rates
of interest. We offer home equity loans and lines of credit up to $350,000. At
December 31, 2004, our home equity loans had an average balance of $70,000 and
our home equity lines of credit had an average credit limit of $80,600.
Generally home equity loans and lines of credit have a maximum loan to value
ratio of 80% (including any senior lien on the collateral property), although we
will originate such loans with a loan-to-value ratio up to 89% within our
community reinvestment designated area, provided Lincoln Park Savings has the
first lien on the property securing the loan. We currently offer home equity
lines of credit for a period of up to 20 years, and generally at rates tied to
the prime interest rate as published in THE WALL STREET JOURNAL.
Automobile loans accounted for $187,000 of our consumer loans at
December 31, 2004. Our automobile loans generally have terms that do not exceed
five years and carry a fixed rate of interest. Generally, automobile loans are
made in amounts up to 85% of the purchase price on new vehicles, and up to 80%
of the National Automobile Dealers Association retail value on used vehicles.
Collision and comprehensive insurance is required on all automobile loans. We
require a lien on the title to the vehicle securing the loan.
7
We make loans secured by deposit accounts up to 90% of the amount of the
available deposit balance. We also make personal loans and overdraft lines of
credit that are not secured by any collateral. We have the authority to make
other consumer loans that may or may not be secured.
Consumer loans generally entail greater risk than residential loans,
particularly in the case of loans that are unsecured or are secured by assets
that tend to depreciate in value, such as automobiles. In these cases,
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan, and the remaining value often does
not warrant further substantial collection efforts against the borrower.
CONSTRUCTION LOANS. At December 31, 2004, we had three construction
loans outstanding in the amount of $1.2 million, or 2.1% of our total loan
portfolio. We currently offer adjustable-rate and fixed-rate residential
construction loans for the construction of owner-occupied, single-family
residences. These loans generally are offered to borrowers who have a contract
for construction of a single family residence on property they own at the time
of the loan origination. Construction loans generally have terms of nine months
to one year, but typically are structured to become permanent mortgage loans
once construction is completed. During the construction period, construction
loans require the payment of interest only. Construction loans will generally be
made in amounts up to 80% of the appraisal value of the property. Funds are
disbursed in accordance with a schedule reflecting the completion of portions of
the project.
Construction loans generally have greater credit risk than one- to
four-family residential mortgage loans. The risk of loss on a construction loan
depends upon the accuracy of the initial estimate of the value of the property
at completion of construction compared to the estimated cost of construction. If
the estimated cost of construction is inaccurate, we may have to advance funds
beyond the original amount committed in order to protect the value of the
property.
OTHER LOANS. We have authority to make secured and unsecured commercial
business loans, but have not made any loans to date. We intend to begin to offer
commercial business lines of credit in 2005, although no specific plans or
policies have been adopted by the board of directors. We do not anticipate that
commercial business lines of credit will be material to our operations during
the next several years.
ORIGINATION AND SERVICING OF LOANS. Loan origination activities are
concentrated in our primary market area of Morris and Passaic Counties, New
Jersey. New loans are generated primarily from walk-in customers, customer
referrals, and other parties with whom we do business, and from the efforts of
directors and employees and advertising. Loan applications are underwritten and
processed at our main office. We service all loans that we originate.
We have not been an active purchaser or seller of loans. In 2003, we
sold a participation interest in a portion of a loan where the total loan
principal exceeded our loans to one borrower limit. We retained the servicing of
the loan. Similarly, we will occasionally purchase a participation interest in
loans originated by other financial institutions.
8
The following table shows our loan origination purchases, sales and
repayment activities for the periods indicated.
YEARS ENDED DECEMBER 31,
--------------------------
2004 2003
------------ ------------
(IN THOUSANDS)
Beginning of period................... $ 48,913 $ 34,410
----------- -----------
ORIGINATIONS BY TYPE:
Real estate mortgage:
One- to four-family.............. 9,065 19,721
Multi-family..................... -- 153
Commercial....................... 245 --
Construction..................... 1,230 200
Consumer:
Passbook or certificate.......... 24 113
Home equity lines of credit...... 6,730 5,173
Home equity...................... 4,309 5,738
Automobile....................... 90 155
Personal unsecured............... 48 50
Overdraft line of credit......... 16 17
----------- -----------
Total loans originated......... 21,757 31,320
----------- -----------
PURCHASES:
Real estate mortgage:
Multi-family..................... -- 115
------------ -----------
Total purchases................ -- 115
------------ -----------
SALES:
Real estate mortgage:
Commercial....................... -- 225
------------ -----------
Total sales.................... -- 225
------------ -----------
Principal repayments............... 13,541 16,720
----------- -----------
Total reductions............... 13,541 16,945
----------- -----------
Increase (decrease) in other
items, net......................... 25 13
----------- -----------
Net increase................... 8,241 14,503
----------- -----------
Ending balance................. $ 57,154 $ 48,913
=========== ===========
LOAN APPROVAL PROCEDURES AND AUTHORITY. The loan approval process is
intended to assess the borrower's ability to repay the loan, the viability of
the loan, and the adequacy of the value of the property that will secure the
loan. To assess the borrower's ability to repay, we review the employment and
credit history and information on the historical and projected income and
expenses of mortgagors. All loans up to $200,000 may be approved by certain of
our officers pursuant to delegated loan approval authority or by our Loan
Committee. Our Loan Committee consists of two directors, the President, and the
Vice President of Lending. The President and Vice President of Lending have a
combined lending authority up to $100,000. The Vice President of Lending and
another Vice President have a combined lending authority of up to $25,000. The
three members of the Loan Committee may approve loans up to $200,000. All loans
in excess of $200,000 must be approved by the board of directors. In addition,
the board of directors ratifies all loans approved by management.
We require appraisals of all real property securing loans. Appraisals
are performed by independent licensed appraisers. All appraisers are approved by
the board of directors annually. We require fire and extended coverage insurance
in amounts at least equal to the principal amount of the loan.
NON-PERFORMING AND PROBLEM ASSETS
Lincoln Park Savings commences collection efforts when a loan becomes 11
days past due with system generated reminder notices. Subsequent late charge and
delinquent notices are issued and the account is monitored on a regular basis
thereafter. Personal, direct contact with the borrower is attempted early in the
collection process as
9
a courtesy reminder and later to determine the reason for the delinquency and to
safeguard Lincoln Park Savings' collateral. When a loan is more than 60 days
past due, the credit file is reviewed and, if deemed necessary, information is
updated or confirmed and collateral re-evaluated. We make every effort to
contact the borrower and develop a plan of repayment to cure the delinquency.
All loans 90 days past due are reported to the board of directors. Upon
direction of the board of directors, if no repayment plan is in process, the
file is referred to counsel for the commencement of foreclosure or other
collection efforts.
Loans are placed on non-accrual status when they are contractually 90
days or more delinquent. When loans are placed on non-accrual status, unpaid
accrued interest is fully reserved, and further income is recognized only to the
extent received. Loans are removed from non-accrual status when their
delinquency status is reduced to less than 90 days.
NON-PERFORMING LOANS. At December 31, 2004, $425,000 or 0.73% of our
total loans were non-performing loans.
NON-PERFORMING ASSETS. The table below sets forth the amounts and
categories of our non-performing assets at the dates indicated. Delinquent loans
that are 90 days or more past due are generally considered non-performing
assets. During the periods presented, we did not have any troubled debt
restructurings.
AT DECEMBER 31,
-------------------------
2004 2003
------------ -----------
(DOLLARS IN THOUSANDS)
NON-ACCRUING LOANS:
One- to four-family.................... $ 425 $ 171
Multi-family........................... -- --
Commercial real estate................. -- --
Construction........................... -- --
Consumer - Home equity loans........... -- 185
--------- ---------
Total................................ 425 356
--------- ---------
ACCRUING LOANS DELINQUENT 90 DAYS OR MORE:
One- to four-family.................... -- --
Multi-family........................... -- --
Commercial real estate................. -- --
Construction........................... -- --
Consumer - Passbook or Certificate..... -- --
--------- ---------
Total................................ -- --
--------- ---------
Foreclosed assets......................... -- --
--------- ---------
Total non-performing assets............... $ 425 $ 356
========= =========
Total as a percentage of total assets..... 0.49% 0.48%
========= =========
Total as a percent of total loans......... 0.73% 0.73%
========= =========
Allowance for loan loss related to
non-performing loans................... $ 43 $ 36
========= =========
For the year ended December 31, 2004, gross interest income which would
have been recorded had our non-accruing loans been current in accordance with
their original terms amounted to $30,000. Interest income recognized on such
loans for the year ended December 31, 2004 was $17,000.
OTHER LOANS OF CONCERN. At December 31, 2004, we had three single-family
loans with an aggregate balance of $509,000 and one commercial real estate loan
with a balance of $181,000, with respect to which known information about the
possible credit problems of the borrowers or the cash flows of the security
properties have caused management to have some doubts as to the ability of the
borrowers to comply with repayment terms of the loans and which may result in
such loans being classified as non-performing. These loans are placed on Lincoln
Park Savings' watch list and are closely monitored.
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DELINQUENT LOANS. The following table sets forth our loan delinquencies
by type, by amount and by percentage of type at the dates indicated.
AT DECEMBER 31, 2004 AT DECEMBER 31, 2003
------------------------------------------ -----------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- --------------------- -------------------- --------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
---------- ---------- ---------- ---------- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
REAL ESTATE MORTGAGE:
One- to four-family........... 2 $ 257 3 $ 425 -- $ -- 3 $ 171
Multi- family................. -- -- -- -- -- -- -- --
Commercial.................... -- -- -- -- -- -- -- --
Construction.................. -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ------ ----- -----
Total real estate loans..... 2 257 3 425 -- -- 3 171
----- ----- ----- ----- ----- ------ ----- -----
CONSUMER:
Passbook or certificate....... 1 40 -- -- -- -- -- --
Home equity lines of credit... -- -- -- -- -- -- 3 185
Home equity................... -- -- -- -- -- -- -- --
Automobile.................... -- -- -- -- -- -- -- --
Personal unsecured............ -- -- -- -- -- -- -- --
Overdraft line of credit...... -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ------ ----- -----
Total other loans........... 1 40 -- -- -- -- 3 185
----- ----- ----- ----- ----- ------ ----- -----
Total delinquent loans.... 3 $ 297 3 $ 425 -- $ -- 6 $ 356
===== ===== ===== ===== ===== ====== ===== =====
Delinquent loans to total loans.. 0.34% 0.49% --% 0.73%
===== ===== ====== =====
11
CLASSIFIED ASSETS. Federal and state regulations and our Asset
Classification Policy provide that loans and other assets of lesser quality
should be classified as "substandard," "doubtful" or "loss" assets. 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 we 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. We classify an asset as "special mention" if the asset has a
potential weakness that warrants management's close attention. While such assets
are not impaired, management has concluded that if the potential weakness in the
asset is not addressed, the value of the asset may deteriorate, adversely
affecting the repayment of the asset.
We are required to establish general allowances for loan losses in an
amount deemed prudent by management for loans classified substandard or
doubtful, as well as for other problem loans. General allowances represent loss
allowances which have been established to recognize the inherent losses
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When we classify problem assets
as "loss," we are required either to establish a specific allowance for losses
equal to 100% of the amount of the asset so classified or to charge off such
amount. Our determination as to the classification of our assets and the amount
of our valuation allowances is subject to review by federal and state regulators
which can order the establishment of additional general or specific loss
allowances.
On the basis of management's review of our assets, at December 31, 2004
we had classified $625,000 of our assets as substandard consisting of three
non-accruing loans totaling $425,000 secured by single-family residential
properties and two corporate bonds with sub-investment grade ratings totaling
$200,000. Both of the corporate bonds are scheduled to mature during the first
six months of 2005, and both have fair market values in excess of their carrying
values at December 31, 2004. At December 31, 2004, we had classified $690,000 of
our mortgage loans as special mention, which loans are secured by $509,000 in
single-family residential properties and $181,000 in a commercial real estate
property. At December 31, 2004, none of our assets were classified as doubtful
or loss.
The loan portfolio is reviewed on a regular basis to determine whether
any loans require classification in accordance with applicable regulations. Not
all classified assets constitute non-performing assets.
ALLOWANCE FOR LOAN LOSSES
Our allowance for loan losses is maintained at a level necessary to
absorb loan losses which are both probable and reasonably estimable. Management,
in determining the allowance for loan losses, considers the losses inherent in
its loan portfolio and changes in the nature and volume of loan activities,
along with general economic and real estate market conditions. We utilize a
two-tier approach: (1) identification of impaired loans and establishment of
specific loss allowances on such loans; and (2) establishment of general
valuation allowances on the remainder of our loan portfolio. We maintain a loan
review system, which allows for a periodic review of our loan portfolio and the
early identification of potential impaired loans. Such system takes into
consideration, among other things, delinquency status, size of loans, type and
market value of collateral and financial condition of the borrowers. Specific
loan loss allowances are established for identified losses based on a review of
such information. A loan evaluated for impairment is considered to be impaired
when, based on current information and events, it is probable that we will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. All loans identified as impaired are evaluated independently. We do
not aggregate such loans for evaluation purposes. Loan impairment is measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. General loan loss allowances are based upon a combination
of factors including, but not limited to, actual loan loss experience,
composition of the loan portfolio, current economic conditions and management's
judgment. The allowance is increased through provisions charged against current
earnings and recoveries of previously charged-off loans. Loans which are
determined to be uncollectible are charged against the allowance. While
management uses available information to recognize probable and reasonably
estimable loan losses, future loss provisions may be necessary based on changing
economic conditions. Payments
12
received on impaired loans are applied first to accrued interest receivable and
then to principal. The allowance for loan losses as of December 31, 2004 is
maintained at a level that represents management's best estimate of losses
inherent in the loan portfolio, and such losses were both probable and
reasonably estimable. This estimation is inherently subjective as it requires
estimates and assumptions that are susceptible to significant revisions as more
information becomes available. Although we believe that we have established the
allowance at a level to absorb probable and estimable losses, future additions
to the allowance for loan losses may be necessary if economic and other
conditions in the future differ substantially from the current operating
environment.
In addition, federal and state regulators, as an integral part of their
examination process, periodically review our allowance for loan losses. Such
agencies may require that we recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
ALLOWANCE FOR LOAN LOSSES. The following table analyzes changes in the
allowance for the periods presented. We had no charge-offs or recoveries during
the periods presented.
AT OR FOR THE
YEARS ENDED DECEMBER 31,
--------------------------
2004 2003
------------- ------------
(DOLLARS IN THOUSANDS)
Balance at beginning of period................... $ 126 $ 91
---------- ----------
Total charge-offs................................ (1) --
Total recoveries................................. -- --
---------- ----------
Net charge-offs.................................. (1) --
Provision (credited) charged to operations....... 31 35
---------- ----------
Ending balance................................... $ 156 $ 126
========== ==========
Ratio of non-performing assets to total assets at
the end of period............................. 0.49% 0.48%
========== ==========
Ratio of net charge-offs during the period to loans
outstanding during the period................. 0.02% --%
========== ==========
Ratio of net charge-offs during the period to
non-performing assets......................... 0.24% --%
========== ==========
13
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table presents an
analysis of the allocation of the allowance for loan losses at the dates
indicated. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict the
use of the allowance to absorb losses in other categories.
AT DECEMBER 31,
---------------------------------------------------------------------
2004 2003
--------------------------------- -----------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
LOAN IN EACH LOAN IN EACH
AMOUNT OF AMOUNTS CATEGORY AMOUNT AMOUNTS CATEGORY
LOAN LOSS BY TO TOTAL OF LOAN LOSS BY TO TOTAL
ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS
---------- ----------- ---------- ------------- ---------- ----------
(DOLLARS IN THOUSANDS)
REAL ESTATE MORTGAGE:
One- to four-family....... $ 100 $ 38,296 66.22% $ 86 $ 33,554 68.40%
Multi- family............. 1 313 0.54 1 323 0.66
Commercial................ 11 2,191 3.79 10 2,060 4.20
Construction.............. 3 1,230 2.13 2 380 0.77
CONSUMER:
Passbook or certificate.. -- 68 0.12 -- 100 0.20
Home equity............... 23 9,313 16.10 15 7,670 15.64
Home equity lines of
credit.................. 15 6,134 10.61 10 4,638 9.46
Automobile................ 2 187 0.32 2 265 0.54
Personal unsecured........ 1 78 0.13 -- 48 0.10
Overdraft line of credit.. -- 24 0.04 -- 17 0.03
--------- -------- -------- -------- -------- --------
Total.................... $ 156 $ 57,834 100.00% $ 126 $ 49,055 100.00%
========= ======== ======== ======== ======== ========
Each quarter, management evaluates the total balance of the allowance
for loan losses based on several factors that are not loan specific, but are
reflective of the inherent losses in the loan portfolio. This process includes,
but is not limited to, a periodic review of loan collectibility in light of
historical experience, the nature and volume of loan activity, conditions that
may affect the ability of the borrower to repay, the underlying value of
collateral, if applicable, and economic conditions in our immediate market area.
First, we group loans by delinquency status. All loans 90 days or more
delinquent are evaluated individually, based primarily on the value of the
collateral securing the loan. Specific loss allowances are established as
required by this analysis. All loans for which a specific loss allowance has not
been assigned are segregated by type and a loss allowance is established by
using loss experience data and management's judgment concerning other matters it
considers significant. The allowance is allocated to each category of loan based
on the results of the above analysis.
INVESTMENTS
Our investment portfolio at December 31, 2004 consisted of $16.2 million
in United States Government agency securities, $3.0 million of corporate bonds,
$849,000 of municipal bonds, $807,000 in Federal Home Loan Bank of New York
stock and $4.5 million in other interest-earning assets, consisting of deposits
at other financial institutions, federal funds sold and term deposits with the
Federal Home Loan Bank of New York. Our investment policy objectives are to
maintain liquidity within the guidelines established by the board of directors.
Our policy is to invest only in securities with an investment grade rating at
the time of purchase. In addition, the market value of all securities and the
credit rating of all non-U.S. Government issues are monitored monthly to
determine whether any other than temporary losses exist.
Although corporate bonds may offer higher yields than U.S. Government or
agency securities of comparable duration, corporate bonds also have a higher
risk of default due to possible adverse changes in the credit-worthiness of the
issuer. At December 31, 2004, two of our corporate bonds in the aggregate amount
of $200,000 had been downgraded to non-investment grade ratings. Both of the
corporate bonds are scheduled to mature during the first six months of 2005, and
both have fair market values in excess of their carrying values at December 31,
2004.
Nearly all of our $16.2 million of U.S. Government agency securities at
December 31, 2004 were "step-up" securities. These securities require the issuer
to pay increased interest rates in the future according to pre-
14
determined schedules and formulas. Our portfolio currently contains securities
that provide for various interest rate increases at various repricing intervals.
At December 31, 2004, the repricing periods ranged from every year to every six
years, and the interest rate adjustments ranged from 1/8 of 1% per adjustment to
4% per adjustment. In addition, these securities are callable at the option of
the issuers. Although designed to protect the investor in a rising rate
environment, the rate increases on these securities may not keep pace with
rising interest rates in a rapidly rising interest rate environment. In
addition, because of the call feature, the securities may be called by the
issuer at a time when Lincoln Park Savings is not able to reinvest the proceeds
of the called security at a rate comparable to what it was earning on the
security.
We also invest in mortgage-backed securities, all of which are
guaranteed by the United States Government or agencies or government sponsored
enterprises. At December 31, 2004, our mortgage-backed securities portfolio
totaled $1.3 million, or 1.5% of total assets, and consisted of $816,000 million
in fixed-rate securities, and $493,000 in adjustable rate securities guaranteed
by Ginnie Mae, Fannie Mae or Freddie Mac.
The following table sets forth the carrying value of our securities
portfolio at the dates indicated. The carrying value represents fair value for
available for sale securities, and amortized cost for held to maturity
securities.
AT DECEMBER 31,
----------------------------------------------------
2004 2003
-------------------------- -------------------------
BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL
------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Investment securities available for sale:
U.S. Government agencies............... $ 3,083 11.57% $ 3,691 16.33%
Corporate bonds........................ 714 2.68 1,512 6.69
Municipal bonds........................ 358 1.34 356 1.57
Mortgage-backed securities............. 161 0.60 252 1.11
Collateralized mortgage obligations..
-- -- -- --
----------- ---------- ----------- ----------
Total................................ 4,316 16.19 5,811 25.70
----------- ---------- ----------- ----------
Investment securities held to maturity:
U.S. Government agencies............... 13,163 49.40 8,818 39.01
Corporate bonds........................ 2,241 8.41 2,541 11.24
Municipal bonds........................ 491 1.84 391 1.73
Mortgage-backed securities............. 1,148 4.81 1,757 7.77
Collateralized mortgage
obligations........................ -- -- -- --
----------- ---------- ----------- ----------
Total................................ 17,043 63.96 13,507 59.75
----------- ---------- ----------- ----------
Other interest-earning assets:
Interest-earning deposits.............. 4,403 16.52 1,659 7.34
Federal funds sold..................... -- -- -- --
Term deposits.......................... 81 0.30 1,060 4.69
FHLB stock............................. 807 3.03 570 2.52
----------- ---------- ----------- ----------
5,291 19.85 3,289 14.55
----------- ---------- ----------- ----------
Total................................ $ 26,650 100.00% $ 22,607 100.00%
=========== ========== =========== ==========
15
The following table sets forth the composition of our mortgage-backed
securities at the dates indicated.
AT DECEMBER 31,
------------------------------------------------------
2004 2003
-------------------------- --------------------------
BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL
------------ ------------ ------------- ------------
(DOLLARS IN THOUSANDS)
Mortgage-backed securities held to maturity:...
Ginnie Mae.................................. $ 907 79.01% $ 1,405 79.92%
Freddie Mac................................. 34 2.96 44 2.50
Fannie Mae.................................. 307 18.03 309 17.58
-------- --------- -------- ---------
Total:................................. $ 1,148 100.00% $ 1,758 100.00%
======== ========= ======== =========
AT DECEMBER 31,
------------------------------------------------------
2004 2003
-------------------------- --------------------------
BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL
------------ ------------ ------------- ------------
(DOLLARS IN THOUSANDS)
Mortgage-backed securities available for sale:.
Ginnie Mae.................................. $ 161 100.00% $ 252 100.00%
Freddie Mac................................. -- -- -- --
Fannie Mae.................................. -- -- -- --
-------- --------- -------- ---------
Total:................................. $ 161 100.00% $ 252 100.00%
======== ========= ======== =========
16
The composition and maturities of the investment securities portfolio as
of December 31, 2004, excluding Federal Home Loan Bank of New York stock, are
indicated in the following table. Maturities are based upon on the final
contractual payment dates, and do not reflect the impact of prepayments or early
redemptions that may occur. State and municipal securities yields have not been
adjusted to a tax-equivalent basis.
AT DECEMBER 31, 2004
-----------------------------------------------------------------------------------
LESS THAN 1 YEAR 1 TO 5 YEARS 5 TO 10 YEARS OVER 10 YEARS
-------------------- --------------------- ------------------ ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
BOOK INTEREST BOOK INTEREST BOOK INTEREST BOOK INTEREST
VALUE RATE VALUE RATE VALUE RATE VALUE RATE
-------- ----------- --------- ----------- -------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
AVAILABLE FOR SALE:
U.S. Government agencies..... $ -- --% $ 499 3.00% $ 1,000 4.00% $ 1,583 4.69%
Corporate bonds.............. 715 7.46 -- -- -- -- -- --
Municipal bonds.............. -- -- -- -- 358 3.55 -- --
Mortgage-backed securities... -- -- -- -- -- -- 161 4.02
---------- -------- -------- ---------
Total available for sale..... $ 715 7.46% $ 499 3.00% $ 1,358 3.88% $ 1,744 4.63%
========= ======== ======== =========
HELD TO MATURITY:
U.S. Government agencies..... $ -- --% $ -- --% $ 5,742 4.04% $ 7,421 4.43%
Corporate bonds.............. 399 7.26 384 6.36 958 4.31 500 4.38
Municipal bonds.............. -- -- -- -- -- -- 491 4.26
Mortgage-backed securities... -- -- 10 7.63 -- -- 4,438 5.31
---------- -------- -------- ---------
Total held to maturity....... $ 399 7.26% $ 394 6.39% $ 6,700 4.16% $ 9,580 4.52%
========= ======== ======== =========
Total securities............. $ 1,114 7.39% $ 893 4.50% $ 8,058 4.12% $ 11,294 4.54%
========= ======== ======== =========
(CONTINUED)
TOTAL INVESTMENT SECURITIES
------------------------------
WEIGHTED
AVERAGE
BOOK INTEREST MARKET
VALUE RATE VALUE
---------- ---------- ----------
AVAILABLE FOR SALE:
U.S. Government agencies..... $ 3,082 4.20% $ 3,082
Corporate bonds.............. 715 7.46 715
Municipal bonds.............. 358 3.55 858
Mortgage-backed securities... 161 4.02 161
--------- --------
Total available for sale..... $ 4,316 4.68% $ 4,816
========= ========
HELD TO MATURITY:
U.S. Government agencies..... $ 13,163 4.30% $ 12,981
Corporate bonds.............. 2,241 5.20 2,234
Municipal bonds.............. 491 4.26 495
Mortgage-backed securities... 1,148 5.31 1,176
--------- --------
Total held to maturity....... $ 17,043 4.49% $ 16,886
========= ========
Total securities............. $ 21,359 4.52% $ 21,202
========= ========
17
The following table shows securities purchase, sale and repayment
activities of Lincoln Park Savings for the periods indicated.
YEARS ENDED DECEMBER 31,
---------------------------
2004 2003
------------ ------------
(IN THOUSANDS)
AVAILABLE FOR SALE:
PURCHASES:
Adjustable-rate............. $ -- $ 3,700
Fixed-rate.................. -- 100
------------ ------------
Total purchases........... -- 3,800
------------ ------------
SALES:
Adjustable-rate............. -- --
Fixed-rate.................. -- (719)
------------ ------------
Total sales............... -- (719)
------------ ------------
Principal repayments........... (1,437) (1,133)
Other items, net............... (58) 211
------------ -----------
Net increase (decrease)... $ (1,495) $ 2,159
============ ============
YEARS ENDED DECEMBER 31,
---------------------------
2004 2003
------------ ------------
(IN THOUSANDS)
HELD TO MATURITY:
PURCHASES:
Adjustable-rate............. $ 6,622 $ 6,709
Fixed-rate.................. 100 1,210
------------ ------------
Total purchases........... 6,722 7,919
------------ ------------
SALES:
Adjustable-rate............. -- --
Fixed-rate.................. -- (99)
------------ ------------
Total sales............... -- (99)
------------ ------------
Principal repayments........... (3,177) (10,434)
Other items, net............... (9) (257)
------------ ------------
Net increase (decrease)... $ 3,536 $ (2,871)
============ ============
SOURCES OF FUNDS
GENERAL. Deposits have traditionally been the primary source of funds
for use in lending and investment activities. We also use borrowings, primarily
FHLB advances, to supplement cash flow needs, lengthen the maturities of
liabilities for interest rate risk purposes and to manage the cost of funds. In
addition, funds are derived from scheduled loan payments, investment maturities,
loan prepayments, retained earnings and income on earning assets. While
scheduled loan payments and income on earning assets are relatively stable
sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of
competition.
DEPOSITS. Our deposits are generated primarily from residents within our
primary market area. We offer a selection of deposit instruments, including
demand deposits consisting of non-interest bearing and NOW accounts, passbook
savings, statement savings and club accounts, and fixed-term certificates of
deposit. Deposit account terms vary, with the principal differences being the
minimum balance required, the amount of time the funds must remain on deposit
and the interest rate. We do not accept brokered deposits.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established on a periodic basis. Deposit rates and terms are based
primarily on current operating strategies and market rates, liquidity
requirements, rates paid by competitors and growth goals. Personalized customer
service and long-standing relationships with customers are relied upon to
attract and retain deposits.
18
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and other prevailing interest rates and
competition. The variety of deposit accounts offered allows us to be competitive
in obtaining funds and responding to changes in consumer demand. Based on
experience, we believe that our deposits are relatively stable. However, the
ability to attract and maintain deposits, and the rates paid on these deposits,
have been and will continue to be significantly affected by market conditions.
At December 31, 2004, $26.7 million, or 46.6% of our deposit accounts were
certificates of deposit, of which $16.3 million have maturities of one year or
less.
DEPOSITS. The following table sets forth the dollar amount of deposits
in the various types of deposit programs we offered as of the dates indicated.
AT DECEMBER 31,
-----------------------------------------------------------
2004 2003
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BALANCE PERCENT RATE BALANCE PERCENT RATE
--------- --------- -------- --------- --------- --------
(DOLLARS IN THOUSANDS)
Non-interest-bearing
Demand................ $ 714 1.25% --% $ 1,082 1.89% --%
Interest-bearing
demand................ 11,950 20.89 1.06 12,590 21.98 1.01
Savings and club........ 17,878 31.25 1.01 17,417 30.40 1.01
Certificate of deposit.. 26,674 46.61 2.45 26,201 45.73 2.31
--------- -------- --------- --------
Total deposits....... $ 57,216 100.00% 1.68% $ 57,290 100.00% 1.58%
========= ======== ======== ========= ======== =======
The following table sets forth the deposit activities for the periods
indicated.
YEARS ENDED DECEMBER 31,
--------------------------
2004 2003
------------- ------------
(DOLLARS IN THOUSANDS)
Beginning of period..................... $ 57,290 $ 53,365
Net deposits (withdrawals).............. (998) 2,939
Interest credited on deposit accounts... 924 986
--------- ---------
Ending balance.......................... $ 57,216 $ 57,290
========= =========
Percent increase (decrease) from beginning
of period............................. (0.13)% 7.36%
The following table indicates the amount of certificates of deposit as
of December 31, 2004, by time remaining until maturity.
OVER THREE OVER SIX OVER NINE
THREE MONTHS MONTHS TO SIX MONTHS TO MONTHS TO OVER TWELVE
OR LESS MONTHS NINE MONTHS TWELVE MONTHS MONTHS TOTAL
------------ ------------- ----------- ------------- ----------- -----------
(IN THOUSANDS)
Certificate of deposit:
Less than $100,000...... $ 4,918 $ 4,098 $ 2,813 $ 2,297 $ 8,644 $ 22,770
$100,000 or more........ 519 840 321 523 1,701 3,904
------------ ------------- ----------- ------------- ----------- -----------
Total.............. $ 5,437 $ 4,938 $ 3,134 $ 2,820 $ 10,345 $ 26,674
============ ============= =========== ============= =========== ===========
19
The following table presents, by rate category, our certificate of
deposit accounts as of the dates indicated.
AT DECEMBER 31,
-----------------------------------------------
2004 2003
---------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Certificate of deposit rates:
1.00% - 1.99%............ $ 13,565 50.82% $ 14,589 55.68%
2.00% - 2.99%............ 5,240 19.63 5,045 19.26
3.00% - 3.99%............ 4,663 17.47 4,554 17.38
4.00% - 4.99%............ 2,424 9.08 1,126 4.30
5.00% - 5.99%............ 221 0.83 268 1.02
6.00% - 6.99%............ 579 2.17 619 2.36
-------- -------- -------- --------
Total.................. $ 26,692 100.00% $ 26,201 100.00%
======== ======== ======== ========
The following table presents, by rate category, the remaining period to
maturity of certificate of deposit accounts outstanding as of December 31, 2004.
MATURITY DATE
-----------------------------------------------------
1 YEAR OVER 1 OVER 2 OVER
OR LESS TO 2 YEARS TO 3 YEARS 3 YEARS TOTAL
---------- ---------- ---------- --------- ---------
(IN THOUSANDS)
Interest rate:
1.00% - 1.99%...... $12,443 $ 1,105 $ -- $ 17 $13,565
2.00% - 2.99%...... 2,704 2,491 45 -- 5,240
3.00% - 3.99%...... 165 1,965 662 1,871 4,663
4.00% - 4.99%...... 225 370 751 1,078 2,424
5.00% - 5.99%...... 214 7 -- -- 221
6.00% - 6.99%...... 579 -- -- -- 579
------- -------- ------- ------- -------
Total........... $16,329 $ 5,938 $ 1,458 $ 2,967 $26,692
======= ======= ======= ======= =======
BORROWINGS. We may obtain advances from the Federal Home Loan Bank of
New York upon the security of the common stock we own in the Federal Home Loan
Bank and our qualifying residential mortgage loans and mortgage-backed
securities, provided certain standards related to creditworthiness are met.
These advances are made pursuant to several credit programs, each of which has
its own interest rate and range of maturities. Federal Home Loan Bank advances
are generally available to meet seasonal and other withdrawals of deposit
accounts and to permit increased lending. Using FHLB advances is a significant
part of our operating strategy. As of December 31, 2004, we had FHLB advances in
the amount of $16.1 million, which represented 21.9% of total liabilities. As a
member of the Federal Home Loan Bank of New York, Lincoln Park Savings can
currently borrow up to approximately $30.1 million from the Federal Home Loan
Bank.
The following table sets forth certain information regarding FHLB
advances for the periods indicated. We had no other material borrowings during
the periods.
AT OR FOR THE
YEARS ENDED DECEMBER 31,
------------------------------
2004 2003
-------------- --------------
(DOLLARS IN THOUSANDS)
MAXIMUM BALANCE:
FHLB advances.............................. $ 19,025 $ 11,389
AVERAGE BALANCE:
FHLB advances.............................. $ 14,670 $ 6,509
WEIGHTED AVERAGE INTEREST RATE:
FHLB advances.............................. 2.99% 3.53%(1)
---------------
(1) Rate reflects prepayment penalty of $38,000 related to the early payoff of
FHLB advances.
20
The contractual maturities of FHLB advances at December 31, 2004, are as
follows:
WEIGHTED
AMOUNT AVERAGE RATE
------------------- ---------------------
(DOLLARS IN THOUSANDS)
Within one year..................... $ 2,225 2.17%
After one through five years........ 11,350 3.29
After five through ten years........ 2,568 3.75
-----------
Total............................. $ 16,143 3.21%
===========
SUBSIDIARY ACTIVITIES
Lincoln Park Bancorp has no subsidiaries other than Lincoln Park
Savings. Lincoln Park Savings has no subsidiaries.
PERSONNEL
As of December 31, 2004, we had 13 full-time employees and 9 part-time
employees. Our employees are not represented by any collective bargaining group.
Management believes that we have good relations with our employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. Lincoln Park Bancorp and Lincoln Park Savings are subject to
federal income taxation in the same general manner as other corporations, with
some exceptions discussed below. Lincoln Park Savings' tax returns have not been
audited during the past five years. The following discussion of federal taxation
is intended only to summarize certain pertinent federal income tax matters and
is not a comprehensive description of the tax rules applicable to Lincoln Park
Bancorp or Lincoln Park Savings.
METHOD OF ACCOUNTING. For federal income tax purposes, Lincoln Park
Savings currently reports its income and expenses on the accrual method of
accounting and uses a tax year ending December 31 for filing its federal income
tax returns.
BAD DEBT RESERVES. Prior to the Small Business Protection Act of 1996
(the "1996 Act"), Lincoln Park Savings was permitted to establish a reserve for
bad debts and to make annual additions to the reserve. These additions could,
within specified formula limits, be deducted in arriving at our taxable income.
Lincoln Park Savings was required to use the specific charge-off method in
computing its bad debt deduction beginning with its 1996 federal tax return.
Savings institutions were required to recapture any excess reserves over those
established as of December 31, 1987 (base year reserve). Lincoln Park Savings
had approximately $730,000 of reserves subject to recapture.
TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should Lincoln Park Savings fail to meet certain thrift asset and
definitional tests. Federal legislation has eliminated these thrift related
recapture rules.
At December 31, 2004, our total federal pre-1988 base year reserve was
approximately $730,000. However, under current law, pre-1988 base year reserves
remain subject to recapture should Lincoln Park Savings make certain
non-dividend distributions, repurchase any of its stock, pay dividends in excess
of tax earnings and profits, or cease to maintain a bank charter.
ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986, as amended
(the "Code") imposes an alternative minimum tax ("AMT") at a rate of 20% on a
base of regular taxable income plus certain tax preferences ("alternative
minimum taxable income" or "AMTI"). The AMT is payable to the extent such AMTI
is in excess of an exemption amount and the AMT exceeds the regular income tax.
Net operating losses can offset no more than 90% of AMTI. Certain payments of
alternative minimum tax may be used as credits against regular tax liabilities
in
21
future years. Lincoln Park Savings has not been subject to the alternative
minimum tax and has no such amounts available as credits for carryover.
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back
net operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. At December 31, 2004, Lincoln Park Savings had no
net operating loss carryforwards for federal income tax purposes.
CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Lincoln Park Bancorp may exclude
from its income 100% of dividends received from Lincoln Park Savings as a member
of the same affiliated group of corporations. The corporate dividends-received
deduction is 80% in the case of dividends received from corporations with which
a corporate recipient does not file a consolidated return, and corporations
which own less than 20% of the stock of a corporation distributing a dividend
may deduct only 70% of dividends received or accrued on their behalf.
STATE TAXATION
NEW JERSEY STATE TAXATION. Lincoln Park Savings files New Jersey
Corporation Business tax returns. Generally, the income of savings institutions
in New Jersey, which is calculated based on federal taxable income, subject to
certain adjustments, is subject to the New Jersey Corporation Business tax.
Lincoln Park Savings is not currently under audit with respect to its New Jersey
income tax returns and Lincoln Park Savings' state tax returns have not been
audited for the past five years.
Under New Jersey legislation, a taxpayer, including Lincoln Park
Savings, will pay the greater of 9% of its taxable income or the Alternate
Minimum Assessment (AMA). There are two methods of calculating the AMA, the
gross profits method and the gross receipts method. The taxpayer has the option
of choosing either of these methods, but once an election is made, the taxpayer
must use the same method for the next four years. Under the gross receipts
method, the tax is calculated by multiplying the gross receipts by the
applicable factor, which ranges from 0.139% to 0.4%. Under the gross profits
method, the tax is calculated by multiplying the gross profits by the applicable
factor, which ranges from 0.28% to 0.8%. The AMA for an affiliated group
consisting of five or more members may not exceed $20.0 million. The AMA for tax
years beginning after June 30, 2006, shall be zero.
New Jersey income tax law does not allow for a taxpayer to file a tax
return on a combined or consolidated basis with another member of the affiliated
group where there is common ownership. However, if the taxpayer cannot
demonstrate by clear and convincing evidence that the tax filing discloses the
true earnings of the taxpayer on its business carried on in the State of New
Jersey, the New Jersey Director of the Division of Taxation may, at the
director's discretion, require the taxpayer to file a consolidated return of the
entire operations of the affiliated group or controlled group, including its own
operations and income.
REGULATION
GENERAL
Lincoln Park Savings is a New Jersey chartered savings bank. Its deposit
accounts are insured up to applicable limits by the Federal Deposit Insurance
Corporation under the Savings Association Insurance Fund (the "SAIF"). Lincoln
Park Savings is subject to extensive regulation, examination and supervision by
the Commissioner of the New Jersey Department of Banking and Insurance as the
issuer of its charter, and by the Federal Deposit Insurance Corporation as the
deposit insurer. Lincoln Park Savings must file reports with the New Jersey
Commissioner and the Federal Deposit Insurance Corporation concerning its
activities and financial condition, and it must obtain regulatory approval prior
to entering into certain transactions, such as mergers with, or acquisitions of,
other depository institutions and opening or acquiring branch offices. The New
Jersey Commissioner and the Federal Deposit Insurance Corporation conducts
periodic examinations to assess Lincoln Park Savings' compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which a savings bank can engage and is
intended primarily for the protection of the deposit insurance fund and
depositors and not for the purpose of protecting stockholders. 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. Prior
to the conversion of Lincoln
22
Park Savings from a New Jersey savings and loan association to a New Jersey
savings bank, Lincoln Park Savings was subject to examination and supervision by
the Office of Thrift Supervision.
Lincoln Park Bancorp is a federal corporation, and Lincoln Park Bancorp,
MHC is a federal mutual holding company. Lincoln Park Bancorp and Lincoln Park
Bancorp, MHC are required to file certain reports with, and otherwise comply
with the rules and regulations of the Office of Thrift Supervision.
Any change in such laws and regulations, whether by the New Jersey
Commissioner, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision or through legislation, could have a material adverse impact on
Lincoln Park Savings and Lincoln Park Bancorp and their operations and
stockholders.
NEW JERSEY BANKING REGULATION
ACTIVITY POWERS. Lincoln Park Savings derives its lending, investment
and other activity powers primarily from the applicable provisions of the New
Jersey Banking Act and its related regulations. Under these laws and
regulations, savings banks, including Lincoln Park Savings, generally may invest
in:
(1) real estate mortgages;
(2) consumer and commercial loans;
(3) specific types of debt securities, including certain corporate
debt securities and obligations of federal, state and local
governments and agencies;
(4) certain types of corporate equity securities; and
(5) certain other assets.
A savings bank may also invest pursuant to a "leeway" power that permits
investments not otherwise permitted by the New Jersey Banking Act. "Leeway"
investments must comply with a number of limitations on the individual and
aggregate amounts of "leeway" investments. Lincoln Park Savings does not
currently have any "leeway" investments. A savings bank may also exercise trust
powers upon approval of the New Jersey Commissioner. Lincoln Park Savings
currently does not have trust powers. New Jersey savings banks may exercise
those powers, rights, benefits or privileges authorized for national banks or
out-of-state banks or for federal or out-of-state savings banks or savings
associations, provided that before exercising any such power, right, benefit or
privilege, prior approval by the New Jersey Commissioner by regulation or by
specific authorization is required. The exercise of these lending, investment
and activity powers are limited by federal law and the related regulations. See
"--Federal Banking Regulation--Activity Restrictions on State-Chartered Banks"
below.
LOANS-TO-ONE-BORROWER LIMITATIONS. With certain specified exceptions, a
New Jersey chartered savings bank may not make loans or extend credit to a
single borrower and to entities related to the borrower in an aggregate amount
that would exceed 15% of the bank's capital funds. A savings bank may lend an
additional 10% of the bank's capital funds if secured by collateral meeting the
requirements of the New Jersey Banking Act. Lincoln Park Savings currently
complies with applicable loans-to-one-borrower limitations.
DIVIDENDS. Under the New Jersey Banking Act, a stock savings bank may
declare and pay a dividend on its capital stock only to the extent that the
payment of the dividend would not impair the capital stock of the savings bank.
In addition, a stock savings bank may not pay a dividend unless the savings bank
would, after the payment of the dividend, have a surplus of not less than 50% of
its capital stock, or the payment of the dividend would not reduce the surplus.
Federal law may also limit the amount of dividends that may be paid by Lincoln
Park Savings. See "--Federal Banking Regulation--Prompt Corrective Action"
below.
MINIMUM CAPITAL REQUIREMENTS. Regulations of the New Jersey Commissioner
impose on New Jersey chartered depository institutions, including Lincoln Park
Savings, minimum capital requirements similar to those
23
imposed by the Federal Deposit Insurance Corporation on insured state banks. See
"--Federal Banking Regulation--Capital Requirements."
EXAMINATION AND ENFORCEMENT. The New Jersey Department of Banking and
Insurance may examine Lincoln Park Savings whenever it deems an examination
advisable. The Department examines Lincoln Park Savings at least every two
years. The New Jersey Commissioner may order any savings bank to discontinue any
violation of law or unsafe or unsound business practice and may direct any
director, officer, attorney or employee of a savings bank engaged in an
objectionable activity, after the Commissioner has ordered the activity to be
terminated, to show cause at a hearing before the Commissioner why such person
should not be removed.
FEDERAL BANKING REGULATION
CAPITAL REQUIREMENTS. Federal Deposit Insurance Corporation regulations
require banks to maintain minimum levels of capital. The Federal Deposit
Insurance Corporation regulations define two tiers, or classes, of capital.
Tier 1 capital is comprised of the sum of:
o common stockholders' equity, excluding the unrealized
appreciation or depreciation, net of tax, from available for
sale securities;
o non-cumulative perpetual preferred stock, including any related
retained earnings; and
o minority interests in consolidated subsidiaries minus all
intangible assets, other than qualifying servicing rights and
any net unrealized loss on marketable equity securities.
The components of Tier 2 capital currently include:
o cumulative perpetual preferred stock;
o certain perpetual preferred stock for which the dividend rate
may be reset periodically;
o hybrid capital instruments, including mandatory convertible
securities;
o term subordinated debt;
o intermediate term preferred stock;
o allowance for possible loan losses; and
o up to 45% of pretax net unrealized holding gains on available
for sale equity securities with readily determinable fair market
values.
Allowance for possible loan losses includible in Tier 2 capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of Tier 2 capital
that may be included in total capital cannot exceed 100% of Tier 1 capital. The
Federal Deposit Insurance Corporation regulations establish a minimum leverage
capital requirement for banks in the strongest financial and managerial
condition, with a rating of 1 (the highest examination rating of the Federal
Deposit Insurance Corporation for banks) under the Uniform Financial
Institutions Rating System, of not less than a ratio of 3.0% of Tier 1 capital
to total assets. For all other banks, the minimum leverage capital requirement
is 4.0%, unless a higher leverage capital ratio is warranted by the particular
circumstances or risk profile of the depository institution.
The Federal Deposit Insurance Corporation regulations also require that
banks meet a risk-based capital standard. The risk-based capital standard
requires the maintenance of a ratio of total capital, which is defined as the
sum of Tier 1 capital and Tier 2 capital, to risk-weighted assets of at least 8%
and a ratio of Tier 1 capital to risk-
24
weighted assets of at least 4%. In determining the amount of risk-weighted
assets, all assets, plus certain off balance sheet items, are multiplied by a
risk-weight of 0% to 100%, based on the risks the Federal Deposit Insurance
Corporation believes are inherent in the type of asset or item.
The federal banking agencies, including the Federal Deposit Insurance
Corporation, have also adopted regulations to require an assessment of an
institution's exposure to declines in the economic value of a bank's capital due
to changes in interest rates when assessing the bank's capital adequacy. Under
such a risk assessment, examiners will evaluate a bank's capital for interest
rate risk on a case-by-case basis, with consideration of both quantitative and
qualitative factors. According to the agencies, applicable considerations
include:
o the quality of the bank's interest rate risk management process;
o the overall financial condition of the bank; and
o the level of other risks at the bank for which capital is
needed.
Institutions with significant interest rate risk may be required to hold
additional capital. The agencies also issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy.
The Federal Deposit Insurance Corporation adopted regulations, effective
April 1, 2002, establishing minimum regulatory capital requirements for equity
investments in non-financial companies. The regulations apply a series of
marginal capital charges that range from 8% to 25% depending upon the size of
the aggregate equity investment portfolio of the banking organization relative
to its Tier 1 capital. The capital charge would be applied by making a
deduction, which would be based on the adjusted carrying value of the equity
investment from the organization's Tier 1 capital. We do not believe this
capital requirement will have a material adverse effect upon our operations.
However, we will have to take this requirement into consideration should we, at
some point in the future, decide to invest in non-financial companies.
The following table shows our leverage ratio, our Tier 1 risk-based
capital ratio, and our total risk-based capital ratio, at December 31, 2004,
under the Federal Deposit Insurance Corporation capital requirements:
AS OF DECEMBER 31, 2004 TO BE WELL CAPITALIZED EXCESS
------------------------- ----------------------- ------------------------
HISTORICAL PERCENT OF
CAPITAL ASSETS(1) AMOUNT PERCENT AMOUNT PERCENT
----------- ------------ ---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
Regulatory Tier 1 leverage capital.... $ 8,930 10.43% $ 4,281 5.00% $ 4,649 5.43%
Tier 1 risk-based capital............. 8,930 19.52 2,745 6.00 6,185 13.52
Total risk-based capital.............. 9,086 19.86 4,575 10.00 4,511 9.86
-------------------------------
(1) For purposes of calculating Regulatory Tier 1 leverage capital, assets
are based on adjusted average leverage assets. In calculating Tier 1
risk based capital and total risk-based capital, assets are based on
total risk-weighted assets.
As the table shows, as of December 31, 2004, Lincoln Park Savings was
considered "well capitalized" under Federal Deposit Insurance Corporation
guidelines.
ACTIVITY RESTRICTIONS ON STATE-CHARTERED BANKS. Section 24 of the
Federal Deposit Insurance Act, as amended, ("FDIA") which was added by the FDIC
Improvement Act of 1991 ("FDIC Improvement Act"), generally limits the
activities and investments of state-chartered Federal Deposit Insurance
Corporation insured banks and their subsidiaries to those permissible for
national banks and their subsidiaries, unless such activities and investments
are specifically exempted by Section 24 of the FDIA or consented to by the
Federal Deposit Insurance Corporation.
Before making a new investment or engaging in a new activity that is not
permissible for a national bank or otherwise permissible under Section 24 of the
FDIA, an insured bank must seek approval from the Federal Deposit Insurance
Corporation to make such investment or engage in such activity. The Federal
Deposit Insurance Corporation will not approve the activity unless the bank
meets its minimum capital requirements and the Federal Deposit Insurance
Corporation determines that the activity does not present a significant risk to
the Federal Deposit
25
Insurance Corporation insurance funds. Certain activities of subsidiaries that
are engaged in activities permitted for national banks only through a "financial
subsidiary" are subject to additional restrictions.
The Gramm-Leach-Bliley Act ("Gramm-Leach") permits a state-chartered
savings bank to engage, through financial subsidiaries, in any activity in which
a national bank may engage through a financial subsidiary and on substantially
the same terms and conditions. In general, Gramm-Leach permits a national bank
that is well-capitalized and well-managed to conduct, through a financial
subsidiary, any activity permitted for a financial holding company other than
insurance underwriting, insurance investments, real estate investment or
development or merchant banking. The total assets of all such financial
subsidiaries may not exceed the lesser of 45% of the bank's total assets or $50
billion. The bank must have policies and procedures to assess the financial
subsidiary's risk and protect the bank from such risk and potential liability,
must not consolidate the financial subsidiary's assets with the bank's and must
exclude from its own assets and equity all equity investments, including
retained earnings, in the financial subsidiary. State chartered savings banks
may retain subsidiaries in existence as of March 11, 2000 and may engage in
activities that are not authorized under Gramm-Leach; otherwise, Gramm-Leach
will preempt all state laws regarding the permissibility of certain activities
for state chartered banks if such state law is in conflict with the provisions
of Gramm-Leach (with the exception of certain insurance activities), regardless
of whether the state law would authorize broader or more restrictive activities.
Although Lincoln Park Savings meets all conditions necessary to establish and
engage in permitted activities through financial subsidiaries, it has not yet
determined whether or the extent to which it will seek to engage in such
activities.
FEDERAL HOME LOAN BANK SYSTEM. Lincoln Park Savings is a member of the
FHLB system, which consists of twelve regional FHLBs, each subject to
supervision and regulation by the Federal Housing Finance Board ("FHFB"). The
FHLB provides a central credit facility primarily for member thrift institutions
as well as other entities involved in home mortgage lending. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLBs. It makes loans to members (i.e., advances) in accordance with policies
and procedures, including collateral requirements, established by the respective
boards of directors of the FHLBs. These policies and procedures are subject to
the regulation and oversight of the FHFB. All long-term advances are required to
provide funds for residential home financing. The FHFB has also established
standards of community or investment service that members must meet to maintain
access to such long term advances. Lincoln Park Savings, as a member of the FHLB
of New York, is required to purchase and hold shares of capital stock in that
FHLB in an amount at least equal to the greater of (i) 1% of the aggregate
principal amount of its unpaid mortgage loans, home purchase contracts and
similar obligations at the beginning of each year; (ii) 0.3% of its assets; or
(iii) 5% (or such greater fraction as established by the FHLB) of its advances
from the FHLB as of December 31, 2003. Pursuant to Gramm-Leach, the foregoing
minimum share ownership requirements will be replaced by regulations to be
promulgated by the FHFB. Gramm-Leach specifically provides that the minimum
requirements in existence immediately prior to adoption of Gramm-Leach shall
remain in effect until such regulations are adopted. Lincoln Park Savings is in
compliance with these requirements.
ENFORCEMENT. The Federal Deposit Insurance Corporation has extensive
enforcement authority over insured savings banks, including Lincoln Park
Savings. 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 to unsafe or unsound
practices.
The Federal Deposit Insurance Corporation is required, with some
exceptions, to appoint a receiver or conservator for an insured state bank if
that bank is "critically undercapitalized." For this purpose, "critically
undercapitalized" means having a ratio of tangible capital to total assets of
less than 2%. The Federal Deposit Insurance Corporation may also appoint a
conservator or receiver for a state bank on the basis of the institution's
financial condition or upon the occurrence of certain events, including:
o insolvency, or when the assets of the bank are less than its
liabilities to depositors and others;
o substantial dissipation of assets or earnings through violations
of law or unsafe or unsound practices;
o existence of an unsafe or unsound condition to transact
business;
26
o likelihood that the bank will be unable to meet the demands of
its depositors or to pay its obligations in the normal course of
business; and
o insufficient capital, or the incurring or likely incurring of
losses that will deplete substantially all of the institution's
capital with no reasonable prospect of replenishment of capital
without federal assistance.
DEPOSIT INSURANCE. Pursuant to FDIC Improvement Act, the Federal Deposit
Insurance Corporation established a system for setting deposit insurance
premiums based upon the risks a particular bank or savings association posed to
its deposit insurance funds. Under the risk-based deposit insurance assessment
system, the Federal Deposit Insurance Corporation assigns an institution to one
of three capital categories based on the institution's financial information, as
of the reporting period ending six months before the assessment period. The
three capital categories are (1) well capitalized, (2) adequately capitalized
and (3) undercapitalized. With respect to the capital ratios, institutions are
classified as well capitalized, adequately capitalized or undercapitalized using
ratios that are substantially similar to the prompt corrective action capital
ratios discussed below. The Federal Deposit Insurance Corporation also assigns
an institution to supervisory subgroups based on a supervisory evaluation
provided to the Federal Deposit Insurance Corporation by the institution's
primary federal regulator and information that the Federal Deposit Insurance
Corporation determines to be relevant to the institution's financial condition
and the risk posed to the deposit insurance funds, which may include information
provided by the institution's state supervisor.
An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications, or
combinations of capital groups and supervisory subgroups, to which different
assessment rates are applied. Assessment rates for deposit insurance currently
range from 0 basis points to 27 basis points. The capital and supervisory
subgroup to which an institution is assigned by the Federal Deposit Insurance
Corporation is confidential and may not be disclosed. A bank's rate of deposit
insurance assessments will depend upon the category and subcategory to which the
bank is assigned by the Federal Deposit Insurance Corporation. Any increase in
insurance assessments could have an adverse effect on the earnings of insured
institutions, including Lincoln Park Savings.
Under the Deposit Insurance Funds Act of 1996, the assessment base for
the payments on the bonds issued in the late 1980's by the Financing Corporation
to recapitalize the now defunct Federal Savings and Loan Insurance Corporation
was expanded to include, beginning January 1, 1997, the deposits of institutions
insured by the Bank Insurance Fund. The annual rate of assessments for the
payments on the Financing Corporation bonds for the quarterly period beginning
on January 1, 2002 was 0.0182% for both BIF-assessable deposits and
SAIF-assessable deposits.
Under the FDIA, the Federal Deposit Insurance Corporation may terminate
the insurance of an institution's deposits 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. The
management of Lincoln Park Savings does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
TRANSACTIONS WITH AFFILIATES OF LINCOLN PARK SAVINGS. Transactions
between an insured bank, such as Lincoln Park Savings, and any of its affiliates
is governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of
a bank is any company or entity that controls, is controlled by or is under
common control with the bank. Currently, a subsidiary of a bank that is not also
a depository institution generally is not treated as an affiliate of the bank
for purposes of Sections 23A and 23B, but the Federal Reserve Board has proposed
a comprehensive regulation implementing Sections 23A and 23B, which would
establish certain exceptions to this policy.
Section 23A:
o limits the extent to which the bank or its subsidiaries may
engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such bank's capital stock and retained
earnings, and
27
limits all such transactions with all affiliates to an amount
equal to 20% of such capital stock and retained earnings; and
o requires that all such transactions be on terms that are
consistent with safe and sound banking practices.
The term "covered transaction" includes the making of loans, purchase of
assets, issuance of guarantees and other similar types of transactions. Further,
most loans by a bank to any of its affiliates must be secured by collateral in
amounts ranging from 100 to 130 percent of the loan amounts. In addition, any
covered transaction by a bank with an affiliate and any purchase of assets or
services by a bank from an affiliate must be on terms that are substantially the
same, or at least as favorable to the bank, as those that would be provided to a
non-affiliate.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
PROHIBITIONS AGAINST TYING ARRANGEMENTS. Banks are subject to the
prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements. A
depository institution is prohibited, subject to some exceptions, from extending
credit to or offering any other service, or fixing or varying the consideration
for such extension of credit or service, on the condition that the customer
obtain some additional service from the institution or its affiliates or not
obtain services of a competitor of the institution.
PRIVACY STANDARDS. Effective July 1, 2001, financial institutions, such
as Lincoln Park Bancorp and Lincoln Park Savings, became subject to Federal
Deposit Insurance Corporation regulations implementing the privacy protection
provisions of Gramm-Leach. These regulations require Lincoln Park Bancorp and
Lincoln Park Savings to disclose their privacy policy, including identifying
with whom they share "non-public personnel information" to customers at the time
of establishing the customer relationship and annually thereafter.
The regulations also require Lincoln Park Bancorp and Lincoln Park
Savings to provide their customers with initial and annual notices that
accurately reflect its privacy policies and practices. In addition, Lincoln Park
Bancorp and Lincoln Park Savings are required to provide their customers with
the ability to "opt-out" of having Lincoln Park Bancorp and Lincoln Park Savings
share their non-public personal information with unaffiliated third parties
before they can disclose such information, subject to certain exceptions. The
implementation of these regulations has not had a material adverse effect on
Lincoln Park Bancorp and Lincoln Park Savings. Gramm-Leach also provides for the
ability of each state to enact legislation that is more protective of consumers'
personal information. Currently there are a number of privacy bills pending in
the New Jersey legislature. No action has been taken on any of these bills, and
we cannot predict whether any of them will become law or what impact, if any,
these bills will have if enacted into law.
On February 1, 2001, the Federal Deposit Insurance Corporation and other
federal banking agencies adopted guidelines establishing standards for
safeguarding customer information to implement certain provisions of
Gramm-Leach. The guidelines describe the agencies' expectations for the
creation, implementation and maintenance of an information security program,
which would include administrative, technical and physical safeguards
appropriate to the size and complexity of the institution and the nature and
scope of its activities. The standards set forth in the guidelines are intended
to insure the security and confidentiality of customer records and information,
protect against any anticipated threats or hazards to the security or integrity
of such records and protect against unauthorized access to or use of such
records or information that could result in substantial harm or inconvenience to
any customer. We implemented the guidelines prior to their effective date of
July 1, 2001 and such implementation did not have a material adverse effect on
our operations.
UNIFORM REAL ESTATE LENDING STANDARDS. Under the FDIA, the federal
banking agencies adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the federal
banking agencies, all insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or
28
interests in real estate or are made for the purpose of financing permanent
improvements to real estate. These policies must establish loan portfolio
diversification standards, prudent underwriting standards, including
loan-to-value limits, that are clear and measurable, loan administration
procedures, and documentation, approval and reporting requirements. The real
estate lending policies must reflect consideration of the Interagency Guidelines
for Real Estate Lending Policies that have been adopted by the federal bank
regulators.
The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits:
o for loans secured by raw land, the supervisory loan-to-value
limit is 65% of the value of the collateral;
o for land development loans, or loans for the purpose of
improving unimproved property prior to the erection of
structures, the supervisory limit is 75%;
o for loans for the construction of commercial, multi-family or
other non-residential property, the supervisory limit is 80%;
o for loans for the construction of one- to four-family
residential properties, the supervisory limit is 85%; and
o for loans secured by other improved property, for example,
farmland, completed commercial property and other
income-producing property including non-owner occupied, one- to
four-family property, the limit is 85%.
Although no supervisory loan-to-value limit has been established for
owner-occupied, one- to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.
Lincoln Park Savings has established, however, internal loan-to-value
limits for real estate loans that are more stringent than the maximum limits
currently imposed under federal law.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. All Federal Deposit
Insurance Corporation insured institutions have a responsibility under the
Community Reinvestment Act and related regulations to help meet the credit needs
of their communities, including low- and moderate-income neighborhoods. In
connection with its examination of a state chartered savings bank, the Federal
Deposit Insurance Corporation is required to assess the institution's record of
compliance with the Community Reinvestment Act. Among other things, the current
Community Reinvestment Act regulations replace the prior process-based
assessment factors with a new evaluation system that rates an institution based
on its actual performance in meeting community needs. In particular, the current
evaluation system focuses on three tests:
o a lending test, to evaluate the institution's record of making
loans in its service areas;
o an investment test, to evaluate the institution's record of
investing in community development projects, affordable housing,
and programs benefiting low or moderate income individuals and
businesses; and
o a service test, to evaluate the institution's delivery of
services through its branches, ATMs and other offices.
An institution's failure to comply with the provisions of the Community
Reinvestment Act could, at a minimum, result in regulatory restrictions on its
activities. We received an outstanding Community Reinvestment Act rating in our
most recently completed federal examination, which was conducted by the Office
of Thrift Supervision in March 2004.
29
In addition, the Equal Credit Opportunity Act and the Fair Housing Act
prohibit lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes. The failure to comply with the
Equal Credit Opportunity Act and the Fair Housing Act could result in
enforcement actions by the Federal Deposit Insurance Corporation, as well as
other federal regulatory agencies and the Department of Justice.
SAFETY AND SOUNDNESS STANDARDS. Pursuant to the requirements of FDIA, as
amended by the Riegle Community Development and Regulatory Improvement Act of
1994, each federal banking agency, including the Federal Deposit Insurance
Corporation, has adopted guidelines establishing general standards relating to
internal controls, information and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, asset quality,
earnings, compensation, fees and benefits. In general, the guidelines require,
among other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director, or principal stockholder.
In addition, the Federal Deposit Insurance Corporation adopted
regulations to require a bank that is given notice by the Federal Deposit
Insurance Corporation that it is not satisfying any of such safety and soundness
standards to submit a compliance plan to the Federal Deposit Insurance
Corporation. If, after being so notified, a bank fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the Federal Deposit Insurance Corporation may issue an order
directing corrective and other actions of the types to which a significantly
undercapitalized institution is subject under the "prompt corrective action"
provisions of FDIA. If a bank fails to comply with such an order, the Federal
Deposit Insurance Corporation may seek to enforce such an order in judicial
proceedings and to impose civil monetary penalties.
PROMPT CORRECTIVE ACTION. The FDIC Improvement Act also established a
system of prompt corrective action to resolve the problems of undercapitalized
institutions. The Federal Deposit Insurance Corporation, as well as the other
federal banking regulators, adopted regulations governing the supervisory
actions that may be taken against undercapitalized institutions. The regulations
establish five categories, consisting of "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." The Federal Deposit Insurance Corporation's
regulations define the five capital categories as follows:
An institution will be treated as "well capitalized" if:
o its ratio of total capital to risk-weighted assets is at least
10%;
o its ratio of Tier 1 capital to risk-weighted assets is at least
6%; and
o its ratio of Tier 1 capital to total assets is at least 5%, and
it is not subject to any order or directive by the Federal
Deposit Insurance Corporation to meet a specific capital level.
An institution will be treated as "adequately capitalized" if:
o its ratio of total capital to risk-weighted assets is at least
8%; or
o its ratio of Tier 1 capital to risk-weighted assets is at least
4%; and
o its ratio of Tier 1 capital to total assets is at least 4% (3%
if the bank receives the highest rating under the Uniform
Financial Institutions Rating System) and it is not a
well-capitalized institution.
An institution will be treated as "undercapitalized" if:
o its total risk-based capital is less than 8%; or
o its Tier 1 risk-based capital is less than 4%; and
30
o its leverage ratio is less than 4% (or less than 3% if the
institution receives the highest rating under the Uniform
Financial Institutions Rating System).
An institution will be treated as "significantly undercapitalized" if:
o its total risk-based capital is less than 6%;
o its Tier 1 capital is less than 3%; or
o its leverage ratio is less than 3%.
An institution that has a tangible capital to total assets ratio equal
to or less than 2% would be deemed to be "critically undercapitalized."
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a bank's capital decreases
within the three undercapitalized categories. All banks are prohibited from
paying dividends or other capital distributions or paying management fees to any
controlling person if, following such distribution, the bank would be
undercapitalized. The Federal Deposit Insurance Corporation is required to
monitor closely the condition of an undercapitalized bank and to restrict the
growth of its assets. An undercapitalized bank is required to file a capital
restoration plan within 45 days of the date the bank receives notice that it is
within any of the three undercapitalized categories, and the plan must be
guaranteed by any parent holding company. The aggregate liability of a parent
holding company is limited to the lesser of:
o an amount equal to five percent of the bank's total assets at
the time it became "undercapitalized," or
o the amount that is necessary (or would have been necessary) to
bring the bank into compliance with all capital standards
applicable with respect to such bank as of the time it fails to
comply with the plan.
If a bank fails to submit an acceptable plan, it is treated as if it
were "significantly undercapitalized." Banks that are significantly or
critically undercapitalized are subject to a wider range of regulatory
requirements and restrictions.
The Federal Deposit Insurance Corporation has a broad range of grounds
under which it may appoint a receiver or conservator for an insured depository
bank. If one or more grounds exist for appointing a conservator or receiver for
a bank, the Federal Deposit Insurance Corporation may require the bank to issue
additional debt or stock, sell assets, be acquired by a depository bank holding
company or combine with another depository bank. Under the FDIA, the Federal
Deposit Insurance Corporation is required to appoint a receiver or a conservator
for a critically undercapitalized bank within 90 days after the bank becomes
critically undercapitalized or to take such other action that would better
achieve the purposes of the prompt corrective action provisions. Such
alternative action can be renewed for successive 90-day periods. However, if the
bank continues to be critically undercapitalized on average during the quarter
that begins 270 days after it first became critically undercapitalized, a
receiver must be appointed, unless the Federal Deposit Insurance Corporation
makes certain findings, including that the bank is viable.
LOANS TO A BANK'S INSIDERS
FEDERAL REGULATION. A bank's loans to its executive officers, directors,
any owner of 10% or more of its stock (each, an insider) and any of certain
entities affiliated with any such person (an insider's related interest) are
subject to the conditions and limitations imposed by Section 22(h) of the
Federal Reserve Act and the Federal Reserve Board's Regulation O thereunder.
Under these restrictions, the aggregate amount of the loans to any insider and
the insider's related interests may not exceed the loans-to-one-borrower limit
applicable to national banks, which is comparable to the loans-to-one-borrower
limit applicable to Lincoln Park Savings' loans. See "--New Jersey Banking
Regulation--Loans-to-One Borrower Limitations." All loans by a bank to all
insiders and insiders' related interests in the aggregate may not exceed the
bank's unimpaired capital and unimpaired surplus. With
31
certain exceptions, loans to an executive officer, other than loans for the
education of the officer's children and certain loans secured by the officer's
residence, may not exceed the lesser of (1) $100,000 or (2) the greater of
$25,000 or 2.5% of the bank's unimpaired capital and surplus. Regulation O also
requires that any proposed loan to an insider or a related interest of that
insider be approved in advance by a majority of the board of directors of the
bank, with any interested directors not participating in the voting, if such
loan, when aggregated with any existing loans to that insider and the insider's
related interests, would exceed either (1) $500,000 or (2) the greater of
$25,000 or 5% of the bank's unimpaired capital and surplus. Generally, such
loans must be made on substantially the same terms as, and follow credit
underwriting procedures that are not less stringent than, those that are
prevailing at the time for comparable transactions with other persons.
An exception is made for extensions of credit made pursuant to a benefit
or compensation plan of a bank that is widely available to employees of the bank
and that does not give any preference to insiders of the bank over other
employees of the bank.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
NEW JERSEY REGULATION. Provisions of the New Jersey Banking Act impose
conditions and limitations on the liabilities to a savings bank of its directors
and executive officers and of corporations and partnerships controlled by such
persons that are comparable in many respects to the conditions and limitations
imposed on the loans and extensions of credit to insiders and their related
interests under Regulation O, as discussed above. The New Jersey Banking Act
also provides that a savings bank that is in compliance with Regulation O is
deemed to be in compliance with such provisions of the New Jersey Banking Act.
FEDERAL RESERVE SYSTEM
Under Federal Reserve Board regulations, Lincoln Park Savings is
required to maintain non-interest-earning reserves against its transaction
accounts. Lincoln Park Savings is in compliance with these requirements. Because
required reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve Board, the effect of this reserve requirement
is to reduce Lincoln Park Savings' interest-earning assets.
INTERNET BANKING
Technological developments are significantly altering the ways in which
most companies, including financial institutions, conduct their business. The
growth of the Internet is prompting banks to reconsider business strategies and
adopt alternative distribution and marketing systems. The federal bank
regulatory agencies have conducted seminars and published materials targeted to
various aspects of internet banking, and have indicated their intention to
reevaluate their regulations to ensure that they encourage banks' efficiency and
competitiveness consistent with safe and sound banking practices. We cannot
assure you that the bank regulatory agencies will adopt new regulations that
will not materially affect any of our internet operations or restrict any such
further operations.
THE USA PATRIOT ACT
In response to the events of September 11th, 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.
32
Among other requirements, Title III of the USA PATRIOT Act imposes the
following requirements with respect to financial institutions:
o 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.
o Section 326 of the Act 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.
o Section 312 of the Act 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.
o 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.
o Bank regulators are directed to consider a holding
company's effectiveness in combating money laundering
when ruling on Federal Reserve Act and Bank Merger Act
applications.
The federal banking agencies have implemented regulations pursuant to
the USA PATRIOT Act. These regulations require financial institutions to adopt
the policies and procedures contemplated by the USA PATRIOT Act.
Lincoln Park Savings has adopted the policies and programs required by
the USA PATRIOT Act, and has taken steps to implement and enforce those policies
and programs. The policies adopted by Lincoln Park Savings relate to such
matters as Bank Secrecy Act, customer identification, and anti-money laundering
compliance. Lincoln Park Savings from time to time reviews and updates its USA
PATRIOT Act and other regulatory compliance programs to ensure that all
applicable regulatory requirements are being satisfied. See "Recent Regulatory
Developments."
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 that will enforce auditing, quality control and
independence standards and will be 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 company's 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
Securities and Exchange Commission, subject to civil and criminal penalties if
they knowingly or willingly violate this certification requirement. In addition,
under the Act, counsel will be 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 will 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 company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from insider
33
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 Securities and Exchange Commission 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 Securities and Exchange Commission 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 company's 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 company's "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 Securities and Exchange Commission) and if not,
why not. Under the Act, a company's registered public accounting firm is
prohibited from performing statutorily mandated audit services for a company if
such company's 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 company's
financial statements for the purpose of rendering the financial statements
materially misleading. The Act also requires the Securities and Exchange
Commission to prescribe rules requiring inclusion of any internal control report
and assessment by management in the annual report to shareholders. The Act
requires the company's registered public accounting firm that issues the audit
report to attest to and report on management's assessment of the company's
internal controls.
Although we anticipate that we will incur additional expense in
complying with the provisions of the Act and the regulations that have been
promulgated to implement the Act, management does not expect that such
compliance will have a material impact on our results of operations or financial
condition.
HOLDING COMPANY REGULATION
GENERAL. Federal law allows a state savings bank, such as Lincoln Park
Savings, that qualifies as a "Qualified Thrift Lender," discussed below, to
elect to be treated as a savings association for purposes of the savings and
loan company provisions of the Home Owners' Loan Act. Such election results in
its holding company being 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. Lincoln Park Bancorp and Lincoln Park Bancorp, MHC have
made such election.
Lincoln Park Bancorp, MHC and Lincoln Park Bancorp are nondiversified
savings and loan holding companies within the meaning of the Home Owners' Loan
Act. As such, Lincoln Park Bancorp, MHC and Lincoln Park Bancorp are registered
with the Office of Thrift Supervision and are subject to Office of Thrift
Supervision regulations, examinations, supervision and reporting requirements.
In addition, the Office of Thrift Supervision has enforcement authority over
Lincoln Park Bancorp and Lincoln Park Bancorp MHC, and their 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 the
subsidiary savings institution. As federal corporations, Lincoln Park Bancorp
and Lincoln Park Bancorp, MHC are generally not subject to state business
organization laws.
PERMITTED ACTIVITIES. Pursuant to Section 10(o) of the Home Owners' Loan
Act and Office of Thrift Supervision regulations and policy, a mutual holding
company and a federally chartered mid-tier holding company such as Lincoln Park
Bancorp may engage in the following activities: (i) investing in the stock of a
savings association; (ii) acquiring a mutual association through the merger of
such association into a savings association subsidiary of such holding company
or an interim savings association subsidiary of such holding company; (iii)
merging with or acquiring another holding company, one of whose subsidiaries is
a savings association; (iv) investing in a corporation, the capital stock of
which is available for purchase by a savings association under federal law or
under the law of any state where the subsidiary savings association or
associations share their home offices;
34
(v) furnishing or performing management services for a savings association
subsidiary of such company; (vi) holding, managing or liquidating assets owned
or acquired from a savings subsidiary of such company; (vii) holding or managing
properties used or occupied by a savings association subsidiary of such company;
(viii) acting as trustee under deeds of trust; (ix) any other activity (A) that
the Federal Reserve Board, by regulation, has determined to be permissible for
bank holding companies under Section 4(c) of the Bank Holding Company Act of
1956, unless the Director, by regulation, prohibits or limits any such activity
for savings and loan holding companies; or (B) in which multiple savings and
loan holding companies were authorized (by regulation) to directly engage on
March 5, 1987; (x) any activity permissible for financial holding companies
under Section 4(k) of the Bank Holding Company Act, including securities and
insurance underwriting; and (xi) purchasing, holding, or disposing of stock
acquired in connection with a qualified stock issuance if the purchase of such
stock by such savings and loan holding company is approved by the Director. If a
mutual holding company acquires or merges with another holding company, the
holding company acquired or the holding company resulting from such merger or
acquisition may only invest in assets and engage in activities listed in (i)
through (xi) above, and has a period of two years to cease any nonconforming
activities and divest of any nonconforming investments.
The Home Owners' Loan Act prohibits a savings and loan holding company,
including Lincoln Park Bancorp and Lincoln Park Bancorp, MHC, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
another savings institution or holding company thereof, without prior written
approval of the Office of Thrift Supervision. It also prohibits the acquisition
or retention of, with certain exceptions, more than 5% of a nonsubsidiary
company engaged in activities other than those permitted by the Home Owners'
Loan Act; or acquiring or retaining control of an institution that is not
federally insured. In evaluating applications by holding companies to acquire
savings institutions, the Office of Thrift Supervision must consider the
financial and managerial resources, future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
fund, 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, subject to two
exceptions: (i) the approval of interstate supervisory acquisitions by savings
and loan holding companies, and (ii) 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.
WAIVERS OF DIVIDENDS BY LINCOLN PARK BANCORP, MHC. Office of Thrift
Supervision regulations require Lincoln Park Bancorp, MHC to notify the Office
of Thrift Supervision of any proposed waiver of its receipt of dividends from
Lincoln Park Bancorp. The Office of Thrift Supervision reviews dividend waiver
notices on a case-by-case basis, and, in general, does not object to any such
waiver if the mutual holding company's board of directors determines that such
waiver is consistent with such directors' fiduciary duties to the mutual holding
company's members and the dividend waiver is not detrimental to the safe and
sound operation of the subsidiary savings bank. In addition, as a condition to
its approval of the reorganization the Federal Deposit Insurance Corporation has
required that (i) any dividends waived by Lincoln Park Bancorp, MHC must be
retained by Lincoln Park Bancorp or Lincoln Park Savings and segregated,
earmarked or otherwise identified in the books and records of Lincoln Park
Bancorp or Lincoln Park Savings, (ii) the amount of waived dividends will be
taken into account in any valuation of Lincoln Park Savings and factored into
the calculation used in establishing a fair and reasonable basis for exchanging
shares in any subsequent conversion of Lincoln Park Bancorp, MHC to stock form,
and (iii) any waived dividends shall not be available for payment to, or the
value thereof transferred to, minority stockholders, by any means, including
through dividend payments or on liquidation. The plan of reorganization also
provides that if Lincoln Park Bancorp, MHC converts to stock form in the future,
to the extent required by applicable state or federal law, regulation or policy,
the benefit to minority stockholders of any waived dividends would reduce the
percentage of the converted company's shares of common stock issued to minority
stockholders in connection with a conversion transaction. We anticipate that
Lincoln Park Bancorp, MHC will waive dividends paid by Lincoln Park Bancorp.
CONVERSION OF LINCOLN PARK BANCORP, MHC TO STOCK FORM. Office of Thrift
Supervision regulations permit Lincoln Park Bancorp, 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. In a
conversion transaction a new holding company would be formed as the successor to
Lincoln Park Bancorp (the "New Holding
35
Company"), Lincoln Park Bancorp, MHC's corporate existence would end, and
certain depositors of Lincoln Park Savings 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 Lincoln Park Bancorp,
MHC ("minority stockholders") would be automatically converted into a number of
shares of common stock of the New Holding Company determined pursuant an
exchange ratio described in the plan of reorganization that ensures that
minority stockholders own the same percentage of common stock in the New Holding
Company as they owned in Lincoln Park Bancorp immediately prior to the
conversion transaction, subject only (if required by applicable federal or state
law, regulation or policy) to any adjustment necessary to reflect the benefit to
minority stockholders of the waiver of dividends by Lincoln Park Bancorp, MHC
and any assets held by Lincoln Park Bancorp, MHC (other than common stock of
Lincoln Park Bancorp) and to reflect the receipt of cash in lieu of fractional
shares. Under Office of Thrift Supervision regulations, minority stockholders
would not be diluted because of any dividends waived by Lincoln Park Bancorp,
MHC (and waived dividends would not be considered in determining an appropriate
exchange ratio), in the event Lincoln Park Bancorp, MHC converts to stock form.
The total number of shares held by minority stockholders after a conversion
transaction also would be increased by any purchases by minority stockholders in
the stock offering conducted as part of the conversion transaction.
FEDERAL SECURITIES LAWS
Lincoln Park Bancorp common stock is registered with Securities and
Exchange Commission under the Securities Exchange Act of 1934. Lincoln Park
Bancorp is subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Securities Exchange Act of 1934.
Lincoln Park Bancorp common stock held by persons who are affiliates
(generally officers, directors and principal stockholders) of Lincoln Park
Bancorp may not be resold without registration or unless sold in accordance with
certain resale restrictions. If Lincoln Park Bancorp meets specified current
public information requirements, each affiliate of Lincoln Park Bancorp is able
to sell in the public market, without registration, a limited number of shares
in any three-month period.
RECENT REGULATORY DEVELOPMENTS
On July 30, 2004, Lincoln Park Savings entered into a Stipulation and
Consent to Issuance of an Order of Assessment of Civil Money Penalties with the
Office of Thrift Supervision. The Stipulation was based upon findings by the
Office of Thrift Supervision of certain weaknesses by Lincoln Park Savings in
implementing policies and procedures relating to Bank Secrecy Act compliance.
Specifically, the Office of Thrift Supervision advised that Lincoln Park Savings
had failed to implement the independent testing component of the Bank Secrecy
Act compliance program required by Office of Thrift Supervision regulations.
Pursuant to the Stipulation and the related Order of Assessment of Civil Money
Penalties, Lincoln Park Savings agreed to pay to the Office of Thrift
Supervision a penalty in the amount of $10,000. Lincoln Park Savings also
retained an independent accounting firm to perform a compliance consulting
review for Lincoln Park Savings. That firm has presented its compliance
consulting report to the Board of Directors, and the Board has adopted certain
changes in the compliance program as recommended in the report. These changes
include additional training of bank personnel in Bank Secrecy Act related
matters, and implementing new policies and procedures in Bank Secrecy Act
compliance, including the proper preparation of currency transaction reports.
In addition, in connection with the Board's authorization of the
execution of the Stipulation and Order, the Board adopted resolutions at the
request of the Office of Thrift Supervision providing that Lincoln Park Savings
will implement an appropriate written Bank Secrecy Act compliance program, that
it will take actions to ensure that the compliance program is managed by a
qualified officer and that involved bank personnel receive appropriate training,
that it will independently test the compliance program on no less than a
semi-annual basis and that the compliance officer will report to the Board and
the Board will review and evaluate the compliance program on no less than a
quarterly basis.
Lincoln Park Savings has taken the following steps to implement the
recommendations of the compliance consulting report and the foregoing
resolutions. Lincoln Park Savings has obtained a new records management register
to facilitate compliance with the record keeping requirements applicable to the
sale of monetary instruments. In addition, new procedures have been adopted to
ensure the proper completion of currency transaction reports. Further, our vice
president of operations has been designated as the manager of our Bank Secrecy
Act compliance
36
program, and in that role has been monitoring the new register on a regular
basis and has been reviewing all currency transaction reports for accuracy prior
to filing. Furthermore, our vice president of operations and another officer
have recently attended Bank Secrecy Act compliance courses and we have scheduled
training sessions for our staff regarding Bank Secrecy Act compliance, including
specifically the use of the new records management register and the proper
completion of currency transaction reports. In addition, the Board of Directors
plans to monitor and evaluate our Bank Secrecy Act compliance program on a
quarterly basis. We have also retained an independent accounting firm to perform
an independent assessment of our Bank Secrecy Act compliance program on a
semi-annual basis.
ITEM 2. DESCRIPTION OF PROPERTY
The following table provides certain information with respect to our
office as of December 31, 2004:
LEASED NET BOOK VALUE OF REAL
LOCATION OR OWNED YEAR ACQUIRED PROPERTY
----------------------- ------------ --------------- -------------------------
Main Office: Owned 1963 $ 802,888
31 Boonton Turnpike
Lincoln Park, NJ 07035
The net book value of our premises, land and equipment was approximately
$919,931 at December 31, 2004.
For information regarding the Company's investment in mortgages and
mortgage-related securities, see "Item 1. Business" herein.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved as plaintiff or defendant in various
legal proceedings arising in the ordinary course of business. At December 31,
2004, we were not involved in any legal proceedings, the outcome of which would
be material to our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of the year under report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF SECURITIES
(a) Our common stock is traded on the OTC Electronic Bulletin Board
under the symbol "LPBC". Lincoln Park Bancorp, MHC owns 999,810 shares, or 54.0%
of our outstanding common stock. The approximate number of holders of record of
Lincoln Park Bancorp's common stock as of March 17, 2005 was 261. Certain shares
of Lincoln Park Bancorp are held in "nominee" or "street" name and accordingly,
the number of beneficial owners of such shares is not known or included in the
foregoing number. The following table presents quarterly market information for
Lincoln Park Bancorp's common stock for the period ended December 31, 2004.
Lincoln Park Bancorp began trading on the Electronic Bulletin Board on December
20, 2004. Accordingly, no information prior to this date is available. The
following information was provided by the Electronic Bulletin Board.
FISCAL 2004 HIGH LOW DIVIDENDS
----------------------------------- --------------- ----------- -------------
Quarter ended December, 31, 2004 $ 12.00 $ 10.75 $ 0.00
Dividend payments by Lincoln Park Bancorp are dependent primarily on
dividends it receives from Lincoln Park Savings Bank, because Lincoln Park
Bancorp will have no source of income other than dividends from Lincoln Park
Savings Bank, earnings from the investment of proceeds from the sale of shares
of common stock
37
retained by Lincoln Park Bancorp, and interest payments with respect to Lincoln
Park Bancorp's loan to the Employee Stock Ownership Plan. New Jersey law imposes
limitations on dividends by New Jersey stock savings banks. See "Regulation--New
Jersey Banking Regulation--Dividends."
At December 31, 2004, there were no compensation plans under which
equity securities of Lincoln Park Bancorp were authorized for issuance.
In addition, reference is made to the "Market for Common Stock" section
of Lincoln Park Bancorp's 2004 Annual Report to Stockholders, which is
incorporated herein by reference.
(b) On December 16, 2004, Lincoln Park Bancorp completed an offering of
securities registered pursuant to the Securities Act of 1933, as amended. In
connection therewith:
1. The effective date of the registration statement on Form SB-2,
as amended (File No. 333-116639) was October 28, 2004.
2. The offering of securities was not underwritten. Sandler O'Neill
& Partners, L.P. acted as marketing agent.
3. The class of securities registered was common stock, $0.01 par
value per share. The amount of such securities registered was
851,690 shares at an offering price of $10.00 per share. The
offering terminated on December 16, 2004 with the sale of
851,690 shares at a price of $10.00 per share. In addition to
the 851,690 shares issued to eligible depositors, Lincoln Park
Bancorp issued 999,810 additional shares to Lincoln Park
Bancorp, MHC. As a result of the offering, purchasers in the
offering own 46.0% of Lincoln Park Bancorp's common stock, and
Lincoln Park Bancorp, MHC owns 54.0%.
4. The total offering expenses incurred by Lincoln Park Bancorp
were approximately $715,000, none of which were paid directly or
indirectly to directors or officers of Lincoln Park Bancorp or
their associates, except that $15,500 in fees were paid to
Scangarella, Feeney & Dixon, L.L.P., a law firm which renders
legal services for Lincoln Park Savings. Director John F. Feeney
is a partner of that firm. A breakdown of the fees by type is as
follows (dollars in thousands):
Marketing agent commission $ 173,000
Marketing agent expenses 43,000
Other expenses 499,000
-----------
Total expenses $ 715,000
===========
5. Gross proceeds of the offering were $8.5 million. Lincoln Park
Bancorp loaned $387,193 to Lincoln Park Savings Bank's employee
stock ownership plan to purchase stock in the offering and
incurred $715,000 of expenses associated with the offering
resulting in net proceeds of $7.8 million. One-half of the net
proceeds were invested in Lincoln Park Savings Bank and the
remaining amount was initially invested in deposit accounts at
Lincoln Park Savings Bank and other financial institutions.
Subsequently, $3.0 million of such funds were invested in
interest-bearing securities. These uses of proceeds do not
represent a material change in the use of proceeds, described in
Lincoln Park Bancorp's prospectus dated October 28, 2004.
(c) Lincoln Park Bancorp did not repurchase any shares of its common stock
during the relevant period.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of Lincoln Park Bancorp's 2004 Annual Report to Stockholders
is incorporated herein by reference. For off-balance sheet arrangements, see
Note 15 of the "Notes to Consolidated Financial Statements" within the Annual
Report.
38
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements included in Lincoln Park Bancorp's
2004 Annual Report to Stockholders are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective to ensure that information required to be
disclosed in the reports that the Company files or submits under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported, within
the time periods specified in the SEC's rules and forms. There has been no
change in the Company's internal control over financial reporting during the
Company's fourth quarter of fiscal year 2004 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
ITEM 8B. OTHER INFORMATION
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Lincoln Park Bancorp has adopted a Code of Ethics that applies to
Lincoln Park Bancorp's principal executive officer, principal financial officer,
principal accounting officer or controller or persons performing similar
functions. The Code of Ethics may be accessed on Lincoln Park Bancorp's website
at www.lincoln parksavings.com. The Code of Ethics is also filed as Exhibit 14
to this Form 10-KSB.
Information concerning Directors and executive officers of Lincoln Park
Bancorp is incorporated herein by reference from our definitive Proxy Statement
(the "Proxy Statement"), specifically the section captioned "Proposal
I--Election of Directors."
ITEM 10. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference from our Proxy Statement, specifically the section captioned "Proposal
I -- Election of Directors."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information concerning security ownership of certain owners and
management is incorporated herein by reference from our Proxy Statement,
specifically the sections captioned "Voting Securities and Principal Holders
Thereof" and "Proposal I -- Election of Directors."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning relationships and transactions is incorporated
herein by reference from our Proxy Statement, specifically the section captioned
"Transactions with Certain Related Persons."
39
ITEM 13. EXHIBITS
(a) FINANCIAL STATEMENTS
(A) Management Responsibility Statement
(B) Independent Auditors' Report
(C) Consolidated Statements of Financial Condition
(D) Consolidated Statements of Income
(E) Consolidated Statements of Comprehensive Income
(F) Consolidated Statements of Changes In Stockholders' Equity
(G) Consolidated Statements of Cash Flows
(H) Notes to Consolidated Financial Statements
(b) FINANCIAL STATEMENT SCHEDULES
(c) EXHIBITS.
3.1 Charter of Lincoln Park Bancorp*
3.2 Bylaws of Lincoln Park Bancorp*
4 Form of Common Stock Certificate of Lincoln Park Bancorp*
10.1 Employee Stock Ownership Plan*
13 Annual Report to Stockholders
14 Code of Ethics
21 Subsidiaries of Registrant*
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
------------------------------
* Incorporated by reference to the Registration Statement on Form SB-2 of
Lincoln Park Bancorp (file no. 333-116639), originally filed with the
Securities and Exchange Commission on June 18, 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning principal accountant fees and services is
incorporated herein by reference from our Proxy Statement, specifically the
section captioned "Proposal II-Ratification of Appointment of Independent
Auditors."
40
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LINCOLN PARK BANCORP
Date: March 28, 2005 By: /s/ Donald S. Hom
-------------------------------------
Donald S. Hom
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- -----
/s/ Donald S. Hom President and Chief Executive March 28, 2005
------------------------ Officer (Principal Executive and
Donald S. Hom Financial Officer)
/s/ Nandini Mallya Vice President and Treasurer March 28, 2005
------------------------ (Principal Accounting Officer)
Nandini Mallya
/s/ Stanford Stoller Chairman of the Board and March 28, 2005
------------------------ Director
Stanford Stoller
/s/ William H. Weisbrod Vice Chairman of the Board and March 28, 2005
------------------------ Director
William H. Weisbrod
/s/ David G. Baker Director March 28, 2005
------------------------
David G. Baker
/s/ John F. Feeney Director March 28, 2005
------------------------
John F. Feeney
/s/ Ronald M. Higgins Director March 28, 2005
------------------------
Ronald M. Higgins
/s/ Edith M. Perrotti Director March 28, 2005
------------------------
Edith M. Perrotti