t67383_10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2009
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from _____________ to
_____________
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Commission
File Number: 1-33476
BENEFICIAL
MUTUAL BANCORP, INC.
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(Exact
name of registrant as specified in its
charter)
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United
States
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56-2480744
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification No.)
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510
Walnut Street, Philadelphia, Pennsylvania
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19106
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (215) 864-6000
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
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Name
of each exchange on which registered
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Common
Stock, par value $0.01 per share
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Nasdaq
Stock Market, LLC
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Securities
registered pursuant to Section 12(g) of the
Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web Site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
(Check
one):
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Large
Accelerated Filer o
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Accelerated
Filer x
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Non-Accelerated
Filer o
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Smaller
Reporting Company o
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Indicate by check mark whether the
registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes o No x
The aggregate market value of the
voting and non-voting common equity held by non-affiliates as of June 30,
2009 was approximately $334.8 million.
As of March 15, 2010, there were
81,853,553 shares of the registrant's common stock outstanding. Of such shares
outstanding, 45,792,775 were held by Beneficial Savings Bank MHC and 36,060,778
shares were publicly held.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant’s 2009 Annual Report to Stockholders and Proxy Statement for
the 2010 Annual Meeting of Stockholders are incorporated by reference into Part
II and III, respectively, of this Form 10-K.
INDEX
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Page
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Part
I
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Item
1.
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Business
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2
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Item
1A.
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Risk
Factors
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18
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Item
1B.
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Unresolved
Staff Comments
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22
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Item
2.
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Properties
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22
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Item
3.
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Legal
Proceedings
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22
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Part
II
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Item
4.
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Reserved
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22
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Item
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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22
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Item
6.
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Selected
Financial Data
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23
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
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23
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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23
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Item
8.
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Financial
Statements and Supplementary Data
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23
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Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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23
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Item
9A.
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Controls
and Procedures
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23
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Item
9B.
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Other
Information
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26
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Part
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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26
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Item
11.
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Executive
Compensation
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26
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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26
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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27
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Item
14.
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Principal
Accounting Fees and Services
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28
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Part
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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28
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SIGNATURES
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This annual report contains
forward-looking statements that are based on assumptions and may describe future
plans, strategies and expectations of Beneficial Mutual Bancorp, Inc. These
forward-looking statements are generally identified by use of the words
“believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar
expressions. Beneficial Mutual Bancorp, Inc.’s ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse effect on the operations of Beneficial
Mutual Bancorp, Inc. and its subsidiary include, but are not limited to, changes
in interest rates, national and regional economic conditions, legislative and
regulatory changes, monetary and fiscal policies of the U.S. government,
including policies of the U.S. Treasury and the Federal Reserve Board, the
quality and composition of the loan or investment portfolios, demand for loan
products, deposit flows, competition, demand for financial services in
Beneficial Mutual Bancorp, Inc.’s market area, changes in real estate market
values in Beneficial Mutual Bancorp, Inc.’s market area, changes in relevant
accounting principles and guidelines and inability of third party service
providers to perform. Additional factors that may affect our results are
discussed in Item 1A to this annual report titled “Risk Factors”
below.
These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Except as
required by applicable law or regulation, Beneficial Mutual Bancorp, Inc. does
not undertake, and specifically disclaims any obligation, to release publicly
the result of any revisions that may be made to any forward-looking statements
to reflect events or circumstances after the date of the statements or to
reflect the occurrence of anticipated or unanticipated events.
Unless the context indicates otherwise,
all references in this annual report to “Company,” “we,” “us” and “our” refer to
Beneficial Mutual Bancorp, Inc. and its subsidiaries.
PART
I
Item
1. BUSINESS
General
Beneficial
Mutual Bancorp, Inc. (the “Company”) was organized on August 24, 2004 under the
laws of the United States in connection with the mutual holding company
reorganization of Beneficial Bank (the “Bank”), a Pennsylvania chartered savings
bank which has also operated under the name Beneficial Mutual Savings
Bank. In connection with the reorganization, the Company became the
wholly owned subsidiary of Beneficial Savings Bank MHC (the “MHC”), a federally
chartered mutual holding company. In addition, the Company
acquired 100% of the outstanding common stock of the Bank.
On July
13, 2007, the Company completed its initial public offering in which it sold
23,606,625 shares, or 28.70%, of its outstanding common stock to the public,
including 3,224,772 shares purchased by the Beneficial Mutual Savings Bank
Employee Stock Ownership Plan Trust (the “ESOP”). In addition,
45,792,775 shares, or 55.67% of the Company’s outstanding common stock, were
issued to the MHC. To further emphasize the Bank’s existing community
activities, the Company also contributed $500,000 in cash and issued 950,000
shares, or 1.15% of the Company’s outstanding common stock, to The Beneficial
Foundation (the “Foundation”), a Pennsylvania nonstock charitable foundation
organized by the Company in connection with the Company’s initial public
offering.
In
addition to completing its initial public offering on July 13, 2007, the Company
also issued 11,915,200 shares, or 14.48% of its outstanding common stock, to
stockholders of FMS Financial Corporation (“FMS Financial”) in connection with
the Company’s acquisition of FMS Financial. The merger was
consummated pursuant to an agreement and plan of merger whereby FMS Financial
merged with and into the Company and FMS Financial’s wholly owned subsidiary,
Farmers & Mechanics Bank, merged with and into the Bank.
The
Company’s business activities are the ownership of the Bank’s capital stock and
the management of the proceeds it retained in connection with its initial public
offering. The Company does not own or lease any property but instead
uses the premises, equipment and other property of the Bank with the payment of
appropriate rental fees, as required by applicable law and regulations, under
the terms of an expense allocation agreement.
The Bank
is a Pennsylvania chartered savings bank originally founded in
1853. We have served the financial needs of our depositors and the
local community since our founding and are a community-minded, customer
service-focused institution. We offer traditional financial services
to consumers and businesses in our market areas. We attract deposits
from the general public and use those funds to originate a variety of loans,
including commercial real estate loans, consumer loans, home equity loans,
one-to-four family real estate loans, commercial business loans and construction
loans. We offer insurance brokerage and investment advisory services
through our wholly owned subsidiaries, Beneficial Insurance Services, LLC and
Beneficial Advisors, LLC, respectively. We also maintain an
investment portfolio. Our primary market consists of Chester,
Delaware, Montgomery, Philadelphia and Bucks Counties, Pennsylvania and
Burlington, Camden, and Gloucester Counties, New Jersey. The
acquisition of FMS Financial
and its wholly owned subsidiary, Farmers & Mechanics Bank, in July 2007
expanded our market presence in New Jersey.
The
Company’s and the Bank’s executive offices are located at 510 Walnut Street,
Philadelphia, Pennsylvania and our main telephone number is (215)
864-6000. Our website address is
www.thebeneficial.com. Information on our website should not be
considered part of this filing.
Market
Area
The
Company is headquartered in Philadelphia, Pennsylvania. We currently
operate 38 full-service banking offices in Chester, Delaware, Montgomery,
Philadelphia and Bucks Counties, Pennsylvania and 30 full-service banking
offices in Burlington and Camden Counties, New Jersey. We regularly
evaluate our network of banking offices to optimize the penetration of our
market area in the most efficient way. We will occasionally open or
consolidate banking offices.
The
acquisition of FMS Financial has substantially enhanced our market share. On
July 13, 2007, the Company completed its merger with FMS
Financial. In connection with the merger, FMS Financial’s wholly
owned subsidiary, Farmers & Mechanics Bank, which had a network of 31 branch
offices located in Burlington and Camden Counties, New Jersey, merged with and
into the Bank. The merger solidified the Bank’s position as the
largest Philadelphia-based bank operating solely in the greater Philadelphia
metropolitan area, greatly expanded its network of neighborhood banking offices
throughout the region.
Our
primary retail market area is the greater Philadelphia metropolitan area and
primarily includes the area surrounding our 68 banking offices located in Bucks,
Chester, Delaware, Montgomery and Philadelphia Counties in Pennsylvania and
Burlington and Camden Counties in New Jersey, while our lending market also
includes surrounding counties in Pennsylvania, New Jersey and
Delaware. In Pennsylvania, we serve our customers through our four
offices in Bucks County, seven offices in Delaware County, nine offices in
Montgomery County, 17 offices in Philadelphia County, and one office in Chester
County. In New Jersey, we serve our customers through our 27 offices
in Burlington County and three offices in Camden County. In addition,
Beneficial Insurance Services, LLC (“Beneficial Insurance”) operates two offices
in Pennsylvania, one in Philadelphia County and one in Delaware
County.
While the
economy in the Philadelphia metropolitan area has directionally tracked the
broader U.S. economy, valuation declines, particularly those for residential
real estate have been less severe than the national averages. As 2010
begins, manufacturers in the market area have reported increases in shipments
and new orders and retailers, including automobile dealers, have reported rising
sales trends, albeit somewhat dampened by severe winter
weather. Sales of new and existing homes have picked up somewhat
recently, aided by the U.S. Government’s homebuyer tax credit, which has had a
more pronounced impact in the lower and moderate price segments of the
market. Nonresidential real estate activity, in the form of leasing,
purchase and construction activity, remains slow with vacancy rates remaining
steady as effective rents continue to decline. Service sector firms
generally reported the activity remains steady, indicating at least
stabilization. It remains to be seen whether the recent stabilization
and slight improvement in economic activity both in the Philadelphia
metropolitan area and the broader U.S. economy is sustainable as government
stimulus programs come to an end.
According
to published statistics, the 2009 population of our seven-county primary retail
market area totaled 4.9 million. Overall, the seven counties that
comprise our primary retail market area provide attractive long-term growth
potential by demonstrating relatively strong household income and wealth growth
trends relative to national and state-wide projections.
Competition
We face
significant competition for the attraction of deposits and origination of
loans. Our most direct competition for deposits has historically come
from the many banks, thrift institutions and credit unions operating in our
market area and, to a lesser extent, from other financial service companies such
as brokerage firms and insurance companies.
During
the past two years, several large holding companies that operate banks in our
market area have experienced significant credit, capital and liquidity setbacks
that have led to their acquisition by even larger holding companies, some of
which are located outside of the United States, including Sovereign Bank and
Commerce Bank, which were acquired by Banco Santander, S.A. and Toronto Dominion
Bank, respectively. In addition, Wachovia Bank, which held the
largest deposit market share in our market area, has been acquired by Wells
Fargo & Company. Several other large banking companies have been
the subject of continued negative publicity due to the significant losses
incurred, including Citizens Bank, Citibank and Bank of
America. While these institutions are significantly larger than us
and, therefore, have significantly greater resources, we believe our financial
condition and our concentrated focus on our primary market may benefit us in the
coming year. We also face competition for investors’ funds from money
market funds, mutual funds and other corporate and government
securities.
Our
competition for loans comes primarily from the competitors referenced above and
other local community banks, thrifts and credit unions and, to a lesser extent,
from other financial service providers, such as mortgage companies and mortgage
brokers. Competition for loans also comes from the increasing number
of non-depository financial service companies participating in the mortgage
market, such as insurance companies, securities companies and specialty finance
companies, although the recent credit market disruptions stemming from the
deterioration of sub-prime loans have reduced the number of non-depository
competitors in the residential mortgage market.
Notwithstanding
these recent credit market disruptions, we expect competition to remain intense
in the future as a result of legislative, regulatory and technological changes
and the continuing trend of consolidation in the financial services
industry. Technological advances, for example, have lowered barriers
to entry, allowed banks to expand their geographic reach by providing services
over the internet and made it possible for non-depository institutions to offer
products and services that traditionally have been provided by
banks. Changes in federal law permit affiliation among banks,
securities firms and insurance companies, and the recently expanded availability
of bank holding company charters resulting from non-bank financial services
companies receiving capital infusions under the U.S. Treasury Department’s
Troubled Asset Relief Program, may promote a more competitive environment in the
financial services industry. Competition for deposits and the
origination of loans could limit our growth in the future.
Lending
Activities
We offer
a variety of loans including commercial, residential and
consumer. Our consumer portfolio includes automobile loans and
leases, educational loans and home equity loans and lines of
credit. In 2004, we stopped providing automobile lease financing and
our automobile loan portfolio has decreased in recent years. It is
likely that our automobile loan portfolio will continue to decline as we place
greater emphasis on originating commercial real estate and commercial business
loans. Since 2002, our commercial real estate loan portfolio has
grown steadily. During 2009, the commercial real estate portfolio has
declined amidst the weakened economy, and at December 31, 2009 and 2008 it
comprised 28.1% and 32.6% of our total loan portfolio, respectively, which, at
December 31, 2009 was still greater than any other loan category.
In the
future, we intend to continue to emphasize commercial real estate and commercial
business lending including small business lending. We have added to
our experienced staff of commercial lenders and continue to seek participation
opportunities with other local lenders. Participation opportunities
will be subject to our internal underwriting guidelines, which are consistently
applied. We will also continue to proactively monitor and manage
existing credit relationships. To this end, we have enhanced our
credit risk management staff and procedures.
The Bank
does not engage in sub-prime lending, which is defined as mortgage loans
advanced to borrowers who do not qualify for market interest rates because of
problems with their credit history. The Bank focuses its lending
efforts within its market area.
One-to-Four
Family Residential Loans. We offer two
types of residential mortgage loans: fixed-rate loans and
adjustable-rate loans. We offer fixed-rate mortgage loans with terms
of up to 30 years. We offer adjustable-rate mortgage loans with
interest rates and payments that adjust annually after an initial fixed period
of one, three or five years. Interest rates and payments on our
adjustable-rate loans generally are adjusted to a rate equal to a percentage
above the U.S. Treasury Security Index. The Bank’s adjustable-rate
single-family residential real estate loans generally have a cap of 2% on any
increase or decrease in the interest rate at any adjustment date, and a maximum
adjustment limit of 6% on any such increase or decrease over the life of the
loan. In order to increase the originations of adjustable-rate loans, the Bank
has been originating loans which bear a fixed interest rate for a period of
three to five years after which they convert to one-year adjustable-rate loans.
The Bank’s adjustable-rate loans require that any payment adjustment resulting
from a change in the interest rate of an adjustable-rate loan be sufficient to
result in full amortization of the loan by the end of the loan term and, thus,
do not permit any of the increased payment to be added to the principal amount
of the loan, creating negative amortization. Although the Bank does offer
adjustable-rate loans with initial rates below the fully indexed rate, loans
tied to the one-year constant maturity treasury (“CMT”) are underwritten using
methods approved by the Federal Home Loan Mortgage Corporation (“Freddie Mac”)
or the Federal National Mortgage Association (“Fannie Mae”), which require
borrowers to be qualified at a rate equal to 200 basis points above the
discounted loan rate under certain conditions.
Borrower
demand for adjustable-rate loans compared to fixed-rate loans is a function of
the level of interest rates, the expectations of changes in the level of
interest rates, and the difference between the interest rates and loan fees
offered for fixed-rate mortgage loans as compared to the interest rates and loan
fees for adjustable-rate loans. The relative amount of fixed-rate and
adjustable-rate mortgage loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. The
loan fees, interest rates and other provisions of mortgage loans are determined
by us on the basis of our own pricing criteria and competitive market
conditions.
All of
our residential mortgage loans are consistently underwritten to standards
established by Fannie Mae and Freddie Mac.
While
one-to-four family residential real estate loans are normally originated with up
to 30-year terms, such loans typically remain outstanding for substantially
shorter periods because borrowers often prepay their loans in full either upon
sale of the property pledged as security or upon refinancing the original
loan. Therefore, average loan maturity is a function of, among other
factors, the level of purchase and sale activity in the real estate market,
prevailing interest rates and the interest rates payable on outstanding
loans. We do not offer loans with negative amortization or interest
only loans.
It is our
general policy not to make high loan-to-value loans (defined as loans with a
loan-to-value ratio of 80% or more) without private mortgage insurance; however,
we do offer loans with loan-to-value ratios of up to 100% under a special low
income loan program consisting of $15.7 million in loans as of December 31,
2009. The maximum loan-to-value ratio we generally permit is 95% with
private mortgage insurance, although occasionally we do originate loans with
loan-to-value ratios as high as 97% under special loan programs, including our
first time home owner loan program. We require all properties
securing mortgage loans to be appraised by a board-approved independent
appraiser. We generally require title insurance on all first mortgage
loans. Borrowers must obtain hazard insurance, and flood insurance is
required for loans on properties located in a flood zone.
Commercial Real
Estate Loans. At December 31,
2009, we had commercial real estate loans totaling $783.0 million, or 28.1%, of
our total loan portfolio, which was greater than any other loan category,
including one-to-four family loans.
We offer
commercial real estate loans secured by real estate primarily with adjustable
rates. We originate a variety of commercial real estate loans
generally for terms up to 25 years and payments based on an amortization
schedule of up to 25 years. These loans are typically based on either
the Federal Home Loan Bank (“FHLB”) of Pittsburgh’s borrowing rate or U.S.
Treasury rate and adjust every five years. Commercial real estate
loans also are originated for the acquisition and development of
land. Conditions of acquisition and development loans we originate
generally limit the number of model homes and homes built on speculation, and
draws are scheduled against executed agreements of
sale. Commercial real estate loans for the acquisition and
development of land are typically based upon the prime rate as published in
The Wall Street Journal
and/or LIBOR. Commercial real estate loans for developed real estate
and for real estate acquisition and development are originated generally with
loan-to-value ratios up to 75%, while loans for the acquisition of land are
originated with a maximum loan to value ratio of 65%.
As of
December 31, 2009, our largest commercial real estate loan was a $13.7 million
acquisition and development loan to convert an existing office building into
apartments and to construct a new apartment building. The loan is
well secured and performing in accordance with its original terms at December
31, 2009.
Commercial
Loans. We offer commercial business loans to professionals,
sole proprietorships and small businesses in our market area. We
offer installment loans for capital improvements, equipment acquisition and
long-term working capital. These loans are typically based on the
prime rate as published in The
Wall Street Journal and/or LIBOR. These loans are secured by
business assets other than real estate, such as business equipment and
inventory, or are backed by the personal guarantee of the
borrower. We originate lines of credit to finance the working capital
needs of businesses to be repaid by seasonal cash flows or to provide a period
of time during which the business can borrow funds for planned equipment
purchases. We also offer accounts receivable lines of
credit.
When
making commercial business loans, we consider the financial statements of the
borrower, the borrower’s payment history of both corporate and personal debt,
the debt service capabilities of the borrower, the projected cash flows of the
business, the viability of the industry in which the customer operates and the
value of the collateral.
At
December 31, 2009, our largest commercial business loan relationship had a total
exposure of $36.0 million secured by various mixed use commercial real estate
and general business assets. The loans are well collateralized and are
performing in accordance with their original terms at December 31,
2009.
Consumer
Loans. We offer a
variety of consumer loans, including home equity loans and lines of credit,
automobile loans, boat loans, loans for recreational vehicles, guaranteed
student loans and loans secured by passbook accounts and certificates of
deposit. We also offer unsecured lines of credit.
We
generally offer home equity loans and lines of credit with a maximum combined
loan-to-value ratio of 80%. Home equity loans have fixed-rates of
interest and are originated with terms of up to 20 years. Home equity
lines of credit have adjustable rates and are based upon the prime rate as
published in The Wall Street
Journal. Home equity lines of credit can have repayment
scheduled of either principal and interest or interest only paid
monthly. We hold a first mortgage position on approximately 60% of
the homes that secure our home equity loans.
We offer
loans secured by new and used automobiles. These loans have fixed
interest rates and generally have terms up to six years. We offer
automobile loans with loan-to-value ratios of up to 100% of the purchase price
of the vehicle depending upon the credit history of the borrower and other
factors. We also offer loans on recreational vehicles, which we will
originate for terms of up to 20 years depending upon the loan amount and the
loan-to-value ratio on such loans generally does not exceed 90%. We
no longer originate or purchase automobile lease financing.
We offer
consumer loans secured by passbook accounts and certificates of deposit held at
the Bank based upon the prime rate as published in The Wall Street Journal with
terms up to four years. We will offer such loans up to 100% of the
principal balance of the certificate of deposit or balance in the passbook
account. We also offer unsecured loans and lines of credit with terms
up to five years. Our unsecured loans and lines of credit bear a
substantially higher interest rate than our secured loans and lines of credit.
For more information on our loan commitments, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Risk
Management—Liquidity Management” included in the Company’s 2009 Annual
Report to Stockholders.
The
procedures for underwriting consumer loans include an assessment of the
applicant’s payment history on other debts and ability to meet existing
obligations and payments on the proposed loan. Although the
applicant’s creditworthiness is a primary consideration, the underwriting
process also includes a comparison of the value of the collateral, if any, to
the proposed loan amount.
Credit
Risks.
Adjustable-Rate
Loans. While we anticipate that adjustable-rate loans will
better offset the adverse effects of an increase in interest rates as compared
to fixed-rate mortgages, an increased monthly mortgage payment required of
adjustable-rate loan borrowers in a rising interest rate environment could cause
an increase in delinquencies and defaults. The marketability of the
underlying property also may be adversely affected in a high interest rate
environment. In addition, although adjustable-rate mortgage loans
make our asset base more responsive to changes in interest rates, the extent of
this interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits.
Commercial Real Estate
Loans. Loans secured by commercial real estate generally have
larger balances and involve a greater degree of risk than one-to-four family
residential mortgage loans. Of primary concern in commercial real
estate lending is the borrower’s creditworthiness and the feasibility and cash
flow potential of the project. Additional considerations include:
location, market and geographic concentrations, loan to value, strength of
guarantors and quality of tenants. Payments on loans secured by
income properties often depend on successful operation and management of the
properties. As a result, repayment of such loans may be subject to a
greater extent than residential real estate loans, to adverse conditions in the
real estate market or the economy. To monitor cash flows on income
properties, we require borrowers and loan guarantors, if any, to provide annual
financial statements on commercial real estate loans and rent rolls where
applicable. In reaching a decision on whether to make a commercial
real estate loan, we consider and review a global cash flow analysis of the
borrower, when applicable, and consider the net operating income of the
property, the borrower’s expertise, credit history and profitability and the
value of the underlying property. We have generally required that the
properties securing these real estate loans have debt service coverage ratios
(the ratio of earnings before debt service to debt service) of at least
1.2x. An environmental report is obtained when the possibility exists
that hazardous materials may have existed on the site, or the site may have been
impacted by adjoining properties that handled hazardous materials.
Commercial Business
Loans. Unlike residential mortgage loans, which generally are
made on the basis of the borrower’s ability to make repayment from his or her
employment or other income, and which are secured by real property, the value of
which tends to be more easily ascertainable, commercial business loans are of
higher risk and typically are made on the basis of the borrower’s ability to
make repayment from the cash flow of the borrower’s business. As a
result, the availability of funds for the repayment of commercial business loans
may depend substantially on the success of the business
itself. Further, any collateral securing such loans may depreciate
over time, may be difficult to appraise and may fluctuate in value.
Consumer
Loans. Consumer loans may entail greater risk than do
residential mortgage loans, particularly in the case of consumer loans that are
unsecured or secured by assets that depreciate rapidly, such as motor vehicles,
recreational vehicles and boats. In the latter case, repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment for the outstanding loan and a small remaining deficiency often does
not warrant further substantial collection efforts against the
borrower. Consumer loan collections depend on the borrower’s
continuing financial stability, and therefore are likely to be adversely
affected by various factors, including job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount that can be recovered on such loans.
Loan Originations and
Purchases. Loan originations come from a number of
sources. The primary source of loan originations are existing
customers, walk-in traffic, advertising and referrals from
customers. We also purchase home equity, automobile, educational and
recreational vehicle loans.
We
purchase participations in loans from local banks to supplement our lending
portfolio. Loan
participations totaled $111.6 million at December 31, 2009. Loan
participations are subject to the same credit analysis and loan approvals as
loans we originate. We are permitted to review all of the documentation relating
to any loan in which we participate. However, in a purchased
participation loan, we do not service the loan and thus are subject to the
policies and practices of the lead lender with regard to monitoring
delinquencies, pursuing collections and instituting foreclosure
proceedings.
Loan Approval Procedures and
Authority. Our lending activities follow written,
non-discriminatory, underwriting standards and loan origination procedures
established by our board of trustees and management. The Board of
Directors has granted loan approval authority to certain officers or groups of
officers up to prescribed limits, based on the officer’s experience and
tenure. Individual loans or lending relationships with aggregate
exposure of more than $10.0 million must be approved by the Senior Loan
Committee, which is comprised of senior Bank officers and five non-employee
directors. All loans or lending relationships in excess of $20.0
million must be approved by the Senior Loan Committee of the Bank’s Board, as
well as the Executive Committee of the Board, which includes six non-employee
directors.
Loans to One
Borrower. The maximum amount that we may lend to one borrower
and the borrower’s related entities is limited, by regulation, to generally 15%
of our stated capital and reserves. At December 31, 2009, our
regulatory limit on loans to one borrower was $96.4 million. At that
date, the total outstanding balance with our largest lending relationship was
$36.0 million which was secured by various mixed use commercial real estate and
general business assets. All of the loans in the relationship are
performing in accordance with their original terms at December 31,
2009.
Loan
Commitments. We issue commitments for fixed and
adjustable-rate mortgage loans conditioned upon the occurrence of certain
events. Commitments to originate mortgage loans are legally binding
agreements to lend to our customers. Generally, our loan commitments
expire after 60 days.
Delinquent
Loans. We identify loans that may need to be charged off as a
loss by reviewing all delinquent loans, classified loans and other loans that
management may have concerns about collectability. For individually
reviewed loans, the borrower’s inability to make payments under the terms of the
loan as well as a shortfall in collateral value may result in a write down to
management’s estimate of net realizable value. Personal loans are
typically charged off at 120 days delinquent. For more information on
delinquencies, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Risk Management” in the company’s 2009 Annual Report
to stockholders.
Investment
Activities
We have
authority to invest in various types of assets, including United States Treasury
obligations, securities of various U.S. government sponsored enterprises,
federal agencies and state and municipal governments, mortgage-backed securities
and certificates of deposit of federally insured institutions. Within
certain regulatory limits, we also may invest a portion of our assets in
corporate securities and mutual funds. In order to generate
additional income, we have the authority to sell and repurchase covered call
options utilizing the equities portfolio.
While we
have the authority under applicable law to invest in derivative instruments for
hedging activities and to provide opportunities for our commercial loan
customers to hedge interest rate risk, we had no such derivative instruments at
December 31, 2009.
Our
investment objectives are to provide and maintain liquidity, to establish an
acceptable level of interest rate and credit risk, to provide an alternate
source of low-risk investments when demand for loans is weak and to generate a
favorable return. The Company’s Board of Directors approves the
investment and derivatives policies and any revisions, at least
annually.
At
December 31, 2009, our investment portfolio excluding FHLB capital stock totaled
$1.3 billion and consisted primarily of mortgage-backed securities, including
collateralized mortgage obligations (“CMOs”). Other securities
include United States government and agency securities, including securities
issued by government sponsored enterprises, municipal and other bonds, including
collateralized debt obligations (“CDOs”) backed by bank trust preferred capital
securities, equity securities and mutual funds. The contractual cash
flows of investments in government sponsored enterprises’ mortgage backed
securities are direct obligations of Freddie Mac and Fannie Mae.
As a
member of the FHLB of Pittsburgh, we are required to acquire and hold shares of
capital stock in that FHLB. At December 31, 2009, we held 244,675
shares of capital stock in the FHLB of Pittsburgh. Each such
share has a par value of $100 for a total carrying value of $24.5
million. On December 23, 2008, the FHLB of Pittsburgh informed its
members of a decision by its Board to suspend dividends on its capital stock and
to suspend repurchases of excess capital stock. These actions were
taken in light of the potential impact of other-than-temporary impairment
charges related to certain private label mortgage backed securities on FHLB of
Pittsburgh’s capitalization. We continue to value our holdings of
FHLB of Pittsburgh capital stock at par value. We have considered the
applicable accounting guidance in evaluating for impairment and have determined
that there is currently no other-than-temporary impairment. We will
continue to monitor for impairment in future periods.
We
assumed Farmers & Mechanics Bank’s obligation to the FHLB of New York as
part of our acquisition of FMS Financial on July 13, 2007. The Bank
is a non-member of the FHLB of New York, but is required to hold shares of
capital stock in the FHLB of New York as a result of the FMS Financial
acquisition. At December 31, 2009, we held 36,000 shares of capital
stock in the FHLB of New York, with a par value $100 per share and a total
carrying value of $3.6 million. The FHLB of New York continues to pay
dividends and has not suspended repurchases of excess capital
stock.
On
September 6, 2008, the Federal Housing Finance Agency (FHFA) was appointed as
conservator of both Fannie Mae and Freddie Mac. In addition, the U.S.
Treasury agreed to provide up to $100 billion of capital to each company as
needed to ensure the continued provision of liquidity to the housing and
mortgage markets. This action was taken due to significant credit
losses due to continued credit deterioration in the single-family credit
guarantee portfolios of both companies and impairment charges incurred on the
available-for-sale securities portfolios of both companies. We held
no preferred stock or subordinated debentures in either Fannie Mae or Freddie
Mac, and had no exposure to loss from such activities or from the appointment of
a conservator.
Deposit
Activities and Other Sources of Funds
General. Deposits,
borrowings and loan repayments are the major sources of our funds for lending
and other investment purposes. Scheduled loan repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and money
market conditions.
Deposit
Accounts. Deposits are primarily attracted from within our
market area through the offering of a broad selection of deposit instruments,
including non-interest bearing demand deposits (such as individual and municipal
checking accounts), interest-bearing demand accounts (such as NOW and money
market accounts), savings accounts and certificates of deposit.
We also
offer a variety of deposit accounts designed for the businesses operating in our
market area. Our business banking deposit products include a
commercial checking account and a checking account specifically designed for
small businesses. Additionally, we offer cash management, including
remote deposit, lockbox service and sweep accounts.
Deposit
account terms vary according to the minimum balance required, the time periods
the funds must remain on deposit and the interest rate, among other
factors. In determining the terms of our deposit accounts, we
consider the rates offered by our competition, the rates on borrowings, brokered
deposits, our liquidity needs, profitability to us, and customer preferences and
concerns. We generally review our deposit mix and pricing
bi-weekly. Our deposit pricing strategy has generally been to offer
competitive rates on all types of deposit products.
Borrowings. We
have the ability to utilize advances from the FHLB of Pittsburgh to supplement
our investable funds. The FHLB functions as a central reserve bank
providing credit for member financial institutions. As a member, we
are required to own capital stock in the FHLB and are authorized to apply for
advances on the security of such stock and certain of our mortgage loans and
other assets (principally securities which are obligations of, or guaranteed by,
the United States), provided certain standards related to creditworthiness have
been met. Advances are made under several different programs, each
having its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based either on a fixed
percentage of an institution’s net worth or on the FHLB’s assessment of the
institution’s creditworthiness. We also utilize securities sold under
agreements to repurchase and overnight repurchase agreements, along with the
Federal Reserve Bank’s discount window and Federal Funds lines with
correspondent banks to supplement our supply of investable funds and to meet
deposit withdrawal requirements. To secure our borrowings, we
generally pledge securities and/or loans. The types of securities
pledged for borrowings include, but are not limited to, agency GSE notes
and agency mortgage-backed securities. The types of loans pledged for
borrowings include, but are not limited to, 1-4 family real estate mortgage
loans.
Personnel
As of
December 31, 2009, we had 754 full-time employees and 211 part-time employees,
none of whom is represented by a collective bargaining unit. We
believe our relationship with our employees is good.
Subsidiaries
Beneficial
Insurance Services, LLC is a Pennsylvania Limited Liability Company formed in
2004. In 2005, Beneficial Insurance Services LLC acquired the assets
of a Philadelphia-based insurance brokerage firm, Paul Hertel & Co., Inc.,
which provides property, casualty, life, health and benefits insurance services
to individuals and businesses. Beneficial Insurance conducts business
under the trade name of Paul Hertel & Company. Beneficial
Insurance also acquired a majority interest in Graphic Arts Insurance Agency,
Inc. through its acquisition of the assets of Paul Hertel & Co.
Inc. On October 5, 2007, Beneficial Insurance acquired the business
of CLA Agency, Inc., a full-service property and casualty and professional
liability insurance brokerage company headquartered in Newtown Square,
Pennsylvania. Beneficial Insurance also operates under the trade name
CLA Insurance Agency.
Beneficial
Advisors, LLC is a Pennsylvania Limited Liability Company formed in 2000 for the
purpose of offering investment and insurance related products, including, but
not limited to, fixed- and variable-rate annuities and the sale of mutual funds
and securities through INVEST, a third party broker dealer.
Neumann
Corporation, which was formed in 1990, is a Delaware Investment Holding Company
and holds title to various Bank securities and other investments. At
December 31, 2009, Neumann Corporation held $457.7 million in
assets.
BSB Union
Corporation was formed in 1994 for the purpose of engaging in the business of
owning and leasing automobiles. In 1998, BSB Union Corporation
obtained approval to hold an interest in a “titling trust.”
St.
Ignatius Senior Housing I, L.P. is a limited partnership formed in 2002 and
sponsored by St. Ignatius Nursing Home, a subsidiary of which is the general
partner. The Bank owns 99.99% of the partnership. The limited
partnership was sponsored as an affordable housing project providing low income
housing tax credits pursuant to Section 42 of the Internal Revenue
Code.
St.
Ignatius Senior Housing II, L.P. is a limited partnership formed in 2007 and
sponsored by St. Ignatius Nursing Home, a subsidiary of which is the general
partner. The Bank owns 99.99% of the partnership. The limited
partnership was sponsored as an affordable housing project providing low income
housing tax credits pursuant to Section 42 of the Internal Revenue
Code.
Graphic
Arts Insurance Agency is an insurance agency in which Beneficial Insurance
purchased a 51% ownership interest in 2005.
Beneficial
Abstract, LLC is a title insurance company in which the Bank purchased a 40%
ownership interest in 2006. Beneficial Abstract, LLC was inactive as
of December 31, 2009.
Beneficial
Equity Holdings, LLC was formed in 2004 and is currently inactive.
REGULATION
AND SUPERVISION
The
following discussion describes elements of an extensive regulatory framework
applicable to savings and loan holding companies and banks and specific
information about the Bank, the Company and the MHC. Federal and
state regulation of banks and bank holding companies is intended primarily for
the protection of depositors and the Deposit Insurance Fund, rather than for the
protection of potential shareholders and creditors.
General
The Bank
is a Pennsylvania-chartered savings bank that is subject to extensive
regulation, examination and supervision by the Pennsylvania Department of
Banking (the “Department”), as its primary regulator, and the Federal Deposit
Insurance Corporation (“FDIC”), as its deposits insurer. The Bank is
a member of the FHLB system and, with respect to deposit insurance, of the
Deposit Insurance Fund managed by the FDIC. The Bank must file
reports with the Department and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other savings
institutions. The Department and/or the FDIC conduct periodic
examinations to test the Bank’s safety and soundness and compliance with various
regulatory requirements. This regulatory structure gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in the regulatory
requirements and policies, whether by the Department, the FDIC or Congress,
could have a material adverse impact on the Bank, the Company, the MHC and their
operations.
Certain
regulatory requirements applicable to the Bank, the Company and the MHC are
referred to below or elsewhere herein. This description of statutes
and regulations is not intended to be a complete explanation of such statutes
and regulations and their effects on the Bank, the Company and the MHC and is
qualified in its entirety by reference to the actual statutes and
regulations.
Bank
Regulation
Pennsylvania
Savings Bank Law. The Pennsylvania Banking Code of 1965, as
amended (the “1965 Code”), and the Pennsylvania Department of Banking Code, as
amended (the “Department Code,” and collectively, the “Codes”), contain detailed
provisions governing the organization, location of offices, rights and
responsibilities of directors, officers and employees, as well as corporate
powers, savings and investment operations and other aspects of the Bank and its
affairs. The Codes delegate extensive rule-making power and
administrative discretion to the Department so that the supervision and
regulation of state-chartered savings banks may be flexible and readily
responsive to changes in economic conditions and in savings and lending
practices. Specifically, under the Department Code, the Department is
given the authority to exercise such supervision over state-chartered savings
banks as to afford the greatest safety to creditors, shareholders and
depositors, ensure business safety and soundness, conserve assets, protect the
public interest and maintain public confidence in such
institutions.
The 1965
Code provides, among other powers, that state-chartered savings banks may engage
in any activity permissible for a national banking association or federal
savings association, subject to regulation by the Department (which shall not be
more restrictive than the regulation imposed upon a national banking association
or federal savings association, respectively). Before it engages in
such an activity allowable for a national banking association or federal savings
association, a state-chartered savings bank must either obtain prior approval
from the Department or provide at least 30 days’ prior written notice to the
Department. The authority of the Bank under Pennsylvania law,
however, may be constrained by federal law and regulation. See “Investments and Activities”
below.
Regulatory
Capital Requirements. Under FDIC regulations, federally
insured state-chartered banks that are not members of the Federal Reserve System
(“state non-member banks”), such as the Bank, are required to comply with
minimum leverage capital requirements. For an institution determined
by the FDIC to not be anticipating or experiencing significant growth and to be
in general a strong banking institution, rated composite 1 under the Uniform
Financial Institutions Rating System established by the Federal Financial
Institutions Examinations Council, the minimum capital leverage requirement is a
ratio of Tier 1 capital to total assets of 3%. For all other
institutions, the minimum leverage capital ratio is not less than
4%. Tier 1 capital is the sum of common stockholders’ equity,
noncumulative perpetual preferred stock (including any related surplus) and
minority investments in certain subsidiaries, less intangible assets (except for
certain servicing rights and credit card relationships) and a percentage of
certain nonfinancial equity investments.
The Bank
must also comply with the FDIC risk-based capital guidelines. The
FDIC guidelines require state non-member banks to maintain certain levels of
regulatory capital in relation to regulatory risk-weighted
assets. Risk-based capital ratios are determined by allocating assets
and specified off-balance sheet items to four risk-weighted categories ranging
from 0% to 100%, with higher levels of capital being required for the categories
perceived as representing greater risk.
State
non-member banks must maintain a minimum ratio of total capital to risk-weighted
assets of at least 8%, of which at least one-half must be Tier 1
capital. Total capital consists of Tier 1 capital plus Tier 2 or
supplementary capital items, which include allowances for loan losses in an
amount of up to 1.25% of risk-weighted assets, cumulative preferred stock,
long-term preferred stock, hybrid capital instruments, including mandatory
convertible debt
securities, term subordinated debt and certain other capital instruments and a
portion of the net unrealized gain on equity securities. The
includable amount of Tier 2 capital cannot exceed the amount of the
institution’s Tier 1 capital. At December 31, 2009, the Bank met each
of these capital requirements. As savings and loan holding companies
regulated by the Office of Thrift Supervision (the “OTS”), the Company and the
MHC are not subject to any separate regulatory capital
requirements.
Restrictions on
Dividends. The Company’s ability to declare and pay dividends
may depend in part on dividends received from the Bank. The 1965 Code
regulates the distribution of dividends by savings banks and provides that
dividends may be declared and paid only out of accumulated net earnings and may
be paid in cash or property other than its own shares. Dividends may
not be declared or paid unless stockholders’ equity is at least equal to
contributed capital.
Interstate
Banking and Branching. Federal law permits a bank, such as the
Bank, to acquire an institution by merger in a state other than Pennsylvania
unless the other state has opted out. Federal law also authorizes de
novo branching into another state if the host state enacts a law expressly
permitting out of state banks to establish such branches within its
borders. The Bank currently has 32 full-service locations in
Burlington and Camden counties, New Jersey. At its interstate
branches, the Bank may conduct any activity that is authorized under
Pennsylvania law that is permissible either for a New Jersey savings bank
(subject to applicable federal restrictions) or a New Jersey branch of an
out-of-state national bank. The New Jersey Department of Banking and
Insurance may exercise certain regulatory authority over the Bank’s New Jersey
branches.
Prompt Corrective
Regulatory Action. Federal law requires, among other things,
that federal bank regulatory authorities take “prompt corrective action” with
respect to banks that do not meet minimum capital requirements. For
these purposes, the law establishes three categories of capital deficient
institutions: undercapitalized, significantly undercapitalized and
critically undercapitalized.
The FDIC has adopted
regulations to implement the prompt corrective action legislation. An
institution is deemed to be “well capitalized” if it has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or greater. An institution is
“adequately capitalized” if it has a total risk-based capital ratio of 8% or
greater, a Tier 1 risk-based capital ratio of 4% or greater and generally a
leverage ratio of 4% or greater. An institution is “undercapitalized”
if it has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based
capital ratio of less than 4%, or generally a leverage ratio of less than 4% (3%
or less for institutions with the highest examination rating). An
institution is deemed to be “significantly undercapitalized” if it has a total
risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%. An institution is
considered to be “critically undercapitalized” if it has a ratio of tangible
equity (as defined in the regulations) to total assets that is equal to or less
than 2%. As of December 31, 2009, the Bank met the conditions to be
classified as a “well capitalized” institution.
“Undercapitalized”
banks must adhere to growth, capital distribution (including dividend) and other
limitations and are required to submit a capital restoration plan. No
institution may make a capital distribution, including payment as a dividend, if
it would be “undercapitalized” after the payment. A bank’s compliance
with such plans is required to be guaranteed by its parent holding company in an
amount equal to the lesser of 5% of the institution’s total assets when deemed
undercapitalized or the amount needed to comply with regulatory capital
requirements. If an “undercapitalized” bank fails to submit an
acceptable plan, it is treated as if it is “significantly
undercapitalized.” “Significantly undercapitalized” banks must comply
with one or more of a number of additional restrictions, including but not
limited to an order by the FDIC to sell sufficient voting stock to become
adequately capitalized, requirements to reduce assets and cease receipt of
deposits from correspondent banks or dismiss directors or officers, and
restrictions on interest rates paid on deposits, compensation of executive
officers and capital distributions by the parent holding
company. “Critically undercapitalized” institutions must comply with
additional sanctions including, subject to a narrow exception, the appointment
of a receiver or conservator within 270 days after it obtains such
status.
Investments and
Activities. Under federal law, all state-chartered FDIC-insured banks
have generally been limited to activities as principal and equity investments of
the type and in the amount authorized for national banks, notwithstanding state
law. The FDIC Improvement Act and the FDIC permit exceptions to these
limitations. For example, state chartered banks, such as the Bank,
may, with FDIC approval, continue to exercise grandfathered state authority to
invest in common or preferred stocks listed on a national securities exchange or
the Nasdaq Global Select Market and in the shares of an investment company
registered under federal law. All non-subsidiary equity investments,
unless otherwise authorized or approved by the FDIC, must have been divested by
December 19, 1996, under an FDIC-approved divesture plan, unless such
investments were grandfathered by the FDIC. The Bank received
grandfathering authority from the FDIC to invest in listed stocks and/or
registered shares. The maximum permissible investment is 100% of Tier
I capital, as specified by the FDIC’s regulations, or the maximum amount
permitted by Pennsylvania Banking Law, whichever is less. Such
grandfathering authority may be terminated upon the FDIC’s determination that
such investments pose a safety and soundness risk to the Bank or if the Bank
converts its charter or undergoes a change in control. In addition,
the FDIC is authorized to permit such institutions to engage in other state
authorized activities or investments (other than non-subsidiary equity
investments) that meet all applicable capital requirements if it is determined
that such activities or investments do not pose a significant risk to the
Deposit Insurance Fund. As of December 31, 2009, the Bank held no
marketable equity securities under such grandfathering authority.
Transactions with
Related Parties. Federal law limits the Bank’s authority to
lend to, and engage in certain other transactions with (collectively, “covered
transactions”), “affiliates” (e.g., any company that
controls or is under common control with an institution, including the Company,
the MHC and their non-savings institution subsidiaries). The
aggregate amount of covered transactions with any individual affiliate is
limited to 10% of the capital and surplus of the savings
institution. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type specified by federal
law. The purchase of low quality assets from affiliates is generally
prohibited. Transactions with affiliates must generally be on terms
and under circumstances, that are at least as favorable to the institution as
those prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies and no savings institution may purchase the
securities of any affiliate other than a subsidiary.
The
Sarbanes-Oxley Act of 2002 generally prohibits loans by the Bank to its
executive officers and directors. However, the law contains a
specific exception for loans by the Bank to its executive officers and directors
in compliance with federal banking laws. Under such laws, the Bank’s
authority to extend credit to executive officers, directors and 10% shareholders
(“insiders”), as well as entities such persons control, is
limited. The law limits both the individual and aggregate amount of
loans the Company may make to insiders based, in part, on the Company’s capital
position and requires certain board approval procedures to be
followed. Such loans are required to be made on terms substantially
the same as those offered to unaffiliated individuals and not involve more than
the normal risk of repayment. There is an exception for loans made
pursuant to a benefit or compensation program that is widely available to all
employees of the institution and does not give preference to insiders over other
employees. Loans to executives are subject to further limitations
based on the type of loan involved.
Enforcement. The
FDIC has extensive enforcement authority over insured savings banks, including
the Bank. This enforcement authority includes, among other things,
the ability to assess civil money penalties, to issue cease and desist orders
and to remove directors and officers. In general, these enforcement
actions may be initiated in response to violations of laws and regulations and
unsafe or unsound practices.
Standards for
Safety and Soundness. As required by statute, the federal
banking agencies have adopted Interagency Guidelines prescribing Standards for
Safety and Soundness. The guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes
impaired. If the FDIC determines that a savings institution fails to
meet any standard prescribed by the guidelines, the FDIC may require the
institution to submit an acceptable plan to achieve compliance with the
standard.
Insurance of
Deposit Accounts. The Bank’s deposits are insured up to
applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance
Corporation. The Deposit Insurance Fund is the successor to the Bank
Insurance Fund and the Savings Association Insurance Fund, which were merged in
2006.
Under the
Federal Deposit Insurance Corporation’s risk-based assessment system, insured
institutions are assigned to one of four risk categories based on supervisory
evaluations, regulatory capital levels and certain other factors, with less
risky institutions paying lower assessments. An institution’s
assessment rate depends upon the category to which it is
assigned. For calendar 2008, assessments ranged from five to
forty-three basis points of each institution’s deposit assessment
base. Due to losses incurred by the Deposit Insurance Fund in 2008 as
a result of failed institutions, and anticipated future losses, the Federal
Deposit Insurance Corporation adopted an across the board seven basis point
increase in the assessment range for the first quarter of 2009. The
Federal Deposit Insurance Corporation made further refinements to its risk-based
assessment that were effective April 1, 2009 and that effectively made the range
seven to 771/2
basis points. The Federal Deposit Insurance Corporation may adjust
rates uniformly from one quarter to the next, except that no adjustment can
deviate more than three basis points from the base scale without notice and
comment rulemaking. No institution may pay a dividend if in default
of the Federal Deposit Insurance Corporation assessment.
The
Federal Deposit Insurance Corporation has imposed on each insured institution a
special emergency assessment of five basis points of total assets minus tier 1
capital, as of June 30, 2009 (capped at ten basis points of an institution’s
deposit assessment base on the same date) in order to cover losses to the
Deposit Insurance Fund. That special assessment was collected on
September 30, 2009. The Federal Deposit Insurance Corporation
provided for similar special assessments during the fiscal two quarters of 2009,
if deemed necessary. However, in lieu of further special assessments,
the Federal Deposit Insurance Corporation required insured institutions to
prepay estimated quarterly risk-based assessments for the fourth quarter of 2009
through the fourth quarter of 2012. The estimated assessments, which
include an assumed annual assessment base increase of 5%, were recorded as a
prepaid expense asset as of December 30, 2009. As of December 31,
2009, and each quarter thereafter, a charge to earnings will be recorded for
each regular assessment with an offsetting credit to the prepaid
asset.
Due to
the recent difficult economic conditions, deposit insurance per account owner
has been raised to $250,000 for all types of accounts until January 1,
2014. In addition, the Federal Deposit Insurance Corporation adopted
an optional Temporary Liquidity Guarantee Program by which, for a fee,
noninterest bearing transaction accounts would receive unlimited insurance
coverage until December 31, 2009, subsequently extended until June 30,
2010. Certain senior unsecured debt issued by institutions and their
holding companies between specified time frames could also be guaranteed by the
Federal Deposit Insurance Corporation through June 30, 2012, or in some cases,
December 31, 2012. The Bank opted to participate in the unlimited
noninterest bearing transaction account coverage and the Bank, the Company and
the MHC opted to participate in the unsecured debt guarantee
program.
In
addition to the assessment for deposit insurance, institutions are required to
make payments on bonds issued in the late 1980s by the financing corporation to
recapitalize a predecessor deposit insurance funds. That payment is
established quarterly and for the four quarters ended December 31, 2009 averaged
1.06 basis points of assessable deposits.
The
Federal Deposit Insurance Corporation has authority to increase insurance
assessments. A significant increase in insurance premiums would
likely have an adverse effect on the operating expenses and results of
operations of the Bank. Management cannot predict what insurance
assessment rates will be in the future.
Insurance
of deposits may be terminated by the Federal Deposit Insurance Corporation upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the Federal
Deposit Insurance Corporation or the Office of Thrift
Supervision. The management of the Bank does not know of any
practice, condition or violation that might lead to termination of deposit
insurance.
Federal Home Loan
Bank System. The Bank is a member of the FHLB system, which
consists of 12 regional Federal Home Loan Banks. The FHLB provides a
central credit facility primarily for member institutions. The Bank,
as a member of the FHLB of Pittsburgh, is required to acquire and hold shares of
capital stock in that FHLB. The Bank assumed Farmers & Mechanics
Bank’s obligation to the FHLB of New York as part of the Company’s acquisition
of FMS Financial on July 13, 2007. The Bank is not a member of the
FHLB of New York, but is required to hold shares of capital stock in the FHLB of
New York as a result of the FMS Financial acquisition. The Bank was
in compliance with these requirements with a an investment of $24.5 million in
FHLB of Pittsburgh and $3.6 million in FHLB of New York stock at December 31,
2009.
Community
Reinvestment Act. Under the Community Reinvestment Act, as
implemented by FDIC regulations, a state non-member bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate-income
neighborhoods. The Community Reinvestment Act neither establishes
specific lending requirements or programs for financial institutions nor limits
an institution’s discretion to develop the types of products and services that
it believes are best suited to its particular community. The
Community Reinvestment Act requires the FDIC, in connection with its examination
of an institution, to assess the institution’s record of meeting the credit
needs of its community and to consider such record when it evaluates
applications made by such institution. The Community Reinvestment Act
requires public disclosure of an institution’s Community Reinvestment Act
rating. The Bank’s latest Community Reinvestment Act rating received
from the FDIC was “outstanding.”
Regulatory Restructuring
Legislation. The Obama Administration has proposed, and the
House of Representatives and Senate are currently considering, legislation that
would restructure the regulation of depository
institutions. Proposals range from the merger of the Office of Thrift
Supervision with the Office of the Comptroller of the Currency, which regulates
national banks, to the creation of an independent federal agency that
would assume the regulatory responsibilities of the Office of Thrift
Supervision, Federal Deposit Insurance Corporation, Office of the Comptroller of
the Currency and Federal Reserve Board. The federal savings
association charter would be eliminated and federal associations required to
become banks under some proposals, although others would grandfather existing
charters such as that of the Bank. Savings and loan holding companies
would become regulated as bank holding companies under some
proposals. Also proposed is the creation of a new federal agency to
administer and enforce consumer and fair lending laws, a function that is now
performed by the depository institution regulators. The federal
preemption of state laws currently accorded federally chartered depository
institutions would be reduced under certain proposals as well.
Enactment
of any of these proposals would revise the regulatory structure imposed on the
Bank, which could result in more stringent regulation. At this time,
management has no way of predicting the contents of any final legislation, or
whether any legislation will be enacted at all.
Other
Regulations. Interest and other charges collected or
contracted for by the Bank are subject to state usury laws and federal laws
concerning interest rates. The Bank’s operations are also subject to
federal laws applicable to credit transactions, such as the:
●
|
Truth-In-Lending
Act, governing disclosures of credit terms to consumer
borrowers;
|
●
|
Home
Mortgage Disclosure Act of 1975, requiring financial institutions to
provide information to enable the public and public officials to determine
whether a financial institution is fulfilling its obligation to help meet
the housing needs of the community it
serves;
|
●
|
Equal
Credit Opportunity Act, prohibiting discrimination on the basis of race,
creed or other prohibited factors in extending
credit;
|
●
|
Fair
Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting
agencies;
|
●
|
Fair
Debt Collection Practices Act, governing the manner in which consumer
debts may be collected by collection agencies;
and
|
●
|
Rules
and regulations of the various federal agencies charged with the
responsibility of implementing such federal
laws.
|
The
operations of the Bank also are subject to the:
●
|
Right
to Financial Privacy Act, which imposes a duty to maintain confidentiality
of consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial
records;
|
●
|
Electronic
Funds Transfer Act and Regulation E promulgated there under, which
establishes the rights, liabilities and responsibilities of consumers who
use electronic fund transfer (EFT) services and financial institutions
that offer these services; its primary objective is the protection of
individual consumers in their dealings with these
services;
|
●
|
Check
Clearing for the 21st
Century Act (also known as “Check 21”), which allows banks to create and
receive “substitute checks” (paper reproduction of the original check),
and discloses the customers rights regarding “substitute checks”
pertaining to these items having the “same legal standing as the original
paper check”;
|
●
|
Title
III of The Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred
to as the “USA PATRIOT Act”), and the related regulations of the OTS,
which require savings associations operating in the United States to
develop new anti-money laundering compliance programs (including a
customer identification program that must be incorporated into the AML
compliance program), due diligence policies and controls to ensure the
detection and reporting of money laundering;
and
|
●
|
The
Gramm-Leach-Bliley Act, which prohibits a financial institution from
disclosing nonpublic personal information about a consumer to
nonaffiliated third parties, unless the institution satisfies various
notice and opt-out requirements.
|
●
|
The
Fair and Accurate Reporting Act of 2003, as an amendment to the Fair
Credit Reporting Act, as noted previously, which includes provisions to
help reduce identity theft by providing procedures for the identification,
detection, and response to patterns, practices, or specific activities –
known as “red flags”.
|
Holding
Company Regulation
General. The
Company and the MHC are savings and loan holding companies within the meaning of
federal law. As such, they are registered with the OTS and are
subject to OTS regulations, examinations, supervision, reporting requirements
and regulations concerning corporate governance and activities. In
addition, the OTS has enforcement authority over the Company and the MHC and
their non-savings institution subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the Bank.
The OTS
also takes the position that its capital distribution regulations apply to state
savings banks in savings and loan holding company structures. Those
regulations impose limitations upon all capital distributions by an institution,
including cash dividends, payments to repurchase its shares and payments to
shareholders of another institution in a cash-out merger. Under the
regulations, an application to and prior approval of the OTS is required prior
to any capital distribution if the institution does not meet the criteria for
“expedited treatment” of applications under OTS regulations (i.e., generally, examination
and Community Reinvestment Act ratings in the two top categories), the total
capital distributions for the calendar year exceed net income for that year plus
the amount of retained net income for the preceding two years, the institution
would be undercapitalized following the distribution or the distribution would
otherwise be contrary to a statute, regulation or agreement with the
OTS. If an application is not required, the institution must still
provide prior notice to the OTS of the capital distribution if, like the Bank,
it is a subsidiary of a holding company. In the event the Bank’s
capital fell below its regulatory requirements or the OTS notified it that it
was in need of increased supervision, the Bank’s ability to make capital
distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
To be
regulated as a savings and loan holding company by the OTS (rather than as a
bank holding company by the Federal Reserve Board), the Bank must qualify as a
Qualified Thrift Lender (“QTL”). To qualify as a QTL, the Bank must
maintain compliance with the test for a “domestic building and loan
association,” as defined in the Internal Revenue Code, or with a Qualified
Thrift Test. Under the QTL Test, a savings institution is required to
maintain at least 65% of its “portfolio assets” (total assets less: (1)
specified liquid assets up to 20% of total assets; (2) intangibles, including
goodwill; and (3) the value of property used to conduct business) in certain
“qualified thrift investments” (primarily residential mortgages and related
investments, including mortgage-backed and related securities, but also
including education, credit and small business loans) in at least nine months
out of each 12-month period. At December 31, 2009, the Bank
maintained 75.8% of its portfolio assets in qualified thrift
investments. The Bank also met the QTL test in each of the prior four
quarters.
Restrictions
Applicable to Mutual Holding Companies. According to federal
law and OTS regulations, a mutual holding company, such as the MHC, may
generally engage in the following activities: (1) investing in the
stock of a stock savings association; (2) acquiring a mutual association through
the merger of such association into a stock savings association subsidiary of
such holding company or an interim savings association subsidiary of such
holding company; (3) merging with or acquiring another mutual or stock savings
and loan holding company; (4) investing in a corporation the capital
stock of which could be purchased by a federal savings association or a state
savings association under Pennsylvania law; and (5) any activity approved by the
Federal Reserve Board for a bank holding company or financial holding company or
approved by the OTS for multiple savings and loan holding
companies.
Federal
law prohibits a savings and loan holding company, including a federal mutual
holding company, from directly or indirectly, or through one or more
subsidiaries, acquiring more than 5% of the voting stock of another savings
institution, or its holding company, without prior written approval of the
Office of Thrift Supervision. Federal law also prohibits a savings
and loan holding company from acquiring more than 5% of a company engaged in
activities other than those authorized for savings and loan holding companies by
federal law; or acquiring or retaining control of a depository institution that
is not insured by the FDIC. In evaluating applications by holding
companies to acquire savings institutions, the OTS must consider the financial
and managerial resources and future prospects of the company and institution
involved the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.
The OTS
is prohibited from approving any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, except: (1) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (2) the acquisition
of a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states
vary in the extent to which they permit interstate savings and loan holding
company acquisitions.
If the
savings institution subsidiary of a savings and loan holding company fails to
meet the QTL test, the holding company must register with the Federal Reserve
Board as a bank holding company within one year of the savings institution’s
failure to so qualify.
Stock Holding
Company Subsidiary Regulation. The OTS has adopted regulations
governing the two-tier mutual holding company form of organization and
subsidiary stock holding companies that are controlled by mutual holding
companies. We have adopted this form of organization, pursuant to
which the Company is permitted to engage in activities that are permitted for
the MHC subject to the same restrictions and conditions.
Waivers of
Dividends by Beneficial Savings Bank MHC. OTS regulations
require the MHC to notify the OTS if it proposes to waive receipt of dividends
from the Company. The OTS reviews dividend waiver notices on a
case-by-case basis, and, in general, does not object to a waiver
if: (1) the waiver would not be detrimental to the safe and sound
operation of the savings association; and (2) the mutual holding company’s board
of directors determines that such waiver is consistent with such directors’
fiduciary duties to the mutual holding company’s members. We
anticipate that the MHC will waive dividends that the Company may pay, if
any. However, in recent months, the OTS has applied additional
scrutiny and, in some cases, raised objections, when evaluating dividend waiver
requests for institutions located in the northeast region of the United
States. If the OTS were to object to the MHC’s waiver of a dividend,
the cost of declaring dividends would increase materially for the Company and
would restrict its ability to pay dividends to its stockholders.
Conversion of
Beneficial Savings Bank MHC to Stock Form. OTS regulations
permit the MHC to convert from the mutual form of organization to the capital
stock form of organization. There can be no assurance when, if ever, a
conversion transaction will occur, and the board of directors has no current
intention or plan to undertake a conversion transaction. In a conversion
transaction, a new holding company would be formed as the successor to the
Company, the MHC’s corporate existence would end, and certain depositors of the
Bank would receive the right to subscribe for additional shares of the new
holding company. In a conversion transaction, each share of common
stock held by stockholders other than the MHC would be automatically converted
into a number of shares of common stock of the new holding company based on an
exchange ratio determined at the time of conversion that ensures that
stockholders other than the MHC own the same percentage of common stock in the
new holding company as they owned in the Company immediately before
conversion. The total number of shares held by stockholders other
than the MHC after a conversion transaction would be increased by any purchases
by such stockholders in the stock offering conducted as part of the conversion
transaction.
Acquisition of
Control. Under the federal Change in Bank Control Act, a
notice must be submitted to the OTS if any person (including a company), or
group acting in concert, seeks to acquire “control” of a savings and loan
holding company. An acquisition of “control” can occur upon the
acquisition of 10% or more of the voting stock of a savings and loan holding
company or as otherwise defined by the OTS. Under the Change in Bank
Control Act, the OTS has 60 days from the filing of a complete notice to act,
taking into consideration certain factors, including the financial and
managerial resources of the acquirer and the anti-trust effects of the
acquisition. Any company that so acquires control would then be
subject to regulation as a savings and loan holding company.
Federal
Income Taxation
General. We
report our income on a calendar year basis using the accrual method of
accounting. The federal income tax laws apply to us in the same manner as to
other corporations with some exceptions, including particularly our reserve for
bad debts discussed below. The following discussion of tax matters is intended
only as a summary and does not purport to be a comprehensive description of the
tax rules applicable to us. In 2009, an examination of the 2006
consolidated federal income tax return was completed by the Internal Revenue
Service (“IRS”) with no changes to reported tax. Also in 2009, the
Company received a notice from the IRS that the 2007 consolidated federal tax
return was selected for examination. The 2008 tax year remains open
to examination by the IRS, and the tax years 2006 through 2008 remain subject to
examination by Pennsylvania and Philadelphia taxing authorities. The
tax years 2005 through 2008 remain subject to examination by New Jersey taxing
authorities. For 2009, the Bank’s maximum federal income tax rate was
35%.
The
Company and the Bank have entered into a tax allocation
agreement. Because the Company owns 100% of the issued and
outstanding capital stock of the Bank, the Company and the Bank are members of
an affiliated group within the meaning of Section 1504(a) of the Internal
Revenue Code, of which group the Company is the common parent
corporation. As a result of this affiliation, the Bank is included in
the filing of a consolidated federal income tax return with the Company and, the
parties compensate each other for their individual share of the consolidated tax
liability and/or any tax benefits provided by them in the filing of the
consolidated federal income tax return.
Bad Debt
Reserves. For fiscal years beginning before June 30, 1996,
thrift institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans, generally secured by interests in real
property improved or to be improved, under the percentage of taxable income
method or the experience method. The reserve for non-qualifying loans was
computed using the experience method. Federal legislation enacted in
1996 repealed the reserve method of accounting for bad debts and the percentage
of taxable income method for tax years beginning after 1995 and required savings
institutions to recapture or take into income certain portions of their
accumulated bad debt reserves as of December 31, 1987. Approximately
$2.3 million of our accumulated bad debt reserves would not be recaptured into
taxable income unless the Bank makes a “non-dividend distribution” to the
Company as described below.
Distributions. If
the Bank makes “non-dividend distributions” to the Company, the distributions
will be considered to have been made from the Bank’s un-recaptured tax bad debt
reserves, including the balance of its reserves as of December 31, 1987, to the
extent of the “non-dividend distributions,” and then from the Bank’s
supplemental reserve for losses on loans, to the extent of those reserves, and
an amount based on the amount distributed, but not more than the amount of those
reserves, will be included in the Bank’s taxable income. Non-dividend
distributions include distributions in excess of the Bank’s current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank’s current or accumulated
earnings and profits will not be so included in the Bank’s taxable
income.
The
amount of additional taxable income triggered by a non-dividend is an amount
that, when reduced by the tax attributable to the income, is equal to the amount
of the distribution. Therefore, if the Bank makes a non-dividend distribution to
the Company, approximately one and one-half times the amount of the distribution
not in excess of the amount of the reserves would be includable in income for
federal income tax purposes, assuming a 35% federal corporate income tax
rate. The Bank does not intend to pay dividends that would result in
a recapture of any portion of its bad debt reserves.
Pennsylvania
Taxation. The Bank, as a savings bank conducting business in
Pennsylvania, is subject to tax under the Pennsylvania Mutual Thrift
Institutions Tax Act, as amended to include thrift institutions having capital
stock. Pursuant to the Mutual Thrift Institutions Tax, the tax rate
is 11.5%. The Mutual Thrift Institutions Tax is a tax upon net
income, determined in accordance with generally accepted accounting principles
with certain adjustments. The Mutual Thrift Institutions Tax, in
computing income according to generally accepted accounting principles, allows
for the deduction of interest earned on state, federal and local obligations,
while disallowing a portion of a thrift’s interest expense associated with
tax-exempt income. Net operating losses, if any, can be carried
forward a maximum of three years for Mutual Thrift Institutions Tax
purposes.
Philadelphia
Taxation. In addition, as a savings bank conducting business
in Philadelphia, the Bank is also subject to the City of Philadelphia Business
Privilege Tax. The City of Philadelphia Business Privilege Tax is a
tax upon net income or taxable receipts imposed on persons carrying on or
exercising for gain or profit certain business activities within
Philadelphia. Pursuant to the City of Philadelphia Business Privilege
Tax, the 2009 tax rate was 6.45% on net income and .142% on gross
receipts. For regulated industry taxpayers, the tax is the lesser of
the tax on net income or the tax on gross receipts. The City of
Philadelphia Business Privilege Tax allows for the deduction by financial
businesses from receipts of (a) the cost of securities and other intangible
property and monetary metals sold, exchanged, paid at maturity or redeemed, but
only to the extent of the total gross receipts from securities and other
intangible property and monetary metals sold, exchanged, paid out at maturity or
redeemed; (b) moneys or credits received in repayment of the principal amount of
deposits, advances, credits, loans and other obligations; (c) interest received
on account of deposits, advances, credits, loans and other obligations made to
persons resident or having their principal place of business outside
Philadelphia; (d) interest received on account of other deposits, advances,
credits, loans and other obligations but only to the extent of interest expenses
attributable to such deposits, advances, credits, loans and other obligations;
and (e) payments received on account of shares purchased by
shareholders. An apportioned net operating loss may be carried
forward for three tax years following the tax year for which it was first
reported.
New Jersey
Taxation. The Bank and BSB Union Corporation are subject to
New Jersey’s Corporation Business Tax at the rate of 9.0% on their taxable
income, before net operating loss deductions and special deductions for federal
income tax purposes. For this purpose, “taxable income” generally
means federal taxable income subject to certain adjustments (including addition
of interest income on state and municipal obligations). Net operating
losses may be carried forward for seven years following the tax year first
reported.
Executive
Officers of the Registrant
The Board
of Directors annually elects the executive officers of MHC, the Company, and the
Bank, who serve at the Board’s discretion. Our executive officers
are:
Name
|
|
Position
|
Gerard
P. Cuddy
|
|
President
and Chief Executive Officer of the MHC, the Company and the
Bank
|
Joseph
F. Conners
|
|
Executive
Vice President and Chief Financial Officer of the MHC, the Company and the
Bank
|
Andrew
J. Miller
|
|
Executive
Vice President and Chief Lending Officer of the MHC, the Company and the
Bank
|
Robert
J. Bush
|
|
Executive
Vice President of the MHC, the Company and the Bank
|
Denise
Kassekert
|
|
Executive
Vice President of the MHC, the Company and the
Bank
|
Below is
information regarding our executive officers who are not also
directors. Each executive officer has held his or her current
position for at least the last five years, unless otherwise
stated. Ages presented are as of December 31, 2009.
Joseph F.
Conners has
been Executive Vice President and Chief Financial Officer of Beneficial Bank
since 2000. He joined Beneficial Bank in 1994. Age
52.
Andrew J.
Miller has
been Executive Vice President and Chief Lending Officer of Beneficial Bank since
2000. He joined Beneficial Bank in 1973. Age
54.
Robert J.
Bush was a Senior Vice President of Beneficial Bank and President of
Beneficial Insurance Services LLC since our acquisition of Paul Hertel &
Co., Inc. in January 2005, and was promoted to Executive Vice President in June
2007. Prior to the acquisition, Mr. Bush served as President of Paul
Hertel & Co., Inc. Age 51.
Denise Kassekert
was a Senior Vice President of Community Banking of Beneficial Bank since
2007 and was promoted to Executive Vice President in July,
2008. Prior to joining Beneficial, Ms. Kassekert served as Senior
Vice President of Sun National Bank in Vineland, NJ. Age
58.
Item
1A. RISK
FACTORS
A
continued deterioration in national and local economic conditions may negatively
impact our financial condition and results of operations.
We
currently are operating in a challenging and uncertain economic environment,
both nationally and in the local markets that we serve. Financial institutions
continue to be affected by sharp declines in financial and real estate
values. Continued declines in commercial and residential real estate
values and home sales, and an increase in the financial stress on borrowers
stemming from an uncertain economic environment, including rising unemployment,
could have an adverse effect on our borrowers or their customers, which could
adversely impact the repayment of the loans we have made. The overall
deterioration in economic conditions also could subject us to increased
regulatory scrutiny. In addition, a prolonged recession, or further
deterioration in local economic conditions, could result in an increase in loan
delinquencies; an increase in problem assets and foreclosures; and a decline in
the value of the collateral for our loans. Furthermore, a prolonged
recession or further deterioration in local economic conditions could drive the
level of loan losses beyond the level we have provided for in our loan loss
allowance, which could necessitate our increasing our provision for loans
losses, which would reduce our earnings. Additionally, the demand for
our products and services could be reduced, which would adversely impact our
liquidity and the level of revenues we generate.
A
majority of our loans, including our commercial real estate and commercial loans
are secured by real estate or made to businesses in areas where our offices are
located. As a result of this concentration, a continued downturn in
the local economy could cause significant increases in nonperforming loans,
which would hurt our profits. The current recession has caused a
decline in real estate values in our market area. A continued decline
in real estate values could cause some of our mortgage loans to become
inadequately collateralized, which would expose us to a greater risk of
loss. Additionally, a continued decline in real estate values could
adversely impact our portfolio of commercial real estate loans and could result
in a decline in the origination of such loans.
Continued
turmoil in the financial markets could have an adverse effect on our financial
position or results of operations.
Beginning
in 2008, United States and global financial markets have experienced severe
disruption and volatility, and general economic conditions have declined
significantly. Adverse developments in credit quality, asset values and revenue
opportunities throughout the financial services industry, as well as general
uncertainty regarding the economic, industry and regulatory environment, have
had a marked negative impact on the industry. Dramatic declines in
the U.S. housing market over the past eighteen months, with falling home prices,
increasing foreclosures and increasing unemployment, have negatively affected
the credit performance of mortgage loans and resulted in significant write-downs
of asset values by many financial institutions. The United States and the
governments of other countries have taken steps to try to stabilize the
financial system, including investing in financial institutions, and have also
been working to design and implement programs to improve general economic
conditions. Notwithstanding the actions of the United States and other
governments, these efforts may not succeed in restoring industry, economic or
market conditions and may result in adverse unintended
consequences. Factors that could continue to pressure financial
services companies, including the Company, are numerous and include (i)
worsening credit quality, leading among other things to increases in loan losses
and reserves, (ii) continued or worsening disruption and volatility in financial
markets, leading among other things to continuing reductions in asset values,
(iii) capital and liquidity concerns regarding financial institutions
generally, (iv) limitations resulting from or imposed in connection with
governmental actions intended to stabilize or provide additional regulation of
the financial system, or (v) recessionary conditions that are deeper or last
longer than currently anticipated.
Our
business is subject to interest rate risk and variations in interest rates may
negatively affect our financial performance.
Changes
in the interest rate environment may reduce profits. The primary source of our
income is the differential or “spread” between the interest earned on loans,
securities and other interest-earning assets, and interest paid on deposits,
borrowings and other interest-bearing liabilities. As prevailing interest rates
change, net interest spreads are affected by the difference between the
maturities and re-pricing characteristics of interest-earning assets and
interest-bearing liabilities. In addition, loan volume and yields are affected
by market interest rates on loans, and rising interest rates generally are
associated with a lower volume of loan originations. An increase in the general
level of interest rates may also adversely affect the ability of certain
borrowers to pay the interest on and principal of their obligations.
Accordingly, changes in levels of market interest rates could materially
adversely affect our net interest spread, asset quality, loan origination volume
and overall profitability.
Our
increased emphasis on commercial real estate loans and commercial business loans
may expose us to increased lending risks.
At
December 31, 2009, $783.0 million, or 28.0%, of our loan portfolio consisted of
commercial real estate loans, including loans for the acquisition and
development of property. Commercial real estate loans constitute a
greater percentage of our loan portfolio than any other loan category, including
one-to-four family loans, which totaled $648.5 million, or 23.3%, of our total
loan portfolio at December 31, 2009. In addition, at December 31,
2009, $524.5 million, or 18.8%, of our loan portfolio consisted of commercial
business loans. We have increased the percentage of commercial real
estate and commercial business loans in our loan portfolio in recent years and
intend to continue to emphasize these types of lending. Commercial
real estate loans and commercial business loans generally expose a lender to a
greater risk of loss than one-to-four family residential
loans. Repayment of commercial real estate and commercial business
loans generally is dependent, in large part, on sufficient income from the
property to cover operating expenses and debt service. Commercial
real estate loans typically involve larger loan balances to single borrowers or
groups of related borrowers compared to one-to-four family residential mortgage
loans. Changes in economic conditions that are out of the control of
the borrower and lender could impact the value of the security for the loan, the
future cash flow of the affected property, or the marketability of a
construction project with respect to loans originated for the acquisition and
development of property. Additionally, any decline in real estate
values may be more pronounced with respect to commercial real estate properties
than residential properties.
At
December 31, 2009, we had a total of 135 land acquisition and development loans
totaling $239.6 million, which consist of 73 residential land acquisition and
development loans totaling $96.8 million and 62 commercial land acquisition and
development loans totaling $142.8 million.
We
rely heavily on high-average balance municipal deposits as a source of funds and
a reduced level of those deposits may adversely affect our liquidity and our
profits.
Municipal
deposits, consisting primarily of interest-earning checking accounts, are a
significant source of funds for our lending and investment activities, At
December, 31, 2009, $821.3 million, or 23.4% of our total deposits, consisted of
municipal deposits. The average balance of municipal deposit relationships is
significantly higher than the average balance of all deposit relationships.
Given our dependence on high-average balance municipal deposits as a source of
funds, our inability to retain such funds could significantly and adversely
affect our liquidity. Further, our municipal checking accounts are demand
deposits and are therefore considered rate-sensitive instruments. If we are
forced to pay higher rates on our municipal checking accounts to retain those
funds, or if we are unable to retain such funds and we are forced to resort to
other sources of funds for our lending and investment activities, such as
borrowings from the Federal Home Loan Bank of Pittsburgh, the interest expense
associated with these other funding sources may be higher than the rates we are
currently paying on the municipal deposits, which would adversely affect our
profits.
A
substantial portion of our loan portfolio consists of consumer loans secured by
rapidly depreciable assets.
At
December 31, 2009, our loan portfolio included $140.2 million in automobile
loans, which represented 5.0% of our total loan portfolio at that
date. In addition, at December 31, 2009, other consumer loans totaled
$366.5 million, or 13.1%, of our loan portfolio. Included in other
consumer loans is $4.9 million in loans secured by manufactured housing and
mobile homes, $56.8 million in loans secured by recreational vehicles and $45.4
million in loans secured by boats. Also included in other consumer
loans are educational loans of $256.4 which are government guaranteed
loans. Consumer loans secured by rapidly depreciable assets such as
automobiles, recreational vehicles and boats, may subject us to greater risk of
loss than loans secured by real estate because any repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance.
Strong
competition within our market area could hurt our profits and slow
growth.
We face
substantial competition in originating loans, both commercial and consumer. This
competition comes principally from other banks, savings institutions, mortgage
banking companies and other lenders. Many of our competitors enjoy advantages
that we do not, including greater financial resources and higher lending limits,
a wider geographic presence, more accessible branch office locations, the
ability to offer a wider array of services or more favorable pricing
alternatives, as well as lower origination and operating costs. This competition
could reduce our net income by decreasing the number and size of loans that we
originate and the interest rates we may charge on these loans.
In
attracting business and consumer deposits, the Company faces substantial
competition from other insured depository institutions such as banks, savings
institutions and credit unions, as well as institutions offering uninsured
investment alternatives, including money market funds. Many of our competitors
enjoy advantages that we do not, including greater financial resources, more
aggressive marketing campaigns, better brand recognition and more branch
locations. These competitors may offer higher interest rates than we do, which
could decrease the deposits that we attract or require us to increase our rates
to retain existing deposits or attract new deposits. Increased deposit
competition could adversely affect our ability to generate the funds necessary
for lending operations. As a result, we may need to seek other sources of funds
that may be more expensive to obtain and could increase our cost of
funds.
Our
banking and non-banking subsidiaries also compete with non-bank providers of
financial services, such as brokerage firms, consumer finance companies, credit
unions, insurance agencies and governmental organizations which may offer more
favorable terms. Some of our non-bank competitors are not subject to the same
extensive regulations that govern our banking operations. As a result, such
non-bank competitors may have advantages over our banking and non-banking
subsidiaries in providing certain products and services. This competition may
reduce or limit our margins on banking and non-banking services, reduce our
market share, and adversely affect our earnings and financial
condition.
Special
Federal Deposit Insurance Corporation assessments and increased base assessment
rates by the Federal Deposit Insurance Corporation will decrease our
earnings.
Beginning
in late 2008, the economic environment caused higher levels of bank failures,
which dramatically increased Federal Deposit Insurance Corporation resolution
costs and led to a significant reduction in the Deposit Insurance
Fund. As a result, the Federal Deposit Insurance
Corporation has significantly increased the initial base assessment
rates paid by financial institutions for deposit insurance. The base
assessment rate was increased by seven basis points (7 cents for every $100 of
deposits) for the first quarter of 2009. Effective April 1, 2009,
initial base assessment rates were changed to range from 12 basis points to 45
basis points across all risk categories with possible adjustments to these rates
based on certain debt-related components. These increases in the base
assessment rate will increase our deposit insurance costs and negatively impact
our earnings. In addition, in May 2009, the Federal Deposit Insurance
Corporation imposed a special assessment on all insured institutions
due to recent bank and savings association failures. The emergency
assessment amounts to 5 basis points on each institution’s assets minus Tier 1
capital as of June 30, 2009, subject to a maximum equal to 10 basis points times
the institution’s assessment base. The assessment was collected on
September 30, 2009. Based on our assets and Tier 1 capital as of June
30, 2009, our special assessment was approximately $1.9 million. The
special assessment decreased our earnings. In addition, the Federal
Deposit Insurance Corporation may impose additional emergency special
assessments after June 30, 2009, of up to 5 basis points per quarter on
each institution’s assets minus Tier 1 capital if necessary to maintain
public confidence in federal deposit insurance or as a result of deterioration
in the Deposit Insurance Fund reserve ratio due to institution failures. Any
additional emergency special assessment imposed by the Federal Deposit Insurance
Corporation will further decrease our earnings.
We
operate in a highly regulated environment and we may be adversely affected by
changes in laws and regulations.
We are
subject to extensive regulation, supervision and examination by the FDIC, as
insurer of our deposits, and by the Department as our primary
regulator. The MHC and the Company are subject to regulation and
supervision by the OTS. Such regulation and supervision governs the
activities in which an institution and its holding company may engage and are
intended primarily for the protection of the insurance fund and the depositors
and borrowers of the Bank rather than for holders of the Company common
stock. Regulatory authorities have extensive discretion in their
supervisory and enforcement activities, including the imposition of restrictions
on our operations, the classification of our assets and determination of the
level of our allowance for loan losses. Any change in such regulation
and oversight, whether in the form of regulatory policy, regulations,
legislation or supervisory action, may increase our costs of operations and have
a material impact on our operations. The current administration has
also proposed comprehensive legislation intended to modernize regulation of the
United States financial system. The proposed legislation contains
several provisions that would have a direct impact on the Company and the
Bank. Under the proposed legislation, the federal savings association
charter would be eliminated and the Office of Thrift Supervision would be
consolidated with the Comptroller of the Currency into a new regulator, the
National Bank Supervisor. The proposed legislation would eliminate
the status of “savings and loan holding company” and mandate that all companies
that control an insured depository institution register as a bank holding
company. Registration as a bank holding company would represent a
significant change, as material differences currently exist between savings and
loan holding company and bank holding company supervision and
regulation. For example, bank holding companies above a specified
asset size are subject to consolidated leverage and risk-based capital
requirements whereas savings and loan holding companies are not subject to such
requirements. The proposed legislation would also create a new
federal agency, the Consumer Financial Protection Agency, that would be
dedicated to administering and enforcing fair lending and consumer compliance
laws with respect to financial products and services, which could result in new
regulatory requirements and increased regulatory costs for us. If
enacted, the legislation may have a substantial impact on our
operations. However, because any final legislation may differ
significantly from the current administration’s proposal, the specific effects
of the legislation cannot be evaluated at this time.
Expenses
from operating as a public company and from new stock-based benefit plans will
continue to adversely affect our profitability.
Our
non-interest expenses are impacted as a result of the financial, accounting, and
legal and various other additional expenses usually associated with operating as
a public company. We also recognize additional annual employee
compensation and benefit expenses stemming from the shares that are purchased or
granted to employees and executives under the employee stock ownership plan and
other new benefit plans. These additional expenses adversely affect
our profitability. We recognize expenses for our employee stock
ownership plan when shares are committed to be released to participants’
accounts and will recognize expenses for restricted stock awards and stock
options over the vesting period of awards made to recipients.
The
issuance of shares for benefit programs may dilute your ownership
interest.
In May
2008, the Company’s shareholders approved the Company’s 2008 Equity Incentive
Plan (“EIP”). The purpose of the EIP is to attract and retain
personnel for positions of substantial responsibility and to provide additional
incentive to certain officers, directors and employees of the Company and the
Bank. In order to fund grants of stock awards under the EIP, the Equity
Incentive Plan Trust (the “Trust”) purchased 1,612,386 shares of Company stock
in the open market during fiscal 2008. The EIP also authorizes the
grant of options to officers, directors and employees of the Company to acquire
shares of common stock with an exercise price equal to the fair value of the
stock at the grant date. The options generally become vested and
exercisable at the rate of 20% a year over five years. If the shares
issued upon the exercise of stock options under the equity incentive plan are
issued from authorized but unissued stock, your ownership interest in the shares
issued to persons other than the MHC could be diluted.
Our
low return on equity may negatively affect our stock price.
Net
income divided by average equity, known as “return on equity,” is a ratio many
investors use to compare the performance of a financial institution to its
peers. Our return on equity was reduced due to the large amount of capital that
we raised in our 2007 stock offering and to expenses we will incur in pursuing
our growth strategies, the costs of being a public company and added expenses
associated with our employee stock ownership plan and equity incentive plan.
Until we can increase our net interest income and non-interest income, we expect
our return on equity to be below the median return on equity for publicly traded
thrifts, which may negatively affect the value of our common stock.
Beneficial
Savings Bank MHC’s majority control of our common stock enables it to exercise
voting control over most matters put to a vote of stockholders and will prevent
stockholders from forcing a sale or a second-step conversion transaction they
may find advantageous.
The MHC
owns a majority of the Company’s common stock and, through its board of
directors, exercises voting control over most matters put to a vote of
stockholders. The members of the boards of the Company, the MHC and
the Bank are the same. As a federally chartered mutual holding
company, the board of directors of MHC must ensure that the interests of
depositors of the Bank are represented and considered in matters put to a vote
of stockholders of the Company. Therefore, the votes cast by the MHC may not be
in your personal best interests as a stockholder. For example, the
MHC may exercise its voting control to defeat a stockholder nominee for election
to the board of directors of the Company. The MHC’s ability to
control the outcome of the election of the board of directors of the Company
restricts the ability of minority stockholders to effect a change of
management. In addition, stockholders will not be able to force a
merger or second-step conversion transaction without the consent of the MHC, as
such transactions require the approval of at least two-thirds of all outstanding
voting stock, which can only be achieved if the MHC voted to approve such
transactions. Some stockholders may desire a sale or merger
transaction, since stockholders typically receive a premium for their shares, or
a second-step conversion transaction, since fully converted institutions tend to
trade at higher multiples than mutual holding companies.
OTS
regulations and anti-takeover provisions in our charter restrict the
accumulation of our common stock, which may adversely affect our stock
price.
OTS
regulations provide that for a period of three years following the date of the
completion of the stock offering, no person, acting alone, together with
associates or in a group of persons acting in concert, will directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of our common stock without the prior written approval of the OTS. In addition,
the Company’s charter provides that, for a period of five years from the date of
the stock offering, no person, other than the MHC may acquire directly or
indirectly the beneficial ownership of more than 10% of any class of any equity
security of the Company. In the event a person acquires shares in
violation of this charter provision, all shares beneficially owned by such
person in excess of 10% will be considered “excess shares” and will not be
counted as shares entitled to vote or counted as voting shares in connection
with any matters
submitted to the stockholders for a vote. These restrictions
make it more difficult and less attractive for stockholders to acquire a
significant amount of our common stock, which may adversely affect our stock
price.
Item
1B. UNRESOLVED
STAFF COMMENTS
None.
We
conduct our business through our main office and branch
offices. During fiscal 2009, we opened one new branch office in
Burlington County, New Jersey. We also closed five branch offices,
two in Philadelphia County, Pennsylvania and three in Burlington County, New
Jersey. Our retail market area primarily includes all of the area
surrounding our 68 banking offices located in Bucks, Chester, Delaware,
Montgomery and Philadelphia Counties in Pennsylvania and Burlington and Camden
Counties in New Jersey, while our lending market also includes Gloucester and
Mercer Counties in New Jersey. The Company owns 41 properties and
leases 27 other properties. In Pennsylvania, we serve our customers
through our four offices in Bucks County, seven offices in Delaware County, nine
offices in Montgomery County, 17 offices in Philadelphia County, and one office
in Chester County. In New Jersey, we serve our customers through our
27 offices in Burlington County and three offices in Camden
County. In addition, Beneficial Insurance operates two offices in
Pennsylvania, one in Philadelphia County and one in Delaware
County. All branches and offices are adequate for business
operation.
Item
3. LEGAL
PROCEEDINGS
Periodically,
there have been various claims and lawsuits against us, such as claims to
enforce liens, condemnation proceedings on properties in which we hold security
interests, claims involving the making and servicing of real property loans and
other issues incident to our business. We are not a party to any
pending legal proceedings that we believe would have a material adverse effect
on our financial condition, results of operations or cash flows.
Item
4. RESERVED
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Market
for Common Equity and Related Stockholder Matters
The
information regarding the market for the Company’s common equity and related
stockholder matters is incorporated herein by reference to the section captioned
“Investor and Corporate Information” in the Company’s 2009 Annual Report to
Stockholders.
Purchases
of Equity Securities
The
Company repurchased shares of its common stock during the year ended December
31, 2009.
The
following table sets forth information regarding the Company’s repurchases of
its common stock during the fourth quarter of 2009.
Period
|
|
Total
Number
of
Shares
Purchased
|
|
|
Average
Price
Paid
Per
Share
|
|
|
Total
Number
Of
Shares
Purchased
as
Part of
Publicly
Announced
Plans
or
Programs
|
|
|
Maximum
Number
of Shares
that
May Yet Be
Purchased
Under
the
Plans or
Programs
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1 through October 31, 2009
|
|
- |
|
|
$- |
|
|
- |
|
|
|
1,412,680 |
|
November
1 through November 30, 2009
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
1,412,680 |
|
December
1 through December 31, 2009
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
1,412,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On
September 22, 2008, the Company announced that, on September 18, 2008, its
Board of Directors had approved a stock repurchase program authorizing the
Company to purchase up to 1,823,584 shares of the Company’s common
stock.
|
The
Equity Incentive Plan Trust (the “Trust”) purchased 1,612,386 shares of Company
stock in the open market. Purchases were made between August and
October 2008 at the discretion of an independent trustee.
Item
6. SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA
The
information required by this item is incorporated herein by reference to the
section captioned “Selected Consolidated Financial and Other Data” in the 2009
Annual Report to Stockholders.
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
|
The
information required by this item is incorporated herein by reference to the
section captioned “Management’s Discussion and Analysis of Results of Operations
and Financial Condition” in the 2009 Annual Report to the
Stockholders.
Item
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
information required by this item is incorporated herein by reference to the
section captioned “Management’s Discussion and Analysis of Results of Operations
and Financial Condition” in the 2009 Annual Report to Stockholders.
Item
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
information required by this item is incorporated herein by reference to the
section captioned “Consolidated Financial Statements” in the 2009 Annual Report
to Stockholders.
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
Item
9A.
|
CONTROLS
AND PROCEDURES
|
The
Company’s management, including the Company’s principal executive officer and
principal financial officer, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Based upon their evaluation, the principal
executive officer and principal financial officer concluded that, as of the end
of the period covered by this report, the Company’s disclosure controls and
procedures were effective for the purpose of ensuring that the information
required to be disclosed in the reports that the Company files or submits under
the Exchange Act with the Securities and Exchange Commission (the “SEC”):
(1) is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (2) is accumulated and
communicated to the Company’s management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. In addition, based on that evaluation, no change
in the Company’s internal control over financial reporting occurred during the
quarter ended December 31, 2009 that has materially affected, or is
reasonably likely to affect, the Company’s internal control over financial
reporting.
Management’s
Report on Internal Control Over Financial Reporting
The
management of Beneficial Mutual Bancorp, Inc. (the “Company”) is
responsible for establishing and maintaining adequate internal control over
financial reporting. The internal control process has been designed under
our supervision to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Company’s financial statements
for external reporting purposes in accordance with U.S. generally accepted
accounting principles.
Management
conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2009, utilizing the framework
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on
this assessment, management has determined that the Company’s internal control
over financial reporting as of December 31, 2009 is effective.
Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that accurately and fairly reflect, in
reasonable detail, transactions and dispositions of assets; and provide
reasonable assurances that: (1) transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S.
generally accepted accounting principles; (2) receipts and expenditures are
being made only in accordance with authorizations of management and the
directors of the Company; and (3) unauthorized acquisition, use, or
disposition of the Company’s assets that could have a material effect on the
Company’s financial statements are prevented or timely detected.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Deloitte
& Touche LLP, an independent registered public accounting firm, has audited
the Company’s consolidated financial statements as of and for the year ended
December 31, 2009, and the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2009, as stated in their
reports, which are included herein.
/s/
Gerard P. Cuddy |
|
/s/
Joseph F. Conners |
Gerard
P. Cuddy
|
|
Joseph
F. Conners
|
President
and Chief Executive Officer
|
|
Executive
Vice President and Chief Financial
Officer
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Beneficial
Mutual Bancorp, Inc. and Subsidiaries
Philadelphia,
Pennsylvania
We have
audited the internal control over financial reporting of Beneficial Mutual
Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2009, based on
criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Because
management’s assessment and our audit were conducted to meet the reporting
requirements of Section 112 of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA), management’s assessment and our audit of the Company’s
internal control over financial reporting included controls over the preparation
of the schedules equivalent to the basic financial statements in accordance with
the Federal Financial Institutions Examination Council Instructions for
Consolidated Reoprts of Condition and Income for Schedules RC, RI, RI-A.
The Company’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the criteria
established in Internal
Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2009 of the Company and our report dated March
15, 2010 expressed an unqualified opinion on those financial statements and
included an explanatory paragraph relating to the adoption of authoritative
guidance on Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance
Arrangements.
/s/
Deloitte & Touche LLP
Philadelphia,
Pennsylvania
March 15,
2010
Item
9B. OTHER
INFORMATION
None.
PART
III
Item
10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board
of Directors
For
information relating to the directors of Beneficial Mutual Bancorp, Inc., the
section captioned “Items to be
Voted on by Stockholders—Item 1—Election of Directors” in Beneficial
Mutual Bancorp, Inc.’s Proxy Statement for the 2010 Annual Meeting of
Stockholders is incorporated herein by reference.
Executive
Officers
For
information relating to officers of Beneficial Mutual Bancorp, Inc., see Part I,
Item 1, “Business— Executive
Officers of the Registrant” to this Annual Report on Form
10-K.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
For
information regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934, the cover page to this Annual Report on Form 10-K and the section
captioned “Other Information
Relating to Directors and Executive Officers—Section 16(a) Beneficial Ownership
Reporting Compliance” in Beneficial Mutual Bancorp, Inc.’s Proxy
Statement for the 2010 Annual Meeting of Stockholders are incorporated herein by
reference.
Disclosure
of Code of Ethics
For
information concerning Beneficial Mutual Bancorp, Inc.’s Code of Ethics, the
information contained under the section captioned “Corporate Governance—Code of Ethics
and Business Conduct” in Beneficial Mutual Bancorp, Inc.’s Proxy
Statement for the 2010 Annual Meeting of Stockholders is incorporated by
reference. A copy of the Code of Ethics and Business Conduct is
available to stockholders on Beneficial Mutual Bancorp, Inc.’s website at www.thebeneficial.com.
Corporate
Governance
For
information regarding the Audit Committee and its composition and the audit
committee financial expert, the section captioned “Corporate Governance – Committees
of the Board of Directors – Audit Committee” in Beneficial Mutual
Bancorp, Inc.’s Proxy Statement for the 2010 Annual Meeting of Stockholders is
incorporated herein by reference.
Item
11. EXECUTIVE
COMPENSATION
Executive
Compensation
For
information regarding executive compensation, the sections captioned “Compensation Discussion and
Analysis,” “Executive Compensation” and “Director Compensation” in
Beneficial Mutual Bancorp, Inc.’s Proxy Statement for the 2010 Annual Meeting of
Stockholders are incorporated herein by reference.
Corporate
Governance
For
information regarding the compensation committee report, the section captioned
“Report of the Compensation
Committee” in Beneficial Mutual Bancorp, Inc’s Proxy Statement for the
2010 Annual Meeting of Stockholders is incorporated herein by
reference.
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDERS MATTERS
|
(a)
|
Security Ownership of Certain
Beneficial Owners
Information
required by this item is incorporated herein by reference to the section
captioned “Stock
Ownership” in Beneficial Mutual Bancorp, Inc.’s Proxy Statement for
the 2010 Annual Meeting of
Stockholders.
|
(b)
|
Security Ownership of
Management
Information
required by this item is incorporated herein by reference to the section
captioned “Stock
Ownership” in Beneficial Mutual Bancorp, Inc.’s Proxy Statement for
the 2010 Annual Meeting of
Stockholders.
|
(c)
|
Changes in
Control
Management of the Company knows of no arrangements,
including any pledge by any person or securities of the Company the
operation of which may at a subsequent date result in a change in control
of the registrant.
|
(d)
|
Equity Compensation Plan
Information
|
The
following table sets forth information about the Company common stock that may
be issued upon the exercise of stock options, warrants and rights under all of
the Company’s equity compensation plans as of December 31, 2009.
Plan
category
|
(a)
Number
of securities
to
be issued upon exercise
of
outstanding options,
warrants
and rights
|
(b)
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
|
(c)
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding securities reflected in column (a))
|
Equity
compensation
plans
approved by security holders
|
1,922,500
|
11.44
|
2,108,465
|
Equity
compensation
plans
not approved by security holders
|
-0-
|
-0-
|
-0-
|
Total
|
1,922,500
|
11.44
|
2,108,465
|
Item
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Certain
Relationships and Related Transactions
For
information regarding certain relationships and related transactions, the
section captioned “Other
Information Relating to Directors and Executive Officers—Transactions with
Related Persons” in Beneficial Mutual Bancorp, Inc.’s Proxy Statement for
the 2010 Annual Meeting of Stockholders is incorporated herein by
reference.
Corporate
Governance
For
information regarding director independence, the section captioned “Corporate Governance—Director
Independence” in Beneficial Mutual Bancorp, Inc.’s Proxy Statement for
the 2010 Annual Meeting of Stockholders is incorporated herein by
reference.
Item
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
For
information regarding the principal accountant fees and expenses, the section
captioned “Items to Be Voted
on By Stockholders—Item 3—Ratification of Independent Registered Public
Accounting Firm” in Beneficial Mutual Bancorp Inc.’s Proxy Statement for
the 2010 Annual Meeting of Stockholders is incorporated herein by
reference.
PART
IV
Item
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(1)
|
The
financial statements required in response to this item are incorporated
herein by reference from Item 8 of this Annual Report on Form
10-K.
|
|
|
|
|
(2)
|
All
financial statement schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated
financial statements or the notes thereto.
|
|
|
|
|
|
(3)
|
Exhibits
|
|
|
|
|
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
|
|
3.1
|
|
Charter
of Beneficial Mutual Bancorp, Inc. (1)
|
|
3.2
|
|
Bylaws
of Beneficial Mutual Bancorp, Inc. (2)
|
|
4.1
|
|
Stock
Certificate of Beneficial Mutual Bancorp, Inc. (1)
|
|
10.1
|
|
Amended
and Restated Employment Agreement between Beneficial Mutual Bancorp, Inc.,
Beneficial Bank and Gerard P. Cuddy * (3)
|
|
10.2
|
|
Amended
and Restated Employment Agreement between Beneficial Mutual Bancorp, Inc.,
Beneficial Bank and Joseph F. Conners * (3)
|
|
10.3
|
|
Amended
and Restated Employment Agreement between Beneficial Mutual Bancorp, Inc.,
Beneficial Bank and Andrew J. Miller * (3)
|
|
10.4
|
|
Amended
and Restated Employment Agreement between Beneficial Mutual Bancorp, Inc.,
Beneficial Bank and Robert J. Bush * (3)
|
|
10.5
|
|
Amended
and Restated Employment Agreement between Beneficial Mutual Bancorp, Inc.,
Beneficial Bank and Denise Kassekert * (3)
|
|
10.6
|
|
Amendment
to Beneficial Mutual Savings Bank Executive Salary Continuation Plan for
Joseph F. Conners* (3)
|
|
10.7
|
|
Amendment
to Beneficial Mutual Savings Bank Executive Salary Continuation Plan for
Andrew J. Miller* (3)
|
|
10.8
|
|
Supplemental
Pension and Retirement Plan of Beneficial Mutual Savings Bank*
(3)
|
|
10.9
|
|
Second
Amendment to the Beneficial Mutual Savings Bank Board of Managers
Non-Vested Deferred Compensation Plan* (3)
|
|
10.10
|
|
Beneficial
Mutual Bancorp, Inc. 2008 Equity Incentive Plan* (4)
|
|
10.11
|
|
Beneficial
Mutual Bancorp, Inc. 2008 Management Incentive Plan*
(5)
|
|
10.12
|
|
First
Amendment to the Beneficial Mutual Savings Bank Management Incentive Plan*
(6)
|
|
10.13
|
|
Beneficial
Bank Board of Trustees’ Non-vested Deferred Compensation Plan *
(1)
|
|
10.14
|
|
Beneficial
Bank Stock-Based Deferral Plan * (1)
|
|
10.15
|
|
Severance
Pay Plan for Eligible Employees of Beneficial Mutual Savings Bank *
(7)
|
|
13.0
|
|
Annual
Report to Stockholders
|
|
21.0
|
|
Subsidiary
information is incorporated herein by reference to “Part I, Item 1 –
Subsidiaries”
|
|
23.1
|
|
Consent
of Deloitte & Touche LLP
|
|
31.1
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
|
|
31.2
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
|
|
32.0
|
|
Section
1350 Certification of Chief Executive Officer and Chief Financial
Officer
|
|
|
|
|
*
|
Management
contract or compensatory plan, contract or arrangement.
|
|
(1)
|
Incorporated
herein by reference to the exhibits to the Company’s Registration
Statement on Form S-1 (File No. 333-141289), as amended, initially filed
with the Securities and Exchange Commission on March 14,
2007.
|
|
(2)
|
Incorporated
herein by reference to the Company’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 20, 2009.
|
|
(3)
|
Incorporated
herein by reference to the Company’s Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on May 11,
2009.
|
|
(4)
|
Incorporated
herein by reference to the appendix to the Company’s definitive proxy
materials on Schedule 14A filed with the Securities and Exchange
Commission on April 16, 2008.
|
|
(5)
|
Incorporated
herein by reference to the Company’s Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on August 10,
2009.
|
|
(6)
|
Incorporated
herein by reference to the Company’s Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 6,
2009.
|
|
(7)
|
Incorporated
herein by reference to the Company’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 12,
2007.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
|
|
BENEFICIAL
MUTUAL BANCORP, INC.
|
|
|
Date:
March 15, 2010
|
By:
|
/s/
Gerard P. Cuddy |
|
|
|
Gerard
P. Cuddy
|
|
|
President
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Name
|
|
|
Title
|
|
|
Date
|
|
|
|
|
|
/s/ Gerard P. Cuddy |
|
President,
Chief Executive Officer and Director
|
March
15, 2010
|
Gerard
P. Cuddy |
|
(principal
executive officer)
|
|
|
|
|
|
/s/ Joseph F. Conners |
|
Executive
Vice President and Chief
|
March
15, 2010
|
Joseph
F. Conners
|
|
Financial
Officer
(principal
financial and
|
|
|
|
accounting
officer)
|
|
|
|
|
|
/s/ Edward G. Boehne |
|
Director
|
March
15, 2010
|
Edward
G. Boehne
|
|
|
|
|
|
|
|
|
|
Director |
|
Karen
Buchholz |
|
|
|
|
|
|
|
/s/ Frank A. Farnesi |
|
Director
|
March
15, 2010
|
Frank
A. Farnesi
|
|
|
|
|
|
|
|
/s/
Donald F. Gayhardt
|
|
Director
|
March
15, 2010
|
Donald
F. Gayhardt
|
|
|
|
|
|
|
|
|
|
Director
|
|
Elizabeth
H. Gemmill
|
|
|
|
|
|
|
|
/s/ Thomas F. Hayes |
|
Director
|
March
15, 2010
|
Thomas
F. Hayes
|
|
|
|
|
|
|
|
/s/ Charles Kahn, Jr. |
|
Director
|
March
15, 2010
|
Charles
Kahn, Jr.
|
|
|
|
|
|
|
|
|
|
Director
|
|
Thomas
J. Lewis
|
|
|
|
|
|
|
|
/s/ Joseph J. McLaughlin |
|
Director
|
March
15, 2010
|
Joseph
J. McLaughlin
|
|
|
|
|
|
|
|
/s/ Michael J. Morris |
|
Director
|
March
15, 2010
|
Michael
J. Morris
|
|
|
|
|
|
|
|
/s/ George W. Nise |
|
Director
|
March
15, 2010
|
George
W. Nise
|
|
|
|
|
|
|
|
/s/ Donald F. O'Neil |
|
Director
|
March
15, 2010
|
Donald
F. O’Neill
|
|
|
|
|
|
|
|
/s/ Roy D. Yates |
|
Director
|
March
15, 2010
|
Roy
D. Yates
|
|
|
|
29