Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of
Report (Date of earliest event reported): September 16, 2008
Berkshire
Bancorp Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
(State
or other jurisdiction
of
incorporation)
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01-13649
(Commission
File Number)
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94-2563513
(IRS
Employer
Identification
No.)
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160
Broadway, New York, New York 10038
(Address
of principal executive offices and zip code)
Registrant’s
telephone number, including area code: (212)
791-5362
NOT
APPLICABLE
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01
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Entry
into a Material Definitive Agreement
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See
Item
2.06 for description of agreement with the Chairman of Berkshire Bancorp Inc.
(the “Company”).
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Item
2.06
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Material
Impairments
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On
September 7, 2008, the United States Department of the Treasury (“U.S.
Treasury”) and the Federal Housing Finance Agency (“FHFA”) announced a plan to
place the Federal National Mortgage Association (“Fannie Mae”) and the Federal
Home Loan Mortgage Corporation (“Freddie Mac”) into conservatorship under the
authority of the FHFA, a plan which would eliminate dividends on Fannie Mae
and
Freddie Mac common and preferred stock for the foreseeable future.
As
previously disclosed by the Company, as of June 30, 2008 the Company’s
wholly-owned subsidiary, The Berkshire Bank (the “Bank”), held auction rate
securities, which included securities collateralized by Fannie Mae and Freddie
Mac preferred securities with a combined adjusted fair market value at
June 30, 2008 of approximately $83.3 million. In addition, at June 30,
2008, the Bank held preferred securities issued by Fannie Mae and Freddie Mac
with a combined adjusted fair market value at June 30, 2008 of
approximately $7.8 million. Based on the foregoing actions by the U.S. Treasury
and the FHFA, the estimated fair market value of these securities has declined
significantly from June 30, 2008. The Company estimates that the foregoing
auction rate and preferred securities have a combined adjusted fair market
book
value of $7.9 million and $0.8 million, respectively, as of September 10,
2008. On September 16, 2008, the Company determined that it is likely that
the decrease in fair market value of these securities from June 30, 2008
will result in an other-than-temporary impairment of capital and non-cash charge
to earnings of approximately $86.2 million recognized in the quarter ending
September 30, 2008 (assuming the Company is not able to record a tax
benefit for the loss).
While
this impairment would cause the Bank to no longer qualify as “adequately
capitalized” under applicable regulatory standards, the Company’s Chairman and
majority stockholder has agreed to provide equity capital sufficient to continue
the Bank’s “well capitalized” position and has agreed to make immediately
available to the Company $60 million in cash from which such capital (and any
additional required capital) will be drawn upon the finalization of terms and
obtaining any required regulatory approval. The terms of the commitment are
the
purchase by the Chairman or his designees of Preferred and/or Common Stock
of
the Company with such dividend, voting and conversion rights and redemption
and
other features as will be negotiated.
Consummation
of the transaction will likely require stockholder approval in order to increase
the number of authorized shares of Common Stock and under applicable NASDAQ
rules to allow the issuance of Common Stock and/or the full conversion of
Preferred Stock. Inasmuch as the Chairman holds a majority of the outstanding
shares of Common Stock, such approval is assured and the closing of the
financing may be effected prior to, and subject to, obtaining such approval.
The
Company’s Board of Directors has accepted the Chairman’s proposal, has appointed
a special committee to negotiate the financing on behalf of the Company and
has
authorized the Company to engage the investment banking firm of Sandler O’Neill
& Partners, L.P. to advise the Company in connection with the
financing.
The
Company believes that these financial arrangements will, upon consummation,
assure the Bank’s capital position as “well capitalized” for regulatory
purposes.
The
pro
forma impact on the Bank’s capital ratios as of June 30, 2008 of the
foregoing writedown and capital infusion, assuming (i) net proceeds of the
financing in the amount of $60 million, and (ii) that all such proceeds are
invested in the common equity of the Bank, is as follows:
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As
Reported
June
30, 2008
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Pro
Forma to
Give
Effect to
Writedown
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Pro
Forma to
Give
Effect to
Capital
Infusion
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Regulatory
Threshold
for
“Well
Capitalized”
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Regulatory
Threshold
for
“Adequately
Capitalized”
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Total
Capital to Risk-Weighted Assets
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14.47
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%
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3.47
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%
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11.40
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%
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10.0
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%
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8.0
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%
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Tier
1 Capital to Risk-Weighted Assets
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13.80
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%
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2.72
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%
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10.71
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%
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6.0
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%
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4.0
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%
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Tier
1 Capital to Average Assets
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10.13
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%
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1.93
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%
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7.78
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%
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5.0
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%
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4.0
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%
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Forward-Looking
Statements.
Statements in this report on Form 8-K that are not based on historical fact
may
be “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as “believe”, “may”, “will”, “expect”,
“estimate”, “anticipate”, “continue” or similar terms identify forward-looking
statements. A wide variety of factors could cause the actual results and
experiences of the Company to differ materially from the results expressed
or
implied by the Company’s forward-looking statements. Some of the risks and
uncertainties that may affect operations, performance, results of the Company's
business, the interest rate sensitivity of its assets and liabilities, the
adequacy of its loan loss allowance and the Bank’s ability to assure its status
as “well capitalized” include, but are not limited to, the factors referred to
in this report, including uncertainty as to the Company’s ability to consummate
the financing described herein, and the factors referred to in Item 1A, “Risk
Factors”, of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
The
Company cautions readers not to place undue reliance upon any forward-looking
statement contained in this report. Forward-looking statements speak only as
of
the date they were made and the Company assumes no obligation to update or
revise any such statements upon any change in applicable
circumstances.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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BERKSHIRE
BANCORP INC.
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By: |
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Steven
Rosenberg |
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President
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Dated:
September
17, 2008
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