<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________TO___________
Commission file number 0-14403
BRUNSWICK BANCORP
(Exact name of Registrant as specified in its Charter)
New Jersey 22-2610694
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
439 Livingston Avenue
New Brunswick, NJ 08901
(Address of principal executive offices) (Zip Code)
(732) 247-5800
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, $2 per value
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 [ ]
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 registrants' 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]
The aggregate market value of the voting stock held by non affiliates of the
Registrant, as of February 12, 1998 was $24,426,858. The number of shares of
Registrant's Common Stock, $2 per value, outstanding as of February 12, , 1999
was 898,783.
<PAGE> 2
BRUNSWICK BANCORP
DOCUMENTS INCORPORATED BY REFERENCE
Part(s) Into
Documents Which Incorporated
The Proxy Statement is expected to be completed, and filed with the SEC within
120 days of the end of the Registrant's fiscal year end. The information in the
Proxy Statement under the captions "Proposal No. 1- Election of Directors,"
"Directors' Compensation", "Executive Compensation," "Beneficial Ownership of
Common Stock by Management and Principal Shareholders," "Certain Transactions
with Management," and "Compensation Committee Interlocks and Insider
Participation," is the only information incorporated by reference in this Annual
Report on Form 10-K. Information is the Proxy Statement required by Paragraphs
(k) and (1) of Item 402 of Regulation S-K is not incorporated by reference into
any portion of the Annual Report on Form 10-K III
With the exception of information specifically incorporated by
reference, the Proxy Statement is not deemed part of this report.
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C> <C>
PART I
Item 1- Business .....................................................1
Item 2- Properties ...................................................5
Item 3- Legal Proceedings ............................................6
Item 4- Submission of Matters to a Vote of
Security Holders .............................................6
PART II
Item 5- Market for Registrant's Common Equity
and Stockholder Matters ......................................6
Item 6- Selected Financial Data ......................................7
Item 7- Management's Discussion and Analysis of
Financial Condition and Results of Operations.................8
Item 7A- Quantitative and Qualitative Disclosures About
Market Risk ..................................................20
Item 8- Financial Statements and Supplementary Data ..................20
Item 9- Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .......................20
PART III
Item 10- Directors and Executive Officers of the Registrant............20
Item 11- Compensation of Executive Officers ...........................20
Item 12- Security Ownership of Certain Beneficial Owners
and Management ...............................................20
Item 13- Certain Relationships and Related Transactions................21
PART IV
Item 14- Exhibits, Financial Statement, Schedules and Reports on
Form 8-K .....................................................21
</TABLE>
SIGNATURE
EXHIBITS
<PAGE> 3
BRUNSWICK BANCORP
Form 10-K Annual Report
For the Fiscal Year Ended December 31, 1998
PART I
ITEM 1 BUSINESS.
(a) General Development of Business.
Brunswick Bancorp ("BB", "Registrant" or "Company") is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"Bank Holding Company Act"). BB was organized under the laws of New Jersey in
1984 by Brunswick Bank and Trust Company (the "Bank") for the purpose of
creating a holding company for the Bank. Effective January 16, 1986, BB acquired
all of the outstanding shares of the Bank.
The Bank was incorporated as a state-chartered New Jersey bank in 1970
under the name Bank of Manalapan. That entity merged with New Brunswick Trust
Company in 1977, forming Brunswick Bank and Trust Company.
The Bank maintains its head office and 5 branches in Monmouth and
Middlesex Counties, New Jersey.
There are a variety of statutory and regulatory restrictions governing
BB, the Bank, and the relations among BB and its subsidiaries. Proposals to
change the laws and regulations governing the banking industry are frequently
introduced in Congress, in the state legislatures and before the various bank
regulatory agencies. The likelihood and timing of any such changes and the
impact such changes might have on BB cannot be determined at this time.
The policy of the Board of Governors of the Federal Reserve System
provides that BB is expected to act as a source of financial strength to its
subsidiary bank and to commit resources to support such subsidiary bank in
circumstances in which it might not do so absent of such policy.
The Banking Affiliates Act of 1982, as amended, severely restricts
loans and extensions of credit by Brunswick Bank and Trust Company to BB and its
affiliates (except affiliates which are banks). All such loans must be secured
by collateral having a market value ranging from 100% to 130% of the loan,
depending upon the type of collateral. Furthermore, the aggregate of all loans
from the Bank to BB and its affiliates may not exceed 20% of the Bank's capital
stock and surplus and, singly, to BB or any affiliate, may not exceed 10% of the
Bank's capital stock and surplus. Similarly, the Banking Affiliates Act of 1982
also restricts the Bank in the purchase of securities issued by, the acceptance
as loan collateral of securities issued by, the purchase of assets from, and the
issuance of a guarantee or standby letter-of-credit on behalf of, BB or any of
its affiliates.
Generally, the Bank Holding Company Act limits the business of a bank
holding company and its affiliates to banking, managing or controlling banks,
and furnishing or performing services for banks controlled by the holding
company. The major exception to this rule is that a bank holding company
directly or through a subsidiary may engage in non-banking activities which the
Federal Reserve Board has determined to be so closely related to banking or
managing or controlling banks so as to be a proper incident thereto. The Federal
Reserve Board under its Regulation "Y" has restricted such activities to things
such as lease financing, mortgage banking, investment advice, certain data
processing services and, more recently, discount brokerage services. BB is not
currently conducting these activities.
<PAGE> 4
Under the Bank Holding Company Act, BB may not acquire directly or
indirectly more than 5 percent of the voting shares of, or substantially all of
the assets of, any bank without the prior approval of the Federal Reserve Board.
Under current law, a New Jersey based bank holding company, like BB, is
permitted to acquire banks located in New Jersey and in certain other states if
the states had enacted laws specifically to permit acquisitions of banks by
out-of-state bank holding companies having the largest portion of their deposits
in New Jersey. Satisfactory capital ratios and Community Reinvestment Act
ratings are generally prerequisites to obtaining federal regulatory approval to
make acquisitions. Acquisitions through the Bank require approval of the Federal
Deposit Insurance Corporation (the FDIC). Statewide branching is permitted in
New Jersey. The Holding Company Act does not place territorial restrictions on
the activities on non-banking subsidiaries of bank holding companies.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking and Branching Act") enabled bank holding companies to
acquire banks in states other than its home state regardless of applicable state
law. The Interstate Banking and Branching Act also authorized banks to merge
across state lines, thereby creating interstate branches. Under such
legislation, each state had the opportunity either to "opt-out" of this
provision, thereby prohibiting interest branching in such states. Furthermore, a
state may "opt-in" with respect to de novo branching, thereby permitting a bank
to open new branches in a state in which the bank does not already have a
branch. Without de novo branching, an out-of-state bank can enter the state only
by acquiring an existing bank. The vast majority of states have allowed
inter-state banking by merger but have not authorized de novo branching.
New Jersey has enacted legislation to opt-in with respect to earlier
interstate banking and branching and the entry into New Jersey of foreign
country banks. New Jersey did not authorize de novo branching into the state.
Bank holding companies must comply with the Federal Reserve Board's
risk-based capital guidelines. Under the guidelines, risk weighted assets are
calculated by assigning assets and certain off-balance sheet items to broad risk
categories. The total dollar value of each category is then weighted by the
level of risk associated with each category. A minimum total qualifying capital
to risk-based assets ratio (Total Capital ratio) of 8.00% is required. At least
4% of an institution's qualifying capital must consist of Tier 1 capital, and
the rest may consist of Tier 2 capital. Tier 1 capital consists primarily of
common stockholders' equity minus goodwill.
Tier 2 capital consists of an institution's allowance for possible loan
losses, subject to limitation, hybrid capital instruments and certain
subordinated debt. The allowance for possible loan losses which may be
considered Tier 2 capital is limited to 1.25% of risk-based assets. As of
December 31, 1998, the Company's Total Capital ratio was 31.78%, consisting of a
Tier 1 ratio of 31.19% and Tier 2 ratio of 1.19%. Such ratios exceed the current
regulatory requirements.
In addition, the Federal Reserve Board has promulgated a leverage
capital standard, with which bank holding companies must comply. Bank holding
companies must maintain a minimum Tier 1 capital to total assets ratio of 3%.
However, institutions which are not among the most highly rated by federal
regulators must maintain a ratio 100-200 basis points above the 3% minimum. As
of December 31, 1998, the consolidated Company had a leverage capital ratio of
20.21%.
The FDIC also imposes risk based and leverage capital guidelines on the
Bank. These guidelines and the ratios to be met are substantially similar to
those imposed by the Federal Reserve Board. If a bank does not satisfy the
FDIC's capital requirements, it will be deemed to be operated in an unsafe and
unsound manner and will be subject to regulatory action. The Bank met all the
FDIC capital requirements at December 31, 1998. As of December 31, 1998, the
Bank had a risk weighted capital ratio of 25.06% and a leverage capital ratio of
18.31%.
2
<PAGE> 5
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
required each federal banking agency to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities. In
addition, pursuant to FDICIA, each federal banking agency has promulgated
regulations, specifying the levels at which a financial institution would be
considered "well capitalized," "adequately capitalized" "undercapitalized,"
"significantly undercapitalized," or "critically undercapitalized," and
requiring the agency to take certain mandatory and discretionary supervisory
actions based on the capital level of the institution.
The FDIC's regulations implementing these provisions of FDICIA provide
that an institution will be classified as "well capitalized" if it (i) has a
risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based
capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at
least 5.0 percent, and (iv) meets certain other requirements. An institution
will be classified as "adequately capitalized" if it (i) has a total risk-based
capital ratio of at least 8.0 percent, (ii) has a Tier 1 ratio of at least 4.0
percent, (iii) has a Tier 1 leverage ratio (a) at least 4.0 percent or (b) at
least 3.0 percent if the institution was rated 1 in its most recent examination,
and (iv) does not meet the definition of "well capitalized." An institution will
be classified as "undercapitalized" if it (i) has a total risk-based capital
ratio of less than 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of
less than 4.0 percent, or (iii) has a Tier 1 leverage ratio of (a) less than 4.0
percent or (b) less than 3.0 percent if the institution was rated 1 in its most
recent examination. An institution will be classified as "significantly
undercapitalized" if it (i) has a total risk-based capital ratio of less than
6.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 3.0
percent, (iii) has a Tier 1 leverage ratio of less than 3.0 percent. An
institution will be classified as "critically undercapitalized" if it has a
tangible equity to total assets ratio that is equal to or less than 2.0 percent.
An insured depository institution may be deemed to be in a lower capitalization
category if it receives an unsatisfactory examination.
Under the Community Reinvestment Act ("CRA)", as implemented by FDIC
regulation, a federally insured 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 CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the FDIC, in connection
with its examination of a federally insured bank, to assess the bank's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such bank. The CRA also requires
all institutions to make public disclosure of their CRA ratings. Brunswick Bank
& Trust Co. received a "1" (Satisfactory) CRA rating in its most recent
examination.
(b) Industry Segments.
The Registrant has one industry segment: commercial banking.
(c) Narrative Description of Business.
Brunswick Bancorp exists primarily to hold the stock of its active
subsidiary, Brunswick Bank and Trust. BB also own 100% of the common stock of
Brunscor Realty, an inactive corporation. As a secondary function, BB began
commercial lending activity in 1988. Such activity was approved by the Federal
Reserve Bank of New York.
BB is a legal entity separate from the Bank. The Bank is BB's principal
asset. Dividends from the Bank are BB's primary source of income. As explained
under Item 5, legal and regulatory limitations are imposed on the amount of
dividends that may be paid by the Bank to BB.
The Bank maintains its head office in New Brunswick, New Jersey. The
Bank operates out of its head office and 5 branch offices in Monmouth and
Middlesex Counties.
3
<PAGE> 6
At December 31, 1998, BB and its subsidiary Bank had deposits of $86,954,909,
total loans of $44,075,384, and total assets of $109,141,288. The Bank is a full
service commercial bank and offers the services generally performed by
commercial banks of similar size and character. Such services include: checking,
savings and time deposit accounts, certificates of deposit, secured and
unsecured personal loans, commercial loans, and residential and commercial real
estate loans. The Bank also provides trust services. BB and its subsidiary Bank
had the equivalent of 49 full-time employees as of December 31, 1998.
The primary emphasis of the Company's lending activities is in the
commercial lending area. As of December 31, 1998, 37% of the loan portfolio is
in commercial loans, 5% in construction first mortgage loans, 40% in commercial
first mortgage loans, 15% in residential loans, and 3% in installment loans. The
composition of the loan portfolio represents a shift from December 31, 1997.
During 1998 a significant portion of the Real Estate Construction loans were
paid off. One particular loan for $6 million was paid off and the permanent
financing was obtained elsewhere. The Company's lending base is generally in the
commercial area, concentrating both in commercial first mortgage loans and
commercial loans secured by certificates of deposit, equity securities, and
other forms of collateral. Commercial loans secured by certificates of deposit
provide the lowest risk to the Company as the collateral is under full control
of the Company and faces no risk of deterioration. First mortgage loans and
commercial loans secured by real estate provide strong security with risk tied
to the real estate market fluctuations. As the Company lends in a relatively
compact geographical area, management is better able to measure the risk of real
estate market deterioration and risk of asset deterioration than it would be if
it had to assess real estate conditions in numerous, disparate geographical
areas. However, the concentration of the Company's real estate collateral in a
compact geographical area can subject the Company to greater fluctuation in
delinquencies if local market conditions vary from those in a broader area. Due
to the uncertainty in both the local and state real estate markets, the Company
maintains liquid investments in Federal funds sold with short term maturity
dates.
There are numerous commercial banks throughout New Jersey, many of
which have offices in Monmouth and Middlesex Counties, New Jersey. In common
with the entire banking industry, the Bank experiences strong competition for
banking business in its market area. The Bank competes both for deposits and
loans with other national and state banks, mutual savings banks, savings and
loan associations, finance companies, credit unions, and other financial
institutions. While many of the Bank's competitors are larger and have greater
financial resources the Bank, in the opinion of the Bank, the size of its
financial resources has imposed no substantial impediment to its normal lending
functions. The Bank is limited, however, in making commercial loans to an amount
not in excess of fifteen percent of its capital in most circumstances. The Bank
has, on occasion, arranged for participation by other institutions when it has
made larger loans. Additionally, BB participates in certain loans with the Bank
as permitted by the Federal Reserve Bank of New York.
The Company does not rely on any one customer for an amount in excess
of 10% of income.
(d) Financial information about foreign and domestic operations and
export sales.
The Company operates only in New Jersey. No income is derived from
foreign persons or entities.
4
<PAGE> 7
(e) Executive Officers of the Registrant.
The following table sets forth information as to each executive office
of BB who is not a director. All executive officers of BB serve at the pleasure
of the Board of Directors.
<TABLE>
<CAPTION>
Name,
Position with Officer of Principal Occupation
BB, and Age BB Since During Past Five Years
- ----------- -------- ----------------------
<S> <C> <C>
Roman T. Gumina 1987 Executive Vice President
Chief Operating Officer Brunswick Bank & Trust
39
Thomas A. Fornale 1989 Controller
Secretary/Treasurer Brunswick Bank & Trust
Controller
60
</TABLE>
(f) Statistical Disclosure Required Pursuant to Securities Exchange
Act, Industry Guide 3.
Set forth on the following pages are the statistical disclosure for a
bank holding company required pursuant to Industry Guide 3.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
I. Distribution of Assets
Liabilities and Stockholders'
Equity; Interest Rates and
Interest Differential 14-15
II. Investment Portfolio 15-16
III. Loan Portfolio 16-18
IV. Summary of Loan Loss Experience 18-19
V. Deposits 19-20
VI. Return on Equity and Assets 20
VII. Short-Term Borrowings 20
</TABLE>
ITEM 2. PROPERTIES.
The Bank currently operates from its main office, and five branch
offices. The main office and two branches are leased by the Bank. Three of the
branch offices are owned by the bank.
The following is a list of offices the Bank owns:
<TABLE>
<CAPTION>
Approximate
Branch Address Square Feet
- ------ ------- -----------
<S> <C> <C>
George Street 352 George Street
New Brunswick, NJ 08901 4,700
South Brunswick- Monmouth Junction Road
Monmouth Junction and Kingston Lane
South Brunswick, NJ 2,000
Freehold 444 West Main Street
Freehold, NJ 07728 2,000
</TABLE>
5
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The following is a list of offices which the Bank leases:
<TABLE>
<CAPTION>
Expiration
Branch Address Square Feet Date of Lease
- ------ ------- ----------- -------------
<S> <C> <C> <C>
Main Office 439 Livingston Avenue 8,400 and 2010
New Brunswick, NJ 08901 4,000 (basement)
North Brunswick U.S. Route One 1,400 month to month
North Brunswick, NJ 08902
Edison Plainfield Avenue and 3,400 February 2001
Metroplex Drive
Edison, NJ 08817
</TABLE>
As described in Note 11 to the financial statements, the Company has purchased
property to relocate its North Brunswick branch office, and it has purchased
property to construct a new branch in Monroe, New Jersey.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, lawsuits and claims may be brought by
and may arise against BB and the Bank. In the opinion of management, no legal
proceedings which are presently pending or threatened against BB or the Bank,
when resolved, will have a material adverse effect on the business or financial
condition of BB or its subsidiary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS;
No matters were submitted to a vote of shareholders of BB during the
fourth quarter of 1998.
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
BB had 398 shareholders of record as of December 31,1998.
The common stock of BB is traded on the over-the-counter market. The
stock is thinly traded and there can be no assurance that a more active trading
market will develop. Ryan, Beck & Co., located at 80 Main Street, West Orange,
New Jersey 07052, periodically issues information about stocks of small and
large commercial banks in New Jersey and acts as a market maker for small New
Jersey bank stocks. The following quotations were provided by Ryan, Beck & Co.
and represent the high and low bid prices for each quarter during the last two
years. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commissions and do not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
1998
----------------------
Bid
---
High Low
---- ---
<S> <C> <C> <C>
1st Quarter 22 1/8 19 5/8
2nd Quarter 27 1/8 26 1/2
3rd Quarter 29 1/8 26 1/2
4th Quarter 29 5/8 26 1/2
</TABLE>
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<TABLE>
<CAPTION>
1997
---------------------
Bid
---
High Low
---- ---
<S> <C> <C> <C>
1st Quarter 15 1/2 13 1/2
2nd Quarter 15 3/4 15 1/2
3rd Quarter 18 17 1/2
4th Quarter 19 1/2 18 1/4
</TABLE>
Payments of dividends by Brunswick Bank and Trust Company to BB is
restricted. Under the New Jersey Banking Act of 1948, as amended, the Bank may
pay dividends only out of retained earnings, and out of surplus to the extent
that exceeds fifty percent of stated capital. Under the Financial Institutions
Supervisory Act, the FDIC has the authority to prohibit a state-chartered bank
from engaging in conduct which, in the FDIC's opinion, constitutes an unsafe or
unsound banking practice. Under certain circumstances, the FDIC could claim that
the payment of a dividend or other distribution by a bank to its sole
shareholder constitutes an unsafe or unsound practice. As of December 31, 1998,
approximately $5 million is currently available, without restriction, for the
Bank to pay the Registrant in dividends. A Federal Reserve Board capital
requirement of 8.0% would still be maintained in the event of said dividend. The
Registrant issued 20% stock dividends in 1995 and 1994; cash was paid in lieu of
fractional shares. No dividends were paid in 1998, 1997, 1996, or 1993. The
Board of Directors is considering a dividend in 1999, but has not yet determined
if cash dividends will be reinstituted.
STOCK SPLIT
The Board of Directors declared a Five Shares for Four Shares stock
split payable on February 11, 1999 to stockholders of record on December 14,
1998. The stock split resulted in the Company issuing 180,346 shares. The board
determined that cash will be paid in lieu of fractional shares resulting from
the stock split at a value of $34.00 per share. These financial statements give
retroactive effect to the stock split.
Earnings per share have been restated to reflect the stock split
declared.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected consolidated financial
data concerning BB:
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<PAGE> 10
Year Ended December 31,
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 7,946 $ 7,762 $ 7,150 $ 7,222 $ 6.396
Interest expense 2,111 1,972 1,984 1,823 1,366
Net interest income 5,835 5,790 5,166 5,399 5,030
Provision for credit
losses 100 (157) 410 -- 400
Net interest income
after provision for
credit losses 5,735 5,947 4,756 5,399 4,630
Non-interest income 877 875 720 841 845
Other expenses 4,089 4,830 4,143 4,328 3,872
Income before income
taxes 2,523 1,992 1,333 1,912 1,603
Income tax expense 987 747 570 756 626
Net income 1,536 1,245 763 1,156 977
Net income per share 1.71 1.38 .85 1.28 1.08
Cash dividends per share -0- -0- -0- -0- -0-
</TABLE>
Summary Consolidated Statements of Condition
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Asstes $109,141 $101,640 $101,337 $ 92,437 $105,751
Deposits 86,955 80,758 81,798 73,325 87,703
Other Liabilities 845 1,056 886 1,222 1,309
Stockholders' equity 21,341 19,826 18,653 17,890 16,739
Total shareholder's
equity per outstanding
share 23.74 21.98 20.67 19.83 18.51
----- ----- ----- ----- -----
</TABLE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with Consolidated Financial Statements, their related notes, beginning after the
signature page, and the Selected Financial Data presented in Item 6.
Overview
The Company's 1998 net income of $1,535,852 increased $291,310 or 23.4%
from its 1997 net income of $1,244,542. The increase of net income for 1998 was
due to significant decrease in other expenses. In 1997 loss on foreclosed real
estate totaled $398,681, whereas in 1998 no loss occurred. In addition,
accompanying expenses were significantly lower due to an insurance settlement of
$75,000, received in 1998 and in 1997 approximately $150,000 in renovation
expenses for the downtown New Brunswick office. Other items that affected income
in 1998 are as follows: In 1998 decrease in Net interest income of $212,000
compared to 1997 was due to a recapture of $159,000 of loan loss provision in
1997, also, an increase in the income tax provision in 1998 compared to 1997 for
$240,000.
8
<PAGE> 11
Management believes it has created a market-niche as a local commercial
bank, servicing small businesses and individuals in its targeted geographical
areas. It is the Company's intention to continue servicing that market. The
Company will consider future expansion into additional branches, geographic
areas or a possible acquisition if the opportunity arises. As of December 31,
1998, the Company has been approved by the Federal Deposit Insurance Corporation
and the New Jersey Department of Banking for an additional branch. The Company
is planning the branch location for southern Middlesex County (Monroe Township),
New Jersey.
Income Statement Analysis 1998 vs. 1997
For the year of 1998 income before income taxes increased from 1997 by
$531,000. This increase occurred because of several major factors, which are
described below.
During 1997 a $399,000 loss resulted from the sales of a large
foreclosed commercial property and approximately $150,000 in expenses were
incurred from the complete renovation of our branch located in downtown New
Brunswick. These events resulted in a $549,000 negative impact on 1997 earnings
in comparison to 1998.
During 1998 a $75,000 insurance settlement was received. This
settlement was for water damage that occurred at our downtown New Brunswick
branch during 1997 and was applied against 1998 expenses.
Interest income increased by $184,000 and interest expense decreased by
$139,000, which resulted in a $45,000 increase in net interest income. The
following table illustrates how changes in interest rates and volume effected
net interest income
<TABLE>
<CAPTION>
<S> <C>
Interest income:
Effect of increased volume $ 448,000
Effect of decreased interest rates (264,000)
Interest expense:
Effect of increased volume (167,000)
Effect of decreased interest rates 28,000
---------
Increase in net interest income $ 45,000
=========
</TABLE>
During 1997 no loan loss provision was required and a recapture of
$157,000 of loan loss provisions of prior years was recorded. During 1998
$100,000 in loan loss provisions were required thereby producing a $257,000
negative impact on 1998 earnings when compared to that of 1997.
Income Statement Analysis, 1997 vs. 1996
For the year ended December 31, 1997, income before income taxes
increased from 1996 by $658,000. The main reason for this increase in earnings
is that during 1997, management completed a comprehensive review of the loan
portfolio and the related loan loss reserve. That review resulted in a reduced
loan loss reserve balance. The reduced balance coupled with $135,000 of net
recoveries during 1997 resulted in no required 1997 loan loss provision and a
recapture of $157,000 of loan loss provisions recorded during prior years,
compared with net chargeoffs of $435,000 and a provision of $410,000 in 1996.
9
<PAGE> 12
In 1997, interest income increased by $612,000 and interest expense
decreased by $12,000 which resulted in a $624,000 increase in net interest
income over 1996. This occurred primarily because of an increase in average
interest rates on interest-earning assets and increased loan volume. The
following table illustrates how changes in interest rates and volume affected
net interest income.
<TABLE>
<CAPTION>
<S> <C> <C>
Interest income:
Effect of increased volume $292,000
Effect of increased interest rates 320,000
Interest expense:
Effect of increased volume (50,000)
Effect of decreased interest rates 62,000
--------
Increase in net interest income $624,000
========
</TABLE>
Other income increased by $154,000 mainly because of a $65,000 increase
in service charges on deposit accounts and increases in credit card and ATM
service fees totaling $91,000.
Other expenses increased by $687,000 primarily because, during 1997, a
$399,000 valuation loss was taken on foreclosed commercial property. In
addition, approximately $150,000 in expenses were incurred performing repairs of
the branch office in downtown New Brunswick.
Balance Sheet Analysis
The most notable changes in the balance sheet, from December 31, 1997
to December 31, 1998, are increases in Federal funds sold and securities of
$7,400,000 and $7,945,000, respectively which, for the most part, were the
result of the $9,539,000 decrease in loans.
The increase in securities resulted from purchases of U.S. Treasury
securities which were needed for collateral to secure increased public funds
deposits as required under the Governmental Unit Deposit Protection Act of the
New Jersey Department of Banking.
Cash and due from banks increased by $1,515,000. All other assets were
comparable to 1997 amounts.
There was little change in demand deposits from December 31, 1997 to
December 31, 1998. Savings and NOW deposits increased by $14,667,000 and time
deposits decreased by $7,880,000 resulting in a $6,197,000 increase in total
deposits. This increase, for the most part, is attributed to the increased
public funds deposits mentioned above.
Stockholders; equity, with the addition of 1998 net income, increased
by $1,516,000.
Liquidity
The liquidity of the Company is measured by how well it can meet the
financial needs of its depositors and borrowers and provide a cushion against
unforeseeable and unforeseen liquidity needs. Sources of liquidity are provided
primarily by the maturity of assets and by acquiring additional deposits.
Secondarily, liquidity may be provided by the sale of assets and by other
borrowings.
10
<PAGE> 13
The Company's asset liquidity consists of cash in other banks, federal
funds sold, and investment securities and loans maturing in one year or less. At
December 31, 1998, cash due from banks totaled $6.4 million; federal funds
totaled $34 million. Investment securities and loans maturing within one year
totaled $650,000 and $55,000, respectively.
In the past three years, the Company has continually derived positive
cash flows from its operating activities. Specifically, cash provided by
operating activities totaled approximately $1.5 million in 1998, $1.4 million in
1997, and $1.3 million in 1996. In 1998, investing activities used $6.1 million
due primarily to purchase investment securities. Financing activities provided
approximately $6.1 million from increases in savings and new deposits.
In light of the past cash flows provided from operating, financing, and
investing activities, management believes it is in a strong position to meet
both short and long term liquidity needs. The Company has been able to maintain
adequate liquidity in the past and does not foresee impairment of that liquidity
in the future.
Due to the capital structure of BB and the Bank, capital management,
the process of providing equity and debt for current and future financial
positioning, is closely aligned with liquidity management. As the Company
currently has no long term debt and management does not contemplate undertaking
such debt in the future, all financial positioning is done through liquid funds.
Brunswick Bancorp is subject to the capital adequacy requirements of
the Federal Reserve Board. At December 31, 1998, the Company was in compliance
with the minimum capital requirements and is expected to remain in compliance in
the future. Capital ratios are as follows:
<TABLE>
<CAPTION>
Minimum
Regulatory
December 31, Guidelines
-------------------- ----------
1998 1997
---- ----
<S> <C> <C> <C>
Risk-based capital ratios
Tier I 31.19% 29.16% 4.000%
Total capital 32.38% 30.38% 8.000%
Capital (in thousands)
Tier I capital $20,945 $19,515
Tier II capital (1) 801 820
------- -------
$21,746 $20,335
======= =======
</TABLE>
(1) Lesser of the allowance for loan loss or 1/80 of risk-weighted assets.
11
<PAGE> 14
Readiness for Year 2000
Year 2000 issues involve potential problems to financial institutions
and other businesses that rely on computers to assist in normal daily operations
of their business. Many computer programs and applications, which use date
fields, may cease to function normally as a result of the way these fields have
been programmed. Date sensitive software may recognize a date using 00 as the
year 1900 rather then the Year 2000. This could cause a system failure, loss of
files, miscalculations and hardware failure; In turn, these problems could
causing disruptions of operations and could result in a temporary inability to
process transactions or conduct normal business activity.
The Company has implemented a Year 2000 compliance plan. The objective
of this plan is to ensure the company will be Year 2000 ready prior to December
31, 1999. Management has formed a Year 2000 committee with members from all
significant areas of operations to review its systems, vendors and customers
that could be affected by the Year 2000 issue. The committee has developed an
implementation plan to rectify any issues related to processing of transactions
in the Year 2000 and beyond. As recommended by the Federal Financial
Institutions Examination Council ("FFIEC") guide, the Year 2000 compliance plan
includes the following phases: Awareness, Assessment, Renovation, Validation
(testing) and Implementation. The plan is designed to identify risks, develop an
action plan, and perform adequate testing and complete certification that its
computer systems will be Year 2000 ready.
As of December 31, 1998, The Company has substantially completed all
phases of its Year 2000 compliance plan in connection with the Company's
primary operating system and software (the "primary system"). An external third
party supplier provides the primary system, and this vendor has represented to
the Company that its hardware and software have been installed which are Year
2000 compliant. The company has conducted its own Validation (testing) and
Implementation phase on the primary system. In the course of the Company's
testing, it did not become aware of any Year 2000 problems in the primary
system. The Company has also completed Validation (testing) and Implementation
on its other computer operations and has received Year 2000 compliance
assurances from all non-governmental outside vendors.
The Company recognizes that significant Year 2000 problems affecting
third parties could adversely affect the Company. The Company has communicated
with its significant borrowers and depositors, and with others whose core
businesses could be materially affected by Year 2000 failures and who have
substantial dealings with the Company. The Company has sought and continues to
seek assurances that those businesses are taking appropriate steps to become
Year 2000 compliant. In addition, the Company has sought information from its
non-information technology supplies (i.e., utility systems and security systems)
are regarding their Year 2000 readiness.
Currently, management believes that its costs to make its internal data
processing operations Year 2000 compliant will not be material. The costs
identified directly with the Year 2000 compliance plan are not expected to
exceed $50,000. These costs will be funded through operating cash flows and
expensed when incurred. Costs will also be incurred for replacement of various
personal computers, software upgrades, and upgraded server software. The Company
planned to upgrade and replace these items and accordingly did not accelerate
replacement due to Year 2000 compliance. These estimated costs are management's
best estimates based upon currently known information. There can be no guarantee
that actual costs incurred to become Year 2000 ready will not increase due to
additional issues which may arise internally in the future, and by the failure
of third parties to fail to become Year 2000 compliant.
12
<PAGE> 15
The Company is in the process of completing a remediation contingency plan for
Year 2000 compliance for its mission critical applications. The remediation
contingency plan outlines the actions to be taken if the current approach to
remediating mission critical applications does not appear to be able to deliver
a Year 2000 compliant system when required. Predetermined target dates have been
established for all mission critical applications. If testing of the mission
critical application is not completed by the target date then alternative
actions are to be taken as outlined in the remediation contingency plan. In
addition, the Company continues to review its comprehensive business resumption
plan to facilitate timely restoration of services in the event of business
disruption. The Company' plans to review and update its remediation contingency
plan and business resumption plan as needed throughout 1999. The Company is also
in the process of completing a contingency plan regarding its non-mission
critical hardware, software, vendors and customers.
Statements Regarding Forward-Looking Information
This document contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1955. Forward-looking statements
can be identified by the use of words such as "believes", "expects", and similar
words or variations. Such statements are not historical facts and involve
certain risks and uncertainties. Actual results may differ materially from the
results discussed in these forward-looking statements. Factors that might cause
a difference include, but are not limited to, changes in interest rates,
economic conditions, deposit and loan growth, loan loss provisions, customer
retention, or failure of the company's Year 2000 compliance program to
effectively address Year 2000 computer problems. The company assumes no
obligation for updating any such forward-looking statements at any time.
13
<PAGE> 16
Interest Rate Sensitivity Management
The accompanying table, a quantification of the Company's interest rate
exposure at December 31, 1998, is based upon the known repricing dates of
certain assets and liabilities and the assumed repricing dates of others.
<TABLE>
<CAPTION>
Interest Rate Sensitivity*
After
After One
Three but
Within but Within Within After
Three Twelve Five Five Noninterest
Months Months Years Years Bearing Total
------ ------ ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash & due from banks $ - $ - $ - $ - $ 6,448 $ 6,448
Federal funds sold 34,000 - - - - 34,000
Investment securities - 650 21,254 1,150 12 23,066
Loans, net (a) 3,859 12,739 21,236 5,809 (476) 43,167
Other assets - - - 2,460 2,460
--------- --------- --------- -------- --------- ----------
$ 37,859 $ 13,389 $ 42,490 $ 6,959 $ 8,444 $ 109,141
========= ========= ========= ======== ========= ==========
Liabilities and Stockholders Equity
Total deposits (b) $ 36,108 $ 11,012 $ 15,247 $ - $ 24,588 $ 86,955
Borrowed funds 511 - - - - 511
Other liabilities - - - - - 333
Stockholders equity - - - - 21,333 21,342
--------- --------- --------- -------- --------- ----------
$ 36,619 $ 11,012 $ 15,247 $ -0- $ 46,263 $ 109,141
========= ========= ========= ======== ========= ==========
Interest rate sensitivity gap 1,240 2,377 27,243 6,959 (37,819) -
Cumulative interest
rate sensitivity gap $1,240 $3,617 $30,860 $ 37,819 $ -0- $ -0-
</TABLE>
*Variable rate balances are reported based on their repricing dates. Fixed-rate
balances are reported based on their scheduled contractual maturity dates.
(a) Prime priced loans are included in the Within Three Months category;
nonaccrual loans and reserve for possible loan losses are included in the
Noninterest-Bearing category.
(b) Savings accounts are included in the After One but Within Five Years
category.
14
<PAGE> 17
Unadopted Financial Accounting Standards Board Statements
As of December 31, 1998, there are no unadopted Financial Accounting Standards
Board Statements which, if adopted, would have a material effect on the
Company's financial statements.
Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates
and Interest Differential
<TABLE>
<CAPTION>
(In Thousands)
Year Ended December 31,
1998 1997
-------------------------------------- --------------------------------------
Average Average Average Average
Balance Yield Balance Yield
Sheet (3) Interest Rate Sheet (3) Interest Rate
--------- -------- ---- --------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets
Federal funds sold $ 37,610 $ 2,019 5.37% $ 21,792 $ 1,204 5.52%
Investment securities 11,052 669 6.05% 14,975 1,003 6.70%
taxable
Investment securities 34 3 8.82% 86 7 9.50%
non-taxable (1)
Loans, net 47,557 5,255 11.05% 51,329 5,548 10.81%
-------- -------- -------- -------- -------- --------
Noninterest-earning assets
Deposits in bank 6,681 6,193
Other real estate 81 1,802
owned
Other (2) 2,543 3,570
-------- -------- -------- -------- -------- --------
$105,561 $ 7,946 7.53% $ 99,747 $ 7,762 7.78%
======== ======== ======== ======== ======== ========
Interest-bearing liabilities
Savings deposits $ 13,311 $ 326 2.45% $ 13,338 $ 328 2.46%
Demand deposits 29,431 1,014 3.45% 20,326 713 3.51%
Time deposits 16,347 759 4.64% 19,925 917 4.60%
Short term debt 231 12 5.19% 284 14 4.92%
-------- -------- -------- -------- -------- --------
59,320 2,111 3.56% 53,873 1,972 3.66%
Noninterest-bearing
liabilities
Demand deposits 25,019 26,318
Other 739 658
-------- -------- -------- -------- -------- --------
85,078 2,111 2.48% 80,849 1,972 2.44%
Stockholders' equity 20,483 18,898
-------- -------- -------- -------- -------- --------
$105,561 $ 2,111 2.00% $ 99,747 $ 1,972 1.98%
======== ======== ======== ======== ======== ========
Net yield on total
earning assets $ 96,253 $ 5,835 6.06% $ 88,182 $ 5,790 6.57%
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------
Average Average
Balance Yield
Sheet (3) Interest Rate
--------- -------- ----
<S> <C> <C> <C>
Interest-earning Assets
Federal funds sold $ 21,560 $ 1,158 5.37%
Investment securities 14,152 839 5.93%
taxable
Investment securities 134 11 9.50%
non-taxable (1)
Loans, net 47,084 5,142 10.92%
-------- -------- --------
Noninterest-earning assets
Deposits in bank 5,636
Other real estate 3,953
owned
Other (2) 4,266
-------- -------- --------
$ 96,785 $ 7,150 7.39%
======== ======== ========
Interest-bearing liabilities
Savings deposits $ 14,083 $ 347 2.46%
Demand deposits 16,974 610 3.59%
Time deposits 21,007 1,013 4.82%
Short term debt 271 14 5.17%
-------- -------- --------
52,335 1,984 3.79%
Noninterest-bearing
liabilities
Demand deposits 25,334
Other 935
-------- -------- --------
78,604 1,984 2.52%
Stockholders' equity 18,181
-------- -------- --------
$ 96,785 $ 1,984 2.05%
======== ======== ========
Net yield on total
earning assets $ 82,930 $ 5,166 6.23%
======== ======== ========
</TABLE>
(1) The rate is presented on a tax equivalent basis using the Federal rate of
34%.
(2) Non-accrual loans, overdrafts, property and equipment, and other non-
interest earning assets are included in Other.
(3) Average balance sheet computed based on monthly balances.
15
<PAGE> 18
Analysis of Changes in Net Interest and Dividend Income
The following table shows the approximate effect on the Company's net
interest income of volume and rate changes in interest-earning assets and
interest-bearing liabilities for the years ended December 31, 1998, 1997, and
1996 calculated on a tax-equivalent basis, using a 34% Federal rate. Any change
in interest income or interest expense attributable to both changes in volume
and changes in rate has been allocated in proportion to the relationship of the
absolute dollar amount of change in each category.
<TABLE>
<CAPTION>
(In thousands)
1998 Versus 1997 1997 Versus 1996
Increase (Decrease) Increase (Decrease)
Due to Changes in Due to Changes in
--------------------------------------------------------------------
Average Total Average Total
Average Yield/ Increase Average Yield/ Increase
Volume Ratio (Decrease) Volume Ratio (Decrease)
------ ----- ---------- ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income
Federal funds sold $ 871 ($ 56) $ 815 $ 13 $ 33 $ 46
Investment securities
taxable (257) (77) (334) 53 111 164
Investment securities
nontaxable (4) -- (4) (4) -- (4)
Loans, net (162) (131) (292) 230 176 406
----- ----- ----- ----- ----- -----
Total interest income 448 (264) 181 292 320 612
----- ----- ----- ----- ----- -----
Interest expense
Savings deposits (1) (2) (3) (18) (1) (19)
Demand deposits 319 (18) 301 120 (17) 103
Time deposits (148) (9) (157) (53) (43) (96)
Short term debt (3) 1 (2) 1 (1) --
----- ----- ----- ----- ----- -----
Total interest expense 167 (28) 139 50 (62) (12)
----- ----- ----- ----- ----- -----
Changes to net interest income $ 281 ($236) $ 45 $ 242 $ 382 $ 624
===== ===== ===== ===== ===== =====
</TABLE>
Investment Portfolio
The following table shows the carrying value of the Company's investment
portfolio as of December 31. Investment securities are held to maturity and are
stated at cost, adjusted for amortization of premium and accretion of discount
(in thousands).
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ - $ - $12,007 $5,014 $12,465
Obligations of other U.S.
Government agencies 21,016 13,168 382 7,572 7,885
Obligations of state and $ - 55 105 152 195
other political subdivisions
Other securities 2,050 1,897 1,395 1,392 1,139
-------- -------- -------- -------- --------
Total investment
securities $23,066 $15,120 $13,889 $14,130 $21,684
======== ======== ======== ======== ========
</TABLE>
16
<PAGE> 19
Maturities and Average Weighted Yields of Investment Securities
The following table shows the maturities and average weighted yields
for the above investment portfolio at December 31, 1998 (in thousands). Yields
on tax exempt securities are presented on fully tax-equivalent basis using a 34%
Federal tax rate.
<TABLE>
<CAPTION>
Due Under 1 Year Due 1-5 Years Due 5-10 Years Due Over 10 Years
------------------ --------------------- ----------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ - $ - $ - $ - $ - $ - $ - $ -
Obligations of other U.S. - - 21,003 4.17% 12 25.00%
Government agencies
Obligations of states and - - - - - - - -
other political
subdivision
Other securities 650 8.96% 250 6.87% 1,150 7.50% - -
------ ------- --------- ------- -------- ------- ----- --------
Total investment
securities $ 650 8.96% $ 21,254 4.20% $ 1,150 7.50% $ 12 25.00%
====== ======= ========= ======= ======== ======= ===== ========
</TABLE>
Loan Portfolio
The following tables set forth the composition of the Company's loan
portfolio as of the dates indicated (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Types of loans
Commercial and financial $ 16,307 $ 19,891 $ 27,511 $19,168 $ 19,430 $ 19,638
Real estate- mortgage 24,406 21,546 22,985 22,918 25,465 21,656
Real estate- construction 2,034 10,921 2,206 3,256 1,134 1,448
Installment 1,329 1,329 1,112 1,121 737 669
Total loans $ 44,076 $ 53,687 $ 53,814 $46,463 $ 46,766 $ 43,411
======== ======== ======== ======= ======== ========
</TABLE>
The following table sets forth the maturity distribution for the above loan
portfolio at December 31, 1998:
Maturities and Sensitivities of Loans to Charges in Interest Rates
<TABLE>
<CAPTION>
After 1
Year
Within with-in After 5
1 Year 5 Years Years Total
------ ------- ----- -----
<S> <C> <C> <C> <C>
Commercial and financial
Fixed rate $ 1,417 $ 1,873 $ 277 $ 3,667
Variable rate 6,838 2,188 427 9,453
Real estate-mortgage
Fixed rate 3,223 16,488 3,231 22,942
Variable rate 2,792 - 1,852 4,644
Real estate-construction
Fixed rate 708 - - 708
Variable rate 1,325 - - 1,325
Installment
Fixed rate 66 687 29 782
Variable rate $ 554 - - $ 554
</TABLE>
17
<PAGE> 20
Rollover Policy
The Company's overall practice in this area is to limit the rollover of
loans to any of its customers. Occasionally, borrowers to whom credit has been
extended experience unanticipated changes in cash flow or other circumstances
which precipitate a decision to roll over their loan. When this is done, it is
based upon the continued favorable credit position of the borrower and does not
indicate a problem loan.
Risk Elements in Loan Portfolio
Commercial and installment loans are placed on a non-accrual status
when a default of principal or interest has existed for a period of 90 days and
when a return to current status in not imminent. Real estate loans are placed on
non-accrual status when a default of principal or interest has existed for 90
days or more. Subsequent to the change in classification to non-accrual,
management assesses the loan for market value of collateral, credit position of
the debtor and potential operation of any property involved. Foreclosure
proceedings are instituted, as applicable, at that time. Construction loans are
first mortgage loans in all cases; delinquency, non-accrual, and foreclosure
proceedings are handled in the same manner as other loans secured by real
estate. Once a loan is placed on non-accrual, interest previously accrued and
uncollected is reversed and charged against current earnings. Subsequent
interest income would be recognized on these loans only to the extent
collections exceed principal outstanding.
The following table sets forth information on non-accrual, past due
(other than non-accrual), and other real estate owned (there were no
restructured loans) for the periods indicated (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $325 $682 $2,370 $ 2,295 $2,743
Loans, past due 90 days or more 754 303 283 1,773 614
Other real estate owned 133 60 3,577 3,613 3,708
Percentage of non-performing loan
to gross loans outstanding 2.75% 1.95% 5.13% 8.76% 7.18%
</TABLE>
If the above non-accrual loans at December 31, 1998 had been current,
interest income for 1998 would have been approximately $63,000 greater than that
recorded. Interest included in income on these loans totaled approximately
$84,000 for the year. Delinquency rates at December 31, 1998 primarily were
higher than 1997 but lower than 1994 through 1996. The delinquency rate was
higher in 1998 primarily to the past due category of over 90 days or more. One
commercial loan for $549,000 became part of this category.
Except for loans included in the above table there were no loans at
December 31, 1998 where the known credit problems of a borrower caused the Bank
to have serious doubts as to the ability of such borrower to comply with the
then present loan repayment terms and which would result in such loan being
included as a non-accrual, past due, or restructured loan at some future date.
The Bank has not made loans to borrowers outside the United States. As of
December 31, 1998, the total loan portfolio was approximately $44.1 million. As
of the same date, the commercial loan portfolio totaled approximately $16.3
million; $1.1 million of those commercial loans were collateralized by stock in
one publicly-traded company. The market value of stock collateralizing those
loans totaled approximately $1.8 million as of December 31, 1998. Other than
that concentration, there were no other concentrations exceeding ten percent of
total loans. A concentration is defined as amounts loaned to a multiple number
of borrowers engaged in similar activities which would cause them to be
similarly affected by changes in economic or other conditions.
18
<PAGE> 21
Summary of Loans Loss Experience
For the periods indicated, the following table summarizes loan
balances, changes in the allowance for loan losses arising from loans
charged-off and recoveries on loans previously charged-off and additions to the
allowance which have been charged to income.
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 820 $ 842 $ 867 $1,000 $ 93
Charge-offs
Commercial & financial 112 34 317 77 109
Real estate-mortgage 49 140 134 495 336
Real estate-construction -- -- -- -- --
Installment -- 18 2 2 5
------ ------ ------ ------ ------
161 192 453 574 450
Recoveries
Commercial & financial 26 1 -- 217 166
Real estate-mortgage 16 322 14 220 88
Real estate-construction -- -- -- -- --
Installment -- 5 4 4 3
------ ------ ------ ------ ------
Net charge-offs 119 (135) 435 133 193
Additional charges to
operations 100 (157) 410 -- 400
Balance at end of period $ 801 $ 820 $ 842 $ 867 $1,000
------ ------ ------ ------ ------
Ratio of net charge-offs
during the period to average
loans outstanding during the
period 0.41% (1.55%) 0.92% 0.32% 0.46%
</TABLE>
19
<PAGE> 22
Allocation of the Allowance for Loan Losses
In Thousands
<TABLE>
<CAPTION>
Real Real
Commercial Estate Estate
December 31, & Financial Mortgage Construction Installment Total
- ------------ ----------- -------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
1998
Amount $505 $272 $ 16 $ 8 $801
Percentage of total 63% 34% 2 1% 100%
1997
Amount 336 271 205 8 820
Percentage of total 41% 33% 25% 1% 100%
1996
Amount 497 286 51 8 842
Percentage of total 59% 34% 6% 1% 100%
1995
Amount 486 303 69 9 867
Percentage of total 56% 35% 8% 1% 100%
1994
Amount 580 360 50 10 1000
Percentage of total 58% 36% 5% 1% 100%
</TABLE>
Through management assessment each accounting period, the allowance for
credit losses is maintained at a level considered adequate to absorb probable
losses. Management determines the adequacy of the allowance based upon reviews
of individual credits, recent loss experience, current economic conditions, the
risk characteristics of various categories of loans, and other pertinent
factors. Credits deemed uncollectible are charged to the allowance. Provisions
for credit losses and recoveries on loans previously charged off are added to
the allowance.
Deposits
The amounts of deposits, as of December 31, are summarized below (in
thousands).
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-interest bearing:
Demand deposits $24,588 $25,177 $25,622 $24,290 $24,841
Interest bearing:
Savings deposits 15,217 12,707 13,777 14,412 15,644
Time deposits 16,546 24,426 20,754 20,959 27,587
NOW demand deposits 30,604 18,448 21,645 13,664 19,631
------- ------- ------- ------- -------
Total deposits $86,955 $80,758 $81,798 $73,325 $87,703
======= ======= ======= ======= =======
</TABLE>
20
<PAGE> 23
The maturities of time deposits of $100,000 or more at December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Under 3 months $2,464
3 to 6 months 1,601
6 to 12 months 4,722
Over 12 months -
------
$8,787
======
</TABLE>
Return on Equity and Assets
The following are selected ratios for the years ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on assets 1.40% 1.23% 0.83% 1.09% 1.01%
Return on equity 7.75% 6.67% 4.26% 6.91% 6.20%
Average equity to average assets 19.40% 18.96% 18.78% 17.47% 18.03%
Dividend payout ratio 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
Short-term Borrowing
Borrowed funds consist of United States treasury tax and loan deposits,
and generally mature within one to 120 days from the transaction date. At no
time during the three-year period ended December 31, 1998, did outstanding
treasury tax and loan deposits exceed 30% of stockholders' equity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements for the years ended December 31,
1998, 1997 and 1996 contain the information required by Item 8 and that
information is incorporated herein following signature page number 24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Proxy Statement will contain under the caption "Proposal No.
1-Election of Directors' the information required by Item 10 with respect to
directors of BB and that information is incorporated herein by reference.
Information regarding executive officers of BB who are not also directors
appears under sub-section (e) of Item 1 of the Form 10-K.
21
<PAGE> 24
ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS
The Proxy Statement will contain under the caption "Directors'
Compensation", the caption "Executive Compensation", and the caption
"Compensation Committee Interlocks and Insider Participation" information
required by Item 11 and that information is incorporated herein by reference.
Information in the Proxy Statement required by Paragraphs (k) and (1) of Item
402 of Regulation S-K is not incorporated by reference into any portion of this
Annual Report Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTS.
The Proxy Statement will contain under the caption "Beneficial
Ownership of Common Stock by Management and Principal Shareholders" the
information required by Item 12 and that information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Proxy Statement will contain under the caption "Certain
Transactions with Management" and the caption "Compensation Committee Interlocks
and Insider Participation" the information required by Item 13 and that
information is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) & (2) Financial Statements and
Financial Statements Schedules
The below listed financial statements and report of independent
auditors of BB and subsidiaries for the years ended December 31, 1998,
1997 and 1996 are following signature page number 24.
Independent Auditors' Report
Consolidated Statements of Income - Years Ended December 31, 1998,
1997, and 1996
Consolidated Statements of Stockholders' Equity - Years Ended December
31, 1998,1997, and 1996
Consolidated Statements of Cash Flows - Years Ended December 31, 1998,
1997, and 1996
Notes to Consolidated Financial Statements - Years Ended December 31,
1998, 1997, and 1996
Schedules to the Consolidated Financial Statements required under
Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K
BB did not file any reports on Form 8-K for the three months
ended December 31, 1998.
22
<PAGE> 25
(c) Exhibits
List of Exhibits
(3) (a) Certificate of Incorporation of Brunswick Bancorp
Incorporated by reference to Registration Statement
on Form S-14 filed on June 20, 1985.
(b) By-laws of Brunswick Bancorp. Incorporated by
reference to Registration Statement on Form S-14
filed on June 20, 1985.
(10) Non-qualified Deferred Compensation Plan dated as of
December 5, 1995. Incorporated by reference to Form
10-K for the year ended December 31, 1995.
(21) Subsidiaries of Brunswick Bancorp. Incorporated by
reference to Registration Statement on Form S-14
filed on June 20, 1985.
(27) Financial Data Schedule.
23
<PAGE> 26
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, thereto duly authorized.
BRUNSWICK BANCORP
By:/s/ Carmen J. Gumina
--------------------------
Carmen J. Gumina
President
Dated: March 31, 1999
-----------------
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 date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bruce Arbeiter
- -------------------------------
Bruce Arbeiter Director March 31,1999
/s/ Joseph DeMarco
- -------------------------------
Joseph DeMarco Director March 31,1999
/s/ Dominick Faraci
- -------------------------------
Dominick Faraci Director March 31,1999
/s/ Carmen J. Gumina
- -------------------------------
Carmen J. Gumina President and Chairman
of the Board of Directors
(Principal Executive Office) March 31,1999
/s/ Josephine Gumina
- -------------------------------
Josephine Gumina Director March 31,1999
/s/ Michael Kaplan
- -------------------------------
Michael Kaplan Director March 31,1999
/s/ Richard Malouf
- -------------------------------
Richard Malouf Director March 31,1999
/s/ John Maltese
- -------------------------------
John Maltese Director March 31,1999
/s/ Frederick Perrine
- -------------------------------
Frederick Perrine Director March 31,1999
/s/ Robert Sica
- -------------------------------
Robert Sica Director March 31,1999
/s/ Thomas A. Fornale
- -------------------------------
Thomas A. Fornale Secretary-Treasurer
Controller
(Principal Accounting/Financial Officer) March 31,1999
</TABLE>
24
<PAGE> 27
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<PAGE> 28
BRUNSWICK BANCORP AND SUBSIDIARIES
TABLE OF CONTENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT...............................1
FINANCIAL STATEMENTS
Consolidated Statements of Condition.................2
Consolidated Statements of Income....................3
Consolidated Statements of Shareholders' Equity......4
Consolidated Statements of Cash Flows................5
Notes to Consolidated Financial Statements...........6
</TABLE>
<PAGE> 29
[LETTERHEAD OF MICHAEL R. FERRARO]
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
BRUNSWICK BANCORP AND SUBSIDIARIES
We have audited the accompanying consolidated statements of condition of
Brunswick Bancorp and Subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brunswick Bankcorp
and Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and cash flows for each of the years in the three year period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Michael R. Ferraro
Michael R. Ferraro, CPA
(Successor to Ferraro, Wood & Company)
February 12, 1999
Matawan, NJ
<PAGE> 30
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cash and due from banks $6,448,304 $4,933,343
Federal funds sold 34,000,000 26,600,000
Securities held to maturity (Note 2) 23,065,507 15,120,064
Loans receivable, net of allowance for
loan losses of $ 801,059 in 1998 and
$ 820,254 in 1997 (Note 3) 43,166,736 52,705,619
Accrued interest receivable 377,627 585,826
Premises and equipment, net (Note 4) 1,503,332 1,252,328
Foreclosed real estate 132,615 60,080
Other assets 447,167 382,989
------------ ------------
$109,141,288 $101,640,249
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits
Demand $24,587,736 $25,177,070
Savings and NOW deposits 45,821,184 31,154,437
Other time (Note 7) 16,545,989 24,426,444
------------ ------------
86,954,909 80,757,951
Borrowed funds (Note 5) 511,512 511,649
Accrued expenses and other
liabilities (Note 8) 333,317 545,074
------------ ------------
87,799,738 81,814,674
Stockholders' equity
Common stock - par value $2.00 per
share-
3,000,000 shares authorized,
721,920 shares issued 1,443,840 1,443,840
Additional paid-in capital 4,284,804 4,284,804
Retained earnings 15,704,680 14,168,828
Treasury stock at cost, 3,720
shares in 1998 and 3,097
shares in 1997 (91,774) (71,897)
------------ ------------
21,341,550 19,825,575
------------ ------------
$109,141,288 $101,640,249
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements. 2
<PAGE> 31
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest income
Loans receivable $ 5,254,959 $ 5,548,068 $ 5,142,003
Securities held to maturity 671,529 1,010,125 849,626
Federal funds sold 2,019,208 1,203,810 1,158,089
----------- ----------- -----------
Total interest income 7,945,696 7,762,003 7,149,718
----------- ----------- -----------
Interest expense
Deposits 2,098,798 1,957,411 1,969,950
Borrowed funds 11,888 14,205 13,635
----------- ----------- -----------
Total interest expense 2,110,686 1,971,616 1,983,585
----------- ----------- -----------
Net interest income 5,835,010 5,790,387 5,166,133
Provision for (reversal of)
credit losses 100,000 (156,922) 410,000
----------- ----------- -----------
Net interest income after provision
for credit losses 5,735,010 5,947,309 4,756,133
----------- ----------- -----------
Noninterest income
Service charges on deposit accounts 631,799 686,758 621,801
Other services charges and fees 226,063 180,086 96,238
Other income 19,555 7,376 2,000
----------- ----------- -----------
Total other income 877,417 874,220 720,039
----------- ----------- -----------
Other expenses
Salaries and employee benefits 2,147,682 2,077,182 2,109,921
Occupancy expenses 573,645 893,976 637,765
Loss on foreclosed real estate -- 398,681 --
Equipment expenses 219,771 208,625 185,051
Other 1,148,428 1,251,534 1,210,056
----------- ----------- -----------
4,089,526 4,829,998 4,142,793
----------- ----------- -----------
Income before income taxes 2,522,901 1,991,531 1,333,379
Income tax expense 987,049 746,989 570,529
----------- ----------- -----------
Net income $ 1,535,852 $ 1,244,542 $ 762,850
=========== =========== ===========
Net income per share of common stock $ 1.71 $ 1.38 $ 0.85
=========== =========== ===========
Average shares outstanding 898,783 901,786 902,266
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements. 3
<PAGE> 32
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance
December 31, 1995 $ 1,443,840 $ 4,284,804 $ 12,161,436 $ $ 17,890,080
Net income for 1996 -- -- 762,850 -- 762,850
------------ ------------ ------------ ------------ ------------
Balance
December 31, 1996 1,443,840 4,284,804 12,924,286 -- 18,652,930
Net income for 1997 -- -- 1,244,542 -- 1,244,542
Purchase of
treasury stock -- -- -- (71,897) (71,897)
------------ ------------ ------------ ------------ ------------
1,443,840 4,284,804 14,168,828 (71,897) 19,825,575
Balance
December 31, 1997 -- -- -- -- --
Net income for 1998 -- -- 1,535,852 -- 1,535,852
Purchase of
treasury stock -- -- -- (19,877) (19,877)
------------ ------------ ------------ ------------ ------------
Balance
December 31, 1998 $ 1,443,840 $ 4,284,804 $ 15,704,680 $ (91,774) $ 21,341,850
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements. 4
<PAGE> 33
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,535,852 $ 1,244,542 $ 762,850
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation 137,617 200,758 195,726
Net accretion of securities discounts
and premiums (198,233) (52,565) (79,133)
Provision for (reversal of)
credit losses 100,000 (156,922) 410,000
Benefit for deferred income taxes (85,719) (126,714) (105,271)
Loss on foreclosed real estate 398,681
(Increase) decrease in accrued
interest receivable 208,199 (7,662) 231,337
(Increase) decrease in other assets 21,541 (173,784) 87,773
Increase (decrease) in accrued
expenses, taxes and other liabilities (211,757) 101,618 (242,963)
------------ ------------ ------------
Cash provided by operating activities: 1,507,500 1,427,952 1,260,319
Cash flows from investing activities:
(Increase) decrease in federal funds sold (7,400,000) (6,500,000) 900,000
Maturities of investment securities 16,009,840 23,010,000 7,000,000
Principal repayments on investment
securities 322,820 215,934 284,703
Purchase of investment securities (24,079,870) (24,404,100) (6,965,000)
Net change in loans 9,302,090 245,092 (8,619,148)
Acquisitions of premises and equipment (388,621) (471,653) (282,112)
Proceeds from sale of foreclosed real
estate 64,258 3,121,647 857,463
------------ ------------ ------------
Cash used in investing activities (6,169,483) (4,783,080) (6,824,094)
Cash flows from financing activities:
Increase (decrease) in demand deposits (589,334) (445,158) 1,332,201
Increase in savings and
NOW deposits 14,666,747 4,267,504 7,345,641
Increase (decrease) in other time
deposits (7,880,455) 3,672,484 (204,937)
Increase (decrease) in borrowed funds (137) 209,708 (66,306)
Purchase of treasury stock (19,877) (71,897) --
------------ ------------ ------------
Cash provided by financing activities 6,176,944 7,632,641 8,406,599
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents 1,514,961 (4,257,495) 2,842,824
Cash and cash equivalents at January 1 4,933,343 9,190,838 6,348,014
------------ ------------ ------------
Cash and cash equivalents at December 31 $ 6,448,304 $ 4,933,343 $ 9,190,838
============ ============ ============
Interest paid $ 2,192,117 $ 1,965,781 $ 1,982,583
============ ============ ============
Income taxes paid $ 943,916 $ 817,185 $ 598,096
============ ============ ============
</TABLE>
During the years ended December 31, 1998, 1997, and 1996, $136,793, $60,080,
$896,384, respectively, in loan balances were transferred to other real estate
owned as a result of foreclosure proceedings.
The accompanying notes are an integral part of these financial statements. 5
<PAGE> 34
BRUNSWICK BANKCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Brunswick
Bancorp and its wholly-owned subsidiaries Brunswick Bank & Trust Company
(the Bank) and Brunscor Realty, Inc. (inactive), together referred to as
the Company. All significant intercompany accounts and transactions have
been eliminated.
Nature of Operations
The Bank operates under a state bank charter and provides full banking
services. The Bank is subject to regulations of the Federal Deposit
Insurance Corporation and the New Jersey Department of Banking. The area
served by the Bank is Central New Jersey with primary emphasis on
Middlesex and Monmouth Counties; services are provided at six branch
offices.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications of prior years amounts have been made to conform
with the current year presentation.
Cash Equivalents
For the purpose of presentation in the Statements of Cash Flows, cash and
cash equivalents are defined as those amounts included in the statement of
condition caption "Cash and due from banks" which is comprised of cash on
hand and demand deposits in other institutions.
Securities Held to Maturity
Bonds, notes and debentures for which the Bank has the positive intent and
ability to hold .to maturity are reported at cost, adjusted for premiums
and discounts that are recognized in interest income using the interest
method over the period to maturity.
Loans Receivable
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
loses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Loans receivable which management has the intent to sell prior to maturity
in the secondary market are carried at the lower of cost or estimated
market value in the aggregate.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
6
<PAGE> 35
BRUNSWICK BANKCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest income is ordinarily
discounted when a loan becomes 90 days past due as to principal or
interest; however, management may elect to continue the accrual when the
estimated net realizable value of collateral is sufficient to cover the
principal balance and the accrued interest. When interest accruals are
discontinued, interest credited to income in the current year is reversed.
When the loan is determined to be uncollectible, interest accrued in prior
years and the principal are charged to the allowance for loan losses.
The allowance for loan losses is increased by charges to income and
decreased by charge-off'(net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
Premises and Equipment
Land is carried at cost. Bank premises, furniture and equipment, and
leasehold improvements are carried at cost, less accumulated depreciation
and amortization computed principally by the straight-line method.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure
are to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations
are periodically performed by management and the real estate is carried at
the lower of carrying amount or fair value, less estimated cost to sell.
Pension Costs
The Bank has a defined contribution profit-sharing plan covering all
employees who meet the eligibility requirements. To be eligible, an
employee must be twenty-one years of age and have completed one year of
continuous service. The Bank's funding policy is to make discretionary
contributions based on a percentage of annual employee compensation.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair
values of significant financial instruments as disclosed herein.
Cash and Due from Banks and Federal Funds Sold The carrying amounts
of cash and due from banks and Federal funds sold approximate fair
value.
Investment Securities Held to Maturity
Fair values of securities are based on quoted market prices.
7
<PAGE> 36
BRUNSWICK BANKCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Loans
For variable rate loans that re-price frequently and have no
significant change in credit risk, fair values are carrying values,
fair values for certain mortgage loans (for example, one-to-four
family residential), credit card loans, and other consumer loans are
based on quoted market prices of similar loans. Fair values of
commercial real estate and commercial loans are estimated using
discounted cash flows analyses, using interest rates currently being
offered with similar terms to borrowers of similar credit quality.
Fair values of impaired loans are estimated using discounted cash
flow analyses or underlying collateral values, where applicable.
Deposits
The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date
(carrying amounts). The carrying amount of variable-rate savings and
NOW accounts approximate their fair values at the reporting date.
Fair values of fixed-rate certificates of deposit are estimated by
discounting estimated cash flows using current rates offered for
deposits of similar remaining maturities.
Other
The estimated fair values of accrued interest receivable, accrued
interest payable, debt (treasury tax and loan deposits), and other
assets and liabilities are deemed to be equal to the amounts
recognized in the consolidated statements of financial position.
Off Balance-sheet Items
The estimated fair values of commitments to extend credit and
letters of credit would approximate fees currently charged to enter
into similar agreements.
Net Income Per Share of Common Stock
Net income per share of common stock is computed by dividing net income by
the weighted average number of shares of common stock outstanding during
the period, after giving retroactive effect to stock dividends. Basic and
diluted earnings per share amounts are the same.
Common Stock Rights
The Company has non-expiring rights outstanding to purchase 3,018 shares
of common stock at an aggregate price of $96,576.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into agreements
involving commitments to extend credit, commitments under credit card
arrangements, commercial letters of credit and standby letters of credit.
Such financial instruments are recorded in the financial statements when
they become payable.
(2) SECURITIES HELD TO MATURITY
The carrying amounts of investment securities as shown in the consolidated
statements of condition of the Company and their approximate fair values
at December 31 were as follows:
8
<PAGE> 37
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1998
U.S.Government and
agency securities $21,015,507 $ 484,286 ($ 30,844) $21,468,949
Other securities 2,050,000 12,735 -- 2,062,735
----------- ----------- ----------- -----------
Totals $23,065,507 $ 497,021 $ 30,844 $23,531,684
=========== =========== =========== ===========
December 31, 1997
U.S. Government and
agency securities $13,168,184 $ 479,499 $ 17,066 $13,630,617
Municipal securities 54,572 -- -- 54,572
Other securities 1,897,308 26,022 -- 1,923,330
----------- ----------- ----------- -----------
Totals $15,120,064 $ 505,521 $ 17,066 $15,608,519
=========== =========== =========== ===========
</TABLE>
The scheduled maturities of investment securities as of December 31, 1998 were
as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less $ 650,000 $ 662,735
Due after one year through five
years 21,253,666 21,257,002
Due after five years through ten
years 1,150,000 1,150,000
Due after ten years 11,841 461,947
----------- -----------
Totals $23,065,507 $23,531,684
=========== ===========
</TABLE>
Securities, carried at $21,015,140 and $10,157,646 at December 31, 1998 and
1997, respectively, were pledged to secure public deposits and for other
purposes required or permitted by law. For purposes of the maturity table,
mortgage-backed securities, which are not due at a single maturity date, have
been classified based on their ultimate maturity dates. The mortgage-backed
securities will mature earlier because of principal repayments.
(3) LOANS
The components of loans in the consolidated statements of condition are
as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Commercial $16,306,888 $19,891,202
Real estate construction 2,033,974 10,920,920
Commercial real estate 17,647,271 13,080,520
Residential real estate 6,758,501 8,465,712
Consumer 1,328,750 1,328,652
----------- -----------
44,075,384 53,687,006
Less
Allowance for credit losses 801,059 820,254
Unearned fees 107,589 161,133
----------- -----------
$43,166,736 $52,705,619
=========== ===========
</TABLE>
9
<PAGE> 38
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
An analysis of the change in the allowance for credit losses follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 820,254 $ 842,103 $ 867,189
Credits charged off (161,200) (191,530) (453,075)
Recoveries 42,005 326,603 17,989
--------- --------- ---------
Net credit charged off 701,059 977,176 432,103
Provision for (reversal of)
credit losses 100,000 (156,922) 410,000
--------- --------- ---------
Balance at December 31 $ 801,059 $ 820,254 $ 842,103
========= ========= =========
</TABLE>
Impairment of loans having recorded investments of $132,600 at December 31, 1996
have been recognized in conformity with FASB Statement No.114, as amended by
FASB Statement No. 118. Recorded investments in other impaired loans were
$1,065,831 and $ 1,387,823 at December 31, 1998 and 1997 respectively. The
average recorded investment in impaired loans during 1998,1997, and 1996 was
approximately $1,227,000, $1,649,000 and $ 1,900,000 respectively. Interest
income of approximately $119,000, $220,000 and $160,000, on impaired loans was
recognized for cash payments received in 1998, 1997, and 1996, respectively. The
total allowance for loan loses related to these loans was $110,000 and $75,000
on December 31, 1998 and 1997 respectively.
(4) PREMISES AND EQUIPMENT
Components of premises and equipment included in the consolidated statements of
condition at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
ESTIMATED
LIVES 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cost
Land $ 850,372 $ 537,927
Bank premises 25-35 years 562,049 562,049
Furniture and equipment 5-10 years 1,089,121 1,058,097
Leasehold improvements 5-25 years 70,137 70,137
---------- ----------
2,571,679 2,228,210
Less accumulated depreciation 1,068,347 975,882
---------- ----------
Net book value $1,503,332 $1,252,328
========== ==========
</TABLE>
Certain Bank facilities are leased under various operating leases. Rental
expense was $406,152, $394,906, and $424,152, in 1998, 1997, and 1996
respectively. Future minimum rental under noncancelable leases are:
<TABLE>
<CAPTION>
<S> <C>
1999 $332,212
2000 341,477
2001 350,015
2002 358,796
2003 367,841
Thereafter 3,925,606
----------
$5,675,947
==========
</TABLE>
(5) BORROWED FUNDS
Borrowed funds consist of United States treasury tax and loan deposits and
generally mature within one to 120 days from the transaction date.
10
<PAGE> 39
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(6) EMPLOYEE BENEFITS
The Bank has a profit sharing plan for substantially all full-time
employees. The Plan consists of employer contributions and voluntary
employee contributions, and an annually determined employer match of
employee contributions. Contributions under the profit sharing plan are
made at the discretion of the board of directors, and have totaled
approximately 5% of gross eligible salaries for the past five years. The
Bank contributed $106,500, $103,000, and $84,000, for 1998, 1997, and
1996, respectively.
(7) COMPOSITION OF DEPOSITS
The aggregate amount of certificates of deposits with minimum balances of
$100,000 was $8,786,851 and $16,086,920 at December 31, 1998 and 1997,
respectively. All certificates of deposit mature within one year of
issuance.
(8) INCOME TAXES
The consolidated provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable
Federal $ 822,168 $ 663,203 $ 511,800
State 250,600 210,500 164,000
----------- ----------- -----------
1,072,768 873,703 675,800
(Deferred credit) (85,719) (126,714) (105,271)
----------- ----------- -----------
$ 987,049 $ 746,989 $ 570,529
=========== =========== ===========
</TABLE>
As of December 31, 1998 and 1997, the principal temporary differences
resulting in deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Deferred tax assets 1998 1997
--------- ---------
<S> <C> <C>
Loans $ 224,820 $ 227,811
Deferred Compensation 192,000 144,000
State net operating loss
carryforward (parent company) -- 40,000
Deferred tax liabilities
Properties & equipment (20,220) (100,930)
--------- ---------
Net deferred tax assets $ 396,600 $ 310,881
========= =========
</TABLE>
The principal reasons for the difference in the effective tax rate and the
federal statutory rate are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34% 34% 34%
Effect on tax rate of:
Tax-exempt securities (1) (1)
Tax-exempt loan income (1) (1) (1)
State taxes 6 6 6
Nondeductible items -- 1 4
Other -- (1) --
---- ---- ----
Effective tax rate 39% 38% 42%
==== ==== ====
</TABLE>
11
<PAGE> 40
BRUNSWICK BANKCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND, 1996
(9) STOCK SPLIT
The Board of Directors declared a Five Shares for Four Shares stock split
payable on February 11,1999 to stockholders of record on December 14,
1998. The stock split resulted in the Company issuing 180,346 shares. The
board determined that cash will be paid in lieu of fractional shares
resulting from the stock split at a value of $34.00 per share. These
financial statements give retroactive effect to the stock split.
Earnings per share have been restated to reflect the stock split declared.
(10) STOCK OPTION PLAN
The Company has a stock option plan for officers and key employees which
provides for nonqualified and incentive options. The Board of Directors
determines the option price (not to be less than fair market value for
incentive options) at the date of grant. The options generally expire five
years from the date of grant and are exercisable over the period stated in
each option.
In May 1998 the Company granted stock options for 68,750 shares at an
exercise price of $25.60 per share, and as of December 31, 1998, 13,750
shares were available to be exercised and as of that time no options were
exercised. The Stock options expire in 5 years from the date they are
granted and vest over service periods that range from one to five years.
The fair value of option granted is estimated on the grant date using the
Black-Scholes Model. The following assumptions were made in estimating
fair value:
<TABLE>
<CAPTION>
<S> <C>
Assumption
Dividend yield
Risk-Free Interest Rate .0%
Expected volatility 4.25%
Expected Life 5 years 53.587%
</TABLE>
The Company applies APB opinion 25 in accounting for stock options.
Accordingly, no compensation cost has been recognized for the plan. Had
compensation cost been determined on the basis of fair value pursuant to
FASB Statement No. 123, Pro forma net income and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
<S> <C>
Net Income
As reported $ 1,535,852
-------------
Pro forma $ 989,925
-------------
BASIC EARNINGS PER SHARE
As reported $ 1.71
-------------
Pro forma $ 1.10
-------------
DILUTED EARNINGS PER SHARE
As reported $ 1.70
-------------
Pro forma $ 1.10
-------------
</TABLE>
The diluted earnings per share are based on the Treasury stock method
which creates a 3,386 shares dilution.
12
<PAGE> 41
BRUNSWICK BANKCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(11) RELATED PARTIES
The Bank has entered into transactions with it directors, principal
officers, their immediate families, and affiliated companies in which
directors are principal stockholders. These transactions are as follows:
Loans
Related parties were indebted to the Company for loans totaling $9,993,306
as of December 31, 1997. During 1998, additional advances of $856,700 were
made and $6,360,824 was retired for a balance of $4,489,482 as of December
31, 1998.
Rent
One operating location of the Bank is leased from a related party. Rent
paid to that party totaled $309,544, $302,521, and $290,360, for the years
ended December 31, 1998, 1997 and 1996, respectively.
Loan participation's sold
Certain loans and loan participations, which the Bank services, were sold
to a related party without recourse. As of December 31, 1998 and 1997,
these loans totaled $313,305 and $818,305, respectively.
Deposits
The Company is indebted to certain related parties for bank deposits made
in the ordinary course of business. Rates and terms of said deposits are
comparable to those offered to unrelated depositors.
Other
The Company engages in routine operating transactions with entities
related to directors. Said transactions are in the normal course of
business and are immaterial to operations.
(12) CONTINGENT LIABILITIES AND COMMITMENTS
The Bank's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk,
and liquidity risk. These commitments and contingent liabilities are
commitments to extend credit, commercial letters of credit, and standby
letters of credit. A summary of the Bank's commitments and contingent
liabilities at December 31, 1998 is as follows:
<TABLE>
<S> <C>
Commitments to extend $ 5,151,026
Standby letters of credit 372,583
Commercial lines of credit 3,594,342
Consumer lines of credit 2,103,715
-----------
$11,221,666
===========
</TABLE>
Commitments to extend credit, commercial letters of credit, and standby
letters of credit all include exposure to some credit loss in the event of
nonperformance of the customer. The Bank's credit policies and procedures
for credit commitments and financial guarantees are the same as those
extensions of credit that are recorded on the consolidated statements of
condition. Because these
13
<PAGE> 42
BRUNSWICK BANKCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
policies and procedures for credit commitments and financial guarantees
are the same as those extensions of credit that are recorded on the
consolidated statements of condition. Because these instruments have fixed
maturity dates, and because many of them expire without being drawn upon,
they do not generally present any significant liquidity risk to the Bank.
The Company is party to litigation and claims arising the normal course of
business. Management, after consultation with legal counsel, believes that
the liabilities, if any, arising from such litigation and claims will not
be material to the consolidated financial statements.
The Company has implemented a Year 2000 Compliance plan. The costs
identified with the Y2K Compliance plan will not be material to the
consolidated financial statements. As of December 31, 1998 the upgraded
operating and software systems have been installed and tested.
Management's opinion is that the system is in compliance. As required by
Regulatory Agencies the Company is in the process of completing a
contingency and remediation plan if the system fails or external elements
cause a disruption of their business.
(13) CONCENTRATIONS OF CREDIT RISK
All of the Company's loans and loan commitments have been granted to
customers in the Bank's market area. The majority of such customers are
depositors of the Bank. Of a total commercial loan portfolio of
$16,306,888 and $19,891,202 as of December 31, 1998 and 1997,
respectively, approximately $1,160,060 and $2,000,000, respectively, of
those loans are collaterialized by stock in one publicly traded company.
The market value of stock collateralizing those loans totals approximately
$1,770,000 and $6,000,000, respectively as of the same date after
collateral being released in 1998. The distribution of commitments to
extend credit approximates the distribution of loans outstanding (Note 3).
Commercial and standby letters of credit were granted primarily to
commercial borrowers. The Company, as a matter of policy, requires
collateral on all real estate exposures and generally requires loan to
value ratios of no greater than 75%.
14
<PAGE> 43
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks $ 6,448 $ 6,448 $ 4,933 $ 4,933
Federal funds sold 34,000 34,000 26,600 26,600
Securities held to maturity 23,066 23,532 15,120 15,609
Loans, net 43,167 44,730 52,706 53,418
Accrued interest receivable 378 378 586 586
Financial liabilities
Deposit liabilities 86,955 86,969 80,758 80,738
Borrowed funds 512 512 512 512
Accrued interest payable 211 211 293 293
Off-balance-sheet liability
instruments
Loan commitments N/A 10,849 N/A 12,253
Standby letters of credit N/A 270 N/A 154
Commercial letters of credit N/A 103 N/A --
</TABLE>
(15) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulator
framework for prompt corrective actions, the Company must meet specific
capital guidelines that involve quantitative measure of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to insure capital
adequacy require the Company to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined), to average assets (as defined). Management believes that
the Company meets all capital adequacy requirements to which it is
subject.
15
<PAGE> 44
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENT
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The Company's actual capital amounts and ratios compared to regulatory
minimum ratios and amounts are presented as follows (in thousands):
<TABLE>
<CAPTION>
FOR CAPITAL
ADEQUACY WALL
ACTUAL PURPOSES CAPITALIZED
-------- ---------- ----------
<S> <C> <C> <C>
December 31, 1998
Total Capital $21,342 $5,373 $6,716
% of risk-weighted assets 31.78% 8.00% 10.00%
Tier I Capital 20,945 2,686 4,030
% of risk-weighted assets 31.19% 4.00% 6.00%
Tier I Capital 20,945 4,145 5,182
% of average assets 20.21% 4.00% 5.00%
December 31, 1997
Total Capital $19,826 $5,380 $6,725
% of risk-weighted assets 29.48% 8.00% 10.00%
Tier I Capital 19,515 2,690 4,035
% of risk-weighted assets 29.02% 4.00% 6.00%
Tier I Capital 19,515 4,088 5,109
% of average assets 19.10% 4.00% 5.00%
</TABLE>
(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly data is presented as follows (in thousands
except for per share amounts):
<TABLE>
<CAPTION>
1998
----------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 1,951 $ 1,971 $ 2.06 $ 1,965
Interest expense 475 511 512 612
------- ------- ------- -------
Net interest income 1,476 1,460 1,546 1,353
Provision for credit losses 75 750 75 (125)
------- ------- ------- -------
Net interest income after
provision for credit losses 1,401 1,385 1,471 1,478
Non interest income 205 221 200 251
Non interest expenses 1,042 1,043 1,035 696
------- ------- ------- -------
Income before income taxes 564 563 636 760
Income tax expense 212 246 288 241
------- ------- ------- -------
Net income $ 352 $ 317 $ 348 $ 519
======= ======= ======= =======
Net income per share $ 0.40 $ 0.35 $ 0.35 $ 0.57
======= ======= ======= =======
</TABLE>
16
<PAGE> 45
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1997
----------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $1,799 $2,003 $1,981 $ 1,979
Interest expense 486 488 508 493
Net interest income 11,313 1,515 1,473 1,486
Provision for credit losses 170 190 75 (592)
Net interest income after
provision for credit losses 1,143 1,325 1,398 2,078
Other income 189 236 227 223
Other expenses 994 1,084 1,560 1,189
Income before income taxes 338 477 65 1,112
Income tax expense 157 200 52 338
------ ------ ------ -------
Net income $ 181 $ 277 $ 13 $774.00
====== ====== ====== =======
Net income per share $ 0.20 $ 0.28 $ 0.01 $ 0.86
====== ====== ====== =======
</TABLE>
During the fourth quarter of 1998 and 1997, the Company completed a
comprehensive review of its loan loss reserve. As a result of that review
and a recovery of a significant loan previously charged off, there was a
reversal of provisions for credit losses in the fourth quarter.
(17) CONDENSED FINANCIAL INFORMATION OF BRUNSWICK BANCORP (PARENT ONLY)
<TABLE>
<CAPTION>
Balance Sheet DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Due from banks - demand deposits with
the Bank $ 4,389,825 $ 190,439
Investments - certificate of deposit
with the Bank 71,866 993,198
Loans receivable 500,000 3,400,000
Investment in the Bank 16,363,842 15,184,217
Accrued interest receivable and
other assets 27,387 88,081
------------ ------------
$ 21,352,920 $ 19,855,935
============ ============
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ 11,370 $ 30,360
Common stock - par value $2 per share -
3,000,000 shares authorized, 721,920 issued $ 1,443,840 $ 1,443,840
Additional paid-in capital 4,284,804 4,284,804
Retained earnings 15,704,680 14,168,828
Treasury stock at cost, 3,720 shares in 1998
and 3,097 shares in 1997 (91,774) (71,897)
------------ ------------
$ 21,341,550 $ 19,825,575
------------ ------------
$ 21,352,920 $ 19,855,935
============ ============
</TABLE>
17
<PAGE> 46
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest income $ 355,678 $ 111,640 $ 49,475
Dividends from the Bank 150,000 450,000 250,000
Other expenses (31,051) (63,915) (12,303)
Loss on foreclosed real estate -- (398,681) --
----------- ----------- -----------
Income before income taxes and
equity in undistributed net
income of the Bank 492,627 99,044 287,172
Income tax expense (benefit) (136,400) (108,041) 31,694
----------- ----------- -----------
Income before equity in undistributed
net income the Bank 356,227 207,085 255,478
Equity in undistributed net income
of the Bank 1,179,625 1,037,457 507,372
----------- ----------- -----------
Net income $ 1,535,852 $ 1,244,542 $ 762,850
=========== =========== ===========
Net income per share of common stock $ 1.71 $ 1.38 $ 0.85
=========== =========== ===========
</TABLE>
18
<PAGE> 47
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,535,852 $ 1,244,542 $ 762,850
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 57,000 74,599
Loss on foreclosed real estate 398,681 --
(Increase) decrease in other assets 60,694 (82,537) 5,524
Increase (decrease) in other liabilities (18,990) (75,040) 22,700
Equity in undistributed net income
of the Bank (1,179,625) (1,037,457) (507,372)
----------- ----------- -----------
Cash provided by operating activities: 397,931 505,189 358,301
Cash flows from investing activities:
Net (increase) decrease in loans 2,900,000 (3,000,000) (400,000)
Net (increase) decrease in certificates
of deposit 921,332 (808,206) 282,067
Proceeds from sale of foreclosed
real estate -- 2,952,960 --
Acquisition of foreclosed real estate -- -- (8,785)
----------- ----------- -----------
Cash provided by (used in) investing
activities 3,821,332 (855,246) (126,718)
Cash flows from financing activities:
Purchase of treasury stock (19,877) (71,897) --
----------- ----------- -----------
Cash used in financing activities: (19,877) (71,897) --
----------- ----------- -----------
Increase (decrease) in cash 4,199,386 (421,954) 231,583
Cash and cash equivalents, beginning
of year 190,439 612,393 380,810
----------- ----------- -----------
Cash and cash equivalents, end of year $ 4,389,825 $ 190,439 $ 612,393
=========== =========== ===========
</TABLE>
Certain bank regulatory limitations exist on the availability of subsidiary bank
undistributed net assets for; the payment of dividends to Brunswick Bancorp
without the prior approval of the bank regulatory authorities. Substantially all
undistributed net asses of the Bank are limited in availability for dividends to
Brunswick Bancorp as of December 31, 1998.
19
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,448,304
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 34,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 23,065,507
<INVESTMENTS-MARKET> 23,531,684
<LOANS> 43,967,795
<ALLOWANCE> 801,059
<TOTAL-ASSETS> 109,141,288
<DEPOSITS> 86,954,909
<SHORT-TERM> 511,512
<LIABILITIES-OTHER> 333,317
<LONG-TERM> 0
0
0
<COMMON> 1,443,840
<OTHER-SE> 19,897,710
<TOTAL-LIABILITIES-AND-EQUITY> 109,141,288
<INTEREST-LOAN> 5,254,959
<INTEREST-INVEST> 671,529
<INTEREST-OTHER> 2,019,208
<INTEREST-TOTAL> 7,945,696
<INTEREST-DEPOSIT> 2,098,798
<INTEREST-EXPENSE> 11,888
<INTEREST-INCOME-NET> 5,835,010
<LOAN-LOSSES> 100,000
<SECURITIES-GAINS> 5,735,010
<EXPENSE-OTHER> 4,089,526
<INCOME-PRETAX> 2,552,901
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,535,852
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
<YIELD-ACTUAL> 6.06
<LOANS-NON> 325,000
<LOANS-PAST> 754,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 820,254
<CHARGE-OFFS> 161,200
<RECOVERIES> 42,005
<ALLOWANCE-CLOSE> 801,059
<ALLOWANCE-DOMESTIC> 801,059
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
