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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, 2002
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 (IRS employer
incorporation or organization) identification number)
439 Livingston Avenue
New Brunswick, NJ 08901
- ----------------- -----
(Address of Principal Executive Offices) (Zip Code)
(732) 247-5800
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
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None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
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Common Stock, no 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 the Form 10-K. [X]
- ----------------------------------------------------------------- --------
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of February 7, 2003 was $25,138,500.
The number of shares of Registrant's Common Stock, no par value, outstanding as
of February 7, 2003 was 2,094,875.
BRUNSWICK BANCORP
DOCUMENTS INCORPORATED BY REFERENCE
PART(S) INTO
DOCUMENTS WHICH INCORPORATED
The Proxy Statement will 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 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 the Annual Report on Form 10-K
With the exception of information specifically incorporated by reference, the
Proxy Statement is not deemed part of this report.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 2. Properties 6
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 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountant
on Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 19
Item 11. Compensation of Executive Officers 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management 19
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K 20
Signatures 21-22
Certification of Annual Report 23
BRUNSWICK BANCORP
Form 10-K Annual Report
For the Fiscal Year Ended December 31, 2002
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 the
outstanding shares of the Bank.
The Bank was incorporated as a state-chartered New Jersey bank in 1970 under the
name of Bank of Manalapan. That entity merged with New Brunswick Trust Company
in 1977, forming Brunswick Bank and Trust Company.
The Bank in 2001 created a wholly owned subsidiary to manage the Bank's
investment portfolio. BTB Investment Corp. Inc. was formed and now manages and
operates the Bank's investments.
The Bank maintains its executive office and five branches in Monmouth and
Middlesex Counties, New Jersey.
Regulatory Matters
There are a variety of statutory and regulatory restrictions governing BB, the
Bank, and the relations between 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 that 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 affiliate may not exceed 20% of the Bank's capital
stock and surplus and, singly, to BB or any affiliates 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 of standby letter-of-credit on behalf of BB or any of
its affiliates.
CAPITAL REQUIREMENTS
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 level of risk associated with each category then weights the total dollar
value of each category. A minimum total qualifying capital to risk-based assets
1
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 allowances 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, 2002, the Company's
Total Capital ratio was 43.64% consisting of a Tier 1 ratio of 42.41% and Tier 2
ratio of 1.23%. 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 of 100-200 basis points above the 3% minimum. As of
December 31, 2002, the consolidated Company, consisting of BB, the Bank and the
BB subsidiaries, had a leverage capital ratio of 22.21%.
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, 2002. As of December 31, 2002, the Bank had
a risk weighted capital ratio of 17.93% and a leverage capital ratio of 22.21%.
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 ratio of at least 5.0 percent,
and (iv) meets certain 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 4.6 percent, (iii) has a
Tier 1 leverage ratio (a) at least 4.0 percent of (b) at least 3.0 percent if
the institution was rated I 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 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 is 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.
HOLDING COMPANY SUPERVISION
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
2
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 of
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.
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 Act of 1994 (the "Interstate
Banking and Branching Act") enables 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 authorize 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 has 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.
GRAMM-LEACH-BLILEY FINANCIAL MODERNIZATION ACT OF 1999
On November 12, 1999, the President signed the Gramm-Leach-Bliley Financial
Modernization Act of 1999 into law - effective March 13, 2000. The
Modernization Act:
allows bank holding companies meeting management, capital and Community
Reinvestment Act standards to engage in a substantially broader range
of non-banking activities than currently is permissible, including
insurance underwriting and making merchant banking investments in
commercial and financial companies; if a bank holding company elects to
become a financial holding company, it files a certification, effective
in 30 days, and thereafter may engage in certain financial activities
without further approvals;
allows insurers and other financial services companies to acquire
banks;
removes various restrictions that apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
establishes the overall regulatory structure applicable to bank
companies that also engage in insurance and securities operations.
3
The Modernization Act also modifies other current financial laws, including
laws related to financial privacy and community reinvestment.
(b) Industry Segment
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 & Trust. BB also owns 100% of the common stock of Brunscor
Realty, a corporation that has been inactive, but in January 2002 has been
activated and owns one of the bank's parking lot as a rental property. As a
secondary function, BB conducts commercial lending activities.
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 executive office in New Brunswick, New Jersey. The Bank
operates out of its executive office and five branch offices in Monmouth and
Middlesex Counties.
At December 31, 2002, BB and its subsidiary Bank had deposits of $93,321,025
total loans of $58,519,930 and total assets of $122,706,834. The Bank in the
year 2000 to stay competitive, offered a new banking service to its new and
established customers, Internet Banking. 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 51 full-time employees as of December 31, 2002.
The primary emphasis of the Company's lending activities is in the commercial
lending area. As of December 31, 2002, 52.76% of the Bank's loan portfolio
consists of commercial loans, 3.12% are construction first mortgage loans,
22.89% are commercial first mortgage loans, 20.08% are residential loans, and
1.15% are installment loans. The composition of the loan portfolio represents
a shift from the year 2001 to the extent that commercial loans increased from
45.47% in 2001 to 52.76% in 2002. Commercial first mortgage loans declined
from 21.30% in 2001 to 20.08% in 2002. 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 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 area. However, the concentration of the Company's real estate
collateral in a compact geographical area can subject the Company to greater
fluctuations 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, finance companies,
credit
4
unions and other financial institutions. The Bank is limited, in making
commercial loans in 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.
(e) Executive Officers of the Registrant
The following table sets forth information with respect to each executive
officer of BB who is not a director of BB. All executive officers of BB serve
at the pleasure of the Board of Directors.
Name,
Position with Officer of Principal Occupation
BB, and Age BB Since During Past Five Years
- ----------- -------- ----------------------
Roman Gumina 1987 President
Chief Operating Officer Brunswick Bank & Trust
43
Thomas A. Fornale 1989 Controller
Secretary/Treasurer Brunswick Bank & Trust
Controller
64
(f) Statistical Disclosure Required Pursuant to Securities
Exchange Act, Industry Guide 3.
Sets forth on the pages are indicated below is the statistical disclosure for
a bank holding company required pursuant to Industry Guide 3.
I. Distribution of Assets
Liabilities and Stockholders'
Equity; Interest Rates and
Interest Differential 13-14
II. Investment Portfolio 14-15
III. Loan Portfolio 15-16
IV. Summary of Loan Loss Experience 17-18
V. Deposits 18
VI. Return on Equity and Assets 19
VII. Short-Term Borrowings 19
5
ITEM 2. PROPERTIES
The Bank currently operates from its main office and five branch offices. The
Bank leases the main office and one branch. The Bank owns four of the branch
offices.
The following is a list of offices the Bank owns:
Approximate
Branch Address Square Feet
- ------ ------- -----------
George Street 352 George Street
New Brunswick, NJ 08901 4,700
South Brunswick- Monmouth Junction Road
Monmouth Junction and Kingston Lane
Monmouth Jct., NJ 08852 2,000
Freehold 444 West Main Street
Freehold, NJ 07728 2,000
The following is a list of offices, which the Bank leases:
Expiration
Branch Address Square Feet Date of Lease
- ------ ------- ----------- -------------
Main Office 439 Livingston Avenue 8,400 and
New Brunswick, NJ 08901 4,000 (basement) December 2010
Edison Plainfield Avenue and
Metroplex Drive
Edison, NJ 08817 3,400 February 2004
North Brunswick 1060 Aaron Road 3,000 April 2021
North Brunswick, NJ 08902
As described in Note 13 to the financial statements, the Company 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 2002.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
BB had 367 shareholders of record as of December 31, 2002.
The Company's 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. Brunswick Bankcorp is listed on the
American Stock Exchange under the symbol "BRB". The quarterly information
represents the high and low sales price as it is reported by the exchange.
------------------------------------------------------
2002 2001
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High Low High Low
----- ----- ----- -----
1st Quarter 12.94 11.50 13.20 12.00
2nd Quarter 13.00 11.20 12.50 11.88
3rd Quarter 11.74 10.75 11.65 10.00
4th Quarter 12.75 10.25 12.00 10.25
Payments of dividends by Brunswick Bank and Trust Company to BB are
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 surplus 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 that, 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, 2002, approximately $11 million is
currently available, without restriction, for the Bank to pay BB in dividends.
A Federal Reserve Board capital requirement of 8.0% would still be maintained
in the event of said dividend. BB issued 20% aggregate stock dividends in 1999
and a 10% stock dividend in 2002, cash was paid in lieu of fractional shares.
No dividends were paid in the years 2001, 2000 and 1998. The Board of
Directors is considering a dividend in 2003, but has not yet determined if
cash dividends will be reinstituted.
STOCK SPLIT
The Board of Directors declared two shares for one share stock split payable
on January 14, 2000 to stockholders of record on December 31, 1999. The stock
split resulted in the Company issuing 902,266 shares. These financial
statements give retroactive effect to the stock split.
All share and per share information in this report gives effect the stock
split. Earnings per share have been restated to reflect the stock split
declared.
7
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
concerning BB:
Year Ended December 31
--------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data)
--------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Interest income $7,566 $8,198 $8,455 $7,269 $7,946
Interest expense 720 1,467 2,006 1,857 2,111
Net interest income 6,846 6,731 6,449 5,412 5,835
Provision for credit losses (212) (124) 258 61 100
Net interest income after
provision for credit losses 7,058 6,855 6,191 5,351 5,735
Non-interest income 968 946 1,087 1,008 877
Other expenses 4,747 4,802 4,425 4,265 4,089
Income before income taxes 3,278 2,999 2,853 2,094 2,523
Income tax expense 1,334 1,174 1,226 773 987
Basic net income 1,944 1,825 1,627 1,321 1,536
Basic net income per share .96 .91 .84 .72 .85
Cash dividends per share 0 0 0 0 0
Weighted average
Number of shares outstanding 2,019,256 2,009,572 1,925,543 1,829,439 1,797,566
Summary Consolidated Balance Sheets
----------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data)
----------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total Assets 122,707 109,004 118,499 $ 108,873 $109,141
Deposits 93,321 81,628 93,411 85,299 86,955
Other Liabilities 1,097 1,130 762 916 845
Stockholders' equity 28,289 26,246 24,326 22,658 21,341
Total shareholder's equity
per outstanding share $ 13.50 $ 13.78 $ 13.05 $ 12.56 $ 11.83
========= ========= ========= ========= ========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following financial review of Brunswick Bancorp (the "Company") is
presented on a consolidated basis and is intended to provide a comparison of
the financial performance of the Company and its wholly owned subsidiary,
Brunswick Bank & Trust Company (the "Bank") for the years ended December 31,
2002, 2001 and 2000. The information presented below should be read in
conjunction with the Company's consolidated financial statements and
accompanying notes appearing elsewhere in this report. All share and per share
data has been restated to reflect the two for one stock split declared on
December 14, 1999 paid on January 14, 2000 and the five shares for four shares
stock split paid on February 11, 1999 and on March 21, 2002 a 10% stock
dividend paid on May 15, 2002.
Overview:
The Company's 2002 net income was $1,943,990, which was $118,708, or 6.5%,
greater than the year before 2001 of $1,825,282. The net income for 2001 was
$198,352 greater than the year before 2000, which was $1,626,930. Net income
per share was $.96, $.91 and $.84, respectively in 2002, 2001 and 2000.
8
The increase in net income recorded in 2002 is due to the net interest income
of $115,000, a net loan loss recovery increase of $88,000 and increase in
other income of $ 23,000. Finally other expenses were down $54,000.
The increase in net income recorded in 2001 is due to the increase in net
interest income by $282,000 and increase in net loan loss recovery of
$382,000. This was partially offset by a decrease in other income of $141,000,
which was mostly due to a decrease in credit card service fees of $120,000.
Income was also affected by an increase in other expenses of $ 377,000. The
increase in other expenses was due primarily to an increase in salaries and
benefits of $258,000 and occupancy expenses of $ 66,000.
Return on assets for the years ended December 31, 2002, 2001 and 2000 was
1.64%, 1.61% and 1.45%, respectively while the return on beginning of the year
equity recorded during the same periods amounted to 7.41%, 7.50 % and 7.18%.
The Company intends to continue to service small businesses and individuals in
its targeted geographical area as a local commercial bank. The Company will
consider future expansion into additional branches, geographic areas or a
possible acquisition if the opportunity arises. As of December 31, 2002, the
Company has been approved by the Federal Deposit Insurance Corporation and the
New Jersey Department of Banking for one additional branch. The Company is
planning the branch location for southern Middlesex County (Monroe Township)
New Jersey.
Income Statement Analysis, 2002 vs. 2001
For the year 2002, income before income taxes increased from 2001 by $279,000.
This increase occurred primarily because of an increase in net interest
income, which was higher due to a substantial decrease in interest rates on
deposits and an increase in loan volume.
Interest income decreased by $632,000 and interest expense decreased by
$747,000 which resulted in an $115,000 overall increase in net interest
income. The following table illustrates how increase in loan volume and
interest rates affected net interest income.
Interest Income:
Effect of increased volume $ 543,000
Effect of decreased interest rates (1,175,000)
Interest expense:
Effect of decreased volume 11,000
Effect of decreased interest rates 736,000
-----------
Increase in net interest income $ 115,000
===========
Recovery of loans offset the provision for loan losses in the year 2002 by a
net amount of $212,000, and other income increased by $22,000. Finally other
expenses were down $54,000.
The decrease in other expenses was primarily due to a decrease in
administrative and staff salaries and benefit costs.
9
Income Statement Analysis, 2001 vs. 2000
For the year 2001 income before income taxes increased from 2000 by $147,000.
This increase occurred mainly because of an increase in net interest income,
which was higher due to a substantial decrease in interest rates on deposits
and an increase in loan volume.
Interest income decreased by $257,000 and interest expense decreased by
$539,000 which resulted in a $282,000 overall increase in net interest income.
The following table illustrates how increase in loan volume and interest rates
affected net interest income.
Interest income:
Effect of increased volume $ 453,000
Effect of decreased interest rates (710,000)
Interest expense:
Effect of decreased volume 54,000
Effect of decreased interest rates 485,000
---------
Increase in net interest income $ 282,000
=========
Recovery of loans offset the provision for loan losses in the year 2001 by a net
amount of $124,000.This was offset by a reduction in other income of $141,000.
Finally other expenses increased by $376,000.
The increase in other expenses was primarily due to an increase in
administrative and staff salaries and benefit costs.
In January 2001, management decided to no longer be in the credit card business.
With the phase out of this business in the past year, credit card service fee
income was only $85,000 compared with the prior year fees of $199,000. The drop
of income of $114,000 was the primary reason for the reduction in other service
charge and fee income for 2001 compared to 2000.
Liquidity and Capital Resources
Balance Sheet Analysis
The most notable change in the Company's Balance Sheet at December 31, 2002 is
an increase in total assets of $13,703,000 compared to the prior year ending
December 31, 2001. This increase was primarily due to an increase in deposits of
$11,694,000.
Securities decreased by $6,994,000 and loans increased by $2,429,000; these
changes along with the above-mentioned increase in deposits resulted in a
$19,000,000 increase in federal funds sold.
For additional details on securities, loans and premises and equipment, refer to
the Notes to Consolidated Financial Statements.
With respect to the liability side of the balance sheet as mentioned above total
deposits increased by $11,694,000 for the year ending December 31, 2002 compared
to the prior year ending December 31, 2001.
Savings and NOW deposits increased by $8,867,000, demand deposits increased
$3,813,000 and time deposits deceased by $986,000, resulting in an increase in
total deposits of $11,694,000.
Stockholders' equity, increased by $2,043,000 with the addition of 2002 net
income of $1,944,000 and the amortization of deferred stock compensation of
$105,000, less additional treasury stock purchase of $5,000 and a small stock
dividend in lieu of fractional shares issued on the stock dividend in 2002 for
$1,000.
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 the acquisition of additional
deposits. Secondarily, liquidity may be provided by the sales of assets and by
other borrowings.
10
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, 2002, cash and due from banks totaled $8.6 million; federal funds
totaled $25 million. Investment securities and loans maturing within one year
totaled $5.1 million and $14.9 million, 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 $2.1 million in 2002, $1.9 million in 2001 and
$1.1 million in 2000. In 2002, investing activities provided $4.8 million
primarily, because maturities of investment securities was greater then the
reinvestment in securities by $7.0 million, offset by increase in loans
receivable of $2.2 million. Financing activities provided cash of approximately
$11.6 million due to the increases in non-interest bearing deposits of $3.8
million and interest bearing deposits of $7.9 million.
In light of the past cash flows provided from operating, financing, and
investing activities, management believes it may continue to meet both short and
long-term liquidity needs.
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.
Minimum
Regulatory
Guidelines
------------------------- ----------
2002 2001
---- ----
Risk-based capital ratios
Tier 1 42.41% 41.99% 4.000%
Total Capital 43.64% 43.25% 8.000%
Capital (in thousands)
Tier 1 capital $ 27,683 $ 25,731
Tier II capital (1) 800 800
-------- --------
$ 26,883 $ 24,931
======== ========
(1) Lesser of the allowance for loan loss or 1/80 of risk-weighted assets.
Statements Regarding Forward-Looking Information
This form 10-K, both in the Management Discussion and Analysis and elsewhere,
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are not historical facts and
include expressions about management's confidence and strategies and
management's expectations about new and existing programs and products,
relationships, opportunities, technology and market conditions. These statements
may be identified by such forward looking terminology as "expect," "look,"
"believe," "anticipate," "consider," "may," "will," or similar statements or
variations of such terms. Such forward-looking statements involve certain risks
and uncertainties. These include but are not limited to, changes in interest
rates, economic conditions, deposit and loan growth, and loan loss provisions,
changes in relationships with customers and the effects of legal and regulatory
provisions applicable to the Company and its competitors. Actual results may
differ materially from the results discussed in these forward-looking
statements. The Company assumes no obligation for updating any such
forward-looking statements at this time.
11
Interest Rate Sensitivity Management
The accompanying table, a quantification of the Company's interest rate
exposure at December 31, 2002, is based upon the known repricing dates of
certain assets and liabilities and the assumed repricing dates of others.
Interest Rate Sensitivity*
-----------------------------------------------------------------------
After
After One
Three but
Within but Within Within After
Three Twelve Five Five Noninterest
Months Months Years Years Bearing Total
-------- ---------- -------- ------- ----------- ---------
Assets
Cash & due from banks $ - $ - $ - $ - $ 8,629 $ 8,629
Federal funds sold 25,000 - - - - $ 25,000
Investment securities 2,000 3,150 22,257 500 12 $ 27,919
Loans, net (a) 2,622 12,247 39,203 4,448 - $ 58,520
Other assets - - - - 2,639 $ 2,639
-------- ---------- -------- ------- ----------- ---------
$ 29,622 $ 15,397 $ 61,460 $ 4,948 $ 11,280 $ 122,707
======== ========== ======== ======= =========== =========
Liabilities and Stockholders Equity
Total deposits (b) $ 36,939 $ 8,314 $ 15,137 $ - $ 32,931 $ 93,321
Borrowed funds 611 - - - - $ 611
Other liabilities - - - - 486 $ 486
Stockholders equity - - - - 28,289 $ 28,289
-------- ---------- -------- ------- ----------- ---------
$ 37,550 $ 8,314 $ 15,137 $ - $ 61,706 $ 122,707
======== ========== ======== ======= =========== =========
Interest rate sensitivity gap
Cumulative interest (7,928) 7,083 - 46,323 - 4,948 - (50,426) -
-------- ---------- -------- ------- ----------- ---------
$ (7,928) $ (845) $ 45,478 $50,426 $ - $ -
======== ========== ======== ======= =========== =========
*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.
12
Unadopted Financial Accounting Standards Board Statements
As of December 31, 2002, 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
(In Thousands)
Year Ended December 31,
2002 2001 2000
------------------------------- ----------------------------- -----------------------------
Average Average Average Average Average Average
Balance Yield Balance Yield Balance Yield
Sheet (3) Interest Rate Sheet (3) Interest Rate Sheet (3) Interest Rate
---------- -------- ------- --------- -------- ------- --------- -------- -------
Interest-earning Assets
Federal funds sold $ 20,092 $ 287 1.43% $ 21,177 $ 801 3.78% $ 26,784 $ 1,672 6.24%
Investment securities
taxable 31,438 1,879 5.98% 28,369 2,015 7.10% 27,356 1,644 6.01%
Investment securities
non-taxable (1) - - - - - - - - -
Loans, net 56,463 5,400 9.56% 53,136 5,382 10.13% 47,554 5,139 10.81%
---------- -------- ------- --------- -------- ------- --------- -------- -------
$ 107,993 $ 7,566 5.66% $ 102,682 $ 8,198 7.00% $ 101,694 $ 8,455 7.69%
Noninterest-earning assets
Deposits in bank 7,488 6,884 6,751
Other real estate
owned - - 16
Other (2) 2,715 3,205 3,443
---------- -------- ------- --------- -------- ------- --------- -------- -------
$ 118,196 $ 7,566 5.66% $ 112,771 $ 8,198 7.04% $ 111,904 $ 8,455 7.53%
========== ======== ======= ========= ======== ======= ========= ======== =======
Interest-bearing liabilities
Savings deposits $ 16,821 $ 138 0.82% $ 13,621 $ 240 1.76% $ 13,039 $ 256 1.96%
Demand deposits 32,667 272 0.83% 30,556 620 2.03% 33,831 1,089 3.22%
Time deposits 12,072 306 2.53% 14,050 598 4.26% 13,888 645 4.64%
Short term debt 277 4 1.44% 258 9 3.49% 269 16 5.95%
---------- -------- ------- --------- -------- ------- --------- -------- -------
61,837 720 1.16% 58,485 1,467 2.51% 61,027 2,006 3.29%
Noninterest-bearing
Demand deposits 28,475 28,481 26,868
Other 652 687 647
---------- -------- ------- --------- -------- ------- --------- -------- -------
90,964 720 0.79% 87,653 1,467 1.67% 88,542 2,006 2.48%
Stockholders' equity 27,232 25,118 23,362
---------- -------- ------- --------- -------- ------- --------- -------- -------
$ 118,196 $ 720 0.61% $ 112,771 $ 1,467 1.30% $ 111,904 $ 2,006 2.00%
========== ======== ------- ========= ======== ======= ========= ======== =======
Net yield on total
earning assets $ 107,993 $ 6,846 6.34% $ 102,682 $ 6,731 6.56% $ 101,694 $ 6,449 6.06%
========== ======== ======= ========= ======== ======= ========= ======== =======
(1) The rate is presented on a tax equivalant 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.
13
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, 2002, 2001, and
2000 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.
(In thousands)
2002 Versus 2001 2001 Versus 2000
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)
------- ------- ---------- ------- ------- ----------
Interest and dividend income
Federal funds sold $ (16) $ (498) $ (514) $ (252) $ (619) $ (871)
Investment securities
taxable 195 (331) (136) 70 301 371
Investment securities
nontaxable - - - - - -
Loans, net 364 (346) 18 635 (392) 243
------- ------- ---------- ------- ------- ----------
Total interest income 543 (1,175) (632) 453 (710) (257)
------- ------- ---------- ------- ------- ----------
Interest expense
Savings deposits 30 (132) (102) 11 (30) (19)
Demand deposits 19 (364) (345) (72) (400) (472)
Time deposits (60) (235) (295) 7 (48) (41)
Short term debt - (5) (5) - (7) (7)
------- ------- ---------- ------- ------- ----------
Total interest expense (11) (736) (747) (54) (485) (539)
------- ------- ---------- ------- ------- ----------
Changes to net interest income $ 554 $ (439) $ 115 $ 507 $ (225) $ 282
------- ------- ---------- ------- ------- ----------
Investment Portfolio
The following table shows the net 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).
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
U.S. Treasury securities $ - $ - $ - $ - $ -
Obligations of other U.S.
Government agencies 25,969 32,964 20,410 21,013 21,016
Obligations of state and
other political subdivisions - - - - -
Other securities 1,950 1,950 1,950 1,650 2,050
------- -------- -------- -------- --------
Total investment
securities $27,919 $ 34,914 $ 22,360 $ 22,663 $ 23,066
======= ======== ======== ======== ========
14
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, 2002 (in thousands). Yields on tax
exempt securities are presented on fully tax-equivalent basis using a 34%
Federal tax rate.
Due Under 1 Year Due 1-5 Years Due 5-10 Years Due Over 10 Years
-------------------------------------- --------------- ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- -------- -------- ----- ------ ------ ------ ------
U.S. Treasury Securities $ - $ - $ - $ - $ - $ - $ - $ -
Obligations of other U.S.
Government agencies 5,000 5.75% 20,957 5.92% - 0.00% 12 5.76%
Obligations of states and
other political
subdivision - - - - - - - -
Other securities 150 6.20% 1,300 7.24% 500 7.20% - -
------- -------- -------- ----- ------ ------ ------ ------
Total investment
securities $ 5,150 5.75% $ 22,257 6.67% $ 500 7.38% $ 12 5.76%
======= ======== ======== ===== ====== ====== ====== ======
Loan Portfolio
The following tables set forth the composition of the Company's loan portfolio
as of the dates indicated (in thousands):
December 31,
2002 2001 2000 1999 1998
-------- -------- -------- --------- --------
Types of loans
Commercial and financial $ 31,362 $ 25,902 $ 18,484 $ 10,634 $ 16,307
Real estate- mortgage 25,543 25,650 25,383 27,785 24,406
Real estate- construction 1,855 4,571 9,073 4,332 2,034
Installment 681 847 1,017 1,259 1,329
-------- -------- -------- --------- --------
Total loans $ 59,441 $ 56,970 $ 53,957 $ 44,010 $ 44,076
======== ======== ======== ========= ========
15
The following table sets forth the maturity distribution for the above loan
portfolio at December 31, 2002 net of allowance for loan losses and unearned
fees.
Maturities and Sensitivities of Loans to Changes in Interest Rates:
After 1
Year
Within within After 5
1 Year 5 Years Years Total
------ ------- ----- -----
Commercial and financial
Fixed rate $ 3,507 $ 14,370 $ 985 $18,862
Variable rate 6,817 4,367 411 11,595
Real estate mortgage
Fixed rate 2,626 19,879 2,435 24,940
Variable rate - - 602 602
Real estate construction
Fixed rate - - - -
Variable rate 1,855 - - 1,855
Installment
Fixed rate 54 588 14 656
Variable rate $ 10 $ - $ - $ 10
Rollover Policy
The company's overall practice in this area is to limit the rollover of loans to
any of it customers. Occasionally, borrowers to whom credit has been extended
experience unanticipated charges in cash flow or other circumstances that
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 is 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):
December 31,
-----------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Non-accrual loans $ 654 $ 1,629 698 $ 829 $ 325
Loans, past due 90 days or more 24 275 998 519 754
Other real estate owned 0 0 0 0 133
Percentage of non-performing loans to gross
loans outstanding 1.14% 3.35% 3.19% 3.06% 2.75%
16
If the above non-accrual loans at December 31, 2002 had been current, interest
income for 2002 would have been approximately $31,768 greater than that
recorded. Delinquency rates at December 31, 2002 primarily were lower than the
past four years. The delinquency rate was lower in 2002 due to the substantial
reduction in non-accrual loans.
Except for loans included in the above table there were no loans at December 31,
2002 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,
2002, the total loan portfolio was approximately $59 million. As of the same
date, the commercial loan portfolio totaled approximately $31.3 million; $1.4
million of these commercial loans were collateralized by the stock of a publicly
traded company, the market value of the stock collateralizing these loans
totaled approximately $2.5 million as of December 31, 2002. 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 that would cause them to be similarly
affected by changes in economic or other conditions.
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 that has been
charged to income.
(In thousands)
Year Ended December 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
---- ------ ------ ------ ------
Balance at beginning of period 800 $ 800 $ 800 $ 801 $ 820
Charge-offs
Commercial & financial - 130 196 - 112
Real estate- mortgage - - 50 56 49
Real estate- construction - - - - -
Installment 33 - 12 3 -
---- ------ ------ ------ ------
33 130 258 59 161
Recoveries
Commercial & financial 107 - - 65 26
Real estate- mortgage 136 254 - 22 16
Real estate- construction - - - -
Installment 2 - - 34 -
---- ------ ------ ------ ------
Net charge-offs (212) (124) 0 (62) 119
Additional charges to operations (212) (124) 258 61 100
---- ------ ------ ------ ------
Balance at end of period 800 $ 800 $ 800 $ 800 $ 801
---- ------ ------ ------ ------
Ratio of net charge-offs during
the period to average loans
outstanding during the period (.375%) (.239%) .543% (.002%) .410%
17
Allocation of the Allowance for Loan Losses
Real Real
Commercial & Estate Estate
December 31, Financial Mortgage Construction Installment Total
- ------------------------- ------------ -------- ------------ ----------- -----
2002
Amount $ 608 $ 160 $ 24 $ 8 $ 800
Percentage of total 76% 20% 3% 1% 100%
2001
Amount 552 168 64 16 800
Percentage of total 69% 21% 8% 2% 100%
2000
Amount 464 184 136 16 800
Percentage of total 58% 23% 17% 2% 100%
1999
Amount 408 288 80 24 800
Percentage of total 51% 36% 10% 3% 100%
1998
Amount 505 272 16 8 801
Percentage of total 63% 33% 3% 1% 100%
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):
2002 2001 2000 1999 1998
Non-interest bearing:
Demand deposits $ 32,931 $ 29,118 $ 27,906 $ 25,353 $ 24,588
Interest bearing:
Savings deposits 15,051 15,460 15,701 12,728 15,217
Time deposits 11,732 12,719 15,724 21,066 16,546
NOW demand deposits 33,607 24,331 34,080 26,151 30,604
-------- -------- -------- -------- --------
Total deposits $ 93,321 $ 81,628 $ 93,411 $ 85,298 $ 86,955
======== ======== ======== ======== ========
The maturities of time deposits of $100,000 or more at December 31, 2002 are
summarized as follows:
Under 3 months $ 695
3 to 6 months 2,052
6 to 12 months 1,565
Over 12 months -
-------
$ 4,312
=======
18
Return on Equity and Assets
The following are selected ratios for the years ended December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Return on Assets 1.64% 1.62% 1.46% 1.21% 1.40%
Return on Equity 7.14% 7.27% 6.96% 6.19% 7.75%
Average equity to
average assets 23.04% 22.27% 20.97% 20.20% 19.40%
Dividend payout ratio 0.00% 0.00% 0.00% 0.00% 0.00%
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, 2002, did outstanding treasury
tax and loan deposits exceed 30% of stockholders' equity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is included with item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements for the years ended December 31, 2002,
2001 and 2000 contain the information required by Item 8 and that information is
incorporated herein following signature page 21.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
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.
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 Inside 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 on 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.
19
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.
PART IV
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, 2002, 2001 and 2000 are
following signature page number 21.
Independent Auditors' Report
Consolidated Statements of Financial Condition - Years Ended December 31, 2002
and 2001
Consolidated Statements of Income - Years Ended December 31, 2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 2002,
2001 and 2000
Consolidated Statements of Cash Flows - Years Ended December 31, 2002, 2001 and
2000
Notes to Financial Statements - Years Ended December 31, 2002 and 2001.
Schedules to the Consolidated of Financial Condition 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
Regualation FD Disclosure
On October 21,2002, Brunswick Bancorp (the "Company") submitted to the
Securities and Exchange Commission the certification of the Company's report on
Form 10-Q for the quarter ending September 30, 2002 by its chief executive
officer and chief financial officer as required pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(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) (a) 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.
(b) Non-Qualified Deferred Compensation
Plan dated as of January 1, 2000
for Carmen J. Gumina. Incorporated
by reference to Form 10-K for the
year ended December 31, 2000.
(c) Non-Qualified Deferred Compensation
Plan dated as of January 1, 2000
for Roman T. Gumina. Incorporated
by reference to Form 10-K for the
year ended December 31, 2000.
(21) Subsidiaries of Brunswick Bancorp,
Incorporated by reference to
Registration Statement on Form S-14
filed on June 20, 1985.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 13 (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
/s/ Carmen Gumina
- ------------------------------
By: Carmen Gumina
Chairman of the Board
March 11, 2003
- ------------------------------
Dated:
Pursuant to the requirement 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.
Signature Title Date
--------- ----- ----
/s/ Bruce Arbeiter March 11, 2003
- ------------------------------ ------------------------------
Bruce Arbeiter Director,
Vice Chairman
/s/ Joseph DeMarco March 11, 2003
- ------------------------------ ------------------------------
Joseph DeMarco Director
/s/ Dominick Faraci March 11, 2003
- ------------------------------ ------------------------------
Dominick Faraci Director
/s/ Carmen J. Gumina March 11, 2003
- ------------------------------ ------------------------------
Carmen J. Gumina Chief Executive Officer,
Chairman of the Board
(Principal Executive Officer)
/s/ Phillip W. Barrood March 11, 2003
- ------------------------------ ------------------------------
Phillip W. Barrood Director
/s/ Michael Kaplan March 11, 2003
- ------------------------------ ------------------------------
Michael Kaplan Director
/s/ Richard A. Malouf March 11, 2003
- ------------------------------ ------------------------------
Richard A. Malouf Director
/s/ James V. Gassaro March 11, 2003
- ------------------------------ ------------------------------
James V. Gassaro Director
/s/ Frederick Perrine March 11, 2003
- ------------------------------ ------------------------------
Frederick Perrine Director
/s/ Robert Sica March 11, 2003
- ------------------------------ ------------------------------
Robert Sica Director
/s/ Robert McDaid March 11, 2003
- ------------------------------ ------------------------------
Robert McDaid Director
21
/s/ Gary S. Russo March 11, 2003
- ------------------------------ ------------------------------
Gary S. Russo Director
/s/ Thomas A. Fornale March 11, 2003
- ------------------------------ ------------------------------
Thomas A. Fornale Secretary-Treasurer Controller,
(Principal Accounting/Financial
Officer)
22
CERTIFICATION OF ANNUAL REPORT
I, Carmen J. Gumina, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Brunswick Bancorp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 11, 2003 /s/ Carmen J. Gumina
----------------- -----------------------
Carmen J. Gumina
Chief Executive Officer 23
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
BRUNSWICK BANCORP AND SUBSIDIARIES
FINANCIAL STATEMENT
YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-22
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
BRUNSWICK BANCORP AND SUBSIDIARIES
I have audited the accompanying consolidated Balance Sheets of Brunswick Bancorp
and Subsidiaries as of December 31, 2002 and 2001 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 2002. These consolidated
financial statements are the responsibility of the Bancorp's management. My
responsibility is to express an opinion on these consolidated financial
statements based on my audits.
I conducted my audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that I plan and perform
the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. I
believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Brunswick Bancorp
and Subsidiaries as of December 31, 2002 and 2001 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
Michael R. Ferraro, CPA
February 7, 2003
Matawan, NJ
1
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
------------- -------------
ASSETS
Cash and due from banks $ 8,629,080 $ 9,064,753
Federal funds sold 25,000,000 6,000,000
------------- -------------
Total cash and cash equivalents 33,629,080 15,064,753
Securities held to maturity 27,919,222 34,913,592
Loans 59,319,930 56,890,636
Allowance for loan losses (800,000) (800,000)
------------- -------------
Net loans 58,519,930 56,090,636
Premises and equipment, net 1,204,755 1,256,514
Accrued interest receivable 809,817 1,139,374
Other assets 624,030 538,815
------------- -------------
TOTAL ASSETS $ 122,706,834 $ 109,003,684
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 32,931,180 $ 29,118,166
Interest bearing 60,389,845 52,509,335
------------- -------------
Total deposits 93,321,025 81,627,501
Borrowed funds 610,615 704,482
Accrued interest payable 112,904 177,569
Other liabilities 373,580 248,324
------------- -------------
TOTAL LIABILITIES 94,418,124 82,757,876
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock-no stated value
10,000,000 shares authorized and no shares
issued and outstanding at December 31, 2002.
Common stock - no par value
10,000,000 shares authorized; 2,094,875 and
1,904,532 shares issued and outstanding at
December 31, 2002 and 2001. 4,189,750 3,809,064
Additional paid-in capital 2,592,694 2,973,380
Retained earnings 22,415,485 20,473,038
Deferred stock compensation (812,600) (917,900)
Treasury stock at cost,10,553 and 9,300 shares
at December 31, 2002 and 2001. (96,619) (91,774)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 28,288,710 26,245,808
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 122,706,834 $ 109,003,684
============= =============
See accompanying notes and accountant's report.
2
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
2002 2001 2000
----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans $ 5,400,235 $ 5,382,173 $ 5,139,424
Interest on investments 1,878,728 2,015,157 1,643,546
Interest on federal funds sold 287,243 800,610 1,671,878
----------- ----------- -----------
TOTAL INTEREST INCOME 7,566,206 8,197,940 8,454,848
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 716,178 1,458,149 1,990,097
Interest on borrowed funds 3,902 9,176 16,152
----------- ----------- -----------
Total interest expense 720,080 1,467,325 2,006,249
----------- ----------- -----------
NET INTEREST INCOME 6,846,126 6,730,615 6,448,599
Provision for credit losses(Recoveries) (211,885) (124,120) 258,015
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,058,011 6,854,735 6,190,584
----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts 716,276 675,313 666,112
Other service charges and fees 222,373 219,084 346,568
Other income 29,064 51,751 74,431
----------- ----------- -----------
TOTAL OTHER INCOME 967,713 946,148 1,087,111
----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 2,587,379 2,669,504 2,412,153
Occupancy expenses 735,592 724,871 658,875
Equipment expenses 202,226 222,377 232,989
Other Expenses 1,222,021 1,184,819 1,121,137
----------- ----------- -----------
TOTAL OTHER EXPENSES 4,747,218 4,801,571 4,425,154
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 3,278,506 2,999,312 2,852,541
Income tax expense 1,334,516 1,174,030 1,225,611
----------- ----------- -----------
NET INCOME $ 1,943,990 $ 1,825,282 $ 1,626,930
=========== =========== ===========
Basic Earnings per share $ 0.96 $ 0.91 $ 0.84
=========== =========== ===========
Diluted Earnings per share $ 0.95 $ 0.90 $ 0.83
=========== =========== ===========
Average shares outstanding-basic 2,019,256 2,009,572 1,925,543
=========== =========== ===========
Average shares outstanding-diluted 2,045,624 2,038,991 1,951,386
=========== =========== ===========
See accompanying notes and accountant's report.
3
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
ADDITONAL DEFERRED
COMMON PAID-IN RETAINED TREASURY STOCK
STOCK CAPITAL EARNINGS STOCK COMPENSATION TOTAL
----------- ---------- ------------ --------- ------------ ------------
Balance December 31, 1999 $ 1,804,532 $3,924,112 $ 17,020,826 $ (91,774) - $ 22,657,696
Net income for 2000 - - 1,626,930 - - $ 1,626,930
Stock split 1,804,532 (1,804,532) - - - $ -
Deferred stock compensation 120,000 501,800 - - (621,800) $ -
Amortization of deferred stock
compensation - - - - 41,400 $ 41,400
----------- ---------- ------------ --------- ------------ ------------
Balance December 31, 2000 3,729,064 2,621,380 18,647,756 (91,774) (580,400) 24,326,026
Net income for 2001 - - 1,825,282 - - 1,825,282
Deferred stock compensation 80,000 352,000 - - (432,000) -
Amortization of deferred stock
compensation - - - - 94,500 94,500
----------- ---------- ------------ --------- ------------ ------------
Balance December 31, 2001 3,809,064 2,973,380 20,473,038 (91,774) (917,900) 26,245,808
Net income for 2002 - - 1,943,990 - - 1,943,990
Stock dividend 380,686 (380,686) (1,543) - - (1,543)
Amortization of deferred stock
compensation - - - - 105,300 105,300
Purchase of treasury stock - - - (4,845) - (4,845)
----------- ---------- ------------ --------- ------------ ------------
Balance December 31, 2002 $ 4,189,750 $2,592,694 $ 22,415,485 $ (96,619) $ (812,600) $ 28,288,710
=========== ========== ============ ========= ============ ============
See accompanying notes and accountant's report.
4
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
2002 2001 2000
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,943,990 $ 1,825,282 $ 1,626,930
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 133,996 179,859 177,268
Net accretion of securities discounts and premiums (109,134) (100,075) (60,565)
Amortization of deferred stock compensation 105,300 94,500 41,400
Provision for credit losses(Recoveries) (211,885) (124,120) 258,015
Provision for deferred income taxes (91,467) 71,435 (191,725)
(Increase) decrease in accrued interest receivable 329,557 (92,767) (725,470)
(Increase) decrease in other assets 6,252 15,398 (24,486)
Increase (decrease) in accrued expenses,
taxes and other liabilities 60,591 56,546 83,952
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,167,200 1,926,058 1,185,319
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of investment securities 24,000,000 9,465,000 15,100,000
Principal repayments on investment securities 87,830 81,908 52,731
Purchase of investment securities (16,984,326) (22,000,000) (14,789,500)
Net change in loans receivable (2,217,409) (2,942,285) (10,179,443)
Acquisitions of premises and equipment (161,399) (160,225) (476,045)
Proceeds from sale of premises and equipment 79,162 893,623 -
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 4,803,858 (14,661,979) (10,292,257)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (4,845) - -
Cash in lieu of fractional shares (1,543) - -
Increase (decrease) in non-interest bearing deposits 3,813,014 1,211,804 2,552,953
Increase (decrease) in interest bearing deposits 7,880,510 (12,995,164) 5,559,379
Increase (decrease) in borrowed funds (93,867) 312,164 (238,940)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 11,593,269 (11,471,196) 7,873,392
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,564,327 (24,207,117) (1,233,546)
Cash and cash equivalents at January 1 15,064,753 39,271,870 40,505,416
------------ ------------ ------------
Cash and cash equivalents at December 31 $ 33,629,080 $ 15,064,753 $ 39,271,870
============ ============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 754,111 $ 1,467,908 $ 1,994,536
Cash paid during the year for income taxes 1,339,615 1,105,950 1,378,371
See accompanying notes and accountant's report.
5
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Brunswick Bancorp (the Company) is a bank holding company whose principal
activity is the ownership and management of its wholly owned subsidiaries
Brunswick Bank & Trust Company (the Bank) and Brunscor Realty, Inc. The Bank
also has a wholly owned investment subsidiary BTB Investment Corp. Inc. The Bank
generates commercial, mortgage and consumer loans and receives deposits from
customers located primarily in Central New Jersey with primary emphasis on
Middlesex and Monmouth Counties; services are provided at six locations. The
Bank operates under a state bank charter and provides full banking services. As
a state bank, the Bank is subject to regulation by the New Jersey Department of
Banking and Insurance and the Federal Deposit Insurance Corporation.
Basis of Consolidation
The consolidated financial statements include the accounts of Brunswick Bancorp
and its wholly owned subsidiaries, Brunswick Bank & Trust Company, BTB
Investment Corp. Inc. and Brunscor Realty Inc. after elimination of all material
inter-company transactions and balances.
Use of 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Investment Securities
Debt securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold securities to maturity. Securities
held-to-maturity are carried at amortized cost. The amortization of premiums and
accretion of discounts are recognized in interest income using methods
approximating the interest method over the period of maturity. The investment
portfolio of the Bank is held in the operating subsidiary BTB Investment Corp.
Inc.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts.
The accrual of interest on mortgage and commercial loans is discontinued at the
time the loan is 90 days delinquent unless the credit is well secured and in
process of collection. Installment and other personal loans are typically
charged off no later than 180 days past due. In all cases, loans are placed on
nonaccrual or charged off at an earlier date if collection of principal or
interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged off is reversed against interest income. The interest on these loans
is accounted for on the cash-basis or cost recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.
6
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Loan Impairment
The Bank applies the provisions of SFAS No. 114,"Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan-Income Recognition and Disclosures," in it's evaluation of the loan
portfolio. SFAS 114 requires that certain impaired loans be measured based on
present value of expected future cash flows, net of disposal costs, discounted
at the loan's original effective interest rate. As a practical matter,
impairment may be measured based on the loan's observable market price or the
fair value of the collateral, net of disposal costs, if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level, which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions and other risks inherent in the portfolio. Allowances
for impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. Although management uses available
information to recognize losses on loans, because of uncertainties associated
with local economic conditions, collateral values and future cash flows on
impaired loans, it is reasonable that a material change could occur in the
allowance for loan losses in the near term. However, the amount of the change
that is reasonably possible cannot be estimated. The allowance is increased by a
provision for loan losses, which is charged to expense and reduced by
charge-offs, net of recoveries. Changes in the allowance relating to impaired
loans are charged or credited to the provision for loan losses.
Loan Fees
Loan origination and commitment fees, as well as certain direct loan origination
costs are deferred and the net amount is amortized as an adjustment of the
related loan's yield. The Bank is generally amortizing these amounts over the
life of the related loans except for residential mortgage loans, where the
timing and amount of prepayments can be reasonably estimated. For these mortgage
loans, the net deferred fees are amortized over an estimated average life of 7.5
years. Amortization of deferred loan fees is discontinued when a loan is placed
on nonaccrual status.
Premises and Equipment
Land is carried at cost. Bank premises and equipment are carried at cost net of
accumulated depreciation. Depreciation is computed using the straight-line and
the declining balance methods based principally on the estimated useful lives of
the assets. Maintenance and repairs are expensed as incurred while major
additions and improvements are capitalized. Gains and losses on dispositions are
included in current operations.
Other Real Estate Owned
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at the lower of the Bank's carrying amount or fair value less
estimated selling cost at the date of foreclosure. Any write-downs based on the
asset's fair value at the date of acquisition are charged to the allowance for
loan losses. After foreclosure, these assets are carried at the lower of their
new cost basis or fair value less cost to sell. Costs of significant property
improvements are capitalized, whereas costs relating to holding property are
expensed. The portion of interest costs relating to development of real estate
is capitalized. Valuations are periodically performed by management and any
subsequent write-downs are recorded as a charge to operations, if necessary, to
reduce the carrying value of a property to the lower of its cost or fair value
less cost to sell.
7
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Advertising Costs
Advertising costs are charged to operations in the year incurred and totaled
$29,641, $84,323 and $84,488 in 2002, 2001 and 2000, respectively.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of the allowance for loan
losses and accumulated depreciation. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred tax assets and liabilities are reflected at 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. The Bancorp files consolidated income tax returns with its
subsidiaries.
Statements of Cash Flows
The Bancorp considers all cash amounts due from depository institutions,
interest-bearing deposits in other banks and federal funds sold to be cash
equivalents for purposes of the statements of cash flows.
Net Income Per Share
Basic net earnings per common share is computed by dividing net earnings
applicable to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted net earnings per common share is
determined using the weighted-average number of common shares outstanding during
the period, adjusted for the dilutive effect of common stock equivalents,
consisting of shares that might be issued upon exercise of common stock options.
Reclassification
Certain amounts for the year ended December 31, 2001 and 2000, have been
reclassified to conform to the current year's presentation.
Impact of New Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations"(SFAS 141".) SFAS 141 requires the purchase
method of accounting for business combinations initiated after June 30, 2002 and
eliminates the pooling-of-interests method.
In July 2001, the FASB issued Statement No.142, "Goodwill and Other Intangible
Assets"("SFAS 142".) SFAS 142 requires that upon adoption, amortization of
goodwill will cease and instead, the carrying value of goodwill will be
evaluated for impairment on an annual basis. Identifiable intangible assets will
continue to be amortized over their useful lives and reviewed for impairment
upon adoption and then at least annually thereafter. SFAS 142 is effective for
fiscal years beginning after December 15, 2001.
In July 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143".) SFAS 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred, if a reasonable estimate of fair value can be made. The
associated asset retirement cost would be capitalized as part of the carrying
amount of the long-lived asset. SFAS 143 will be effective for the fiscal years
beginning after June 15, 2002.
8
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144".) SFAS 144 supersedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121".) SFAS 144 retains the
requirements of SFAS 121 for recognizing and measuring the impairment loss of
long-lived assets to be held and used. For long-lived assets to be disposed of
by sale, SFAS 144 requires a single accounting model be used for all long-lived
assets, whether previously held and used or newly acquired. Long-lived assets to
be disposed of other than by sale would be considered held and used until
disposition. SFAS 144 also broadens the presentation of discontinued operations
in the income statement to include more disposal transactions. SFAS 144 is
effective for fiscal years beginning after December 15, 2001.
In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions- an Amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9. ("SFAS 147".) FASB Statement No. 72, "Accounting for
Certain Acquisitions of Banking or Thrift Institutions," and FASB Interpretation
No. 9, "Applying APB Opinions No. 16 and 17 when a Savings and Loan Association
or a Similar Institution is Acquired in a Business Combination Accounted for by
the Purchase Method," provided interpretive guidance on the application of the
purchase method to acquisitions of financial institutions. Except for
transactions between two or more mutual enterprises, this Statement removes
acquisitions of financial institutions from the scope of both Statement 72 and
Interpretation 9 and requires that those transactions be accounted for in
accordance with FASB Statements No. 141 "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets." Thus the requirement in paragraph 5 of
Statement 72 to recognize (and subsequently amortize) any excess of the fair
value of liabilities assumed over the fair value of tangible and identifiable
intangible assets acquired as an unidentifiable intangible asset no longer
applies to acquisitions within the scope of this Statement. In addition, this
Statement amends FASB Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss recognition and
measurement provisions that Statement 144 requires for other long-lived assets
that are held and used. SFAS 147 is effective beginning October 1, 2002.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure an Amendment of FASB Statement No. 123"
(SFAS 148.) SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS 148 is
effective for years ending after December 15, 2002, and is effective for interim
periods beginning after December 15, 2002.
The Bank does not believe any of these statements will have an impact on its
consolidated financial position or results of operations.
NOTE 2 - RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash or on deposit with the
Federal Reserve Bank. The required reserve at December 31, 2002 and 2001 were
$2,616,000 and $2,212,000, respectively.
9
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SECURITIES HELD TO MATURITY
The amortized cost of securities and their approximate fair values are as
follows:
Gross Gross
Net Carrying Unrealized Unrealized Fair
Value Gains Losses Value
------------ ---------- ---------- -----------
December 31, 2002
U.S.Government and
agency securities $ 25,969,222 $ 567,020 $ - $26,536,242
Other securities 1,950,000 - - 1,950,000
------------ ---------- ---------- -----------
Totals $ 27,919,222 $ 567,020 $ - $28,486,242
============ ========== ========== ===========
December 31, 2001
U.S.Government and
agency securities $ 32,963,592 $ 541,120 $ 265,625 $33,239,087
Other securities 1,950,000 - - 1,950,000
------------ ---------- ---------- -----------
Totals $ 34,913,592 $ 541,120 $ 265,625 $35,189,087
============ ========== ========== ===========
The amortized cost and estimated fair value of securities held-to-maturity at
December 31, 2002 are as follows:
Net Carrying Fair
Value Value
-------------- ------------
Due in one year or less $ 5,150,000 $ 5,213,750
Due after one year through five years 22,257,382 22,632,500
Due after five years through ten years 500,000 500,000
Due after ten years 11,840 139,992
-------------- ------------
Totals $ 27,919,222 $ 28,486,242
============== ============
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Securities, carried at $25,957,382 and $32,951,752 at December 31, 2002 and
2001, respectively, were pledged to secure public deposits and for other
purposes required or permitted by law.
10
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -LOANS
Loans at December 31, 2002 and 2001 are summarized as follows:
2002 2001
------------ ------------
Commercial $ 31,362,179 $ 25,902,467
Real estate construction 1,855,278 4,570,863
Commercial real estate 13,607,021 13,517,308
Residential real estate 11,935,640 12,133,159
Consumer 681,175 847,005
------------ ------------
59,441,293 56,970,802
Less
Allowance for credit losses 800,000 800,000
Unearned fees 121,363 80,166
------------ ------------
$ 58,519,930 $ 56,090,636
============ ============
An analysis of the change in the allowance for credit losses follows:
2002 2001 2000
--------- --------- ---------
Balances at beginning of year $ 800,000 $ 800,050 $ 800,000
Provision for losses (reversal of) (211,885) (124,120) 258,015
Recoveries on loans 245,548 254,002 59
Loans charged-off (33,663) (129,932) (258,024)
--------- --------- ---------
Balances at year end $ 800,000 $ 800,000 $ 800,050
========= ========= =========
At December 31, 2002 and 2001, the total recorded investment in impaired loans,
all of which had allowances determined in accordance with FASB No.114 and
No.118, amounted to approximately $1,317,581 and $1,733,403, respectively. The
average recorded investment in impaired loans amounted to approximatley
$1,526,559, $1,713,618 and $1,432,706 for the years ended December 31, 2002,
2001 and 2000, respectively. The allowance for loan losses related to impaired
loans amounted to approximately $0 and $129,245 at December 31, 2002 and 2001,
respectively. Interest Income on impaired loans of $15,703, $32,728 and $38,061,
was recognized for cash payments received in 2002, 2001 and 2000, respectively.
The Bank has no commitments to loan additional funds to borrowers whose loans
have been modified.
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 2002 and 2001 follows:
2002 2001
----------- -----------
Cost
Land $ 516,927 $ 516,927
Bank premises 744,499 745,958
Furniture and equipment 1,189,920 1,178,536
Leasehold improvements 183,023 183,023
----------- -----------
2,634,369 2,624,444
Accumulated depreciation 1,429,614 1,367,930
----------- -----------
$ 1,204,755 $ 1,256,514
=========== ===========
11
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DEPOSITS
Deposit account balances at December 31, 2002 and 2001, are summarized as
follows:
2002 2001
------------ ------------
Non-interest bearing $ 32,931,180 $ 29,118,166
Interest-bearing demand 33,607,117 24,330,684
Savings deposits 15,050,551 15,459,676
Certificates of deposit 11,732,177 12,718,975
------------ ------------
$ 93,321,025 $ 81,627,501
============ ============
Certificates maturing in years ending December 31, as of December 31, 2002:
2003 $ 11,645,937
2004 36,760
2005 49,480
------------
$ 11,732,177
============
NOTE 7 - 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. All borrowed
funds are collateralized with mortgage backed securities.
NOTE 8 - EMPLOYEE BENEFIT PLANS
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 $124,282,
$111,001 and $96,731, for 2002, 2001 and 2000, respectively.
The Bank established a non-qualified deferred compensation plan covering key
employees of the bank. This plan makes discretionary incentive contributions and
the benefits are vested over a 5 year period. The amount funded for each of the
last three years was $192,000 per year.
The Bank has a Restricted Stock Award Plan, covering 100,000 shares of common
stock, whose purpose is to permit grants of shares, subject to restrictions, to
key employees of the Company as a means of retaining and rewarding them for
long-term performance and to increase their ownership in the Company. Shares
awarded under the plan entitle the shareholder to all rights of common stock
ownership except that the shares may not be sold, transferred, pledged,
exchanged or otherwise disposed of during the restriction period. The restiction
period is determined by a committee that is appointed by the Board of Directors
and the period may not exceed ten years. During the years ended December 31,
2001 and 2000, 40,000 shares and 60,000 shares respectively, were granted with
restriction periods of ten years. The shares do not vest over time; all
restrictions lapse at the end of this period. The shares were recorded at the
market values on the dates of issuance as deferred compensation and the related
amounts a these shares of restriced stock were $105,300, $94,500 and $41,400,
respectively.
12
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
The consolidated provision for income taxes consists of the following:
2002 2001 2000
----------- ---------- ----------
Income tax expense
Current tax expense
Federal $ 1,214,883 $ 942,215 $1,126,136
State 211,100 160,380 291,200
Deferred tax (benefit) (91,467) 71,435 (191,725)
----------- ---------- ----------
$ 1,334,516 $1,174,030 $1,225,611
=========== ========== ==========
The provision for federal income tax differs from that computed by applying
federal statutory rates to income before income tax expense, as indicated in the
following analysis:
2002 2001 2000
----------- ---------- ----------
Federal Statutory income tax at 34% $ 1,114,692 $1,019,766 $ 969,864
Effect on tax rate of:
Tax-exempt securities (8,452) (2,897) (4,164)
State taxes 139,326 105,851 192,192
Other 88,950 51,310 (52,017)
----------- ---------- ----------
$ 1,334,516 $1,174,030 $1,105,875
=========== ========== ==========
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
2002 2001
--------- ---------
Deferred tax assets
Allowance for loan losses $ 195,300 $ 180,670
Deferred compensation 358,134 314,339
Deferred tax liability
Depreciation (7,659) (2,159)
--------- ---------
Net deferred tax assets $ 545,775 $ 492,850
========= =========
13
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - STOCK SPLITS
The Board of Directors declared two shares for one share stock split on December
14, 1999 to stockholders of record on December 31, 1999 payable on January 14,
2000. On March 12, 2002 the Board of Directors declared a 10% stock dividend to
stockholders of record on March 21, 2002 payable on May 15, 2002. These
financial statements give retroactive effect to the stock split and stock
dividend in the computation of earnings per share.
NOTE 11- STOCK OPTION PLAN
The Company adopted on April 26, 2000 a new stock option plan for officers, key
employees and Directors that provides for nonqualified and incentive options.
The Board of Directors determines the option price 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 April 2000 the Company granted stock options for 191,500 shares at an
exercise price of $10.00 per share, and as of December 31, 2002, 171,250 shares
were available to be exercised; 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:
Assumption 2002 2001 2000
- ---------- ---- ---- ----
Dividend Yield 0% 0% 0%
Risk-Free Interest Rate 4.475% 4.625% 6.75%
Expected Volatility 21.378% 14.825% 50.085%
Expected Life 5 Years
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 be as follows:
Net Income 2002 2001 2000
- ---------- ---- ---- ----
As reported $ 1,943,990 $1,825,282 $ 1,626,930
Less: Stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects. 142,854 142,854 142,854
----------- ---------- ------------
Pro forma $ 1,801,136 $1,682,428 $ 1,484,076
=========== ========== ============
Basic earnings per share
As reported $ .96 $ .91 $ .84
=========== ========== ============
Pro forma $ .89 $ .84 $ .77
=========== ========== ============
Diluted earnings per share
As reported $ .95 $ .90 $ .83
=========== ========== ============
Pro forma $ .88 $ .83 $ .76
=========== ========== ============
14
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The following table summarizes the options granted and exercised under the Plan,
during the periods indicated, and their respective weighted average exercise
price:
2002 2001 2000
---- ---- ----
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding at beginning of Year 178,000 $ 10.00 191,500 $ 10.00 0 $ 10.00
Granted - - - - 191,500 -
Exercised - - - - - -
Forfeited 6,750 10.00 13,500 10.00 - 10.00
------- -------------- ------- -------------- ------- --------------
Outstanding at end of year 171,250 $ 11.82 178,000 $ 11.98 191,500 $ 11.56
======= ============== ======= ============== ======= ==============
Options exercisable at year end 102,750 71,200 38,300
======= ======= =======
NOTE 12- RELATED PARTIES
The Bank has entered into transactions with its 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 as follows:
December 31,
-----------
2002 2001
---- ----
Beginning Balance $ 5,227,941 $ 7,787,362
Additional Loans 7,065,135 872,643
Collection of principal (2,622,618) (3,432,064)
------------- -----------
Ending Balance $ 9,670,458 $ 5,227,941
============= ===========
Rent - Two operating locations of the Bank are leased from a related party. Rent
paid to that party totaled $444,417, $402,122 and $330,142 for the years ended
December 31, 2002, 2001 and 2000, respectively, at terms which are considered by
management to be no less favorable than an arm's length agreement.
Other - The Company engages in routine operating transactions with entities
related to directors. These transactions are in the normal course of business
and are immaterial to operations.
Future minimum lease payments to these related parties as of December 31, 2002,
are as follows:
Year Amounts Aaron Road Livingston Avenue
---- ------- ---------- -----------------
2003 $ 390,541 $ 80,000 $ 310,541
2004 399,857 80,000 319,857
2005 411,053 81,600 329,453
2006 423,384 84,048 339,336
2007 436,085 86,569 349,516
Thereafter 2,601,438 1,488,707 1,112,731
---------- ---------- ----------------
$4,662,358 $1,900,924 $ 2,761,434
========== ========== ================
In May 2001, the Company sold the Aaron Road building to its chief executive
officer for $775,000 in cash, which was approved by the Company's Board of
Directors. The sales price was close to book value, resulting in a small gain
and was in excess of the appraised values by approximately $145,000.
15
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Loan participations sold - Certain loans and loan participations, which the Bank
services, were sold to a related party without recourse. As of December 31, 2002
and 2001, these loans totaled $2,130,718 and $955,956, respectively.
Deposits - The Company is indebted to certain related parties for bank deposits
made in the ordinary course of business. Rates and terms of these deposits are
comparable to those offered to unrelated depositors.
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Bank has outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included, in the accompanying consolidated financial
statements. The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual or notional
amount of those instruments. The Bank uses the same credit policies in making
such commitments as it does for instruments that are included in the
consolidated balance sheet. Financial instruments whose contract amount
represents credit risk are as follows:
Commitments to extend credit $ 9,194,389
Letters of credit 849,825
Commercial lines of credit 2,794,722
Consumer lines of credit 941,293
-------------
$ 13,780,229
=============
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company is party to litigation and claims arising during 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.
Commitments to extend credit are agreements to lend to a customer as long as no
violation of any condition established in the contract exists. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on Managements'
credit evaluation. Collateral held varies, but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to
extend credit.
The Bank has not been required to perform on any financial guarantees during the
past two years. The Bank has not incurred any losses on its commitments in
either 2002 or 2001.
The Bank entered into an agreement in September 1996 to purchase a parcel of
land in Monroe Township, New Jersey, for the purpose of constructing an
additional branch office. As of the date of
16
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
these financial statements, all regulatory and zoning approvals have been
obtained. The Bank has begun engineering and pre-construction phases of the
building.
The Bank leases the Metroplex Branch, Aaron Road Branch and Livingston Avenue
Branch and corporate office facility under operating lease arrangements expiring
at various times through the year 2024.
Minimum annual rental commitments under non-cancelable leases are as follows at
December 31, 2002:
Year Ending
December 31 Amount
- ----------- ------
2003 $ 447,841
2004 462,505
2005 475,483
2006 487,814
2007 500,515
Thereafter 3,820,213
------------
$ 6,194,371
============
NOTE 15 - CONCENTRATIONS OF RISK
Cash Concentrations: The Bank maintains cash balances at several correspondent
banks. The aggregate cash balances represent federal funds and demand deposits.
The cash balances are guaranteed by the Federal Deposit Insurance Corporation up
to $100,000. At December 31, 2002 and 2001, the Bank had approximately
$31,356,000 and $13,177,000, respectively, in excess of FDIC limits.
Loan Concentrations: 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 $31,362,179
and $25,902,467 as of December 31, 2002 and 2001, respectively, approximately
$1,429,812 and $1,504,849, respectively, of those loans are collateralized by
stock in one publicly traded company. The market value of stock collateralizing
those loans totals approximately $2,499,381 and $2,717,634, as of December 31,
2002 and 2001, respectively. The distribution of commitments to extend credit
approximates the distribution of loans outstanding (Note 4.) 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 loans to value ratios of no greater than 75%.
Interest-Rate Risk: The Bank is principally engaged in the business of
attracting deposits from the general public and using these deposits to make
loans secured by real estate and commercial loans, and to a lesser extent,
consumer loans and to purchase investment securities. The potential of
interest-rate risk exists as a result of the shorter duration of the Bank's
interest-sensitive liabilities compared to the generally longer duration of
interest-sensitive assets.
17
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments," SFAS 107 requires annual disclosure of
estimated fair value of on and off-balance sheet financial instruments.
The estimated fair values of the bank's financial instruments are as follows:
(in thousands)
December 31, 2002 December 31, 2001
------------------------- -------------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- -------- -------- ---------
Financial assets
Cash and due from banks $ 8,629 $ 8,629 $ 9,065 $ 9,065
Federal funds sold 25,000 25,000 6,000 6,000
Securities held to maturity 27,919 28,486 34,914 35,189
Loans, net 58,520 61,180 56,091 56,532
Accrued interest receivable 810 810 1,140 1,140
Financial liabilities
Deposits 93,321 93,487 81,628 81,741
Borrowed funds 611 611 704 704
Accrued interest payable 113 113 178 178
Off-balance sheet liability instruments
Loan commitments N/A 12,930 N/A 12,297
Standby letters of credit N/A 794 N/A 1,760
Commercial letters of credit N/A 56 N/A -
NOTE 17 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
its primary federal regulator, the Federal Deposit Insurance Corporation (FDIC.)
Failure to meet the minimum regulatory capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators, that if
undertaken, could have a direct material effect on the Bank and the consolidated
financial statements. Under the regulatory capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines involving quantitative measure of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification under the
prompt corrective action guidelines are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of: total risk-based
capital and Tier 1 capital to risk-weighted assets (as defined in the
regulations,) and of Tier 1 capital to adjusted total assets (as defined.)
Management believes, as of December 31, 2002, that the Bank meets all the
capital adequacy requirements to which it is subject.
18
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
As of June 10, 2002, the most recent notification from the Regulators, the Bank
was categorized as well-capitalized under the regulatory framework for prompt
corrective action. To remain categorized as well-capitalized, the Bank will have
to maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as disclosed in the table below. There are no conditions or events since
the most recent notification that Management believes have changed the Bank's
prompt corrective action category.
The Bank's actual and required capital amounts and ratios are as follows:
(in thousands)
To Be Well-Capitalized
under the Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
--------------- ----------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------ ----- ---------- -----
As of December 31, 2002
Total Risk-Based Capital
(to Risk-Weighted Assets) $28,483 43.64% $5,226 8.00% $ 6,527 10.00%
Tier I Capital
(to Risk-Weighted Assets) $27,683 42.41% $2,611 4.00% $ 3,916 6.00%
Tier I Capital
(to Adjusted Total Assets) $27,683 22.21% $4,986 4.00% $ 6,232 5.00%
As of December 31, 2001
Total Risk-Based Capital
(to Risk-Weighted Assets) $26,504 43.25% $4,855 8.00% $ 6,068 10.00%
Tier I Capital
(to Risk-Weighted Assets) $25,731 41.99% $2,451 4.00% $ 3,677 6.00%
Tier I Capital
(to Adjusted Total Assets) $25,731 22.13% $4,651 4.00% $ 5,814 5.00%
19
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENT
NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly data is presented as follows:(in thousands except
for per share amounts)
2002
------------------------------------------------------
March June September December
--------- --------- --------- ----------
Interest income $ 1,965 $ 1,938 $ 1,873 $ 1,790
Interest expense 199 176 177 168
--------- --------- --------- ----------
Net interest income 1,766 1,762 1,696 1,622
Provision for credit losses 50 25 100 (387)
--------- --------- --------- ----------
Net interest income after
provision for credit losses 1,716 1,737 1,596 2,009
Non interest income 221 239 258 250
Non interest expenses 1,217 1,144 1,136 1,250
--------- --------- --------- ----------
Income before income taxes 720 832 718 1,009
Income tax expense 317 351 333 334
--------- --------- --------- ----------
Net income $ 403 $ 481 $ 385 $ 675
========= ========= ========= ==========
Net income per share $ 0.20 $ 0.24 $ 0.19 $ 0.33
========= ========= ========= ==========
2001
-----------------------------------------------------------
March June September December
------------- ------------ ------------- ---------------
Interest income $ 2,197 $ 2,108 $ 2,015 $ 1,878
Interest expense 463 410 329 265
------------- ------------ ------------- ---------------
Net interest income 1,734 1,698 1,686 1,613
Provision for credit losses - 7 21 (152)
------------- ------------ ------------- ---------------
Net interest income after
provision for credit losses 1,734 1,691 1,665 1,765
Non interest income 237 249 233 227
Non interest expenses 1,214 1,235 1,182 1,171
------------- ------------ ------------- ---------------
Income before income taxes 757 705 716 821
Income tax expense 302 279 315 278
------------- ------------ ------------- ---------------
Net income $ 455 $ 426 $ 401 $ 543
============= ============ ============= ===============
Net income per share $ 0.23 $ 0.21 $ 0.20 $ 0.27
============= ============ ============= ===============
During the fourth quarter of 2002 and 2001, the Company completed comprehensive
reviews of its loan loss reserves. As a result of these reviews, there were some
reversals of allowance for credit losses in the fourth quarters.
20
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 19 - CONDENSED FINANCIAL INFORMATION
OF BRUNSWICK BANCORP (PARENT ONLY)
BALANCE SHEET
December 31,
-------------------------------------------
2002 2001
-------------------- --------------------
Assets
Due from banks - demand deposits with
the Bank $ 4,781,526 $ 3,772,394
Investments - certificate of deposit
with the Bank 83,522 81,840
Loans receivable 1,517,652 1,861,190
Investment in the Subsidiaries 21,856,431 20,482,013
Accrued interest receivable and other assets 74,154 48,371
------------ ------------
$ 28,313,285 $ 26,245,808
============ ============
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ 24,575 $ -
Common stock 4,189,750 3,809,064
Additional paid-in capital 2,592,694 2,973,380
Retained earnings 22,415,485 20,473,038
Deferred stock compensation (812,600) (917,900)
Treasury stock at cost (96,619) (91,774)
------------ ------------
$ 28,313,285 $ 26,245,808
============ ============
STATEMENTS OF INCOME
Year Ended December 31,
-------------------------------------------------------
2002 2001 2000
--------------- ---------------- ---------------
Interest income $ 178,997 $ 146,181 $ 47,750
Dividends from the Bank 600,000 350,000 300,000
Other expenses (124,650) (111,400) (7,500)
--------------- --------------- ---------------
Income before income
taxes and equity in
undistributed net income of
the Subsidiaries 654,347 384,781 340,250
Income tax expense (24,775) (9,600) (7,700)
--------------- --------------- ---------------
Income before equity in
undistributed net income of
the Bank 629,572 375,181 332,550
Equity in undistributed net
income of the Subsidiaries 1,314,418 1,450,102 1,294,380
--------------- --------------- ---------------
Net income $ 1,943,990 $ 1,825,283 $ 1,626,930
=============== =============== ===============
Net income per share of
common stock $ 0.96 $ 0.91 $ 0.84
=============== =============== ===============
21
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
Year Ended December 31,
-------------------------------------------------------
2002 2001 2000
--------------- ----------------- -----------------
Cash flows from operating activities:
Net income $ 1,943,990 $ 1,825,282 $ 1,626,930
Adjustments to reconcile net income to
net cash provided by operating activities
Amortization of deferred stock compensation 105,300 94,500 41,400
(Increase) decrease in other assets (25,783) (19,427) (401)
Increase (decrease) in other liabilities 24,575 - -
Equity in undistributed net income
of the Subsidiaries (1,314,418) (1,450,102) (1,335,780)
--------------- ----------------- -----------------
Cash provided by operating activities 733,664 450,253 332,149
--------------- ----------------- -----------------
Cash flows from investing activities:
Investment in subsidiary (60,000) - -
Net (increase) decrease in loans 343,538 (1,073,690) (787,500)
Net (increase) decrease in certificates
of deposit (1,682) (3,476) (3,347)
--------------- ----------------- -----------------
Cash provided by (used in) investing
activities 281,856 (1,077,166) (790,847)
--------------- ----------------- -----------------
Cash flows from financing activities:
Purchase of treasury stock (4,845) - -
Cash in lieu of fractional shares (1,543) - -
--------------- ----------------- -----------------
Cash used in financing activities (6,388) - -
--------------- ----------------- -----------------
Increase (decrease) in cash 1,009,132 (626,913) (458,698)
Cash and cash equivalents, beginning
of year 3,772,394 4,399,307 4,858,005
--------------- ----------------- -----------------
Cash and cash equivalents, end of year $ 4,781,526 $ 3,772,394 $ 4,399,307
=============== ================= =================
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 assets of the Bank are limited in availability for dividends
to Brunswick Bancorp as of December 31, 2002.
22