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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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, 2003
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 No.)
439 LIVINGSTON AVENUE
NEW BRUNSWICK, NJ 08901
- ----------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 247-5800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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]
Indicate by check mark if whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). yes [ ] no [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of February 5, 2004 was $37,559,323.
The number of shares of Registrant's Common Stock, no par value, outstanding as
of February 5, 2004 was 2,146,247.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part III of this report (Items 10, 11, 12, 13
and 14) is incorporated by reference from the registrant's proxy statement to be
filed pursuant to Regulation 14A with respect to the registrant's 2004 annual
meeting of stockholders.
BRUNSWICK BANCORP
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant 7
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Change in and Disagreements with Accountants
on Accounting and Financial Disclosure 21
Item 9A. Controls and Procedures 21
PART III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 23
Item 13. Certain Relationships and Related Transactions 23
Item 14. Principal Accountant Fees & Services 23
PART IV
Item 15. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K 24
Signatures 25
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 2002 created a wholly owned subsidiary to manage the Bank's
investment portfolio. BTB Investment Corp. Inc. now manages the Bank's
investments.
The Bank maintains its head office and 5 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.
Federal Deposit Insurance - The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of federally insured
banks and savings institutions and safeguards the safety and soundness of the
banking and savings industries. Two separate insurance funds, the Bank
Insurance Fund ("BIF") for commercial banks, state savings banks and some
federal savings banks, and the SAIF for savings associations, are maintained
and administered by the FDIC. The Bank is a member of the BIF and its deposit
accounts are insured by the FDIC, up to the prescribed limits. The FDIC has
examination authority over all insured depository institutions, including the
Bank, and has, under certain circumstances, authority to initiate enforcement
actions against federally insured savings institutions to safeguard safety and
soundness and the deposit insurance fund.
Assessments - For the deposit insurance coverage provided by the FDIC, the
Bank pays assessments to the FDIC under a risk-based assessment system that
takes into account its capital and supervisory considerations. The FDIC sets
assessments for deposits insured by the SAIF or the BIF to maintain the
targeted designated reserve ratio in that fund. In addition, the FDIC is
authorized to levy emergency special assessments on BIF and SAIF members. The
FDIC set the annual deposit insurance assessment rates for BIF-member
institutions for 2003 at 0% of insured deposits for well-capitalized
institutions with the highest supervisory ratings to .27% of insured deposits
for institutions in the worst risk assessment classification.
In addition, all FDIC-insured institutions are required to pay assessments to
the FDIC to fund interest payments on bonds issued by the Financing
Corporation ("FICO"), an agency of the Federal government established to
re-capitalize the predecessor to the SAIF. The FICO assessment rates, which
are determined quarterly, averaged .0165% of insured deposits in 2003. These
assessments will continue until the FICO bonds mature in 2017.
1
The USA Patriot Act - In response to the events of September 11, 2001, the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, or the USA Patriot Act, was
signed into law on October 26, 2001. The USA Patriot Act gives the federal
government new powers to address terrorist threats through enhanced domestic
security measures, expanded surveillance powers, increased information sharing
and broadened anti-money laundering requirements. By way of amendments to the
Bank Secrecy Act, Title III of the USA Patriot Act takes measures intended to
encourage information sharing among bank regulatory agencies and law
enforcement bodies. Further, certain provisions of Title III impose
affirmative obligations on a broad range of financial institutions, including
banks, thrifts, brokers, dealers, credit unions, money transfer agents and
parties registered under the Commodity Exchange Act.
Among other requirements, Title III of the USA Patriot Act imposes the
following requirements with respect to financial institutions:
Pursuant to Section 352, all financial institutions must establish
anti-money laundering programs that include, at minimum: (i) internal
policies, procedures, and controls; (ii) specific designation of an
anti-money laundering compliance officer; (iii) ongoing employee
training programs; and (iv) an independent audit function to test the
anti-money laundering program.
Section 326 authorizes the Secretary of the Department of Treasury, in
conjunction with other bank regulators, to issue regulations by October
26, 2002 that provide for minimum standards with respect to customer
identification at the time new accounts are opened.
Section 312 requires financial institutions that establish, maintain,
administer, or manage private banking accounts or correspondence
accounts in the United States for non-United States persons or their
representatives (including foreign individuals visiting the United
States) to establish appropriate, specific, and, where necessary,
enhanced due diligence policies, procedures, and controls designed to
detect and report money laundering.
Effective December 25, 2001, financial institutions are prohibited from
establishing, maintaining, administering or managing correspondent
accounts for foreign shell banks (foreign banks that do not have a
physical presence in any country), and will be subject to certain
record keeping obligations with respect to correspondent accounts of
foreign banks.
Bank regulators are directed to consider a holding company's
effectiveness in combating money laundering when ruling on Federal
Reserve Act and Bank Merger Act applications.
The federal banking agencies have begun to propose and implement regulations
pursuant to the USA Patriot Act. These regulations may increase the Company's
compliance costs.
Sarbanes-Oxley Act of 2002 - On July 30, 2002, the President signed into law
the Sarbanes-Oxley Act of 2002 (the "Act"), which implemented legislative
reforms intended to address corporate and accounting fraud. In addition to the
establishment of a new accounting oversight board that will enforce auditing,
quality control and independence standards and will be funded by fees from all
publicly traded companies, the Act places certain restrictions on the scope of
services that may be provided by accounting firms to their public company
audit clients. Any non-audit services being provided to a public company audit
client will require preapproval by the company's audit committee. In addition,
the Act makes certain changes to the requirements for partner rotation after a
period of time. The Act requires chief executive officers and chief financial
officers, or their equivalent, to certify to the accuracy of periodic reports
filed with the Securities and Exchange Commission, subject to civil and
criminal penalties if they knowingly or willingly violate this certification
requirement. In addition, under the Act, counsel will be required to report
evidence of a material violation of the securities laws or a breach of
fiduciary duty by a company to its chief executive officer or its chief legal
officer, and, if such officer does not appropriately respond, to report such
evidence to the audit committee or other similar committee of the board of
directors or the board itself.
2
Under the Act, longer prison terms will apply to corporate executives who
violate federal securities laws; the period during which certain types of
suits can be brought against a company or its officers is extended; and
bonuses issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from insider trading
during retirement plan "blackout" periods, and loans to company executives
(other than loans by financial institutions permitted by federal rules and
regulations) are restricted. In addition, a provision directs that civil
penalties levied by the Securities and Exchange Commission as a result of any
judicial or administrative action under the Act be deposited to a fund for the
benefit of harmed investors. The Federal Accounts for Investor Restitution
provision also requires the Securities and Exchange Commission to develop
methods of improving collection rates. The legislation accelerates the time
frame for disclosures by public companies, as they must immediately disclose
any material changes in their financial condition or operations. Directors and
executive officers must also provide information for most changes in ownership
in a company's securities within two business days of the change.
The Act also increases the oversight of, and codifies certain requirements
relating to audit committees of public companies and how they interact with
the company's "registered public accounting firm." Audit Committee members
must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies
must disclose whether at least one member of the committee is a "financial
expert" (as such term will be defined by the Securities and Exchange
Commission) and if not, why not. Under the Act, a company's registered public
accounting firm will be prohibited from performing statutorily mandated audit
services for a company if such company's chief executive officer, chief
financial officer, comptroller, chief accounting officer or any person serving
in equivalent positions had been employed by such firm and participated in the
audit of such company during the one-year period preceding the audit
initiation date. The Act also prohibits any officer or director of a company
or any other person acting under their direction from taking any action to
fraudulently influence, coerce, manipulate or mislead any independent
accountant engaged in the audit of the company's financial statements for the
purpose of rendering the financial statements materially misleading. The Act
also requires the Securities and Exchange Commission to prescribe rules
requiring inclusion of any internal control report and assessment by
management in the annual report to shareholders. The Act requires the
company's registered public accounting firm that issues the audit report to
attest to and report on management's assessment of the company's internal
controls.
We anticipate that we will incur additional expense in complying with the
provisions of the Sarbanes-Oxley Act and the resulting regulations.
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 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, 2003, the Company's Total Risk Weighted Capital ratio was 45.16%
and its Tier One Risk Weighted Capital ratio was 43.98%. Such ratios exceed
the current regulatory requirements.
3
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, or those experiencing significant growth, must maintain a ratio of
100-200 basis points above the 3% minimum. As of December 31, 2003, the
consolidated Company had a leverage capital ratio of 23.05%.
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, 2003. As of December 31, 2003, the
Bank had a risk weighted capital ratio of 45.16% and a leverage capital ratio
of 23.05%.
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 lest 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 (BHCA) limits the business of a bank
holding company and its affiliates to banking, managing or controlling banks,
and furnishing or performing services for banks controlled by the holding
company. The major exception to this rule is that a bank holding company
directly or through a subsidiary may engage in non-banking activities which
the Federal Reserve Board has determined to be so closely related to banking
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.
4
Under the Bank Holding Company Act, BB may not acquire directly or indirectly
more than 5 percent of the voting shares of, or substantially all of the
assets of, any bank without the prior approval of the Federal Reserve Board.
Under current law, a New Jersey based bank holding company, like BB, is
permitted to acquire banks located in New Jersey and in certain other states
if the states had enacted laws specifically to permit acquisitions of banks by
out-of-state bank holding companies having the largest portion of their
deposits in New Jersey. Satisfactory capital ratios and Community Reinvestment
Act ratings are generally prerequisites to obtaining federal regulatory
approval to make acquisitions.
In addition, the BHCA was amended through the Gramm-Leach-Bliley Financial
Modernization Act of 1999 (the "GLBA"). Under the terms of the GLBA, bank
holding companies whose subsidiary banks meet certain capital, management and
Community Reinvestment Act standards are permitted to engage in a
substantially broader range of non-banking activities than is permissible for
bank holding companies under the BHCA. These activities include certain
insurance, securities and merchant banking activities. In addition, the GLBA
amendments to the BHCA remove the requirement for advance regulatory approval
for a variety of activities and acquisitions by financial holding companies.
As our business is currently limited to activities permissible for a bank, we
have not elected to become a financial holding company.
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.
(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 holds one of the Bank's parking lots as a rental
property. As a secondary function, BB purchases loan participations. The
Federal Reserve Bank of New York approved this activity.
BB is a legal entity separate from the Bank. The Bank is BB's principal asset.
Dividends from the Bank are BB's primary source of income. As explained under
Item 5, legal and regulatory limitations are imposed on the amount of
dividends that may be paid by the Bank to BB.
The Bank maintains its head office in New Brunswick, New Jersey. The Bank
operates out of its head office and 5 branch offices in Monmouth and Middlesex
Counties.
At December 31, 2003, BB and its subsidiary Bank had deposits of $89,414,490
total loans of $61,468,161 and total assets of $120,768,800. 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, residential and commercial
real estate loans and internet banking. The Bank also provides trust services.
BB and its subsidiary Bank had the equivalent of 50 full-time employees as of
December 31, 2003.
The primary emphasis of the Company's lending activities is in the commercial
lending area. As of December 31, 2003, 64.15% of the loan portfolio is in
commercial loans, 1.00% in construction first mortgage loans, 24.78% in
commercial first mortgage loans, 8.77% in residential loans, and 1.30% in
installment loans. The composition of the loan portfolio represents a shift
from the year 2002. During 2003 a substantial portion of new commercial loans
were made and a reduction in construction first mortgage loans. 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.
5
As the Company lends in a relatively compact geographical area, management is
better able to measure the risk of real estate market deterioration and risk
of asset deterioration than it would be if it had to assess real estate
conditions in numerous, disparate geographical areas. However, the
concentration of the Company's real estate collateral in a compact
geographical area can subject the Company to greater 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 unions and other financial institutions. While many of the Bank's
competitors are larger and have greater financial resources, in the opinion of
the Bank, the size of its financial resources has imposed no substantial
impediment to its normal lending functions. The Bank is limited, however, in
making commercial loans to an amount not in excess of fifteen percent of its
capital in most circumstances. The Bank has, on occasion, arranged for
participation by other institutions when it has made larger loans.
Additionally, BB participates in certain loans with the Bank as permitted by
the Federal Reserve Bank of New York.
The Company does not rely on any one customer for an amount in excess of 10%
of income.
(d) Financial information about foreign and domestic operations
and export sales.
The Company operates only in New Jersey. No income is derived from foreign
persons or entities.
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
6
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 approvals
for a branch in Monroe, New Jersey and is anticipating opening this branch in
2004.
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 2003.
PART II
ITEM 5.MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
BB had 274 shareholders of record as of December 31, 2003.
Brunswick Bancorp 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.
2003 2002
----------------------- ----------------------
High Low High Low
------ ----- ------ -----
1st Quarter 12.25 11.75 12.94 11.50
2nd Quarter 16.75 11.40 13.00 11.20
3rd Quarter 16.50 14.50 11.74 10.75
4th Quarter 17.10 15.50 12.75 10.25
7
The Company has not historically paid cash dividends. Since the Bank is the
Company's only substantial asset and source of income, the Company would be
dependent upon dividends from the Bank to pay dividends to its shareholders.
Payment 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
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, 2003, approximately $12.5 million is currently available,
without restriction, for the Bank to pay the Registrant in dividends. The
Registrant issued a 20% stock dividend in 1999 and a 10% stock dividend in
2002. The Board of Directors will review its dividend policy on an ongoing
basis.
STOCK SPLIT
The Board of Directors declared a Two Shares for One Share stock split payable
on January 14, 2001 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.
Earnings per share have been restated to reflect the stock split declared.
ITEM 6.SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
concerning BB:
Year Ended December 31
------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data)
------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ----------- ----------- ---------- ----------
Interest income $ 6,711 $ 7,566 $ 8,198 $ 8,455 $ 7,269
Interest expense 499 720 1,467 2,006 1,857
Net interest income 6,212 6,846 6,731 6,449 5,412
Provision for credit losses (207) (212) (124) 258 61
Net interest income after
provision for credit losses 6,419 7,058 6,855 6,191 5,351
Non-interest income 953 968 946 1,087 1,008
Other expenses 4,526 4,747 4,802 4,425 4,265
Income before income taxes 2,846 3,278 2,999 2,853 2,094
Income tax expense 1,007 1,334 1,174 1,226 773
Net income 1,839 1,944 1,825 1,627 1,321
Net income per share .91 .96 .91 .84 .72
Diluted earnings per share .88 .95 .90 .83 .72
Cash dividends per share 0 0 0 0 0
Weighted average number
of shares outstanding-basic 2,021,597 2,019,256 2,009,572 1,925,543 1,829,439
- diluted 2,087,837 2,045,624 2,038,991 1,951,386 1,841,462
8
Summary Consolidated Balance Sheets
----------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data)
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- -------- --------- ----------
Total assets $ 120,769 $ 122,707 $109,004 $ 118,499 $ 108,873
Deposits 89,414 93,321 81,628 93,411 85,299
Other liabilities 872 1,097 1,130 762 916
Stockholders' equity 30,483 28,289 26,246 24,326 22,658
Total shareholder's equity
per outstanding share $ 14.44 $ 13.50 $ 13.78 $ 13.05 $ 12.56
========= ========= ======== ========= =========
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,
2003, 2002 and 2001. 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, 2001 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.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, and Section 21E of the Securities Exchange Act
of 1934. The words "estimate," "plan," "intend," "expect," "anticipate,"
"believe" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places
throughout this report and in the documents incorporated herein by reference.
Brunswick Bancorp disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. Although we believe that our expectations are based on
reasonable assumptions, we can give no assurance that our goals will be
achieved, and these statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Those risks and uncertainties include changes in interest rates, the ability
to control costs and expenses and general economic conditions nationally and
in our trade area.
CRITICAL ACCOUNTING MATTERS
Note 1 to the Company's consolidated financial statements lists significant
accounting policies used in the development and presentation of its financial
statements. This discussion and analysis, the significant accounting policies,
and other financial statement disclosures identify and address key variables
and other qualitative and quantitative factors that are necessary for an
undertaking and evaluation of the Company and its results of operation.
The provision for loan losses charged to operating expense reflects the amount
deemed appropriate by management to provide for known and inherent losses in
the existing loan portfolio. Management's judgment is based on the evaluation
of individual loans, past experience, the assessment of current economic
conditions and other relevant factors. Loan losses are charged directly
against the allowance for loan losses and recoveries on previously charged-off
loans are added to the allowance.
9
Management uses significant estimates to determine the allowance for loan
losses. Consideration is given to a variety of factors in establishing these
estimates including current economic conditions, diversification of the loan
portfolio, delinquency statistics, borrowers' perceived financial and
managerial strengths, the adequacy of underlying collateral, if collateral
dependent, or present value of future cash flows and other relevant factors.
Since the sufficiency of the allowance for loan losses is dependent, to a
great extent. On conditions that may be beyond our control, it is possible
that management's estimates of the allowance for loan losses and actual
results could differ in the near term. In addition, regulatory authorities, as
an integral part of their examination, periodically review the allowance for
loan losses. They may require additions to the allowance based upon their
judgments about information available to them at the time of examination.
Future increases to our allowance for loan losses, whether due to unexpected
changes in economic conditions or otherwise, would adversely affect our future
results of operation.
OVERVIEW
Our results of operations are primarily dependent on our net interest income.
Net interest income is a function of the balances of loans and investments
outstanding in any one period, the yields earned on those loans and
investments and the interest paid on deposits and borrowed funds that were
outstanding in the same period. To a lesser extent, the relative levels of our
non-interest income and operating expenses also affect our results of
operations.
Our non-interest income consists primarily of fees and service charges. The
operating expenses consist primarily of employee compensation and benefits,
occupancy and equipment expenses, data processing costs, marketing costs,
professional fees, office supplies, and telephone. Our results of operations
are significantly impacted by the amount of provisions for loan losses which
in turn, are dependent upon, among other things, the size and makeup of the
loan portfolio, loan quality and loan trends. Our results of operations are
affected by general economic, regulatory and competitive conditions, including
changes in prevailing interest rates and the policies of regulatory agencies.
BUSINESS STRATEGY
Our business strategy has been to operate as a well-capitalized, traditional
independent community bank, dedicated to providing convenient access and
quality service at competitive prices. Generally, we have sought to implement
this strategy by maintaining a substantial part of our assets in loans secured
by commercial real estate or residential real estate located in our market
area. To the extent that new deposits have exceeded loan originations, we have
invested these deposits primarily in investment securities and cash and cash
equivalents.
We intend to continue to emphasize a variety of deposit and loan products,
with the latter consisting primarily of commercial loans, non-residential
mortgages, residential mortgages, home equity loans and consumer loans. We
intend to grow our branch office network, which will expand our geographic
reach and will consider the acquisition of other financial institutions. We do
not however, have any current understandings, agreements or arrangements for
expansion of our business, other than opening new branch office locations.
RESULTS OF OPERATIONS
The Company's 2003 net income amounted to $1,839,414, or $0.88 per diluted
share, which was $104,576, or 5.38%, lower than income of $1,943,990, or $0.95
per diluted share in 2002. Net income for 2002 was $118,708 higher than 2001
income of $1,825,282, or $0.90 per diluted share. Basic net income per share
was $.91, $.96 and $.91, respectively in 2003, 2002 and 2001.
The decrease in net income in 2003 is due mainly to the net interest income
decrease of $635,000, as interest income declined by $854,000, or 12.7%, while
interest expense declined by $220,000, or 30.6%. In addition, other income and
net loss recovery decreased slightly by $18,000. Offsetting the decrease in
income, other expenses in 2003 declined by $221,000 to $4.5 million in 2003
from $4.8 million in 2002, while Income tax expense decreased $328,000
compared to 2002.
10
The increase in net income recorded in 2002 is due to an increase in net
interest income of $115,000, as a decline in interest income of $631,000 was
offset by a decline of $747,000 in interest expense, and an increase in other
income of $22,000. In addition during 2002, the Company recognized an $88,000
increase in its recoveries on previously charged off loans. Finally other
expense was down $54,000.
The declines in both interest income and interest expense during all periods
reflect continuing declines in market rates of interest as the Federal Reserve
engaged in aggressive rate cuts and then maintained rates at historically low
levels.
Due to its historically low levels of loan charge-offs, during each of 2003,
2002 and 2001, the Company did not take any provision for loan losses.
Return on assets for the years ended December 31, 2003, 2002 and 2001 was
1.48%, 1.64% and 1.62%, respectively while the return on equity recorded
during the same periods amounted to 6.30%, 7.14 % and 7.27% (average).
Management believes it has created a market-niche as a local commercial bank,
servicing small businesses and individuals in its targeted geographical areas.
It is the Company's intention to continue servicing that market. The Company
will consider future expansion through additional branches, geographic areas
or a possible acquisition if the opportunity arises. As of December 31, 2003,
the Company has been approved by the Federal Deposit Insurance Corporation and
the New Jersey Department of Banking to open an additional branch. The Company
is planning the branch location for southern Middlesex County (Monroe
Township) New Jersey.
Income Statement Analysis, 2003 vs. 2002
In 2003 income before income taxes decreased from 2002 by $432,000. This
decrease occurred mainly because of a decrease in net interest income, which
was lower due to a substantial decrease in interest rates on loans, deposits
and investments.
Interest income decreased by $855,000 and interest expense decreased by
$220,000 which resulted in a $635,000 overall decrease in net interest income.
The following table illustrates how volume and interest rates affected net
interest income.
Interest Income:
Effect of decreased volume $ (112,000)
Effect of decreased interest rates (743,000)
Interest expense:
Effect of increased volume (10,000)
Effect of decreased interest rates 230,000
----------
Decrease in net interest income $ 635,000
==========
In the current year, other income decreased by $14,000 and other expenses were
down $221,000.
The decrease in other expenses reflects reductions in equipment and other
expenses of $250,000 offsetting an increase of $31,000 in salary and employee
benefit expense. The decline of other expenses, which consists of various
operating expenses, was primarily due to management reviewing all expense
categories and reducing expense in light of the Company's level of business.
The decline in the Company's income tax expense reflects the company's reduced
level of earnings in 2003.
Income Statement Analysis, 2002 vs. 2001
For the year 2002 income before income taxes increased from 2001 by $279,000.
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.
11
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 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
===========
In 2002, the Company recognized an $88,000 increase in its recoveries on
previously charged off loans compared to the prior year. In addition to this
other income increased by $22,000 and other expenses decreased by $54,000
compared to the prior year. These changes were offset by an increase of
$161,000 in income tax provision in 2002 over 2001.
Balance Sheet Analysis
The most notable change in the Company's Balance Sheet at December 31, 2003 is
an increase in cash and due from banks of $8,200,000 compared to the prior
year ending December 31, 2002. This increase was primarily due to management's
decision to invest in money market account at a correspondent bank instead of
federal funds because of better interest rates. Federal funds declined by $16
million in 2003 compared to the prior year due to additional purchase of
investment securities, new loans and investing in deposits with other banks.
Management has elected to maintain a strong liquidity position so that when
interest rates increase they will be able to acquire new assets.
During 2003, securities increased by $3,212,000, loans increased by $2,948,000
and deposits decreased by $3,907,000.
The increase in investment securities reflects management's decision to invest
excess liquidity in longer-term investments, while still maintaining a strong
cash and equivalents position.
The Company has sought to emphasize commercial lending to enhance its interest
income. Since 1999, commercial loans mostly consisting of loans to finance the
purchase of equipment and renovation and expansion of business premises have
increased from $10.6 million, or 24.2% of the loan portfolio, to $40 million,
or 64.2% of the loan portfolio.
On the liability side of the balance sheet total deposits decreased by
$3,907,000 for the year ending December 31, 2003 compared to the prior year
ending December 31, 2002.
Demand deposits decreased $1,040,000, savings and NOW deposits deceased by
$3,001,000, and time deposits increased $135,000. The most substantial decline
was the decline of NOW accounts, which is connected to the deposit balances of
a single governmental entity customer. This customer's account balances
traditionally vary depending upon the timing and amount of tax collections.
Stockholders' equity, increased by $2,194,000 with the addition of 2003 net
income of $1,839,000, and proceeds from issuance of Common Stock-upon the
exercise of stock options of $250,000 less the amortization of deferred stock
compensation of $105,000.
Liquidity
The liquidity of the Company is measured by how well it can meet the financial
needs of its depositors and borrowers and provide a cushion against
unforeseeable and unforeseen liquidity needs. Sources of liquidity are
provided primarily by the maturity of assets and by acquiring additional
deposits. Secondarily, liquidity may be provided by the sales of assets and by
other borrowings.
12
The Company's liquidity consists of cash in other banks, federal funds sold,
and investment securities and loans maturing in one year or less. At December
31, 2003, cash and due from banks totaled $16.8 million; federal funds totaled
$9 million, and investment securities maturing within one year totaled $2.6
million.
In the past three years, the Company has continually derived positive cash
flows from its operating activities. Specifically, cash provided by operating
activities totaled approximately $1.4 million in 2003, $2.2 million in 2002
and $1.9 million in 2001. In 2003, investing activities used $5.5 million due
primarily to, purchase of investment securities in excess of maturities
resulting in a net purchase of securities of $3.1 million, net increase of the
loans receivable $2.7 million less the sale of fixed assets of $300,000.
Financing activities used cash of approximately $3.7 million due to the
decreases in non-interest bearing deposits of $1.04 million and interest
bearing deposits of $2.87 million.
In light of the past cash flows provided from operating, financing, and
investing activities, management believes it is in a strong position to meet
both short and long-term liquidity needs. The Company has been able to
maintain adequate liquidity in the past and does not foresee impairment of
that liquidity in the future.
Due to the capital structure of BB and the Bank, capital management, the
process of providing equity and debt for current and future financial
positioning, is closely aligned with liquidity management. As the Company
currently has no long-term debt and management does not contemplate
undertaking such debt in the future, all financial positioning is done through
liquid funds.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL COMMITMENTS
The Company's financial statements do not reflect off-balance sheet
arrangements that are made in the normal course of business. These off-balance
sheet arrangements consist of unfunded loans and letters of credit made under
the same standards as on-balance sheet instruments. These unused commitments,
at December 31, 2003 totaled $7,780,000. This consisted of commitments to
extend credit, letters of credit, commercial lines of credit and consumer
lines of credit. These instruments have fixed maturity dates, and because many
of them will expire without being drawn upon, they do not generally present
any significant liquidity risk the Company.
Management believes that any amounts actually drawn upon can be funded in the
normal course of operations. The Company has no investment in or financial
relationship with any unconsolidated entities that are reasonably likely to
have a material effect on liquidity or the availability of capital resources.
The following table represents the Company's contractual obligations to make
future payments.
Payments due by period
Less than ---------------------------- More than
Total 1 year 1-3 years 3-5 years 5 years
-------- ------------- ------------ --------- ---------
Operating lease obligations $ 8,544 $ 800 $ 1,669 $ 1,770 $ 4,305
-------- ------------- ------------ --------- ---------
Total $ 8,544 $ 800 $ 1,669 $ 1,770 $ 4,305
======== ============= ============ ========= =========
The following table sets forth the Company's capital ratios at each of the
periods indicated as well as the required minimum regulatory ratios.
December 31, Minimum
------------------------- Regulatory
2003 2002 Guidelines
-------- -------- -----------
Risk-based capital ratios
Tier 1 43.98% 42.41% 4.000%
Total capital 45.16% 43.64% 8.000%
Capital (in thousands)
Tier 1 capital $ 29,912 $ 27,683
Tier II capital (1) 800 800
-------- --------
$ 30,712 $ 28,483
======== ========
13
(1) Lesser of the allowance for loan loss or 1/80 of risk-weighted assets.
The following table sets forth the maturity distribution for the above loan
portfolio at December 31, 2003.
Maturities and Sensitivities of Loans to Changes in Interest Rates:
After 1 After 5
Year Years Greater
Within Within within then
1 Year 5 Years 15 Years 15 Years Total
------- --------- -------- ---------- -------
Commercial
Fixed rate $ 4,035 $ 18,092 $ 9,328 $ - $31,455
Variable rate 6,899 1,166 493 - 8,558
Real estate mortgage
Fixed rate 4,665 13,891 1,856 112 20,524
Variable rate - - - 404 404
Real estate construction
Fixed rate 260 366 - - 626
Variable rate - - - - -
Installment
Fixed rate 48 742 15 - 805
Variable rate $ 2 $ - $ - $ - $ 2
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.
Due to our historic low level of non-performing assets, we have not recognized
an additional provision for possible loan losses since 2000. At December 31,
2003, our allowance for loan losses equaled 1.28% of our outstanding loans and
99.6% of the total of non-accrual loans and loans past due 90 days or more and
still accruing.
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,
------------------------------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------- -------- --------
Non-accrual loans $ 758 $ 654 $ 1,629 $ 698 $ 829
Loans, past due 90 days or more 44 24 275 998 519
Other real estate owned 0 0 0 0 0
Percentage of non-performing loans to gross
loans outstanding 1.29% 1.14% 3.34% 3.14% 3.06%
If the above non-accrual loans at December 31, 2003 had been current, interest
income for 2003 would have been approximately $22,047 greater than that
recorded. Delinquency rates at December 31, 2003 and 2002 primarily were lower
than the previous years.
14
Interest Rate Sensitivity Management
The accompanying table, a quantification of the Company's interest rate
exposure at December 31, 2003, 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 After
Three but Five
Within but Within Within Years Greater
Three Twelve Five within 15 then 15 Noninterest
Months Months Years Years Years Bearing Total
--------- ---------- --------- --------- --------- ----------- ---------
Assets
Cash & due from banks $ 6,111 $ -- $ -- $ -- $ -- $ 10,731 $ 16,842
Federal funds sold 9,000 -- -- -- -- -- 9,000
Investment securities -- 2,646 28,394 91 -- -- 31,131
Loans, net (a) 5,090 9,912 34,258 11,692 516 -- 61,468
Other assets -- -- -- -- -- 2,327 2,327
--------- --------- --------- --------- --------- --------- ---------
$ 20,201 $ 12,558 $ 62,652 $ 11,783 $ 516 $ 13,058 $ 120,768
========= ========= ========= ========= ========= ========= =========
Liabilities and stockholders equity
Total deposits (b) $ 28,596 $ 7,232 $ 21,695 $ -- $ -- $ 31,891 $ 89,414
Borrowed funds 606 -- -- -- -- -- 606
Other liabilities -- -- -- -- -- 265 265
Stockholders equity -- -- -- -- -- 30,483 30,483
--------- --------- --------- --------- --------- --------- ---------
$ 29,202 $ 7,232 $ 21,695 $ -- $ -- $ 62,639 $ 120,768
========= ========= ========= ========= ========= ========= =========
Interest rate sensitivity gap
Cumulative interest (9,001) 5,326 40,957 11,783 516 (49,581) --
--------- --------- --------- --------- --------- --------- ---------
$ (9,001) $ (3,675) $ 37,282 $ 49,065 $ 49,581 $ -- $ --
========= ========= ========= ========= ========= ========= =========
*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.
15
Unadopted Financial Accounting Standards Board Statements
As of December 31, 2003, 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,
2003 2002 2001
----------------------------- ------------------------------ -------------------------------
Average Average Average Average Average Average
Balance Yield Balance Yield Balance Yield
Sheet(2) Interest Rate Sheet(2) Interest Rate Sheet (2) Interest Rate
--------- -------- ------- --------- -------- ------- ---------- -------- --------
Interest-earning assets
Federal funds sold $ 19,877 $ 178 0.90% $ 20,092 $ 287 1.43% $ 21,177 $ 801 3.78%
Money market funds 11,235 115 1.02% -- -- -- --
Investment securities
taxable 21,339 1,231 5.77% 31,438 1,879 5.98% 28,369 2,015 7.10%
Loans, net 60,203 5,187 8.62% 56,463 5,400 9.56% 53,136 5,382 10.13%
-------- ------- ---- --------- -------- ---- --------- ------- -----
$112,654 $ 6,711 5.96% $ 107,993 $ 7,566 7.01% $ 102,682 $ 8,198 7.98%
------- ---- -------- ---- ------- -----
Noninterest-earning assets
Deposits in bank 9,355 7,488 6,884
Other (1) 2,241 2,715 3,205
-------- --------- ---------
$124,250 $ 118,196 $ 112,771
======== ========= =========
Interest-bearing liabilities
Savings deposits $ 17,419 $ 86 0.49% $ 16,821 $ 138 0.82% $ 13,621 $ 240 1.76%
Demand deposits 34,128 176 0.52% 32,667 272 0.83% 30,556 620 2.03%
Time deposits 11,969 236 1.97% 12,072 306 2.53% 14,050 598 4.26%
Short term debt 179 2 1.12% 277 4 1.44% 258 9 3.49%
-------- ------- ---- --------- -------- ---- --------- ------- -----
63,695 500 0.78% 61,837 720 1.16% 58,485 1,467 2.51%
------- ---- -------- ---- ------- -----
Noninterest-bearing
Demand deposits 30,801 28,475 28,481
Other 543 652 687
-------- --------- ---------
95,039 90,964 87,653
Stockholders' equity 29,211 27,232 25,118
-------- --------- ---------
$124,250 $ 118,196 $ 112,771
======== ========= =========
Interest Rate Spread 5.18% 5.85% 5.47%
==== ==== =====
Net yield on total
earning assets $112,654 $ 6,211 5.51% $ 107,993 $ 6,846 6.34% $ 102,682 $ 6,731 6.56%
======== ======= ==== ========= ======== ==== ========= ======= =====
(1) Non-accrual loans, overdrafts, property and equipment, and other
non-interest earning assets are included in Other.
(2) Average balance sheet computed based on monthly balances.
16
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, 2003, 2002, and
2001 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)
2003 Versus 2002 2002 Versus 2001
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 & money mkt $ 126 $ (120) $ 6 $ (16) $ (498) $ (514)
Investment securities
taxable (45) (603) (648) 195 (331) (136)
Loans, net 365 (578) (213) 364 (346) 18
------- ------- ------- ------- ------- -------
Total interest income 446 (1,301) (855) 543 (1,175) (632)
------- ------- ------- ------- ------- -------
Interest expense
Savings deposits 3 (55) (52) 30 (132) (102)
Demand deposits 8 (104) (96) 19 (367) (348)
Time deposits -- (70) (70) (60) (232) (292)
Short term debt (1) (1) (2) -- (5) (5)
------- ------- ------- ------- ------- -------
Total interest expense 10 (230) (220) (11) (736) (747)
------- ------- ------- ------- ------- -------
Changes to net interest income $ 436 $(1,071) $ (635) $ 554 $ (439) $ 115
------- ------- ------- ------- ------- -------
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).
2003 2002 2001 2000 1999
--------- -------- ---------- -------- ---------
Obligations of other U.S.
Government agencies $ 29,081 $ 25,969 $ 32,964 $ 20,410 $ 21,013
Other securities 2,050 1,950 1,950 1,950 1,650
--------- -------- ---------- -------- --------
Total investment
securities $ 31,131 $ 27,919 $ 34,914 $ 22,360 $ 22,663
========= ======== ========== ======== ========
17
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, 2003 (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
--------- ------ -------- ------ -------- ------ ------ ------
Obligations of other U.S.
Government agencies $ 1,996 6.50% $ 26,994 4.04% $ -- 0.00% $ 91 2.45%
Other securities 650 7.50% 1,400 6.62% -- 0.00% -- 0.00%
--------- ---- -------- ---- ------- ---- ------ ----
Total investment
securities $ 2,646 6.75% $ 28,394 4.17% $ -- 0.00% $ 91 2.45%
========= ==== ======== ==== ======= ==== ====== ====
Loan Portfolio
The following tables set forth the composition of the Company's loan portfolio
as of the dates indicated (in thousands):
December 31,
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Types of loans
Commercial and financial $ 40,013 $ 31,362 $ 25,902 $ 18,484 $ 10,634
Real estate- mortgage 20,928 25,543 25,650 25,383 27,785
Real estate- construction 626 1,855 4,571 9,073 4,332
Installment 807 681 847 1,017 1,259
-------- -------- -------- -------- ---------
Total loans $ 62,374 $ 59,441 $ 56,970 $ 53,957 $ 44,010
======== ======== ======== ======== =========
18
Except for loans included in the above table there were no loans at December
31, 2003 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, 2003, the total loan portfolio was approximately $61.5 million.
As of the same date, the commercial loan portfolio totaled approximately $40
million. There are no 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 Loan 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,
------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------- -------- --------- ------ -------
Balance at beginning of period $ 800 $ 800 $ 800 $ 800 $ 801
Charge-offs
Commercial & financial 9 -- 130 196 --
Real estate- mortgage -- -- -- 50 56
Real estate- construction -- -- -- -- --
Installment 5 33 -- 12 3
------ ------ ------- ----- ------
14 33 130 258 59
------ ------ ------- ----- ------
Recoveries
Commercial & financial 200 107 -- -- 65
Real estate- mortgage 20 136 254 -- 22
Real estate- construction -- -- -- -- --
Installment 1 2 -- -- 34
------ ------ ------- ----- ------
221 245 254 -- 121
------ ------ ------- ----- ------
Net charge-offs (207) (212) (124) 0 (62)
Additional charges (recoveries)
to operations (207) (212) (124) 258 (63)
------ ------ ------- ----- ------
Balance at end of period $ 800 $ 800 $ 800 $ 800 $ 800
====== ====== ======= ===== ======
19
Ratio of net charge-offs during
the period to average loans
outstanding during the period (.344%) (.375%) (.233%) .543% (.002%)
====== ====== ======= ===== ======
19
Allocation of the Allowance for Loan Losses
Commercial
Real Real Real
Estate Estate Estate
December 31, Commercial Mortgage Mortgage Construction Installment Total
----------- ---------- ---------- ----------- ------------ ----------- --------
2003
Amount $ 512 200 $ 72 $ 8 $ 8 $ 800
Percentage of total 64% 25% 9% 1% 1% 100%
2002
Amount 424 184 160 24 8 800
Percentage of total 53% 23% 20% 3% 1% 100%
2001
Amount 360 192 168 64 16 800
Percentage of total 45% 24% 21% 8% 2% 100%
2000
Amount 272 192 184 136 16 800
Percentage of total 34% 24% 23% 17% 2% 100%
1999
Amount 192 216 288 80 24 800
Percentage of total 24% 27% 36% 10% 3% 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):
2003 2002 2001 2000 1999
------- ------- ------- -------- --------
Non-interest bearing: $31,891 $32,931 $29,118 $27,906 $25,353
Demand deposits
Interest bearing:
Savings deposits 21,458 15,051 15,460 15,701 12,728
Time deposits 11,867 11,732 12,719 15,724 21,066
NOW demand deposits 24,198 33,607 24,331 34,080 26,151
------- ------- ------- ------- -------
Total deposits $89,414 $93,321 $81,628 $93,411 $85,298
======= ======= ======= ======= =======
The maturities of time deposits of $100,000 or more at December 31, 2003 are
summarized as follows:
Under 3 months $ 1,981
3 to 6 months 1,353
6 to 12 months 1,898
Over 12 months 100
--------
$ 5,332
========
20
Return on Equity and Assets
The following are selected ratios for the years ended December 31,
2003 2002 2001 2000 1999
----- ---- ---- ---- ----
Return on assets 1.48% 1.64% 1.62% 1.46% 1.21%
Return on equity 6.30% 7.14% 7.27% 6.96% 6.19%
Average equity to
average assets 23.51% 23.04% 22.27% 20.97% 20.20%
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, 2003, 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, 2003,
2002 and 2001 contain the information required by Item 8 and that information
is incorporated herein following corporate officers corporate certifications
page 24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
With the participation of our Chief Executive Officer and Chief Financial
Officer, management has carried out an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934). Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 31, 2003.
There were no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during
the fourth quarter of fiscal 2003 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Apart from certain information set forth below, the information required by
this Item is incorporated herein by reference to the applicable information in
the proxy statement for our 2004 annual meeting, including the information set
forth under the captions "Election of Directors, Section 16(a) Beneficial
Ownership Reporting Compliance" and "Governance of the Company - Audit and
Finance Committee-Audit Committee Financial Expert."
The following table sets forth information about our executive officers who
are not also directors:
Name, Position with Registrant Principal Occupation During
and Age Officer Since Past Five Years
- ------------------------------ ------------- ----------------------------
Roman Gumina, Chief Operating 1987 Officer of the Bank
Officer, 44
Thomas A. Fornale, Secretary & 1989 Officer of the Bank
Treasurer, 65
We have a code of conduct that applies to all Directors, officers and
employees, including our principal executive officer and principal financial
officer (who is also our principal accounting officer). Our code of conduct
governs such matters as conflicts of interest, use of corporate opportunity,
confidentiality, compliance with law and the like. A copy of our code of
conduct has been filed as an exhibit to this annual report on Form 10-K.
Our Board of Directors has adopted Corporate Governance Guidelines and
charters for the Audit and Finance, Compensation and Nominating/Governance
Committees of the Board of Directors.
You can also obtain a printed copy of any of the materials referred to above
by contacting us at the following address:
Brunswick Bank & Trust
c/o Brunswick Bancorp
439 Livingston Avenue
New Brunswick, NJ 08901
Telephone: 1-732-247-5800
22
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the applicable information in the proxy statement for our 2004 annual meeting,
including the information set forth under the captions "Executive
Compensation," "Compensation of Directors" and "Compensation Committee
Interlocks and Insider Participation."
The following table sets forth information with respect to the Company's
equity compensation plans as of the end of the most recently completed fiscal
year.
Equity Compensation Plan Information
Number of
securities
remaining
available for
future
Number of Weighted - issuance
securities to be average under equity
issued upon exercise compensation
exercise of price of plans
outstanding outstanding (excluding
options, options, securities
warrants and warrants reflected in
Plan category rights and rights column
- ----------------------------------------- ---------------- ------------ --------------
Equity compensation plans approved
by security holders 149,700 $ 9.09 -0-
Equity compensation plans not approved by
security holders -0- -0- -0-
------- ------ ---
Total 149,700 $ 9.09 -0-
======= ====== ===
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTS.
The Proxy Statement will contain under the caption "Beneficial Ownership of
Common Stock by Management and Principal Shareholders" the information
required by Item 12 and that information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Proxy Statement will contain under the caption "Certain Transactions with
Management and the caption "Compensation Committee Interlocks and Insider
Participation" the information required by Item 13 and that information is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES
The information required by this Item is incorporated by reference to the
applicable information in the proxy statement for our 2004 annual meeting,
including the information set forth under the caption "Our Relationship with
Our Independent Auditors."
23
PART IV
ITEM 15. 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, 2003, 2002 and 2001 are
following signature page number 25.
Independent Auditors' Report
Consolidated Statements of Financial Condition - Years Ended December 31, 2003
and 2002
Consolidated Statements of Income - Years Ended December 31, 2003, 2002 and 2001
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 2003,
2002 and 2001
Consolidated Statements of Cash Flows - Years Ended December 31, 2003, 2002 and
2001
Notes to Financial Statements - Years Ended December 31, 2003 and 2002.
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
(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, 2001 for Carmen
J. Gumina. Incorporated by reference to
Form 10-K for the year ended December
31, 2001.
(c) Non-Qualified Deferred Compensation Plan
dated as of January 1, 2001 for Roman T.
Gumina. Incorporated by reference to
Form 10-K for the year ended December
31, 2001.
(14) Code of Ethics
(21) Subsidiaries of Brunswick Bancorp,
Incorporated by reference to
Registration Statement on Form S-14
filed on June 20, 1985.
(31.1) Certification of Chief Executive Officer
pursuant to Rule 13a-14(a)*
(31.2) Certification of Chief Financial Officer
pursuant to Rule 13a-14(a)*
(32.1) Certification of Chief Executive Officer
pursuant to 18 U.S.C. 1350*
(32.2) Certification of Chief Financial Officer
pursuant to 18 U.S.C. 1350*
24
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 23, 2004
- ------------------------------
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 23, 2004
Bruce Arbeiter Director,
Vice Chairman
/s/ Joseph DeMarco
- ------------------------------ March 23, 2004
Joseph DeMarco Director
/s/ Dominick Faraci
- ------------------------------ March 23, 2004
Dominick Faraci Director
/s/ Carmen J. Gumina
- ------------------------------ March 23, 2004
Carmen J. Gumina Chief Executive Officer,
Chairman of the Board
(Principal Executive Officer)
/s/ Phillip W. Barrood
- ------------------------------ March 23, 2004
Phillip W. Barrood Director
/s/ Michael Kaplan
- ------------------------------ March 23, 2004
Michael Kaplan Director
/s/ Richard A. Malouf
- ------------------------------ March 23, 2004
Richard A. Malouf Director
/s/ James V. Gassaro
- ------------------------------ March 23, 2004
James V. Gassaro Director
/s/ Frederick Perrine
- ------------------------------ March 23, 2004
Frederick Perrine Director
/s/ Robert Sica
- ------------------------------ March 23, 2004
Robert Sica Director
25
/s/ Frank Gumina Jr.
- ------------------------------ March 23, 2004
Frank Gumina Jr. Director
/s/ Gary S. Russo
- ------------------------------ March 23, 2004
Gary S. Russo Director
/s/ Thomas A. Fornale
- ------------------------------ March 23, 2004
Thomas A. Fornale Secretary-Treasurer Controller,
(Principal Accounting/Financial
Officer)
26
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
BRUNSWICK BANCORP AND SUBSIDIARIES
FINANCIAL STATEMENT
YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-23
MICHAEL R. FERRARO
CERTIFIED PUBLIC ACCOUNTANT
278 ROUTF 34
MATAWAN, NJ 07747
MICHAEL R. FERRARO (732) 583-6500
MEMBER OF AICPA, NJSCPA FAX (732) 583-0559
mrfcpa@optonline.net
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, 2003 and 2002 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, 2003. 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 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
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, 2003 and 2002, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Michael R. Ferraro
- ------------------------
Michael R. Ferraro, CPA
February 5, 2003
Matawan, NJ
1
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
2003 2002
------------ -------------
ASSETS
Cash and due from banks $ 16,842,265 $ 8,629,080
Federal funds sold 9,000,000 25,000,000
------------ -------------
Total cash and cash equivalents 25,842,265 33,629,080
Securities held to maturity 31,131,046 27,919,222
Loans 62,268,161 59,319,930
Allowance for loan losses (800,000) (800,000)
------------ -------------
Net loans 61,468,161 58,519,930
Premises and equipment, net 799,922 1,204,755
Accrued interest receivable 536,161 809,817
Other assets 991,245 624,030
------------ -------------
TOTAL ASSETS $120,768,800 $ 122,706,834
============ =============
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits
Non-interest bearing $ 31,890,613 $ 32,931,180
Interest bearing 57,523,877 60,389,845
------------ -------------
Total deposits 89,414,490 93,321,025
Borrowed funds 606,582 610,615
Accrued interest payable 76,953 112,904
Other liabilities 187,593 373,580
------------ -------------
TOTAL LIABILITIES 90,285,618 94,418,124
------------ -------------
STOCKHOLDERS' EQUITY
Preferred stock-no stated value
10,000,000 shares authorized and no shares issued and outstanding at
December 31, 2003 and 2002.
Common stock - no par value
10,000,000 shares authorized; 2,111,722 and
2,094,875 shares issued and outstanding at
December 31, 2003 and 2002. 4,223,444 4,189,750
Additional paid-in capital 2,712,139 2,592,694
Retained earnings 24,254,899 22,415,485
Deferred stock compensation (707,300) (812,600)
Treasury stock at cost, 0 and 10,553 shares
at December 31, 2003 and 2002. - (96,619)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 30,483,182 28,288,710
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $120,768,800 $ 122,706,834
============ =============
See accompanying notes and accountant's report.
2
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
2003 2002 2001
------------ ------------ ------------
INTEREST INCOME
Interest on loans $ 5,186,656 $ 5,400,235 $ 5,382,173
Interest on investments 1,230,794 1,878,728 2,015,157
Interest on federal funds sold 178,452 287,243 800,610
Interest on deposits with banks 115,548 - -
------------ ------------ ------------
TOTAL INTEREST INCOME 6,711,450 7,566,206 8,197,940
------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 498,237 716,178 1,458,149
Interest on borrowed funds 1,683 3,902 9,176
------------ ------------ ------------
Total interest expense 499,920 720,080 1,467,325
------------ ------------ ------------
NET INTEREST INCOME 6,211,530 6,846,126 6,730,615
Provision for credit recoveries (207,752) (211,885) (124,120)
------------ ------------ ------------
NET INTEREST INCOME AFTER RECOVERY OF LOAN LOSSES 6,419,282 7,058,011 6,854,735
------------ ------------ ------------
OTHER INCOME
Service charges on deposit accounts 672,332 716,276 675,313
Other service charges and fees 231,684 222,373 219,084
Other income 49,423 29,064 51,751
------------ ------------ ------------
TOTAL OTHER INCOME 953,439 967,713 946,148
------------ ------------ ------------
OTHER EXPENSES
Salaries and employee benefits 2,618,575 2,587,379 2,669,504
Occupancy expenses 733,192 735,592 724,871
Equipment expenses 186,263 202,226 222,377
Other expenses 988,409 1,222,021 1,184,819
------------ ------------ ------------
TOTAL OTHER EXPENSES 4,526,439 4,747,218 4,801,571
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 2,846,282 3,278,506 2,999,312
Income tax expense 1,006,868 1,334,516 1,174,030
------------ ------------ ------------
NET INCOME $ 1,839,414 $ 1,943,990 $ 1,825,282
============ ============ ============
NET INCOME PER SHARE OF COMMON STOCK:
Basic Earnings per share $ 0.91 $ 0.96 $ 0.91
============ ============ ============
Diluted Earnings per share $ 0.88 $ 0.95 $ 0.90
============ ============ ============
Average shares outstanding-basic 2,021,597 2,019,256 2,009,572
============ ============ ============
Average shares outstanding-diluted 2,087,837 2,045,624 2,038,991
============ ============ ============
See accompanying notes and accountant's report.
3
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
ADDITONAL DEFERRED
COMMON PAID-IN RETAINED STOCK TREASURY
STOCK CAPITAL EARNINGS COMPENSATION STOCK TOTAL
----------- ---------- ----------- ------------ -------- ------------
Balance December 31, 2000 $ 3,729,064 $2,621,380 $18,647,756 $ (580,400) $(91,774) $ 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 (917,900) (91,774) 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 (812,600) (96,619) 28,288,710
Net income for 2003 - - 1,839,414 - - 1,839,414
Amortization of deferred stock compensation - - - 105,300 - 105,300
Proceeds from issuance of
common stock-stock option plan 33,694 119,445 - - 96,619 249,758
----------- ---------- ----------- ---------- -------- ------------
Balance December 31, 2003 $ 4,223,444 $2,712,139 $24,254,899 $ (707,300) $ - $ 30,483,182
=========== ========== =========== ========== ======== ============
See accompanying notes and accountant's report.
4
BRUNSWICK BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
2003 2002 2001
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,839,414 $ 1,943,990 $ 1,825,282
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 122,466 133,996 179,859
Net accretion of securities discounts and premiums (171,958) (109,134) (100,075)
Amortization of deferred stock compensation 105,300 105,300 94,500
Provision for credit recoveries (207,752) (211,885) (124,120)
Gain on sale of premises and equipment (22,833) (10,664) (31,173)
Net change in:
Accrued interest receivable 273,656 329,557 (92,767)
Accrued interest payable (35,951) (64,665) (55,311)
Other assets (317,203) (85,215) 86,833
Other liabilities (185,987) 125,256 111,857
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,399,152 2,156,536 1,894,885
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of investment securities 46,725,000 24,000,000 9,465,000
Principal repayments on investment securities 60,134 87,830 81,908
Purchase of investment securities (49,825,000) (16,984,326) (22,000,000)
Net change in loans receivable (2,740,479) (2,217,409) (2,942,285)
Acquisitions of premises and equipment (72,113) (150,735) (129,052)
Proceeds from sale of premises and equipment 327,301 79,162 893,623
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,525,157) 4,814,522 (14,630,806)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock - (4,845) -
Cash in lieu of fractional shares - (1,543) -
Proceeds from issuance of common stock-stock option plan 249,758 - -
Increase (decrease) in non-interest bearing deposits (1,040,567) 3,813,014 1,211,804
Increase (decrease) in interest bearing deposits (2,865,968) 7,880,510 (12,995,164)
Increase (decrease) in borrowed funds (4,033) (93,867) 312,164
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,660,810) 11,593,269 (11,471,196)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,786,815) 18,564,327 (24,207,117)
Cash and cash equivalents at January 1 33,629,080 15,064,753 39,271,870
------------ ------------ ------------
Cash and cash equivalents at December 31 $ 25,842,265 $ 33,629,080 $ 15,064,753
============ ============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 535,871 $ 754,111 $ 1,467,908
Cash paid during the year for income taxes $ 1,078,641 $ 1,339,615 $ 1,105,950
SUPPLEMENT DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Transfer of premises and equipment to other assets $ 50,011 $ - $ -
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 are 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
$16,615, $29,641 and $84,323 in 2003, 2002 and 2001, 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.
Stock Repurchase Program
In November 2003, the Company's Board of Directors approved a stock repurchase
program whereby up to $5,000,000 of common stock may be purchased from time to
time at the discretion of management. As of December 31, 2003, the Company has
not purchased any shares. The repurchased shares are held as treasury stock and
are available for general corporate purposes.
Reclassification
Certain amounts for the year ended December 31, 2002 and 2001, have been
reclassified to conform to the current year's presentation.
Impact of New Accounting Standards
FIN 45 In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires a guarantor to
recognize a liability, at the inception of the guarantee for the fair value of
obligations it has undertaken in issuing the guarantee and also requires more
detailed disclosures with respect to guarantees. FIN 45 is effective for
guarantees issued or modified after December 31, 2002 and requires additional
disclosures for existing guarantees. The adoption of FIN 45 did not have a
material impact on the Company's results of operations or financial position.
The Company has provided additional disclosure with respect to guarantees in
Note 14.
FIN 46 In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46) and amended it in October
2003, such that it is now effective for the Company in the first fiscal quarter
of 2004. Variable interest entities (VIEs) are entities that lack sufficient
equity
8
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
to finance their activities without additional financial support from other
parties or whose equity holders lack adequate decision making ability based on
criteria set forth in the interpretation. All VIEs, with which the Company is
involved, must be evaluated to determine the primary beneficiary of the risk and
rewards of the VIE. The primary beneficiary is required to consolidate the VIE
for financial reporting purposes.
EITF 00-21 The Company adopted Emerging Issues Task Force (EITF) No. 00-21,
Revenue Arrangements with Multiple Deliverables (EITF 00-21) in the fiscal
fourth quarter of 2003. This new accounting rule addresses revenue recognition
for revenues derived from a single contract that contains multiple products or
services. The rule provides additional requirements to determine when such
revenues may be recorded separately for accounting purposes.
SFAS 149 In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149 (SFAS 149), Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, SFAS 149 amends and clarifies financial
accounting and reporting for derivative instruments and for hedging activities
under Statement of Financial Accounting Standards No. 133. Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). The adoption of SFAS
149 in the fiscal fourth quarter of 2003 did not have a material impact on the
Company's results of operation or financial position.
SFAS 150 In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.150 (SFAS 150), Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS 150, establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. The adoption of SFAS 150 in the fiscal fourth quarter of 2003 did
not have a material impact on the company's results of operation or financial
position.
SFAS 132 (Revised) In December 2003, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 132 (SFAS 132
Revised), Amendment of Statement 132 on Employers' Disclosures about Pensions
and Other Postretirement Benefits. This amends FASB Statements No. 87, 88, and
106. This Statement revises employers' disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans required by FASB Statements No. 87, Employers' Accounting for
Pensions, No. 88, Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits, and No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions. This
Statement retains the disclosure requirements contained in FASB Statement No.
132, Employers' Disclosures about Pensions and Other Postretirement Benefits,
which it replaces. It requires additional disclosures to those in the original
Statement 132 about the assets, obligations, cash flows, and net periodic
benefits cost of defined benefit pension plans and other defined benefit
postretirement plans. The required information should be provided separately for
pension plans and for other postretirement benefit plans. The adoption of SFAS
132 (Revised) in the fiscal fourth quarter of 2003 did not have a material
impact on the Company's results of operation or financial position.
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, 2003 and 2002 were
$3,429,000 and $2,616,000, 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, 2003
U.S.Government and
agency securities $ 29,081,046 $ 130,673 $ (87,636) $ 29,124,083
Other securities 2,050,000 - - 2,050,000
------------ --------- --------- ------------
Totals $ 31,131,046 $ 130,673 $ (87,636) $ 31,174,083
============ ========= ========= ============
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
============ ========= ========= ============
The amortized cost and estimated fair value of securities held-to-maturity at
December 31, 2003 and 2002 are as follows:
2003 2002
--------------------------- -----------------------------
Net Carrying Fair Net Carrying Fair
Value Value Value Value
------------ ----------- ------------ ------------
Due in one year or less $ 2,645,792 $ 2,710,625 $ 5,150,000 $ 5,213,750
Due after one year through
five years 28,394,160 28,378,750 22,257,382 22,632,500
Due after five years through
ten years - - 500,000 500,000
Due after ten years 91,094 84,708 11,840 139,992
------------ ----------- ------------ ------------
Totals $ 31,131,046 $31,174,083 $ 27,919,222 $ 28,486,242
============ =========== ============ ============
Expected maturities will differ from contractual maturities because issuers may
have the righ to call or prepay obligations with or without call or prepayment
penalties.
Securities, carried at $28,989,952 and $25,957,382 at December 31, 2003 and
2002, 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, 2003 and 2002 are summarized as follows:
2003 2002
------------ ------------
Commercial $ 40,013,237 $ 31,362,179
Real estate construction 626,497 1,855,278
Commercial real estate 15,459,054 13,607,021
Residential real estate 5,468,782 11,935,640
Consumer 806,893 681,175
------------ ------------
62,374,463 59,441,293
Less
Allowance for credit losses 800,000 800,000
Unearned fees 106,302 121,363
------------ ------------
$ 61,468,161 $ 58,519,930
============ ============
An analysis of the change in the allowance for credit losses follows:
2003 2002 2001
--------- --------- ---------
Balances at beginning of year $ 800,000 $ 800,000 $ 800,050
Provision for losses (reversal of) (207,752) (211,885) (124,120)
Recoveries on loans 221,164 245,548 254,002
Loans charged-off (13,412) (33,663) (129,932)
--------- --------- ---------
Balances at year end $ 800,000 $ 800,000 $ 800,000
========= ========= =========
At December 31, 2003 and 2002, 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 $396,183 and $1,317,581, respectively. The
average recorded investment in impaired loans amounted to approximatley
$858,971, $1,526,559 and $1,713,618 for the years ended December 31, 2003, 2002
and 2001, respectively. The allowance for loan losses related to impaired loans
amounted to approximately $7,312 and none at December 31, 2003 and 2002,
respectively. Interest Income on impaired loans of $21,519, $15,703 and $32,728,
was recognized for cash payments received in 2003, 2002 and 2001, respectively.
The Bank has no commitments to loan additional funds to borrowers whose loans
have been modified.
NOTE 5 - PREMISES AND EQUIPMENT, NET
A summary of premises and equipment at December 31, 2003 and 2002 follows:
2003 2002
--------- -----------
Cost
Land $ 300,705 $ 516,927
Bank premises 646,826 744,499
Furniture and equipment 1,221,449 1,189,920
Leasehold improvements 183,023 183,023
---------- -----------
2,352,003 2,634,369
Accumulated depreciation 1,552,081 1,429,614
---------- -----------
$ 799,922 $ 1,204,755
========== ===========
11
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DEPOSITS
Deposit account balances at December 31, 2003 and 2002, are summarized as
follows:
2003 2002
------------ ------------
Non-interest bearing $ 31,890,613 $ 32,931,180
Interest-bearing demand 24,198,183 33,607,117
------------ ------------
56,088,796 66,538,297
Savings deposits 21,458,393 15,050,551
Certificates of deposit under $100,000 6,534,474 4,409,580
Certificates of deposit over $100,000 5,332,827 7,322,597
------------ ------------
$ 89,414,490 $ 93,321,025
============ ============
Certificates of deposit over $100,000 are not isured by the Federal Deposit
Insurance Corporation (FDIC). At December 31, 2003 and 2002, Certificates and
other time deposits have the following schedule of maturities:
2003 2002
------------ ------------
2003 $ - $ 11,645,937
2004 11,629,701 36,760
2005 237,600 49,480
------------ ------------
$ 11,867,301 $ 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 $133,906,
$124,282 and $111,001, for 2003, 2002 and 2001, 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 was $192,000,
for each of years 2003, 2002 and 2001.
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.
12
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The shares were recorded at the market values on the dates of issuance as
deferred compensation and the related amounts are being amortized to operations
over the respective vesting periods. Compensation expense for the years ended
December 31, 2003, 2002, and 2001 related to these shares of restricted stock,
were $105,300, $105,300 and $94,500, respectively.
NOTE 9 - INCOME TAXES
The consolidated provision for income taxes consists of the following:
2003 2002 2001
----------- ---------- ----------
Income tax expense
Current tax expense
Federal $ 876,473 $1,214,883 $ 942,215
State 190,602 211,100 160,380
Deferred tax (benefit) (60,207) (91,467) 71,435
----------- ---------- ----------
$ 1,006,868 $1,334,516 $1,174,030
=========== ========== ==========
The provision for federal income tax differs from that computed by applying
federal statutory rates to income before federal income tax expense, as
indicated in the following analysis:
2003 2002 2001
----------- ---------- ----------
Federal Statutory income tax at 34% $ 967,736 $1,114,692 $1,019,766
Effect on tax rate of:
Tax-exempt securities (7,374) (8,452) (2,897)
State taxes 116,854 139,326 105,851
Other (70,348) 88,950 51,310
----------- ---------- ----------
$ 1,006,868 $1,334,516 $1,174,030
=========== ========== ==========
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
2003 2002 2001
-------- -------- ---------
Deferred tax assets
Allowance for loan losses $ 182,521 $ 195,300 $ 180,670
Deferred compensation 429,240 358,134 314,339
Deferred tax liabilities
Depreciation (5,779) (7,659) (2,159)
--------- --------- ----------
Net deferred tax assets,
included in other assets $ 605,982 $ 545,775 $ 492,850
========= ========= ==========
13
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - STOCK SPLITS AND DIVIDENDS
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, in March 2002 there was a 10% stock dividend
to the shareholders. This created a total granted stock options for 210,650
shares at an exercise price of $9.09 per share. As of December 31, 2003, 150,700
shares were available to be exercised, and 27,400 shares 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 2003 2002 2001
---------- ---- ---- ----
Dividend yield 0% 0% 0%
Risk-free interest rate 2.625% 4.475% 4.625%
Expected volatility 12.627% 21.378% 14.825%
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 2003 2002 2001
---------- ---- ---- ----
As reported $1,839,414 $ 1,943,990 $1,825,282
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 $1,696,560 $ 1,801,136 $1,682,428
========== =========== ==========
Basic earnings per share
As reported $ .91 $ .96 $ .91
========== =========== ==========
Pro forma $ .82 $ .89 $ .84
========== =========== ==========
Diluted earnings per share
As reported $ .88 $ .95 $ .90
========== =========== ==========
Pro forma $ .81 $ .88 $ .83
========== =========== ==========
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:
2003 2002 2001
---- ---- ----
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- --------- -------------- --------- --------------
Outstanding at 188,375 $ 9.09 195,800 $ 9.09 210,650 $ 9.09
beginning of year
Granted 7,425 - - - - -
Exercised (27,400) - - - - -
Forfeited (18,700) 9.09 (7,425) 9.09 (14,850) 9.09
-------- -------- ------ ------ ------- ------
Outstanding at
end of year 149,700 $ 9.09 188,375 $ 9.09 195,800 $ 9.09
======== ======== ======= ====== ======= ======
Options exercisable
at year end 119,760 113,025 78,320
======== ======= =======
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,
---------------------------
2003 2002
---- ----
Beginning balance $ 9,670,458 $ 5,227,941
Additional loans 10,250,466 7,065,135
Collection of principal (7,525,798) (2,622,618)
----------- ------------
Ending balance $12,395,126 $ 9,670,458
=========== ============
Rent - Two operating locations of the Bank are leased from a related party. Rent
paid to that party totaled $520,462, $444,417 and $402,122 for the years ended
December 31, 2003, 2002 and 2001, 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.
15
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Future minimum lease payments to these related parties as of December 31, 2003,
are as follows:
Total
Year Amounts Aaron Road Livingston Avenue
- ---------- ------------ ----------- -----------------
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
2008 449,168 89,166 360,002
Thereafter 2,152,270 1,399,541 752,729
------------ ----------- -------------
$ 4,271,817 $ 1,820,924 $ 2,450,893
============ =========== =============
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.
In July 2003, the Company sold the Monroe property to its chief executive
officer for $330,000 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 $ 50,000.
Loan participations sold - Certain loans and loan participations, which the Bank
services, were sold to a related party without recourse. As of December 31, 2003
and 2002, these loans totaled $1,598,172 and $2,130,718, 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 at December 31, 2003.
Commitments to extend credit $ 5,244,513
Letters of credit 488,833
Commercial lines of credit 240,000
Consumer lines of credit 1,806,757
-----------
$ 7,780,103
===========
16
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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 2003 or 2002.
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 mentioned in Note-12, the property has been sold to
the chief executive officer. As of the date of these financial statements, all
regulatory and zoning approvals have been obtained. The Bank is presently
waiting the completion of the building and to negotiate an operating lease at
this location.
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, 2003:
Year Ending
December 31 Amount
- ----------- ------------
2004 $ 462,505
2005 475,483
2006 487,814
2007 500,515
2008 513,598
Thereafter 3,306,615
------------
$ 5,746,530
============
17
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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, 2003 and 2002, the Bank had approximately
$23,783,000 and $31,356,000, 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 $40,013,237
and $31,362,179 as of December 31, 2003 and 2002, respectively, approximately
$221,224 and $1,429,812, respectively, of those loans are collateralized by
stock in one publicly traded company. The market value of stock collateralizing
those loans totals approximately $623,987 and $2,499,381, as of December 31,
2003 and 2002, 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.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosure of the estimated fair value of an entity's
assets and liabilities considered to be financial instruments. For the Bank, as
for most financial institutions, the majority of its assets and liabilities are
considered financial instruments as defined in SFAS No. 107. However, many such
instruments lack an available trading market, as characterized by a willing
buyer and seller engaging in an exchange transaction. Therefore, the Bank had to
use significant estimates and present value calculations to prepare this
disclosure, as required by SFAS No. 107. Accordingly, the information presented
below does not purport to represent the aggregate net fair value of the Bank.
Changes in the assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the wide
range of permitted assumptions and methodologies in the absence of active
markets. This lack of uniformity gives rise to a high degree of subjectivity in
estimating financial instrument fair values.
Estimated fair values have been determined by the Bank using what management
believes to be the best available data and an estimation methodology suitable
for each category of financial instruments. The estimation methodologies used,
the estimated fair values, and recorded book balances at December 31, 2003, 2002
and 2001 are set forth below.
18
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
For cash and due from banks and interest-bearing deposits with banks, the
recorded book values are deemed to approximate fair values at December 31, 2003
and 2002, respectively. The estimated fair values of investment and
mortgage-backed securities are based on quoted market prices, if available. If
quoted market prices are not available, the estimated fair values are based on
quoted market prices of comparable instruments.
The fair values of loans are estimated based on a discounted cash flow analysis
using interest rates currently offered for loans with similar terms to borrowers
of similar credit quality. The carrying value of accrued interest is deemed to
approximate fair value.
December 31,
----------------------------------------------------
2003 2002
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- ------ ----------
(in thousands)
--------------
Financial assets
Cash and due from banks $16,842 $16,842 $ 8,629 $ 8,629
Federal funds sold 9,000 9,000 25,000 25,000
Securities held to maturity 31,131 31,174 27,919 28,486
Loans receivable, net 61,468 63,223 58,520 61,180
Accrued interest receivable 536 536 810 810
The estimated fair values of demand deposits (i.e., interest and non-interest
bearing checking accounts, passbook savings and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts of
variable-rate, fixed term money market accounts and certificates of deposit
approximate their fair values at the reporting date. The fair values of fixed
rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered to a schedule of
aggregated expected monthly time deposit maturities. The carrying amount of
accrued interest payable approximates its fair value.
December 31,
----------------------------------------------------
2003 2002
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- ------ ----------
(in thousands)
--------------
Financial liabilities
Deposits $89,467 $89,414 $93,321 $93,487
Borrowed funds 607 607 611 611
Accrued interest payable 77 77 113 113
The fair value of commitments to extend credit is estimated based on the amount
of unamortized deferred loan commitment fees. The fair value of letters of
credit is based on the amount of unearned fees plus the estimated cost to
terminate the letters of credit. Fair value of unrecognized financial
instruments including commitments to extend credit and the fair value of letters
of credit are considered immaterial.
19
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 17 - REGULATORY MATTERS
The Company 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 Company and the
consolidated financial statements. Under the regulatory capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines involving quantitative measure of
the Company's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company'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 Company 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, 2003, that the Company meets all the
capital adequacy requirements to which it is subject.
As of January 16, 2003, 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 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 Company's actual and required capital amounts and ratios are as follows (in
thousands):
To Be Well
Capitalized under the
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------ ----- ---------- ------
As of December 31, 2003
Total Risk-based Capital
(to Risk-weighted Assets) $30,712 45.16% $5,441 8.00% $ 6,801 10.00%
Tier I Capital
(to Risk-weighted Assets) $29,912 43.98% $2,720 4.00% $ 4,080 6.00%
Tier I Capital
(to Adjusted Total Assets) $29,912 23.05% $5,190 4.00% $ 6,487 5.00%
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%
20
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):
2003
---------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------ ------------ ----------- -----------
Interest income $ 1,724 $ 1,628 $ 1,630 $ 1,730
Interest expense 144 156 111 89
------------ ---------- ----------- -----------
Net interest income 1,580 1,472 1,519 1,641
Provision for credit losses 75 75 75 (433)
------------ ---------- ----------- -----------
Net interest income after
provision for credit losses 1,505 1,397 1,444 2,074
Non interest income 224 249 269 211
Non interest expenses 1,139 1,148 1,105 1,135
------------ ---------- ----------- -----------
Income before income taxes 590 498 608 1,150
Income tax expense 273 225 257 252
------------ ---------- ----------- -----------
Net income $ 317 $ 273 $ 351 $ 898
============ ========== =========== ===========
Net income per share $ 0.16 $ 0.14 $ 0.17 $ 0.44
============ ========== =========== ===========
2002
---------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------ ------------ ----------- -----------
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
============ ========== =========== ===========
During the fourth quarter of 2003 and 2002, the Company completed comprehensive
review of its loan loss reserves. As a result of these reviews, there were some
reversals of allowance for credit losses in the fourth quarters.
21
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 19 - CONDENSED FINANCIAL INFORMATION
OF BRUNSWICK BANCORP (PARENT ONLY)
BALANCE SHEET
December 31,
----------------------------------------
2003 2002
---------------- ----------------
Assets
Due from banks - demand deposits with
the Bank $ 5,144,295 $ 4,781,526
Investments - certificate of deposit
with the Bank 84,860 83,522
Loans receivable 1,864,008 1,517,652
Investment in Subsidiaries 23,305,562 21,856,431
Accrued interest receivable and other assets 84,457 74,154
---------------- ----------------
$ 30,483,182 $ 28,313,285
================ ================
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ - $ 24,575
Common stock 4,223,444 4,189,750
Additional paid-in capital 2,712,139 2,592,694
Retained earnings 24,254,899 22,415,485
Deferred stock compensation (707,300) (812,600)
Treasury stock at cost - (96,619)
---------------- ----------------
$ 30,483,182 $ 28,313,285
================ ================
STATEMENTS OF INCOME
Year Ended December 31,
-------------------------------------------------------------
2003 2002 2001
--------------- ----------------- ----------------
Interest income $ 189,075 $ 178,997 $ 146,181
Other expenses (121,992) (124,650) (111,400)
--------------- ----------------- ----------------
Income before income
taxes and equity in
undistributed net income
of the Bank 67,083 54,347 34,781
Income tax expense (26,800) (24,775) (9,600)
--------------- ----------------- ----------------
Income before equity in
undistributed net income of
the Bank 40,283 29,572 25,181
Equity in undistributed net
income of the Bank 1,799,131 1,914,418 1,800,102
--------------- ----------------- ----------------
Net income $ 1,839,414 $ 1,943,990 $ 1,825,283
=============== ================= ================
Net income per share of
common stock $ 0.91 $ 0.96 $ 0.91
=============== ================= ================
22
BRUNSWICK BANCORP AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
Year Ended December 31,
----------------------------------------------
2003 2002 2001
----------- ------------ ------------
Cash flows from operating activities:
Net income $ 1,839,414 $ 1,943,990 $ 1,825,282
Adjustments to reconcile net income to
net cash provided by operating activities
Amoritization of deferred stock compensation 105,300 105,300 94,500
(Increase) decrease in other assets (10,303) (25,783) (19,427)
Increase (decrease) in other liabilities (24,575) 24,575 --
Equity in undistributed net income
of the Bank (1,799,131) (1,914,418) (1,800,102)
----------- ----------- -----------
Cash provided by operating activities: 110,705 133,664 100,253
----------- ----------- -----------
Cash flows from investing activities:
Dividends from the Bank 350,000 600,000 350,000
Investment in subsidiary -- (60,000) --
Net (increase) decrease in loans (346,356) 343,538 (1,073,690)
Net (increase) decrease in certificates
of deposit (1,338) (1,682) (3,476)
----------- ----------- -----------
Cash provided by (used in) investing
activities 2,306 881,856 (727,166)
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock -- (4,845) --
Cash in lieu of fractional shares -- (1,543) --
Proceeds from issuance of Common Stock-
Stock option plan 249,758 -- --
----------- ----------- -----------
Cash used in financing activities: 249,758 (6,388) --
----------- ----------- -----------
Increase (decrease) in cash 362,769 1,009,132 (626,913)
Cash and cash equivalents, beginning
of year 4,781,526 3,772,394 4,399,307
----------- ----------- -----------
Cash and cash equivalents, end of year $ 5,144,295 $ 4,781,526 $ 3,772,394
=========== =========== ===========
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, 2003.
23