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 maintains its head office and 5 branches in Monmouth and Middlesex Counties, New Jersey.
There are a variety of statutory and regulatory restrictions governing BB, the Bank, and the relations among BB and its subsidiaries. Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any such changes and the impact such changes might have on BB cannot be determined at this time.
The policy of the Board of Governors of the Federal Reserve System provides that BB is expected to act as a source of financial strength to its subsidiary bank and to commit resources to support such subsidiary bank in circumstances in which it might not do so absent of such policy.
The Banking Affiliates Act of 1982, as amended, severely restricts loans and extensions of credit by Brunswick Bank and Trust Company to BB and its affiliates (except affiliates that are banks). All such loans must be secured by collateral having a market value ranging from 100% to 130% of the loan, depending upon the type of collateral. Furthermore, the aggregate of all loans from the Bank to BB and its affiliates, may not exceed 20% of the Bank's capital stock and surplus and, singly, to BB or any affiliate, may not exceed 10% of the Bank's capital stock and surplus. Similarly, the Banking Affiliates Act of 1982 also restricts the Bank in the purchase of securities issued by the acceptance as loan collateral of securities issued by, the purchase of assets from, and the issuance of a guarantee or standby letter-of-credit on behalf of BB or any of its affiliates.
Generally, the Bank Holding Company Act limits the business of a bank holding company and its affiliates to banking, managing or controlling banks, and furnishing or performing services for banks controlled by the holding company. The major exception to this rule is that a bank holding company directly or through a subsidiary may engage in non-banking activities which the Federal Reserve Board has determined to be so closely related to banking or managing or controlling banks so as to be a proper incident thereto. The Federal Reserve Board under its Regulation "Y" has restricted such activities to things such as lease financing, mortgage banking, investment advice, certain data processing services and, more recently, discount brokerage services. BB is not currently conducting these activities.
Under the Bank Holding Company Act, BB may not acquire directly or indirectly more than 5 percent of the voting shares of, or substantially all of the assets of, any bank without the prior approval of the Federal Reserve Board. Under current law, a New Jersey based bank holding company, like BB, is permitted to acquire banks located in New Jersey and in certain other states if the states had enacted laws specifically to permit acquisitions of banks by out-of-state bank holding companies having the largest portion of their deposits in New Jersey. Satisfactory capital ratios and Community Reinvestment Act ratings are generally prerequisites to obtaining federal regulatory approval to make acquisitions. Acquisitions through the Bank require approval of the Federal Deposit Insurance Corporation (the FDIC). Statewide branching is permitted in New Jersey. The Holding Company Act does not place territorial restrictions on the activities on non-banking subsidiaries of bank holding companies.
The Riegle-Neal Interstate Banking and Branching Act of 1994 (the "Interstate Banking and Branching Act") enabled bank holding companies to acquire banks in states other than its home state regardless of applicable state law. The Interstate Banking and Branching Act also authorized banks to merge across state lines, thereby creating interstate branches. Under such legislation, each state had the opportunity either to "opt-out" of this provision, thereby prohibiting interest branching in such states. Furthermore, a state may "opt-in" with respect to de novo branching, thereby permitting a bank to open new branches in a state in which the bank does not already have a branch. Without de novo branching, an out-of-state bank can enter the state only by acquiring an existing bank. The vast majority of states have allowed inter-state banking by merger but have not authorized de novo branching.
New Jersey has enacted legislation to opt-in with respect to earlier interstate banking and branching and the entry into New Jersey of foreign country banks. New Jersey did not authorize de novo branching into the state.
On November 12, 1999, the President signed the Gramm-Leach-Bliley Financial Modernization Act of 1999 into law. The Modernization Act will:
allow bank holding companies meeting management, capital and Community Reinvestment Act standards to engage in a substantially broader range of nonbanking activities than currently is permissible, including insurance underwriting and making merchant banking investments in commercial and financial companies; if a bank holding company elects to become a financial holding company, it files a certification, effective in 30 days, and thereafter may engage in certain financial activities without further approvals;
allows insurers and other financial services companies to acquire banks;
remove various restrictions that currently apply to bank holding company ownership of securities firms and mutual fund advisory companies; and
establish the overall regulatory structure applicable to bank companies that also engage in insurance and securities operations.
This part of the Modernization Act became effective on March 13, 2000.
The Modernization Act also modifies other current financial laws, including laws related to financial privacy and community reinvestment.
Bank holding companies must comply with the Federal Reserve Board's risk-based capital guidelines. Under the guidelines, risk weighted assets are calculated by assigning assets and certain off-balance sheet items to broad risk categories. The total dollar value of each category is then weighted by the level of risk associated with each category. A minimum total qualifying capital to risk-based assets ratio (Total Capital ratio) of 8.00% is required. At least 4% of an institution's qualifying capital must consist
of Tier 1 capital, and the rest may consist of Tier 2 capital. Tier 1 capital consist 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, 1999, the Company's Total Capital ratio was 33.20% consisting of a Tier 1 ratio of 32.05% and Tier 2 ratio of 1.15%. Such ratios exceed the current regulatory requirements.
In addition, the Federal Reserve Board has promulgated a leverage capital standard, with which bank holding companies must comply. Bank holding companies must maintain a minimum Tier 1 capital to total assets ratio of 3%. However, institutions, which are not among the most highly rated by federal regulators, must maintain a ratio 100-200 basis points above the 3% minimum. As of December 31, 1999, the consolidated Company had a leverage capital ratio of 21.02%.
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, 1999. As of December 31, 1999, the Bank had a risk weighted capital ratio of 25.96% and a leverage capital ratio of 20.76%.
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 other requirements. An institution will be classified as "adequately capitalized" if it (i) has a total risk-based capital ratio of at least 8.0 percent (ii) has a Tier 1 ratio of at least 4.0 percent, (iii) has a Tier 1 leverage ratio (a) at least 4.0 percent or (b) at least 3.0 percent if the institution was rated 1 in its most recent examination, and (iv) does not meet the definition of "well capitalized". An institution will be classified as "undercapitalized" if it (i) has a total risk-based capital ratio of less than 8.0 percent (ii) has a Tier 1 risk-based capital of less than 4.0 percent, or (iii) has a Tier 1 leverage ratio of (a) less than 4.0 percent or (b) less than 3.0 percent if the institution was rated 1 in its most recent examination. An institution will be classified as "significantly undercapitalized" if it (i) has a total risk-based capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 3.0 percent, (iii) has a Tier 1 leverage ratio of less than 3.0 percent. An institution will be classified as "critically undercapitalized" if it has a tangible equity to total assets ratio that is equal to or less than 2.0 percent. An insured depository institution may be deemed to be in a lower capitalization category if it receives an unsatisfactory examination.
Under the Community Reinvestment Act ("CRA"), as implemented by FDIC regulation, a federally insured bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best
suited to its particular community, consistent with the CRA. The CRA requires the FDIC in connection with its examination of a federally insured bank to assess the bank's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such bank. The CRA also requires all institutions to make public disclosure of their CRA ratings. Brunswick Bank & Trust Co. received a "1" (Satisfactory) CRA rating in its most recent examination.
(b) Industry 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, an inactive corporation. As a secondary function, BB began commercial lending activity in 1988. Such activity was approved by the Federal Reserve Bank of New York.
BB is a legal entity separate from the Bank. The Bank is BB's principal asset. Dividends from the Bank are BB's primary source of income. As explained under Item 5, legal and regulatory limitations are imposed on the amount of dividends that may be paid by the Bank to BB.
The Bank maintains its head office in New Brunswick, New Jersey. The Bank operates out of its head office and 5 branch offices in Monmouth and Middlesex Counties.
At December 31, 1999, BB and its subsidiary Bank had deposits of $85,298,529, total loans of $44,010,038, and total assets of $108,872,878. The Bank is a full service commercial bank and offers the services generally performed by commercial banks of similar size and character. Such services include: checking, savings and time deposit accounts, certificates of deposit, secured and unsecured personal loans, commercial loans, and residential and commercial real estate loans. The Bank also provides trust services. BB and its subsidiary Bank had the equivalent of 48 full-time employees as of December 31, 1999.
The primary emphasis of the Company's lending activities is in the commercial lending area. As of December 31, 1999, 24.2% of the loan portfolio is in commercial loans, 9.8% is construction first mortgage loans, 26.5% in commercial first mortgage loans, 36.7% in residential loans, and 2.8% in installment loans. The composition of the loan portfolio represents a shift from December 31, 1998. During 1999 a portion of the Commercial Loan portfolio was paid off and additional new Residential Real Estate loans were made. The Company's lending base is generally in the commercial area, concentrating both in commercial first mortgage loans and commercial loans secured by certificates of deposit, equity securities, and other forms of collateral. Commercial loans secured by certificates of deposit provide the lowest risk to the Company as the collateral is under full control of the Company and faces no risk of deterioration. First mortgage loans and commercial loans secured by real estate provide security with risk tied to the real estate market fluctuations. As the Company lends in a relatively compact geographical area, management is better able to measure the risk of real estate market deterioration and risk of asset deterioration than it would be if it had to assess real estate conditions in numerous, disparate geographical area. However, the concentration of the Company's real estate collateral in a compact geographical area can subject the Company to greater fluctuations in delinquencies if local market conditions vary from those in a broader area. Due to the uncertainty in both the local and state real estate markets, the Company maintains liquid investments in Federal funds sold with short term maturity dates.
There are numerous commercial banks throughout New Jersey, many of which have offices in Monmouth and Middlesex Counties, New Jersey. In common with the entire banking industry, the Bank experiences strong competition for banking business in its market area. The Bank competes both for deposits and loans with other national and state banks, mutual savings banks, savings and loan
associations, finance companies, credit unions, and other financial institutions. While many of the Bank's competitors are larger and have greater financial resources the Bank, in the opinion of the Bank, the size of its financial resources has imposed no substantial impediment to its normal lending functions. The Bank is limited, however, in making commercial loans to an amount not in excess of fifteen percent of its capital in most circumstances. The Bank has, on occasion, arranged for participation by other institutions when it has made larger loans. Additionally, BB participates in certain loans with the Bank as permitted by the Federal Reserve Bank of New York.
The Company does not rely on any one customer for an amount in excess of 10% of income.
(d) Financial information about foreign and domestic operations and export sales.
The Company operates only in New Jersey. No income is derived from foreign persons or entities.
(e) Executive Officers of the Registrant
The following table sets forth information to each executive office of BB who is not a director. All executive officers of BB serve at the pleasure of the Board of Directors.
(f) Statistical Disclosure Required Pursuant to Securities Exchange Act, Industry Guide 3.
Set forth on the following pages are the statistical disclosure for a bank holding company required pursuant to Industry Guide 3.
ITEM 2.
ITEM 2. PROPERTIES
The Bank currently operates from its main office, and five branch offices. The main office and two branches are leased by the Bank. Three of the branch offices are owned by the Bank.
The following is a list of offices the Bank owns:
The following is a list of offices which the Bank leases:
As described in Note 11 to the financial statements, the Company has purchased property to relocate its North Brunswick branch office, and it has purchased property to construct a new branch in Monroe, New Jersey.
ITEM 3.
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.
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 1999.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
BB had 381 shareholders of record as of December 31, 1999.
The common stock of BB is traded on the over-the-counter market. The stock is thinly traded and there can be no assurance that a more active trading market will develop. Ryan, Beck & Co., located at 80 Main Street, West Orange, New Jersey 07052, periodically issues information about stocks of small and large commercial banks in New Jersey and acts as a market maker for small New Jersey bank stocks. The following quotations were provided by Ryan, Beck & Co. and represent the high and low bid prices for each quarter during the last two years. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commissions and do not necessarily reflect actual transactions.
Payments of dividends by Brunswick Bank and Trust Company to BB is restricted. Under the New Jersey Banking Act of 1948, as amended, the Bank may pay dividends only out of retained earnings, and out of surplus to the extent that exceeds fifty percent of stated capital. Under the Financial Institutions Supervisory Act, the FDIC has the authority to prohibit a state-chartered bank from engaging in conduct 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, 1999, approximately $6 million is currently available, without restriction, for the Bank to pay the Registrant in dividends. A Federal Reserve Board capital requirement of 8.0% would still be maintained in the event of said dividend. The Registrant issued 20% stock dividends in 1999, 1995 and 1994; cash was paid in lieu of fractional shares. No dividends were paid in 1998, 1997 or 1996. The Board of Directors is considering a dividend in 2000, but has not yet determined if cash dividends will be reinstituted.
STOCK SPLIT
The Board of Directors declared a Two Shares for One Share stock split payable on January 14, 2000 to stockholders of record on December 31, 1999. The stock split resulted in the Company issuing 902,266 shares. These financial statements give retroactive effect to the stock split.
Earnings per share have been restated to reflect the stock split declared.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data concerning BB:
ITEM 7.
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, 1999, 1998, and 1997. The information presented below should be read in conjunction with the Company's consolidated financial statements and accompanying notes appearing elsewhere in this report. All share and per share data has been restated to reflect the two for one stock split declared on December 14, 1999 paid on January 14, 2000 and the five shares for four shares stock split paid on February 11,1999.
Overview:
The Company's 1999 net income amounted to $1,320,702, which was $215,150, or 14%, lower than the year before 1998 of $1,535,852. The net income for 1998 was $291,310 higher then the year before 1997, which was $1,244,542. On a per share basis, net income was $.75, $.85,and $.69, respectively in 1999, 1998, and 1997.
The decrease in net income recorded in 1999 can be attributed to the reduction of net interest income of $423,000 and an increase in other expenses of $176,000 mostly due to an increase in administrative personnel salaries and additions to staff. These factors were partially offset by a decrease in provisions of credit losses of $39,000 and increase in other income of $131,000.
The $291,310 or 23.4% increase in 1998 over the 1997 earnings can be attributed to the increase in net income increase of $45,000, an increase in other income of $2,000 and a significant reduction in other expenses of $741,000 over the prior year, offset by an increase in provision of credit losses of $257,000.
Return on assets for the years ended December 31,1999, 1998, and 1997 was 1.21%, 1.40% and 1.23%, respectively while the return on beginning of the year equity recorded during the same periods amounted to 6.19%, 7.75 % and 6.67%.
Management believes it has created a market-niche as a local commercial bank, servicing small businesses and individuals in its targeted geographical areas. It is the Company's intention to continue servicing that market. The Company will consider future expansion into additional branches, geographic areas or a possible acquisition if the opportunity arises. As of December 31, 1999, the Company has been approved by the Federal Deposit Insurance Corporation and the New Jersey Department of Banking for an additional branch. The Company is planning the branch location for southern Middlesex County (Monroe Township), New Jersey.
Income Statement Analysis, 1999 vs. 1998
For the year of 1999 income before income taxes decreased from 1998 by $429,000. This decrease occurred mainly because of a decrease in net interest income, most of which resulted from a decrease in loan volume. The commercial loan portfolio decreased at the end of 1998 primarily due to a $6 million loan being refinanced by a major auto dealership program.
Interest income decreased by $677,000 and interest expense decreased by $254,000 which resulted in a $423,000 overall decrease in net interest income. The following table illustrates how decrease in loan volume and interest rates affected net interest income.
Although other expenses increased by $176,000, the increased expenses were offset by a $39,000 decrease in the provision for credit losses and an increase in other income of $131,000.
The increase in other expenses was primarily due to an increase in administrative and staff salaries.
The increase in other income is due primarily to increase in various service fees in 1999.
Income Statement Analysis, 1998 vs. 1997
For the year of 1998 income before income taxes increased from 1997 by $531,000. This increase occurred because of several major factors, which are described as follows:
During 1997 a $399,000 loss resulted from the sales of a large foreclosed commercial property and approximately $150,000 in expenses were incurred from the complete renovation of our branch located in downtown New Brunswick. These events resulted in a $549,000 negative impact on 1997 earnings in comparison to 1998.
During 1998 a $75,000 insurance settlement was received. This settlement was for water damage that occurred at our downtown New Brunswick branch during 1997 and was applied against 1998 expenses.
Interest income increased by $184,000 and interest expense decreased by $139,000, which resulted in a $45,000 increase in net interest income. The following table illustrates how changes in interest rates and volume effected net income.
During 1997 no loan loss provision was required and a recapture of $157,000 of loan loss provisions of prior years was recorded. During 1998 $100,000 in loan loss provisions were required thereby producing a $257,000 negative impact on 1998 earnings when compared to that of 1997.
Balance Sheet Analysis
There were no substantial changes in the balance sheet. All components of total assets at December 31, 1999 were comparable to the amounts at the end of 1998.
For additional details on securities, loans and premises and equipment, refer to the Notes to Consolidated Financial Statements.
The $368,000 increase in premises and equipment was primarily due to pre-construction and construction costs related to two branch offices under construction.
Although savings and NOW balances decreased by $6,942,000, the decrease was partially offset by increases in demand and time deposits of $766,000 and $4,520,000, respectively, resulting in a $1,656,000 decrease in total deposits.
Stockholders' equity, with the addition of 1999 net income, increased by $1,316,146.
Year 2000 Issues
The Company has assessed the potential impact of the year 2000 on its computer operations and on related costs. Management formulated and implemented a plan, the cost of which was not material to the consolidated financial statements. Since December 31, 1999 the Company's computer system has experienced no Y2K computer problems.
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.
The Company's asset liquidity consists of cash in other banks, federal funds sold, and investment securities and loans maturing in one year or less. At December 31, 1999, cash and due from banks totaled $5.9 million; federal funds totaled $34.6 million. Investment securities and loans maturing within one year totaled $15.1 million and $16.8 million, respectively.
In the past three years, the Company has continually derived positive cash flows from its operating activities. Specifically, cash provided by operating activities totaled approximately $1.4 million in 1999, $1.5 million in 1998 and $1.4 million in 1997. In 1999, investing activities provided $182,000 due primarily to proceeds from sale of foreclosed real estate. Financing activities used approximately $1.5 million from decreases in savings and NOW deposits.
In light of the past cash flows provided from operating, financing, and investing activities, management believes it is in a strong position to meet both short and long-term liquidity needs. The Company has been able to maintain adequate liquidity in the past and does not foresee impairment of that liquidity in the future.
Due to the capital structure of BB and the Bank, capital management, the process of providing equity and debt for current and future financial positioning, is closely aligned with liquidity management. As the Company currently has no long term debt and management does not contemplate undertaking such debt in the future, all financial positioning is done through liquid funds.
(1) Lesser of the allowance for loan loss or 1/80 of risk-weighted assets.
Statements Regarding Forward-Looking Information
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1955. Forward-looking statements can be identified by the use of words such as "believes", "expects", and similar words or variations. Such statements are not historical facts and involve certain risks and uncertainties. Actual results may differ materially from the results discussed in these forward-looking statements. Factors that might cause a difference include, but are not limited to, changes in interest rates, economic conditions, deposit and loan growth, loan loss provisions, and customer retention.
Interest Rate Sensitivity Management
The accompanying table, a quantification of the Company's interest rate exposure at December 31, 1999, is based upon the known repricing dates of certain assets and liabilities and the assumed repricing dates of others.
* 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.
Unadopted Financial Accounting Standards Board Statements
As of December 31, 1999, 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,
(1) The rate is presented on a tax equivalent basis using the Federal rate of 34%.
(2) Non-accrual loans, overdrafts, property and equipment, and other non-interest earning assets are included in Other.
(3) Average balance sheet computed based on monthly balances.
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, 1999, 1998, and 1997 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.
Investment Portfolio
The following table shows the carrying value of the Company's investment portfolio as of December 31. Investment securities are held to maturity and are stated at cost, adjusted for amortization of premium and accretion of discount (in thousands).
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, 1999 (in thousands). Yields on tax exempt securities are presented on fully tax-equivalent basis using a 34% Federal tax rate.
Loan Portfolio
The following tables set forth the composition of the Company's loan portfolio as of the dates indicated (in thousands):
The following table sets forth the maturity distribution for the above loan portfolio at December 31, 1999;
Maturities and Sensitivities of Loans to Charges in Interest Rates
Rollover Policy
The Company's overall practice in this area is to limit the rollover of loans to any of its customers. Occasionally, borrowers to whom credit has been extended experience unanticipated changes in cash flow or other circumstances that precipitate a decision to roll over their loan. When this is done, it is based upon the continued favorable credit position of the borrower and does not indicate a problem loan.
Risk Elements in Loan Portfolio
Commercial and installment loans are placed on a non-accrual status when a default of principal or interest has existed for a period of 90 days and when a return to current status is not imminent. Real estate loans are placed on non-accrual status when a default of principal or interest has existed for 90 days or more. Subsequent to the change in classification to non-accrual, management assesses the loan for market value of collateral, credit position of the debtor and potential operation of any property involved. Foreclosure proceedings are instituted, as applicable, at that time.
Construction loans are first mortgage loans in all cases; delinquency, non-accrual, and foreclosure proceedings are handled in the same manner as other loans secured by real estate. Once a loan is placed on non-accrual, interest previously accrued and uncollected is reversed and charged against current earnings. Subsequent interest income would be recognized on these loans only to the extent collections exceed principal outstanding.
The following table sets forth information on non-accrual, past due (other than non-accrual), and other real estate owned (there were no restructured loans) for the periods indicated (in thousands):
If the above non-accrual loans at December 31, 1999 had been current, interest income for 1999 would have been approximately $84,000 greater than that recorded. Interest included in income on these loans totaled approximately $82,000 for the year. Delinquency rates at December 31, 1999 primarily were higher than 1998 and 1997 but lower than 1996 and 1995. The delinquency rate was higher in 1999 due to the increase in non-accrual loans. One commercial loan for $385,000 became part of this category.
Except for loans included in the above table there were no loans at December 31, 1999 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, 1999, the total loan portfolio was approximately $44 million. As of the same date, the commercial loan portfolio totaled approximately $10.6 million; $1.1 million of these commercial loans were collateralized by the stock of a publicly-traded company, the market value of the stock collateralizing these loans totaled approximately $4 million as of December 31, 1999. Other than that concentration, there were no other concentrations exceeding ten percent of total loans. A concentration is defined as amounts loaned to a multiple number of borrowers engaged in similar activities that would cause them to be similarly affected by changes in economic or other conditions.
Summary of Loans Loss Experience
For the periods indicated, the following table summarizes loan balances, changes in the allowance for loan losses arising from loans charged-off and recoveries on loans previously charged-off and additions to the allowance that has been charged to income.
Allocation of the Allowance for Loan Losses
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):
The maturities of time deposits of $100,000 or more at December 31, 1999 are summarized as follows:
Return on Equity and Assets
The following are selected ratios for the years ended December 31,
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, 1999, did outstanding treasury tax and loan deposits exceed 30% of stockholders' equity.
ITEM 7A.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements for the years ended December 31, 1999, 1998, and 1997 contain the information required by Item 8 and that information is incorporated herein following signature page 21.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Proxy Statement will contain under the caption "Proposal No. 1 - Election of Directors" the information required by Item 10 with respect to directors of BB and that information is incorporated herein by reference. Information regarding executive officers of BB who are not also directors appears under sub-section (e) of Item 1 of the Form 10-K.
ITEM 11.
ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS
The Proxy Statement will contain under the caption "Directors' Compensation", the caption and "Executive Compensation" and the caption "Compensation Committee Interlocks and Inside Participation" information required by Item 11 and that information is incorporated herein by reference. Information in the Proxy Statement required by Paragraphs (k) and (1) of Item 402 of Regulation S-K is not incorporated by reference into any portion of this Annual Report Form 10-K.
ITEM 12.
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Proxy Statement will contain under the caption "Certain Transactions with Management" and the caption "Compensation Committee Interlocks and Insider Participation" the information required by Item 13 and that information is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) & (2) Financial Statements and Financial Statements Schedules
The below listed financial statements and report of independent auditors of BB and subsidiaries for the years ended December 31, 1999, 1998, and 1997 are following signature page number 21.
Independent Auditors' Report
Consolidated Statements of Income- Years Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows - Years Ended December 31, 1999, 1998, and
Notes to Consolidated Balance Sheets - Years Ended December 31, 1999 and 1998
Schedules to the Consolidated Balance Sheets required under Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K
BB did not file any reports on Form 8-K for the three months ended December 31, 1999.
(c) Exhibits
List of Exhibits
(3) (a) Certificate of Incorporation of Brunswick Bancorp Incorporated by reference to Registration Statement on Form S-14 filed on June 20, 1985.
(b) By-laws of Brunswick Bancorp, Incorporated by reference to Registration Statement on Form S-14 filed on June 20, 1985.
(10) Non-qualified Deferred Compensation Plan dated as of December 5, 1995. Incorporated by reference to Form 10-K for the year ended December 31, 1995.
(21) Subsidiaries of Brunswick Bancorp, Incorporated by reference to Registration Statement on Form S-14 filed on June 20, 1985.
(27) Financial Data Schedule.
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
March 14, 2000 - ------------------------------ 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.
BRUNSWICK BANCORP AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 BRUNSWICK BANCORP AND SUBSIDIARIES FINANCIAL STATEMENT FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
[MICHAEL R. FERRARO LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors BRUNSWICK BANCORP AND SUBSIDIARIES
We have audited the accompanying consolidated Balance Sheets of Brunswick Bancorp and Subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Brunswick Bancorp and Subsidiaries as of December 31, 1999 and 1998, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles.
/S/ MICHAEL R. FERRARO
Michael R. Ferraro, CPA February 17, 2000 Matawan, NJ
BRUNSWICK BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
The accompanying notes are an integral part of these consolidated financial statements. 2 BRUNSWICK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
The accompanying notes are an integral part of these consolidated financial statements. 3 BRUNSWICK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
The accompanying notes are an integral part of these consolidated financial statements. 4 BRUNSWICK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
During the years ended December 31, 1999, 1998, and 1997, $62,242, $136,793, $60,080, respectively, in loan balances were transferred to other real estate owned as a result of foreclosure proceedings.
The accompanying notes are an integral part of these consolidated financial statements. 5 BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Brunswick Bancorp and its wholly-owned subsidiaries Brunswick Bank & Trust Company (The Bank) and Brunscor Realty, Inc. (inactive), together referred to as the Company. All significant inter-company accounts and transactions have been eliminated.
Nature of Operations
The Bank operates under a state bank charter and provides full banking services. The Bank is subject to regulations of the Federal Deposit Insurance Corporation and the New Jersey Department of Banking. The area served by the Bank is Central New Jersey with primary emphasis on Middlesex and Monmouth Counties; services are provided at six branch offices.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications of prior years amounts have been made to conform with the current year presentation.
Cash Equivalents
For the purpose of presentation in the Statements of Cash Flows, cash and cash equivalents are defined as those amounts included in the statement of condition caption "Cash and due from banks" which is comprised of cash on hand and demand deposits in other institutions and federal funds sold.
Securities Held to Maturity
Bonds, notes and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan loses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.
Loans receivable which management has the intent to sell prior to maturity in the secondary market are carried at the lower of cost or estimated market value in the aggregate.
Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan.
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Interest on loans is accrued and credited to income based on the principal amount outstanding. The accrual of interest income is ordinarily discontinued when a loan becomes 90 days past due as to principal or interest; however, management may elect to continue the accrual when the estimated net realizable value of collateral is sufficient to cover the principal balance and the accrued interest. When interest accruals are discontinued, interest credited to income in the current year is reversed. When the loan is determined to be uncollectible, interest accrued in prior years and the principal are charged to the allowance for loan losses.
Allowance for Credit Losses
The allowance for loan losses is increased by charges to income and decreased by charge-off's (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions.
Premises and Equipment
Land is carried at cost. Bank premises, furniture and equipment, and leasehold improvements are carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method based principally on the estimated useful life of the asset.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value, less estimated cost to sell.
Pension Costs
The Bank has a defined contribution profit-sharing plan covering all employees who meet the eligibility requirements. To be eligible, an employee must be twenty-one years of age and have completed one year of continuous service. The Bank's policy is to fund the contribution annually before the due date of the corporate income tax return.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair values of significant financial instruments as disclosed herein.
Cash and Due from Banks and Federal Funds Sold
The carrying amounts of cash and due from banks and Federal funds sold approximate fair value.
Investment Securities Held to Maturity
Fair values of securities are based on quoted market prices.
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Loans
For variable rate loans that re-price frequently and have no significant change in credit risk, fair values are carrying values, fair values for certain mortgage loans (for example, one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans. Fair values of commercial real estate and commercial loans are estimated using discounted cash flows analysis, using interest rates currently being offered with similar terms to borrowers of similar credit quality. Fair values of impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable.
Deposits
The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (carrying amounts). The carrying amount of variable-rate savings and NOW accounts approximate their fair values at the reporting date. Fair values of fixed-rate certificates of deposit are estimated by discounting estimated cash flows using current rates offered for deposits of similar remaining maturities.
Other
The estimated fair values of accrued interest receivable, accrued interest payable, debt (treasury tax and loan deposits), and other assets and liabilities are deemed to be equal to the amounts recognized in the consolidated statements of financial position.
Off Balance-sheet Items
The estimated fair values of commitments to extend credit and letters of credit would approximate fees currently charged to enter into similar agreements.
Investment Securities Held to Maturity
Fair values of securities are based on quoted market prices.
Net Income Per Share of Common Stock
Net income per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period, after giving retroactive effect to stock dividends and splits. Basic and diluted earnings per share are the same.
Common Stock Rights
The Company has non-expiring rights outstanding to purchase 3,018 shares of common stock at an aggregate price of $69,414.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into agreements involving commitments to extend credit, commitments under credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(2) SECURITIES HELD TO MATURITY The carrying amounts of investment securities as shown in the consolidated statements of condition of the Company and their approximate fair values at December 31 were as follows:
The scheduled maturities of investment securities as of December 31, 1999 were as follows:
Securities, carried at $21,001,100 and $21,015,140 at December 31, 1999 and 1998, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been classified based on their ultimate maturity dates. The mortgage-backed securities will mature earlier because of principal repayments.
(3) LOANS
The components of loans in the consolidated statements of condition are as follows:
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
An analysis of the change in the allowance for credit losses follows:
Impairment of loans have been recognized in conformity with FASB Statement No.114, as amended by FASB Statement No. 118. Recorded investments in other impaired loans were $853,714 and $1,065,831 at December 31, 1999 and 1998 respectively. The average recorded investment in impaired loans during 1999, 1998, and 1997 was approximately $1,330,000, $1,649,000 and $1,227,000 respectively. Interest income of approximately $94,558, $119,000 and $220,000, on impaired loans was recognized for cash payments received in 1999, 1998, and 1997, respectively. The total allowance for loan loses related to these loans was $0 and $110,000 on December 31, 1999 and 1998 respectively.
(4) PREMISES AND EQUIPMENT
Components of premises and equipment included in the consolidated statements of condition at December 31, 1999 and 1998 were as follows:
Certain Bank facilities are leased under various operating leases. Rental expense was $415,603, $406,152, and $394,906, in 1999, 1998, and 1997 respectively. Future minimum rental under noncancelable leases are:
(5) BORROWED FUNDS
Borrowed funds consist of United States treasury tax and loan deposits and generally mature within one to 120 days from the transaction date. All borrowed funds are collateralized with mortgaged back securities.
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(6) EMPLOYEE BENEFITS
The Bank has a profit sharing plan for substantially all full-time employees. The Plan consists of employer contributions and voluntary employee contributions, and an annually determined employer match of employee contributions. Contributions under the profit sharing plan are made at the discretion of the board of directors, and have totaled approximately 5% of gross eligible salaries for the past five years. The Bank contributed $96,300, $106,500, and $103,000, for 1999, 1998, and 1997, respectively.
(7) COMPOSITION OF DEPOSITS
The aggregate amount of certificates of deposits with minimum balances of $100,000 was $13,786,592 and $8,786,851 at December 31, 1999 and 1998, respectively. All certificates of deposit mature within one year of issuance.
(8) INCOME TAXES The consolidated provision for income taxes consists of the following:
The principal reasons for the difference in the effective tax rate and the federal statutory rate are as follows:
The components of the net deferred tax asset, included in other assets are as follows:
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The components of the provision for deferred tax expense (benefit) are as follows:
(9) STOCK SPLITS
The Board of Directors declared a Five Shares for Fours Shares stock split payable on February 11, 1999 to stockholders of record on December 14, 1998. The stock split resulted in the Company issuing 180,346 shares. The Board determined that cash will be paid in lieu of fractional shares resulting from the stock split at a value of $34.00 per share. The amount paid out was $4556. On December 14, 1999 The Board of Directors declared a two shares for one share stock split payable on January 14, 2000 to stockholders of record on December 31, 1999. These financial statements give retroactive effect to the stock split in the computation of earnings per share.
(10) STOCK OPTION PLAN
The Company has a stock option plan for officers and key employees that provides for nonqualified and incentive options. The Board of Directors determines the option price (not to be less than fair market value for incentive options) at the date of grant. The options generally expire five years from the date of grant and are exercisable over the period stated in each option.
In May 1998 the Company granted stock options for 137,500 shares at an exercise price of $12.80 per share, and as of December 31, 1999, 55,000 shares were available to be exercised; as of that time no options were exercised. The Stock options expire in 5 years from the date they are granted and vest over service periods that range from one to five years. The fair value of option granted is estimated on the grant date using the Black-Scholes Model. The following assumptions were made in estimating fair value:
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:
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The diluted earnings per share are based on the Treasury stock method that creates a 9,300 shares dilution.
(11) RELATED PARTIES
The Bank has entered into transactions with its directors, principal officers, their immediate families, and affiliated companies in which the directors are principal stockholders. These transactions are as follows:
Loans
Related parties were indebted to the Company for loans totaling $4,489,482 as of December 31, 1998. During 1999, additional advances of $210,773 were made and $2,877,300 was retired for a balance of $1,822,955 as of December 31, 1999.
Rent
One operating location of the Bank is leased from a related party. Rent paid to that party totaled $319,139, $309,544, and $302,521 for the years ended December 31, 1999, 1998 and 1997, respectively, at terms which are considered by management to be no less favorable than an arm's length agreement.
Loan participation's sold
Certain loans and loan participations, which the Bank services, were sold to a related party without recourse. As of December 31, 1999 and 1998, these loans totaled $588,601 and $313,305, respectively.
Deposits
The Company is indebted to certain related parties for bank deposits made in the ordinary course of business. Rates and terms of said deposits are comparable to those offered to unrelated depositors.
Other
The Company engages in routine operating transactions with entities related to directors. Said transactions are in the normal course of business and are immaterial to operations.
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(12) CONTINGENT LIABILITIES AND COMMITMENTS
The Bank's consolidated financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk, and liquidity risk. These commitments and contingent liabilities at December 31, 1999 are as follows:
Commitments to extend credit, commercial letters of credit, and standby letters of credit all include exposure to some credit loss in the event of nonperformance of the customer. The Bank's credit policies and procedures for credit commitments and financial guarantees are the same as those extensions of credit that are recorded on the consolidated statements of condition.
Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to the Bank.
The Company is party to litigation and claims arising 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.
The Bank entered into an agreement in September 1996 to purchase a parcel of land in Monroe Township, New Jersey, for the purpose of constructing an additional branch office. As of the date of these financial statements, all regulatory and zoning approvals have been obtained. The Bank has begun engineering and pre-construction phases of the building. The Bank purchased a parcel of property on January 2, 1998 in North Brunswick, New Jersey, for the purpose of relocating its current North Brunswick branch office. The purchase price of the property was $293,000. The Bank intends to construct a permanent office building on the site. As of the date of these financial statements the Bank has obtained regulatory approvals for the branch office relocation and the building is under construction.
Year 2000 Issues
The Company has assessed the potential impact of the year 2000 on its computer operations and on related costs. Management formulated and implemented a plan, the cost of which was not material to the consolidated financial statements. Since December 31, 1999 the Company's computer system has experienced no Y2K problems.
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(13) CONCENTRATIONS OF CREDIT RISK
All of the Company's loans and loan commitments have been granted to customers in the Bank's market area. The majority of such customers are depositors of the Bank. Of a total commercial loan portfolio of $10,634,153 and $16,306,888 as of December 31, 1999 and 1998, respectively, approximately $1,159,920 and $1,160,000, respectively, of those loans are collateralized by stock in one publicly traded company. The market value of stock collateralizing those loans totals approximately $4,036,507 and $3,763,749, respectively. The distribution of commitments to extend credit approximates the distribution of loans outstanding (Note 3). Commercial and standby letters of credit were granted primarily to commercial borrowers. The Company, as a matter of policy, requires collateral on all real estate exposures and generally requires loans to value ratios of no greater than 75%. The Bank maintains cash balances at several correspondent banks. The cash balances are in excess of the limit covered by the Federal Deposit Insurance Corporation.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(15) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulator framework for prompt corrective actions, the Company must meet specific capital guidelines that involve quantitative measure of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to insure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined), to average assets (as defined). Management believes that the Company meets all capital adequacy requirements to which it is subject.
The Company's actual capital amounts and ratios compared to regulatory minimum ratios and amounts are presented as follows (in thousands):
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly data is presented as follows (in thousands except for per share amounts):
During the fourth quarter of 1999 and 1998, the Company completed a comprehensive review of its loan loss reserve. As a result of that review there were some reversals of allowance for loan losses in the fourth quarter.
BRUNSWICK BANKCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(17) CONDENSED FINANCIAL INFORMATION OF BRUNSWICK BANCORP (PARENT ONLY) BALANCE SHEET
STATEMENTS OF INCOME
BRUNSWICK BANCORP AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31,1999, 1998 AND 1997
STATEMENTS OF CASH FLOWS
Certain bank regulatory limitations exist on the availability of subsidiary bank undistributed net assets for the payment of dividends to Brunswick Bancorp without the prior approval of the bank regulatory authorities. Substantially all undistributed net asses of the Bank are limited in availability for dividends to Brunswick Bancorp as of December 31, 1999.