SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30,1998 Commission File Number 0-16637
BROAD NATIONAL BANCORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2395057
- ------------------------------ -----------------------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) identification No.)
905 Broad Street, Newark NJ 07102
- ------------------------------ --------------------------
(Address of principal executive offices) (Zip Code)
Registrant telephone number, including area code (973) 624-2300
----------------
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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
------ ------
Number of shares outstanding of Broad National Bancorporation class of Common
Stock, as of July 31, 1998:
Common Stock, $1.00 par value - 4,709,169
1
BROAD NATIONAL BANCORPORATION
Index to Form 10-Q Financial Information
For the Three Months and Six Months Ended June 30,1998
------------------------------------------------------
PAGE
----
PART 1 - FINANCIAL INFORMATION 3
- ------------------------------
Consolidated Statements of Condition
as of June 30, 1998 and December 31, 1997 4
Consolidated Statements of Income for the
Three Month and Six Month Periods Ended June 30, 1998
and 1997 5
Consolidated Statements of Cash Flows for the Six
Month Periods Ended June 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART 2 - OTHER INFORMATION 23
- --------------------------
Items 1,2, 3 & 4 Not Applicable or Negative
Item 5 23
Item 6 26
Signatures 27
Exhibit 1 - Computation of Net Income per Common Share 28
Exhibit 2 - Independent Auditor's Review Report of Interim
Financial Information 29
Exhibit 27 - Financial Data Schedule 30
2
BROAD NATIONAL BANCORPORATION
PART 1 - FINANCIAL INFORMATION
The following consolidated financial statements of Broad National Bancorporation
as of June 30, 1998 and December 31, 1997 as well as the three month and six
month periods ended June 30, 1998 and 1997 have been prepared by Broad National
Bancorporation without audit, and reflect all normal, recurring adjustments and
disclosures which are, in the opinion of management, necessary for a fair
statement of results for the interim periods presented. These statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. For further clarification and
understanding, these interim statements should be read in conjunction with the
annual report on Form 10-K of Broad National Bancorporation for the year ended
December 31, 1997.
The results of operations for the periods presented are not necessarily an
indication of the results which can be expected for 1998.
The registrant's independent public accountants, KPMG Peat Marwick LLP, have
performed a limited review of these interim statements in accordance with the
standards for such reviews promulgated by the American Institute of Certified
Public Accountants. See page 29 for their report on this limited review.
3
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
------------ -----------
(Unaudited)
ASSETS
------
CASH AND DUE FROM BANKS $ 28,075 $ 21,933
FEDERAL FUNDS SOLD 39,600 37,300
------ ------
CASH AND CASH EQUIVALENTS 67,675 59,233
SECURITIES HELD-TO-MATURITY
(aggregate market value $47,123 and $65,203, respectively) 47,036 65,330
SECURITIES AVAILABLE-FOR-SALE 171,351 141,077
LOANS, Net of deferred loan fees 342,568 322,528
LESS -
Allowance for possible loan losses 7,292 6,974
------------------------------------------------------------------------------------------------------------------------------
NET LOANS 335,276 315,554
------------------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT, net 9,837 8,991
ACCRUED INTEREST RECEIVABLE 4,294 4,020
OTHER ASSETS 7,582 7,464
------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $643,051 $601,669
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
DEPOSITS
Non-interest bearing demand $111,514 $103,054
Savings, money market and interest bearing demand 232,755 230,467
Time deposits less than $100,000 104,220 94,017
Time deposits of $100,000 or more 109,653 90,700
------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 558,142 518,238
SHORT-TERM BORROWING 13,507 13,000
LONG-TERM DEBT 3,000 9,000
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED SECURITIES OF A
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF BANCORPORATION 11,500 11,500
ACCRUED TAXES, INTEREST AND OTHER LIABILITIES 15,006 10,700
------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 601,155 562,438
------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, authorized 10,000,000 shares; issued 4,952,169
shares at 6/30/98 and 4,948,921 shares at 12/31/97 4,952 4,949
Capital surplus 31,015 30,996
Retained earnings 9,734 7,153
Common Stock in treasury at cost; 243,000 shares at 6/30/98 and 242,000 shares at
12/31/97 (4,132) (4,111)
Accumulated other comprehensive income 327 244
------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 41,896 39,231
------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $643,051 $601,669
------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
3 MONTH PERIOD ENDED 6 MONTH PERIOD ENDED
-------------------- --------------------
JUNE 30 JUNE 30
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED)
INTEREST INCOME:
Interest and fees on loans $ 7,424 $ 6,617 $ 14,612 $ 13,030
Interest on securities held - to - maturity
Taxable 762 1,414 1,680 2,842
Tax exempt 17 13 35 26
Interest on securities available - for -sale 2,532 1,255 4,878 2,353
Interest on federal funds sold 673 714 1,181 1,444
----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 11,408 10,013 22,386 19,695
----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings, money market & interest
bearing demand deposits 1,237 1,181 2,367 2,331
Interest on time certificates of
deposit of $100,000 or more 1,500 1,415 2,919 2,624
Interest on other time deposits 1,412 1,173 2,749 2,323
Interest on short-term borrowings 203 21 395 33
Interest on long-term debt 77 0 200 0
Interest on 9.5% Cumulative Trust Preferred Securities 273 0 546 0
----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 4,702 3,790 9,176 7,311
----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 6,706 6,223 13,210 12,384
----------------------------------------------------------------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES 225 450 525 900
----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 6,481 5,773 12,685 11,484
----------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 1,470 1,470 2,908 3,086
Other income 370 261 702 533
Gain (loss) on sale of securities available-for-sale (45) 52 44 57
----------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 1,795 1,783 3,654 3,676
----------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES:
Salaries and wages 2,418 2,002 4,813 4,032
Employee benefits 577 596 1,134 1,237
Occupancy expense 530 515 1,022 990
Furniture and equipment expense 364 256 684 515
Data processing fees 218 274 459 565
Legal fees 148 195 313 387
Professional fees 161 215 334 468
Postage, delivery and communication 186 154 365 326
FDIC and OCC assessments 48 45 96 89
Other real estate expense (income) 24 38 44 (44)
Other expenses 743 766 1,361 1,181
----------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSES 5,417 5,056 10,625 9,746
----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
3 MONTH PERIOD ENDED 6 MONTH PERIOD ENDED
-------------------- --------------------
JUNE 30 JUNE 30
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED)
INCOME BEFORE INCOME TAXES 2,859 2,500 5,714 5,414
PROVISION FOR INCOME TAXES 1,047 841 2,097 2,094
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,812 $ 1,659 $ 3,617 $ 3,320
- --------------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING /1/
BASIC 4,708,548 4,832,156 (1) 4,708,230 4,863,901 (1)
DILUTED 4,929,909 5,019,226 (1) 4,924,012 5,032,789 (1)
- --------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE /1/
BASIC $0.38 $0.34 (1) $0.77 $0.68 (1)
DILUTED $0.37 $0.33 (1) $0.73 $0.66 (1)
See accompanying notes to consolidated financial statements.
- ----------------------
/1/ 1997 share and per share amounts have been restated to
reflect the effect of the 5% stock dividend declared December 18, 1997.
6
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTH PERIOD ENDED JUNE 30
1998 1997
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,617 $ 3,320
Adjustments to reconcile net income to net cash
provided by (used in ) operating activities:
Depreciation and amortization 717 628
Amortization of securities premium net 416 365
Amortization of deferred points and fees
and deferral of loan origination costs (122) (220)
Provision for possible loan losses 525 900
Deferred tax benefit (461) (1,110)
Increase (decrease) in accrued taxes
interest, and other liabilities 4,306 (310)
Gain on sale of securities available-for-sale (44) (57)
Gain on sale of loans (2) 0
Gain on sale of other real estate owned (18) (115)
Increase in accrued interest receivable (273) (472)
Decrease (increase) in other assets 206 (764)
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 8,867 $ 2,165
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of other real estate owned $ 447 $ 419
Net increase in loan balances (20,643) (20,660)
Proceeds from the sale of loans 182 0
Proceeds from maturities of securities held-to-maturity 18,614 11,718
Purchase of securities held-to-maturity (478) (6,716)
Proceeds from maturities of securities available-for-sale 25,975 5,554
Proceeds from the sale of securities available-for-sale 29,998 15,035
Purchase of securities available-for-sale (86,333) (34,543)
Capital expenditures (1,563) (649)
-----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ (33,801) $ (29,842)
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in certificates of deposit $ 29,156 $ 14,039
Net increase in demand deposit, savings, money market
and interest bearing demand accounts 10,748 17,923
Net increase in short-term borrowings 507 2,506
Dividends paid (1,036) (924)
Issuance of Trust Preferred securities 0 11,500
Decrease in long-term debt (6,000) 0
Issuance of Common Stock 22 0
Purchase of Treasury Stock (21) (1,335)
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 33,376 $ 43,709
-----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 8,442 $ 16,032
CASH AND CASH EQUIVALENTS, beginning of period 59,233 76,857
-----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 67,675 $ 92,889
-----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
Interest $ 9,092 $ 7,104
Taxes $ 58 $ 3,185
-----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
7
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
(1) Principles of consolidation -
The consolidated financial statements include the accounts of Broad
National Bancorporation, its wholly owned subsidiaries, BNB Capital
Trust and Broad National Bank (the "Bank") and the Bank's wholly owned
subsidiaries BNB Investment Corporation, Broad National Realty
Corporation and Bronatoreo, Inc. All intercompany accounts and
transactions have been eliminated.
As used in this report, the term "Company" relates to Broad National
Bancorporation and its subsidiaries on a consolidated basis; the term
"Bancorporation" relates to Broad National Bancorporation (parent
company only); and the term "Bank" relates to Broad National Bank and
its subsidiaries on a consolidated basis.
(2) Net income per share -
Basic earnings per common share is computed by dividing net income by
the weighted average number of common shares outstanding. Diluted
earnings per common share includes any additional common shares as if
all potentially dilutive common shares were issued (e. g. stock
options).
Share and per share amounts for 1997 have been restated to reflect the
5% stock dividend declared in December 1997.
(3) Company - obligated mandatorily redeemable 9.5% Cumulative Trust
Preferred Securities of a subsidiary trust holding solely junior
subordinated debentures of Bancorporation (9.5% Cumulative Trust
Preferred Securities)
On June 30, 1997, $11.5 million of 9.5% Cumulative Trust Preferred
Securities were issued by BNB Capital Trust, a Delaware statutory
business trust formed and wholly - owned by Bancorporation. The net
proceeds from this issuance were invested in Bancorporation in exchange
for Bancorporation's junior subordinated debentures. The sole asset of
BNB Capital Trust, the obligor on the 9.5% Cumulative Trust Preferred
Securities, is $11,855,670 principal amount of 9.5% Junior Subordinated
Debentures of Bancorporation due June 30, 2027. Bancorporation has
entered into several contractual arrangements for the purpose of fully
and unconditionally supporting BNB Capital Trust's payment of
distributions on, payments on any redemption of, and any liquidation
distribution with respect to, the 9.5% Cumulative Trust Preferred
Securities. These contractual arrangements constitute a full and
unconditional guarantee by Bancorporation of BNB Capital Trust's
obligations under the 9.5% Cumulative Trust Preferred Securities.
(4) Comprehensive Income
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS 130
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. SFAS 130 does not require a specific format
for that financial statement but requires that an enterprise display an
amount representing total
8
comprehensive income for the period in that financial statement. SFAS
130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid in capital in the
equity section of a statement of financial position.
The company will display the financial statements required by SFAS 130
effective in its financial statements for December 31, 1998.
For the six month period ended June 30, 1998 and 1997, the Company
recorded comprehensive income of $3,700,000 and $3,255,000,
respectively, consisting of net income of $3,617,000 and other
comprehensive gains of $83,000 for the six month period ended June 30,
1998, and net income of $3,320,000 and other comprehensive losses of
$65,000 for the six month period ended June 30, 1997. For the three
month period ended June 30, 1998 and 1997, the Company recorded
comprehensive income of $2,117,000 and $2,021,000, respectively,
consisting of net income of $1,812,000 and other comprehensive gains of
$305,000 for the three month period ended June 30, 1998, and net income
of $1,659,000 and other comprehensive gains of $362,000 for the three
month period ended June 30, 1997. In each instance, the comprehensive
gains and losses represent unrealized holding gains and losses on
securities available for sale, net of tax.
(5) Reclassification -
Certain amounts in the consolidated financial statements presented for
prior periods have been reclassified to conform with the 1998
presentation.
9
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 1998
- -----------------------------------------------------
SUMMARY
-------
The Company reported net income of $1,812,000 or $0.37 per diluted common share
for the second quarter of 1998 compared to net income of $1,659,000 or $0.33 per
diluted common share for the second quarter of 1997. Basic per share earnings
were $0.38 for the second quarter of 1998 and $0.34 for the second quarter of
1997.
For the first six months of 1998, the Company reported net income of $3,617,000
or $0.73 per diluted common share, compared to net income of $3,320,000 or $0.66
per diluted common share for the first six months of 1997. Basic per share
earnings were $0.77 for the first half of 1998 and $0.68 for the first half of
1997.
Per share data for 1997 has been restated to reflect the effect of a 5% stock
dividend declared December 18, 1997.
As compared to December 31, 1997, total assets increased $41.4 million or 6.9%
to $643.1 million at June 30, 1998; loans, net of deferred fees, increased $20
million or 6.2% to $342.6 million; deposits increased $39.9 million or 7.7% to
$558.1 million; and shareholders' equity increased $2.7 million or 6.8% to $41.9
million.
The Company's annualized return on average assets and annualized return on
average shareholders' equity were 1.18% and 18.16%, respectively, for the first
six months of 1998, compared to annualized returns of 1.22% and 17.1%,
respectively, for the comparable 1997 period.
10
RESULTS OF OPERATIONS
- ---------------------
Net Interest Income
- -------------------
Net interest income, the primary source of earnings for the Company, is the
difference between interest and fees earned on loans and other earning assets,
and interest paid on deposits and other interest bearing liabilities. Earning
assets include loans, investment securities and federal funds sold. Interest
bearing liabilities include savings, money market, interest bearing demand and
time deposits, and short-term and long-term borrowings.
The table on the following page sets forth the Company's consolidated average
balance of assets, liabilities, and shareholders' equity as well as the amount
of interest income or interest expense and the average rate for each category of
interest-earning assets and interest-bearing liabilities. Non-accrual loans are
included in average loans, and interest on loans includes loan fees which were
not material. Non-taxable income from investment securities and loans is
presented on a tax-equivalent basis assuming a 34% tax rate.
NOTES TO NET INTEREST INCOME TABLE
(1) Average rates reflect the tax equivalent adjusted yields on nontaxable
investments.
(2) Represents the difference between interest earned and interest paid, divided
by total interest-earning assets.
(3) Annualized
11
NET INTEREST INCOME
Six Months Ended June 30
(Dollars in Thousands)
1998 1997
---- ----
Average Interest Average Average Interest Average
Balance And Fees Rate (3) Balance and Fees Rate (3)
------- -------- -------- ------- -------- --------
ASSETS
Federal Funds Sold $ 42,590 $ 1,181 5.52% $ 53,934 $ 1,444 5.33%
-------- -------- -------- ------
Investment Securities (1)
Securities held - to - maturity 56,970 1,733 6.08% 89,764 2,881 6.42%
Securities available - for - sale 155,303 4,878 6.28% 75,815 2,353 6.21%
-------- -------- -------- ------
Total Investment Securities 212,273 6,611 6.23% (1) 165,579 5,234 6.32% (1)
-------- -------- -------- ------
Loans
Mortgage 190,960 8,444 8.84% 172,031 7,638 8.88%
Installment 49,734 2,146 8.70% 41,335 1,873 9.14%
Commercial 87,920 4,022 9.23% 80,092 3,519 8.86%
-------- -------- -------- ------
Total Loans 328,614 14,612 8.97% 293,458 13,030 8.95%
-------- -------- -------- ------
Total interest earning assets 583,477 $ 22,404 7.74% (2) 512,971 $ 19,708 7.75% (2)
-------- -------- -------- ------
Less - Allowance for possible loan losses 6,845 8,863
All other assets 41,169 44,950
-------- --------
Total Assets $617,801 $549,058
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Deposits
Savings, money market and interest
bearing demand deposits $222,421 $ 2,367 2.15% $214,115 $ 2,331 2.20%
Time Deposits
Under $100,000 105,036 2,749 5.28% 92,520 2,323 5.06%
Over $100,000 104,787 2,919 5.62% 94,727 2,624 5.59%
-------- -------- -------- ------
Total interest bearing deposits 432,244 8,035 3.75% 401,362 7,278 3.66%
-------- -------- -------- ------
Short term borrowings 13,278 395 5.92% 1,332 33 4.93%
Long term debt 6,458 200 6.16% 0 0 0.00%
9.5% Cumulative Trust Preferred Securities 11,500 546 9.50% 0 0 0.00%
------ --- - -
Total Interest Bearing Liabilities 463,480 $ 9,176 3.99% 402,694 $ 7,311 3.66%
-------- -------- -------- ------
Other liabilities 10,719 8,624
Demand deposits 103,439 98,582
Shareholders' equity 40,163 39,158
-------- --------
Total liabilities and shareholders' equity $617,801 $549,058
-------- --------
NET INTEREST INCOME; NET INTEREST SPREAD $ 13,228 3.75% $ 12,397 4.09%
NET INTEREST MARGIN 4.57% (2) 4.87% (2)
12
Rate/Volume Analysis Of Net Interest Income
- -------------------------------------------
The effect of changes in average balance and rate from the corresponding prior
period on interest income, interest expense and net interest income for the six
months ended June 30, 1998 is set forth below. The effect of a change in average
balance has been determined by applying the average rate for the earlier period
to the change in average balance for the later period, as compared with the
earlier period. The effect of a change in the average rate has been determined
by applying the average balance for the earlier period to the change in average
rate for the later period, as compared with the earlier period. The variances
attributable to simultaneous balance and rate changes have been allocated in
proportion to the relationship of the dollar amount of change in each category.
Increase (Decrease) Due to a
Change in the
----------------------------------------
Average Balance Average Rate Total
--------------- ------------ -----
(Dollars in Thousands)
Interest Earned on:
Loans $ 1,502 $ 80 $ 1,582
Investment securities 1,454 (77) 1,377
Federal funds sold (315) 52 (263)
-------- ------ --------
Total interest income $ 2,641 $ 55 $ 2,696
-------- ------ --------
Interest paid on:
Savings, money market and interest
bearing demand deposits $ 86 $(50) $ 36
Certificates of deposit:
Under $100,000 328 98 426
Over $100,000 280 15 295
Short term borrowings 355 7 362
Long term debt 200 0 200
9.5% Cumulative Trust Preferred Securities 546 0 546
-------- ------ --------
Total Interest expense $ 1,795 $ 70 $ 1,865
-------- ------ --------
Change in net interest income $ 846 $(15) $ 831
--------- ----- ---------
Percent increase in net interest
income over the prior period 6.70%
-----
Total tax equivalent interest income of $22,404,000 for the first six months of
1998 represents an increase of $2,696,000 or 13.7% over total tax equivalent
interest income of $19,708,000 for the comparable 1997 period. This improvement
is primarily due to an increase of $70,506,000 in the average balance of total
interest earning assets for the first six months of 1998 as compared to the
first six months of 1997. The average balance of total investment securities was
$46,694,000 higher for the first six months of 1998 as compared to the first six
months of 1997, while the average balance of total loans was $35,156,000 higher.
These increases were offset by a decline of $11,344,000 in the average balance
of federal funds sold. The increase in the average balance of interest earning
assets contributed $2,641,000 to the increase of $2,696,000 in total tax
equivalent interest income. The average rate earned on interest earning assets
for the first six months of 1998 was 7.74%, as compared to 7.75% for the first
six months of 1997.
Total interest expense of $9,176,000 for the first six months of 1998 was
$1,865,000 or 25.5% higher than the comparable prior year period. An increase of
$60,786,000 in average total interest bearing liabilities is the primary reason
for this increase, resulting in an additional $1,795,000 of interest expense for
the first six months of 1998 as compared to the first six months of 1997. The
average cost of total interest bearing liabilities for the first six months
13
of 1998 was 3.99%, an increase of 33 basis points from 3.66% for the first half
of 1997. Interest expense for the first six months of 1998 was $70,000 higher
than the comparable 1997 period as a result of this increase in the cost of
total interest bearing liabilities. Increases in time deposits and short-term
borrowings as well as the addition of long-term borrowings contributed to the
increase in total interest expense for the first half of 1998 as compared to the
first half of 1997.
Tax equivalent net interest income for the first six months of 1998 was
$13,228,000, an increase of $831,000 or 6.7% from $12,397,000 for the comparable
1997 period, primarily due to the average balance of interest earning assets
increasing more than the average balance of interest bearing liabilities. The
net interest spread on a tax equivalent basis declined 34 basis points to 3.75%
for the first half of 1998, and the net interest margin, which is tax equivalent
net interest income expressed as a percentage of average interest earning
assets, declined 30 basis points to 4.57% for the first six months of 1998. This
reflects the fact that the growth of interest earning assets outpaced the growth
of net interest income, resulting from the use of higher cost time deposits and
short-term and long-term borrowings to fund the growth of average interest
earning assets.
Tax equivalent net interest income for the three-month period ended June 30,
1998 was $6,713,000 compared to $6,231,000 for the same period in 1997. This
represents an increase of $482,000 or 7.7%. The yield on interest earning assets
was 7.66% for the three-month period ended June 30, 1998, compared to 7.72% for
the same period in 1997, and the cost of interest bearing liabilities was 3.97%
for the three-month period ended June 30, 1998, compared to 3.68% for the same
period in 1997. The 9.5% Cumulative Trust Preferred Securities and the
short-term and long-term FHLB advances represent the primary factors for the
increase in the cost of funds. The net interest margin for the three-month
period ended June 30, 1998 was 4.5%, compared to 4.8% for the same period in
1997.
PROVISION FOR POSSIBLE LOAN LOSSES
- ----------------------------------
In determining the provision for possible loan losses, management considers
historical loan loss experience, changes in composition and volume of the loan
portfolio, the level and composition of non-performing loans, the adequacy of
the allowance for possible loan losses, and prevailing economic conditions. The
provision for possible loan losses for the three-month and six-month periods
ended June 30, 1998 was $225,000 and $525,000, respectively, compared to
$450,000 and $900,000 in 1997. In each instance, the decrease in the provision
for possible loan losses from the comparable prior year period is primarily due
to the decline in non-performing loans and the improvement in the Company's
asset quality ratios. Actual net loan charge-offs for the first six months of
1998 were $207,000 or 0.12% (annualized) of average total loans, as compared to
net loan charge-offs of $394,000 or 0.27% (annualized) of average total loans
for the comparable 1997 period.
NON-INTEREST INCOME AND NON-INTEREST EXPENSES
- ---------------------------------------------
Total non-interest income for the three-month and six-month periods ended June
30, 1998 was $1,795,000 and $3,654,000, respectively, as compared to $1,783,000
and $3,676,000 in 1997.
Total non-interest income for the three months ended June 30, 1998 was $12,000
higher than the comparable prior year period, primarily due to an increase of
$109,000 in other non-interest income, primarily ATM related fees, which
increase was offset by a net decline of $97,000 from the sale of securities
available-for-sale. The Company recorded a loss of $45,000 from the sale of
securities available-for-sale during the quarter ended June 30, 1998, as
compared to a gain of $52,000 for the quarter ended June 30, 1997.
For the six months ended June 30, 1998, total non-interest income was $22,000
lower than the comparable prior year period. Service charges on deposit accounts
were $178,000 lower for 1998 as compared to 1997, while other non-interest
income was $169,000 higher, primarily attributable to ATM related fees. The
company recorded a gain of
14
$44,000 from the sale of securities available-for-sale during the six month
period ended June 30, 1998, a decline of $13,000 from the gain of $57,000
recorded during the first six months of 1997.
For the three-month period ended June 30, 1998, total non-interest expenses of
$5,417,000 were $361,000 or 7.1% higher than total non-interest expenses of
$5,056,000 for the comparable 1997 period. For the six-month period ended June
30, 1998, total non-interest expenses of $10,625,000 were $879,000 or 9% higher
than total non-interest expenses of $9,746,000 for the six-month period ended
June 30, 1997. In each instance, the primary factor for the increase is salary
expense.
Comparing second quarter 1998 non-interest expenses to the second quarter of
1997, salary expense was $416,000 or 20.8% higher, attributable to merit
increases and incentive-based compensation programs. Furniture and equipment
expenses of $364,000 were $108,000 or 42.2% higher, primarily due to increased
depreciation expense for computer and telephone systems, as well as increased
costs associated with ATM equipment. These increases were partially offset by
reductions in data processing fees, legal fees and professional fees.
Comparing the six-month period ended June 30, 1998 to the same period in 1997,
salary expense was $781,000 or 19.4% higher, primarily due to merit increases
and incentive-based compensation programs. Furniture and equipment expense was
$169,000 or 32.8% higher, attributable to increased depreciation expense for
computer and telephone systems, as well as increased costs associated with ATM
equipment. Other real estate expense was $88,000 or 200% higher. A gain from the
sale of property classified as other real estate owned resulted in the
recognition of income of $44,000 for the first six months of 1997 compared to
expenses of $44,000 for the first six months of 1998. Other expenses were
$180,000 or 15.2% higher, primarily due to increased marketing expenses as well
as the amortization of expenses associated with the issuance in June of 1997 of
the 9.5% Cumulative Trust Preferred Securities. These increases were partially
offset by reductions in data processing fees, legal fees and professional fees.
FINANCIAL CONDITION
- -------------------
Loans
Total loans, net of deferred loan fees, were $342,568,000 at June 30, 1998 which
represents an increase of $20,040,000 or 6.2% from the December 31, 1997 balance
of $322,528,000. The most significant components of the increase in loan
balances were an increase of $16,244,000 or 11.5% in commercial mortgages and an
increase of $11,584,000 or 36.3% in home equity fixed rate loans and adjustable
rate lines of credit. These increases were partially offset by a decline of
$8,770,000 or 9.3% in commercial loans. For the first six months of 1998,
average loans of $328,614,000 represented 56.3% of total average interest
earning assets, as compared to 57.2% of total average interest earning assets
for the first six months of 1997.
15
Allowance for Possible Loan Losses
The following table summarizes the activity in the allowance for possible loan
losses for the periods presented. Also presented are certain key ratios
regarding the allowance.
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
(Dollars In Thousands)
Balance, beginning of period $ 6,974 $ 8,531
Provision charged to operations 525 900
Loans charged off (839) (733)
Recoveries of charged-off loans 632 339
---------- ----------
Balance, end of period $ 7,292 $ 9,037
---------- ----------
Average gross loans outstanding
during period $328,614 $293,458
-------- --------
Total gross loans at period end $342,568 $307,601
-------- --------
Net loans charged-off $ 207 $ 394
-------- --------
Ratio of net loans charged-off to average loans
outstanding during period (annualized) 0.12% 0.27%
----- -----
Allowance for possible loan losses as
a percentage of total gross loans 2.13% 2.94%
----- -----
The amount of allowance applicable to non-classified loans was $5,742,000 and
$4,770,000 at June 30, 1998 and December 31, 1997, respectively.
Asset Quality
Non-performing assets consist of (i)non-performing loans, which include
non-accrual loans and loans past due 90 days or more as to interest or principal
payments but not placed on non-accrual status; (ii) loans that have been
renegotiated due to a weakening in the financial position of the borrower
(restructured loans) and (iii) other real estate owned ("OREO"), net of
reserves.
16
The following table reflects the components of non-performing assets at June 30,
1998 and December 31, 1997:
June 30, 1998 December 31, 1997
------------- -----------------
(Dollars In Thousands)
Past due 90 days or more:
Mortgage ....................................... $ 661 $ 434
Commercial ..................................... 167 477
Installment .................................... 54 20
------ ------
Total .......................................... $ 882 $ 931
------ ------
Non-accrual loans:
Mortgage ....................................... $ 469 $ 652
Commercial ..................................... 2,384 3,229
Installment .................................... 15 10
------ ------
Total .......................................... $2,868 $3,891
------ ------
Total non-performing loans ......................... $3,750 $4,822
Restructured loans (excluding amounts classified as
non-performing loans)............................... 1,608 1,619
Other real estate owned,
net of reserve.................................... 314 648
------ ------
Total non-performing assets ........................ $5,672 $7,089
------ ------
Non-performing loans as a
percent of total gross loans .................... 1.09% 1.49%
------ ------
Non-performing loans as a
percent of total assets ......................... 0.58% 0.80%
------ ------
Non-performing assets as a
percent of loans and other
real estate owned ............................... 1.65% 2.19%
------ ------
Allowance for possible loan
losses ........................................... $7,292 $6,974
------ ------
Allowance for possible loan
losses as a percent of
non-performing loans ......................... 194.45% 144.63%
------- -------
In addition to the non-performing and restructured loans as of June 30, 1998 and
December 31, 1997, the Company had classified an additional $3,781,000 and
$4,539,000, respectively, as substandard loans. Substandard loans are classified
according to the Company's internal loan classification system. A loan loss
reserve has been allocated to such loans in accordance with the Company's
policies.
At June 30, 1998, the recorded investment in loans that are considered to be
impaired was $4,434,000 as compared to $7,334,000 at December 31, 1997. The
related allowance for credit losses was 0 as of June 30, 1998 and 0 as of
December 31, 1997. The impaired loan portfolio is primarily collateral
dependent. There was no change in the allowance for impaired loans during the
first six months of 1998 compared to a recovery of $30,000 during the first six
months of 1997. The average recorded investment in impaired loans during the
first six months of 1998 was approximately $6,084,000. For the first six months
of 1998, the Company recognized cash basis interest income on these impaired
loans of $88,740 compared to $131,289 for the first six months of 1997.
17
Total non-performing assets of $5,672,000 represents a decrease of $1,417,000 or
20% over the total at December 31, 1997. There can be no assurance that the
level of non-performing assets will not increase in the future.
Investment Securities and Federal Funds Sold
Federal funds sold of $39,600,000 at June 30, 1998, represent an increase of
$2,300,000 from the balance at December 31, 1997. Average Federal Funds sold of
$42,590,000 during the first six months of 1998 represented 7.3% of total
average interest earning assets, as compared to 10.5% during the first six
months of 1997.
Total average investment securities of $212,273,000 for the first six months of
1998 represent 36.4% of total average interest-earning assets, as compared to
32.3% for the comparable 1997 period.
Total investment securities, which include securities classified as
held-to-maturity and available-for-sale, of $218,387,000 at June 30, 1998
represent an increase of $11,980,000 or 5.8% over the balance at December 31,
1997. During the first half of 1998, securities available-for-sale of
$29,998,000 were sold and a net gain of $44,000 was realized as compared to
sales of $15,035,000 and a gain of $57,000 for the first half of 1997.
Deposits
The June 30, 1998 total deposit balance of $558,142,000 represents an increase
of $39,904,000 or 7.7% over total deposits of $518,238,000 at December 31, 1997.
Non-interest bearing demand deposits of $111,514,000 at June 30, 1998
represented an increase of $8,460,000 or 8.2% from the December 31, 1997 balance
of $103,054,000. Time deposits less than $100,000 increased $10,203,000 or 10.9%
during the first six months of 1998, with most of this growth represented by
nine-month and fifteen-month certificates of deposit. Time deposits of $100,000
or more were $18,953,000 or 20.9% higher at June 30, 1998 than at December 31,
1997. This increase is primarily attributable to municipal deposits.
Short Term Borrowings
Short-term borrowings represent Federal Home Loan Bank (FHLB) advances and
securities sold under agreements to repurchase, which are used to supplement the
Bank's deposit base as a source of funding. The FHLB advances have remaining
maturities of less than one year, while securities sold under agreement to
repurchase generally have terms ranging from one to ninety days.
The average balance of short-term borrowings was $13,278,000 for the first six
months of 1998 as compared to $1,332,000 for the first six months of 1997, and
the average cost of short-term borrowings was 5.92% for the first six months of
1998 as compared to 4.93% for the first six months of 1997. In each instance,
the increase is primarily attributable to FHLB advances.
Long-Term Debt
Long-term debt of $3,000,000 at June 30, 1998 represents FHLB advances with
maturities of greater than one year. This debt represents a series of three
$1,000,000 advances with interest rates ranging from 6.25% to 6.28% and
maturities from July 30, 1999 to September 30, 1999. The advances are secured by
residential mortgages and securities under a blanket collateral agreement.
18
Liquidity of the Bank
The Bank actively monitors its liquidity position to ensure that it has
sufficient funds to provide for cash outflows without incurring losses from the
premature liquidation of assets or the unexpected acquisition of costly
liabilities. The Bank's cash outflows encompass interest paid to depositors and
other creditors, deposit withdrawals, and disbursements to acquire assets and
pay general operating costs. The Bank obtains cash from customers in the form of
interest and principal payments on loans, fees paid for services, and from new
deposits. Investment maturities also provide a source of cash.
Many different measurements of liquidity are used in the banking industry. The
ratios of cash and cash equivalents (including federal funds sold) and
short-term securities to total assets and net loans to total deposits are among
some of the more commonly used indicators. These measurements are set forth
below as of June 30, 1998 and December 31, 1997.
June 30, 1998 December 31, 1997
Cash and cash equivalents
and securities maturing in
one year to total assets 12.4% 11.3%
Net loans to total deposits 60.1% 60.9%
The Consolidated Statements of Cash Flows present the change in cash from
operating, investing and financing activities. During the first six months of
1998, cash and cash equivalents increased by $8,442,000.
Net cash provided by operating activities was $8,867,000 for the first half of
1998, representing primarily the results of operations adjusted for
depreciation, amortization and the provision for possible loan losses, as well
as an increase in accrued taxes, interest and other liabilities.
Net cash used in investing activities was $33,801,000 which was used primarily
to fund growth in the securities portfolio and loans.
Net cash provided by financing activities was $33,376,000, reflecting a net
increase in deposits, partially offset by a decrease of long term debt and
payment of dividends to shareholders.
To assist in the management of its liquidity, the bank has available $26,318,000
in lines of credit for federal funds. However, none of these lines were in use
during the first six months of 1998.
Managing the Bank's liquidity position involves a significant degree of
analytical estimation and other objective factors. Although customer demand for
funds, in the form of loans or deposit withdrawals, is largely dependent on
general economic factors outside of the Bank's control, management believes that
its present liquidity structure is adequate to meet such needs.
19
Liquidity of Bancorporation
Bancorporation's ability to meet its cash requirements, including interest and
dividend payments, is generally dependent upon the declaration and payment of
dividends by the Bank to Bancorporation. Under Federal law, the approval of the
Comptroller of the Currency is required for the payment of dividends in any
calendar year by Broad National Bank to Broad National Bancorporation if the
total of all dividends declared in any calendar year exceeds the net income for
that year combined with the retained net income for the preceding two calendar
years. As of December 31, 1997, retained earnings of the Bank of $9,765,000 were
available for payment of dividends to the parent company without regulatory
approval. Additionally, at June 30, 1998 Bancorporation had $3,675,000 of cash
for the purpose of paying operating costs, interest and dividends. However, a
change in circumstances, such as changes in regulatory requirements or in the
Bank's financial condition, could result in the Bank's inability to pay
dividends to Bancorporation or could result in Bancorporation being required by
regulatory authorities to utilize its funds to increase the Bank's capital. In
such event, Bancorporation may not have sufficient cash for operations or to
make interest and dividend payments and may be required to seek other sources of
capital and liquidity, if available.
Capital Adequacy
At June 30, 1998, the Company had total capital equal to 14.13% of risk-based
assets which included tier one capital equal to 12.87% of risk-based assets.
These compare to minimum regulatory capital requirements of 8% and 4%,
respectively. At June 30, 1998, the Company had tier one capital equal to 8.26%
of adjusted total assets. This compares to a minimum regulatory capital
requirement of 4% to 5%.
At June 30, 1998, the Bank had total capital equal to 13.23% of risk-based
assets, which included tier one capital equal to 11.98% of risk-based assets.
These compare to minimum regulatory capital requirements of 8% and 4%,
respectively. At June 30, 1998, the Company had tier one capital equal to 7.69%
of adjusted total assets. This compares to a minimum regulatory capital
requirement of 4% to 5%.
Recent Accounting Pronouncements and Other Matters
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Post-retirement Benefits." This statement standardizes the
disclosure requirements for pension and other post- retirement benefits by
requiring additional information that will facilitate financial analysis, and
eliminating certain disclosures that are no longer considered useful. This
statement supercedes SFAS 87, 88, and 106. SFAS 132 is effective for fiscal
years beginning after December 15, 1997 and will be adopted December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, and for hedging activities. SFAS
133 supercedes the disclosure requirements in SFAS 80, 105 and 119 and is
effective for periods after June 15, 1999. The adoption of SFAS No. 133 is not
expected to have a material impact on the financial position or results of
operations of the Company.
Year 2000
In 1997, the Company conducted a review of its computer systems to determine the
systems that would be affected by the Year 2000 issue. A steering committee
comprised of senior management has been formed to ensure that adequate resources
are allocated to this project and to monitor the progress and testing of the
Year 2000 transition.
The Company's primary computer applications are handled by an outside processor.
To date, the Company has received confirmation that this processor has developed
a plan of action for testing and implementation of Year 2000
20
enhancements. The Company will use internal resources to identify and test all
vendor applications for Year 2000 compliance. Testing originally scheduled to
begin June 1998 has been rescheduled to begin in September 1998. Expected
completion remains scheduled for March 1999. The Company does not expect the
costs associated with the Year 2000 transition to be material.
Acquisition of New Branch
In May 1998, the Company's wholly owned banking subsidiary, Broad National Bank,
signed an agreement with Panasia Bank pursuant to which Broad National Bank will
purchase the operations and approximately $4.1 million in deposits at Panasia's
branch in Jersey City, New Jersey.
The transaction is scheduled to close in August 1998.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Management of interest rate sensitivity involves matching the maturity and
repricing dates of interest-earning assets with interest-bearing liabilities in
an effort to reduce the impact of fluctuating net interest margins and to
promote consistent growth of net interest income during periods of changing
interest rates.
Interest rate risk arises from mismatches (i.e., the interest sensitivity gap)
between the dollar amount of repricing or maturing assets and liabilities, and
is measured in terms of the ratio of the interest sensitivity gap to total
assets. More assets repricing or maturing than liabilities over a given time
period is considered asset sensitive and is reflected as a positive gap, and
more liabilities repricing or maturing than assets over a given time period is
considered liability sensitive and is reflected as a negative gap. An
asset-sensitive position (i.e., a positive gap) will generally enhance earnings
in a rising interest rate environment and will negatively impact earnings in a
falling interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment.
At June 30, 1998 the Company had a one year cumulative negative gap of 19.5%.
This negative one year gap position may, as noted above, have a negative impact
on earnings in a rising interest rate environment.
The calculation of these interest sensitivity gap positions involves certain
assumptions as to the repricing period of interest earning assets and interest
bearing liabilities. These gap positions are significantly impacted by
assumptions made as to prepayments of loans and investment securities as well as
to the repricing of deposit accounts. The impact of actual repayments,
repricings and changes in interest rates may differ from the implications
derived from the interest sensitivity gap analysis. Consequently, these static
measurements are best used as early indicators of potential interest rate
exposure.
The Company also uses a simulation model to analyze net interest income
sensitivity to movements in interest rates. The simulation model projects net
interest income based on both an immediate rise or fall of 200 basis points in
interest rates (rate shock) over a twelve month period. Based on information and
assumptions in effect at June 30, 1998, management believes that a 200 basis
point rate shock over a twelve month period, up or down, would not significantly
affect the Company's annualized net interest income.
There has been no material change in the Company's market risk exposures since
December 31, 1997.
21
* * * *
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward looking statements that involve risks and
uncertainties, including risks and uncertainties associated with quarterly
fluctuations in results, the impact of changes in interest rates on the Bank's
net interest income, the quality of the Bank's loans and other assets and the
credit risk associated with lending activities, the fluctuations in the general
economic and real estate climate in the Bank's primary market area of New
Jersey, the impact of competition from other banking institutions and financial
service providers and the increasing consolidation of the banking industry, the
enforcement of federal and state bank regulations and the effect of changes in
such regulations, and other risks and uncertainties detailed from time to time
in the Company's SEC reports. Actual results may vary materially from those
expressed in any forward-looking statements herein.
22
BROAD NATIONAL BANCORPORATION
PART 2 - OTHER INFORMATION
- --------------------------
5. Other information - Earnings Statement
--------------------------------------
The following consolidated earnings statements of Broad National
Bancorporation for the twelve month periods ended June 30, 1998 and
1997 have been prepared by Broad National Bancorporation without
audit, and reflect all normal, recurring adjustments and
disclosures which are, in the opinion of management, necessary for
a fair statement of results for the interim periods presented.
These statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been omitted.
The results of operations for the periods presented are not
necessarily an indication of the results which can be expected for
future periods.
The earnings statement is presented pursuant to Section 3. (g) of
the Underwriting Agreement dated June 25, 1997 between BNB Capital
Trust, a statutory business trust organized under the Business
Trust Act of the State of Delaware, Broad National Bancorporation
and Ryan Beck & Co., Inc. with respect to the issue and sale by BNB
Capital Trust of company-obligated mandatorily redeemable 9.5%
Cumulative Trust Preferred Securities of BNB Capital Trust, which
holds solely junior subordinated debentures of Broad National
Bancorporation (9.5% Cumulative Trust Preferred Securities).
On June 30, 1997, $11.5 million of 9.5% Cumulative Trust Preferred
Securities were issued by BNB Capital Trust, a Delaware statutory
business trust formed and wholly - owned by Bancorporation. The net
proceeds from this issuance were invested in Bancorporation in
exchange for Bancorporation's junior subordinated debentures. The
sole asset of BNB Capital Trust, the obligor on the 9.5% Cumulative
Trust Preferred Securities, is $11,855,670 principal amount of 9.5%
Junior Subordinated Debentures of Bancorporation due June 30, 2027.
Bancorporation has entered into several contractual arrangements
for the purpose of fully and unconditionally supporting BNB Capital
Trust's payment of distributions on, payments on any redemption of,
and any liquidation distribution with respect to, the 9.5%
Cumulative Trust Preferred Securities. These contractual
arrangements constitute a full and unconditional guarantee by
Bancorporation of BNB Capital Trust's obligations under the 9.5%
Cumulative Trust Preferred Securities.
23
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
EARNINGS STATEMENTS
(IN THOUSANDS)
12 MONTH PERIOD ENDED
----------------------
JUNE 30
1998 1997
(UNAUDITED)
INTEREST INCOME
Interest and fees on loans $ 28,517 $ 25,357
Interest on securities held - to - maturity
Taxable 4,002 5,494
Tax exempt 69 45
Interest on securities available - for -sale 8,408 4,170
Interest on federal funds sold 2,550 3,213
--------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 43,546 38,279
--------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings, money market & interest bearing
demand deposits 4,792 4,781
Interest on time certificates of
deposit of $100,000 or more 5,477 4,583
Interest on other time deposits 5,416 4,436
Interest on short-term borrowings 643 58
Interest on long-term debt 375 0
Interest on 9.5% Cumulative Trust Preferred Securities 1,092 0
--------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 17,795 13,858
--------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 25,751 24,421
--------------------------------------------------------------------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES 1,425 1,800
--------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 24,326 22,621
--------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 5,767 6,479
Other income 1,256 1,316
Gain on sale of securities available-for-sale 72 59
--------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 7,095 7,854
--------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES:
Salaries and wages 8,781 7,855
Employee benefits 1,991 2,565
Occupancy expense 2,042 1,989
Furniture and equipment expense 1,336 1,041
Data processing fees 977 1,112
Legal fees 673 857
Professional fees 1,000 1,310
Postage, delivery and communication 760 672
FDIC and OCC assessments 189 146
Other real estate expense (income) (131) 45
Other expenses 2,810 2,227
--------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSES 20,428 19,819
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
24
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
EARNINGS STATEMENTS
(IN THOUSANDS)
12 MONTH PERIOD ENDED
-------------------------
JUNE 30
1998 1997
(UNAUDITED)
INCOME BEFORE INCOME TAXES 10,993 10,656
PROVISION FOR INCOME TAXES 4,285 4,227
-----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 6,708 $ 6,429
-----------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE (1)
BASIC $1.43 $1.32
DILUTED $1.37 $1.28
- ---------------------
(1) Share and per share amounts have been restated to reflect the effect
of prior stock dividends.
25
6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Statements re: computation of per share earnings is part of this
Form 10-Q as Exhibit I.
(b) Reports on Form 8-K
On May 18, 1998, the Company filed a form 8-K Item 5 (date of
earliest event - May 8, 1998), to announce that on May 8, 1998,
the Company's wholly-owned banking subsidiary, Broad National
Bank, and Panasia Bank signed an agreement pursuant to which Broad
National Bank has agreed to purchase the operations and
approximately $4.1 million in deposits at Panasia's branch at 348
Central Avenue, Jersey City, New Jersey.
The transaction is subject to the satisfaction of certain
conditions precedent, including obtaining regulatory approval, and
it is anticipated that the transaction would be consummated in the
third quarter of 1998.
26
BROAD NATIONAL BANCORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROAD NATIONAL BANCORPORATION
-----------------------------
(registrant)
Date: August 13, 1998 /s/ Donald M. Karp
------------------
Donald M. Karp
Chairman and CEO
/s/ James Boyle
James Boyle
Treasurer
27
BROAD NATIONAL BANCORPORATION
Computation of Net Income Per Share
(Unaudited)
THREE-MONTH PERIOD SIX-MONTH PERIOD
ENDED JUNE 30 ENDED JUNE 30
1998 1997/1/ 1998 1997/1/
---- --- ---- ----
BASIC:
Net Income available to common $1,811,801 $1,658,537 $3,617,051 $3,319,687
shareholders ---------- ---------- ---------- ----------
Weighted average number of common 4,708,548 4,832,156 4,708,230 4,863,901
shares outstanding --------- --------- --------- ---------
Basic Earnings Per Common Share $ 0.38 $ 0.34 $ 0.77 $ 0.68
============= ============== ============= ==============
DILUTED:
Net income available to common $1,811,801 $1,658,537 $3,617,051 $3,319,687
shareholders ---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding 4,708,548 4,832,156 4,708,230, 4,863,901
--------- --------- ---------- ---------
Effects of dilutive securities
Stock options 221,361 187,070 215,782 168,888
------- ------- ------- -------
Adjusted average number of common
shares outstanding 4,929,909 5,019,226 4,924,012 5,032,789
--------- --------- --------- ---------
Diluted earnings per common share $ 0.37 $ 0.33 $ 0.73 $ 0.66
============== ============== ============== ==============
- -----------------------------
/1/ Restated to reflect the effect of the 5% stock dividend declared in
December 1997.
28
Independent Auditors' Report
----------------------------
The Board of Directors
Broad National Bancorporation:
We have reviewed the accompanying consolidated condensed statement of condition
of Broad National Bancorporation and subsidiaries (the Company) as of June 30,
1998, and the related consolidated condensed statements of income, and cash
flows for the three-month and six month periods ended June 30, 1998 and 1997.
These consolidated condensed financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of condition of the Company as of December
31, 1997, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated January 15, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated statement of condition as
of December 31, 1997, is fairly presented, in all material respects, in relation
to the consolidated statement of condition from which it has been derived.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
August 13, 1998
- ------------------------
29