045738

FSC OFFICE

70~i AUD~’~
UDRUZENA BEOGRADSKA BANKA, NEW YORK AGENCY
Financial S~tements for th~ Year~ Ended Dece~ber 31~ 1989 and
1988 and Independent Auditors~ Report

Deloitte&
Touche

CONFIDENTIAL DT 002004

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FSG CENTRAL

CONFIDENTIAL DT 002005

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Deloitte&
Touche

UDRUZENA BEOGRADSKA BANKA

NEW YORK AGENCY

FINANCIAL STATEMENTS FOR THE YEARS

ENDED DECEMBER 31, ig89 AND Ig88
AND INDEPENDENT AUDITORS’ REPORT

CONFIDENTIAL DT 002006

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 UDRUZENA BEOGRADSKA BANKA
NEW YORK AGENCY

FINANCIAL STATEMENTS FOR THE YEARS

ENDED DECEMBER 31, 1989 AND 1988
A~D INDEPENDENT AUDITORS’ REPORT

CONFIDENTIAL DT 002007

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 Deloitte&
Touche Financial Se~vices Center Telephone: (212) 839-6600
One World Trade Center, 93rd Floor Telex: 226704 TRCO UR
New York, NY 10048-0562

£NDEP~NDENT AUDITORS’ REPORT

Udru~ena Beogradska Banka - New York Agency

635 Madison Avenue
New York, New York 10022

Attention: Dr. Teodosije Celenkovic, Agent

Mrs. Biserka Mojsilovic, Deputy Agent

We have audited the accompanying balance sheets of Udruzena Beogradska Banka -

New York Agency as of December 31, 1989 and 1988, and the related statements of
income, changes in capital funds and cash flows for the years then ended.
These financial statements are the responsibility of the Agency’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 a’nd perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in

all material respects, the financial position of Udruzena Beogradska Banka -
New York Agency as of December 31, 1989 and 1988, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

The financial statements referred to above have been prepared from the separate
records maintained by the New York Agency and may no% necessarily be indicative
of the conditions that would have existed or the reHults of operations if the
Agency had Deen operated as an unaffiliated entity4 Transactions and
relationships between the Agency and i~s Head Office are described in Notes 1
and 2.

March 9, 1990

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UDRUZENA BEOGRADSKA BANKA - NEW YORK AGENCY

BALANCE SHEETS

December 31,
ASSETS 1989 ZgS___28
Due from banks 27,926,147 6,734,699.
180,000,000 157,000,000
Placements with banks (Note 3)
17,311,781 33,~86,351
Due from Head Office (Note 2)
Loans, less allowance for loan losses of
$120,000 and $120,000, respectively (Note 4) 174,741,924 89,806,189
Customers’ acceptance liability 5,443,606 30,004,004
Interest receivable and other assets (Note 2) 2,801,536 2,730,453

LIABILITIES AND CAPITAL FUNDS

Due to banks $ 9,809,352 2,831,980

Customer credit balances 9,313,984 9,060,879
Due to Mead Office (Note 2) 183,473,807 139,443,414
Time deposits (Note 5) 121,675,022 87,305,835
Other borrowed funds (Note 6) 70,900,000 45,520,000

Acceptances outstanding 5,443,606 30,004,004

Interest payable and other liabilities (Note 2) 3,887,152 1,563,350

404,50Z,923 315,729,~62

Commitments and contingent liabilities (Note 9)

Capital funds:
Allocated funds from Head Office (Note 2) 3,000,000 3,000,000
Retained earnings 722,071 1,032,234

3,722,071 4,032,234
$408,224.~4 S319.761.696

See notes to financial statements

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UDRUZENA BKOGRADSKA BANKA - NEW YORK AGENCY

STATEMENTS OF INCOME

Year ended
December 31,
1989 1988
Interest income:
Placements with banks $10,043,098 $13,219,545
Loans and advances to Mead Office 2,282,036 5,219,009
Other loans 12,871,310 7,841,786

25,196,444 25,280,340
Interest expense:
Funds borrowed from Head Office 12,5~Z,335 i0,327,2~0
Time deposits and other borrowed funds 9,233,203 13,079,614

21,755,538 23,40~,874

Net interes= income 3,440,906 2,873,466

Provision for loan losses (Note 4) - 80,000

Net interest income after provision for

loan losses 3,440,906 2,793,466

Other income - principally fees on letters of

credit 1,257,703 1,156,240

Other expenses:
Salaries and employee benefits 1,126,506 1,033,019
!Occupancy 600,692 446,9%2
Mead office administration 1,259,219 708,000
Other operating expenses 798,121 678,219

3,784,538 2,866,180

Income before income taxe~ and

extraordinary i~em 914,071 1,093,526

Income taxes (Note 7) 576,000 716,980

Income before extraordinary item 338,071 376,546

Extraordinary item - utilization of tax loss

carryforward (Note 7) 384,000 485,200

NET INCOME 722.07.1 S 861.746

See no~es to financial statements

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 UDRUZENA BEOGRADSKA BANKA - NEW YORK AGENCY

STATEMENTS OF CHANGES IN CAPITAL FUNDS

YEARS ENDED DECEMBER 31, 1989 AND 1988

Allocated
Funds from Retained
Head Office Earnings Total

Balance, January I, 1988 $3,000,000 $ 170,488 $3,170,488

Net income 8~i,746 861,746

Balance, December 31, 1988 3,000,000 1,032,234 ~,032,234

Remitted to Head Office (1,032,23) (I,032,234)

Net income 722.071 722,071

Balance. December 31, 1989 ~ Z 722.071 $3.7Z2.071

S~e notes to financial statements

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UDRUZENA BEOGRADSKA BANKA - NEW YORK AGENCY

STATEMENT OF CASH FLOWS

Year ended
December 31.
1989 1988
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 7Z2,071 $ 861,746
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 80,000
Increase in interest receivable and other assets (71,083) (1,269,984)
Increase in interest payable and other
liabilities 2,323,802 412,292
Cash remitted to Head Office (1,032,234) -
Net cash provided by operating activities 1,942,550 84,054

CASH FLOWS FROM INVESTING ACTIVITIES:

Net increase in placements with banks (23,000,000) 14,800,000
Net decrease in due from Head Office 1@,174,570 82,224,666
Net increase in loans (84,935,735) (15,598,783)
Net decrease in customers’ acceptance liability 24,560,398 (7,390,337)
Net cash (utilized) provided by
investing activities (67,200,767) 74,035,546

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase in due to banks 6,977,372 2,079,913
Net increase in customer credit balances 253,105 7,194,050
Net increase in due to Head Office 44,030,393 (4,326,291)
I Net increase in time deposits 34,369,187 (72,717,021)
Net decrease in acceptances outstanding (24,560,398 ) 7,390,337
Net increase in other borrowed funds 25,380,000 (10,683,749)
Net cash provided (utilized) by
financing activities 8@,449,659 (71,062,761)

Net increase in cash during the year 21,191,448 3,056,839

Due from banks at the beginning of the year 6,734,699 3,677,860

Due from banks at the end of the year ~,7~4.699

Supplementary Disclosures:

Interest paid $ 20.886.220 ~

Income taxes (refunded) paid Z (37.895) s ~zT.z30

See notes to financial statements

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 UDRUZENA BEOGRADSKA BANKA - NEW YORK AGENCY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1989 AND 1988

I. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Orqanization

The Udruzena Beogradska Banka - New York Agency (the "Agency") is licensed
under Article V of the Banking Laws of New York State. Udruzena Beogradska
Ba=ka (the "Bank") is an associated bank with its principal office in
Belgrade, Yugoslavia (the "He~d Office").

Allocation of Head Office Expenses

The allocation of Head Office expenses in the statements of income is

comprised of direct and indirect, administrative expenses incurred by the
Head Office relating to the operation of the Agency.

Loans and Allowance for Loan Losses

Loans are stated at the principal amount outstanding net of the allowance
for loan losses. Interest on loans is recognized on the accrual basis.

The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management believes will be
adequate to absorb losses inherent in existing loans and commitments to
extend credit, based on evaluations of their collectibility and prior loss
experience.

Foreiqn Currency Translation

Assets and liabilities denominated in foreign currencies are translated into
United States dollars at exchange rates prevailing as of the balance sheet
date. The profit or loss resulting from the difference between contract
exchange rates and the market rates is included in the statements of income
in other income.

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 lncoQe Ta~es

The tax provision for the years ended December 31, 198g and 1988 was
computed in accordance with the accounting standards of APB Opinion No. ii.
Effective January i, ig92, the Hank must adopt the income tax accounting
standards set forth in FASB Statement No. 96, which supersedes Opinion
No. ll. The Agency is in the process of evaluating the effects of the new
pronouncement on its financial statements, but expects these effects to be
immatarial.
The Bank is subject to U.S. federal taxation on that portion of income which
is effectively connected with the operations in the United States.

Reclassification

Certain reclassifications have been made to the 1988 balances to conform

with the 1959 presentation.

2. TRANSACTIONS WITH HEAD OFFICE

The Agency, in accordance with Yugoslav banking regulations, accepts dollar

time deposit accounts and other interest-bearing accounts from Head Office.
Funds allocated as capital funds bear interest at 3%. Balances outstanding
with the Head Office of the Bank
December 31,
198___~9 1988
Due from (short term):
Loans and advances 17,311,781 $ 33,486,351
Interest receivable 148,327 120,397

17,460,108 $ 33,606,748

Due to (short term):

Time accounts $173,562,925 S135,253,049
Current accounts 6,145,843 2,573,221
Other liabilities 3,765,039 1,617,144
Interest payable 1,086,531 291,968

PLACEMENTS WITH BANKS

Included in placements with banks are ovemnight placements of $155,000,000

and $56,500,000 at December 31, 1989 and 1988, respectively.

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LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans at December 31, 1989 and 1988 are summarized as follows:

December 31,

Yugoslav banks, including

restructured loans $ 2,186,222 $ 2,31~,286
Yugoslav commercial entities 172,675,702 87,@11,903
174,861,924 89,926,189
Allowance for loan losses (120,000) (120,000)

Loans to Yugoslav Companies engaged in overseas business are principally

ex~ended under guarantee of other Yugoslav banks.

Changes i~ the allowance for loan losses are as follows:

Year ended
December 31,
1989 1988

Balance, beginning of year $120,000 S 40,000

Prov£sion charged to operations - 80,000

Balance, end of year Z,120,O00 $120,000

TIME DEPOSITS

Time deposits, except for $5,675,022 in 1989 and $5,345,835 in 1988 are
short-term deposits from the National Bank of Yugoslavia.

OTHER BORROWED FUNDS

Other borrowed funds consist principally of short-term borrowings from banks.

7. INCOME TAXES

The net income for financial ~epo~ting purposes is adjusted pursuant to

applicable tax legislation in order to derive ~axable income o~ loss. The
most significant adjustment provides that the interest expense deductible
for tax purposes be computed in accordance with a specified formula and,
accordingly, such interest expense can be significantly different from that
recorded in the Agency’s financial statements.

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The income tax provision net of the benefit of utilization of net operating
losses is as follows:
December 31,
1989 1988

Federal tax 24,000 132,125

New York State tax 86,000 51,389
New York City ~ax 82,000 48,266

Tax provision included in financial

statements net of benefit of operating
loss utilized $ 192,000 $ 231,7@0

Income ~ax benefits of $384,000 and $485,200 resulting from the recognition
of net operating loss carryforwards from prior years have been reflected as
extraordinary items in the statements of income for the years ended December
31, 1989 and 19880 respectively. Based on the 1988 federal tax .return, net
operating loss carryforwards available at December 31, 1989 aggregate
approximately $4,530,000, of which $2,874,000 expires in 1989, $751,000
expires in 1990, $774,000 expires in 1991, and $131,000 expires in 2002.

8. EMPLOYEE PENSION PLAN

The Agency has a noncontributory money purchase pension plan covering

substantially all eligible employees who are not already covered under the
Head O{fice’s plan. The Agency makes annual contributions to the plan equal
to. 5.8 percent of the participants’ compensation up to the social security
wage Base and an additional 5 percent to the extent the participants’ annual
compensation exceeds such wage base. Pension costs and benefit obligations
are not material to the financial statements.

9. COMMITMENTS AND CONTINGENT LIABILITIES

The Agency is obligated under leases for premises which expire on

December 31, 1990. The minimum rental commitment at December 31, 1989 is
$299,000. Rent expense for the years ended December 31, 1989 and 1988 was
$570,000 and $402,000, respectively.

In the normal course of business, the Agency makes various commitments

and incurs certain contingent liabilities that are no~ presented in the
accompanying financial statements. These commitments and contingent
llabili~ies include various commitments to extend credit under s~andby
letters of credit. At December 31, 1989 ~nd 1988, commitments under
standby letters of credit are $19,124,000 and $Ii,521,000, respectively.
Management does not anticipate any material losses as a result of these
transactions.

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