FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10506
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Essex Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 54-1721085
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(State of organization) (I.R.S. Employer
Identification No.)
The Koger Center
Building 9, Suite 200
Norfolk, Virginia 23502
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (757) 893-1300
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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 .
--- ---
Shares outstanding as of August 6, 1997: 1,057,193 shares of Common Stock,
par value $.01 per share.
Essex Bancorp, Inc.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1997
TABLE OF CONTENTS
PAGE
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements................................ 3
Consolidated Balance Sheets (unaudited)
as of June 30, 1997 and December 31, 1996........... 3
Consolidated Statements of Operations (unaudited)
for the three months and six months ended
June 30, 1997 and 1996.............................. 5
Consolidated Statement of Shareholders' Equity
(unaudited) for the six months ended
June 30, 1997....................................... 7
Consolidated Statements of Cash
Flows (unaudited) for the six months
ended June 30, 1997 and 1996........................ 8
Notes to Consolidated Financial
Statements (unaudited).............................. 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations.......................................... 12
Part II OTHER INFORMATION
Item 1. Legal Proceedings................................... 24
Item 2. Changes in Securities............................... 24
Item 3. Defaults Upon Senior Securities..................... 24
Item 4. Submission of Matters to a Vote of Security Holders. 24
Item 5. Other Information................................... 24
Item 6. Exhibits and Reports on Form 8-K.................... 24
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
JUNE 30, DECEMBER 31,
1997 1996
-------------- --------------
ASSETS
Cash............................................................................. $ 2,064,578 $ 1,824,160
Interest-bearing deposits........................................................ 11,418,540 1,727,091
Federal funds sold and securities purchased under agreements to resell........... 2,052,000 2,644,000
-------------- --------------
Cash and cash equivalents...................................................... 15,535,118 6,195,251
Federal Home Loan Bank stock..................................................... 1,360,900 2,540,000
Securities available for sale--cost approximates market.......................... 16,976 9,162
Securities held to maturity--market value of $5,212,000 in 1997 and $5,890,000 in
1996........................................................................... 5,298,743 6,003,219
Mortgage-backed securities held to maturity--market value of $1,882,000 in 1997
and $1,869,000 in 1996......................................................... 1,905,212 1,905,327
Loans, net of allowance for loan losses of $2,128,000 in 1997 and $2,556,000 in
1996........................................................................... 154,329,407 145,550,845
Loans held for sale.............................................................. 2,327,803 2,462,525
Mortgage servicing rights........................................................ 1,402,875 1,349,160
Foreclosed properties, net....................................................... 2,049,577 2,054,213
Accrued interest receivable...................................................... 1,168,582 1,147,933
Excess of cost over net assets acquired, less accumulated amortization of
$2,047,000 in 1997 and $2,016,000 in 1996...................................... 190,784 221,815
Advances for taxes, insurance, and other......................................... 586,060 790,928
Premises and equipment........................................................... 1,782,428 2,485,122
Other assets..................................................................... 2,130,856 1,551,352
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Total Assets................................................................... $ 190,085,321 $ 174,266,852
-------------- --------------
-------------- --------------
See notes to consolidated financial statements.
3
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
JUNE 30, DECEMBER 31,
1997 1996
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing.......................................................... $ 3,613,594 $ 1,070,037
Interest-bearing............................................................. 142,389,523 129,963,341
-------------- --------------
Total deposits............................................................. 146,003,117 131,033,378
Federal Home Loan Bank advances................................................ 26,618,333 25,690,000
Notes payable.................................................................. 96,142 96,142
Capitalized lease obligations.................................................. 359,815 385,251
Mortgages payable on foreclosed properties..................................... -- 10,391
Other liabilities.............................................................. 1,490,650 1,945,988
-------------- --------------
Total Liabilities............................................................ 174,568,057 159,161,150
SHAREHOLDERS' EQUITY
Series B preferred stock, $.01 par value:
Authorized shares--2,250,000
Issued and outstanding shares--2,125,000..................................... 21,250 21,250
Series C preferred stock, $.01 par value:
Authorized shares--125,000
Issued and outstanding shares--125,000....................................... 1,250 1,250
Common stock, $.01 par value:
Authorized shares--10,000,000
Issued and outstanding shares--1,057,193 in 1997 and 1,053,379 in 1996....... 10,572 10,534
Capital in excess of par....................................................... 23,663,256 23,659,333
Accumulated deficit............................................................ (8,179,064) (8,586,665)
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Total Shareholders' Equity................................................... 15,517,264 15,105,702
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Total Liabilities and Shareholders' Equity................................... $ 190,085,321 $ 174,266,852
-------------- --------------
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See notes to consolidated financial statements.
4
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ -------------
INTEREST INCOME
Loans, including fees................................. $ 3,403,649 $ 5,133,027 $ 6,552,787 $ 10,575,305
Federal funds sold and securities purchased under
agreements to resell................................ 37,286 78,857 73,633 170,783
Investment securities, including dividend income...... 89,108 153,776 207,245 343,198
Mortgage-backed securities............................ 31,155 110,557 61,519 360,376
Other................................................. 92,363 187,248 129,613 324,805
------------ ------------ ------------ -------------
Total Interest Income............................... 3,653,561 5,663,465 7,024,797 11,774,467
INTEREST EXPENSE
Deposits.............................................. 1,885,754 3,538,402 3,644,004 7,391,155
Federal Home Loan Bank advances....................... 381,008 415,011 760,425 856,034
Notes payable......................................... 2,303 2,847 4,580 5,694
Subordinated capital notes............................ -- 18,493 -- 36,877
Other................................................. 17,081 37,660 36,553 66,622
------------ ------------ ------------ -------------
Total Interest Expense............................ 2,286,146 4,012,413 4,445,562 8,356,382
------------ ------------ ------------ -------------
Net Interest Income............................... 1,367,415 1,651,052 2,579,235 3,418,085
PROVISION FOR LOAN LOSSES............................... 107,160 802,651 84,707 803,052
------------ ------------ ------------ -------------
Net Interest Income After
Provision for Loan Losses......................... 1,260,255 848,401 2,494,528 2,615,033
NONINTEREST INCOME
Loan servicing fees................................... 358,714 422,375 760,612 835,115
Mortgage banking income, including gain on sale of
loans............................................... 95,739 151,011 183,958 271,121
Other service charges and fees........................ 102,508 133,047 213,470 277,525
Net gain on sale of:
Securities.......................................... -- -- -- 153,188
Loans............................................... -- -- -- 588
Deposits............................................ -- -- -- 1,064,655
Other................................................. 249,406 (24,607) 250,955 87,216
------------ ------------ ------------ -------------
Total Noninterest Income.......................... 806,367 681,826 1,408,995 2,689,408
See notes to consolidated financial statements.
5
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
---------- ------------- ---------- -------------
NONINTEREST EXPENSE
Salaries and employee benefits............................ 689,135 1,288,215 1,460,764 2,675,869
Net occupancy and equipment............................... 246,571 394,967 538,766 781,327
Deposit insurance premiums................................ 118,349 218,423 230,694 437,926
Amortization of intangible assets......................... 141,142 6,304,624 266,568 6,733,243
Service bureau............................................ 114,892 162,170 241,643 321,568
Professional fees......................................... 74,854 136,667 144,515 283,880
Foreclosed properties, net................................ 58,668 81,090 53,770 86,107
Other..................................................... 233,145 460,751 559,202 904,895
---------- ------------- ---------- -------------
Total Noninterest Expense................................. 1,676,756 9,046,907 3,495,922 12,224,815
---------- ------------- ---------- -------------
Income (Loss) Before Income Taxes......................... 389,866 (7,516,680) 407,601 (6,920,374)
PROVISION FOR INCOME TAXES................................ -- -- -- --
---------- ------------- ---------- -------------
Net Income (Loss)......................................... $ 389,866 $ (7,516,680) $ 407,601 $ (6,920,374)
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
Earnings (loss) per common share (Note 2)................. $ (.01) $ (7.15) $ (.36) $ (6.59)
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
See notes to consolidated financial statements.
6
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
For the six months ended June 30, 1997
SERIES B SERIES C
COMMON PREFERRED PREFERRED CAPITAL IN
STOCK, $.01 STOCK, $.01 STOCK, $.01 EXCESS ACCUMULATED
PAR VALUE PAR VALUE PAR VALUE OF PAR DEFICIT TOTAL
----------- ----------- ----------- ------------- ------------- -------------
Balance at January 1, 1997.............. $ 10,534 $ 21,250 $ 1,250 $ 23,659,333 $ (8,586,665) $ 15,105,702
Common stock issued under
Employee Stock Purchase Plan............ 38 -- -- 3,923 -- 3,961
Net income.............................. -- -- -- -- 407,601 407,601
----------- ----------- ----------- ------------- ------------- -------------
Balance, June 30, 1997.................. $ 10,572 $ 21,250 $ 1,250 $ 23,663,256 $ (8,179,064) $ 15,517,264
----------- ----------- ----------- ------------- ------------- -------------
----------- ----------- ----------- ------------- ------------- -------------
See notes to consolidated financial statements.
7
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
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OPERATING ACTIVITIES
Net income (loss)...................................................................... $ 407,601 $ (6,920,374)
Adjustments to reconcile net loss to cash provided by operating activities:
Provisions for:
Losses on loans, foreclosed properties and other....................................... 143,020 811,981
Depreciation and amortization of premises and equipment................................ 213,528 267,284
Amortization (accretion) of:
Premiums and discounts on:
Loans.................................................................................. 51,785 119,338
Mortgage-backed securities held to maturity............................................ 115 112
Mortgage-backed securities available for sale.......................................... -- 4,778
Securities held to maturity............................................................ 2,882 6,236
Mortgage servicing rights.............................................................. 235,536 281,429
Excess of costs over equity in net assets acquired..................................... 31,031 6,451,813
Premium on deposits.................................................................... -- (67,908)
Other.................................................................................. -- 988
Mortgage banking activities:
Net increase in loans originated for resale............................................ 296,536 (58,268)
Realized gains from sale of loans...................................................... (161,814) (252,548)
Realized (gains) and losses from sales of:
Securities available for sale.......................................................... -- (153,188)
Loans.................................................................................. -- (588)
Premises and equipment................................................................. (75,328) (63,789)
Foreclosed properties.................................................................. (55,264) (16,704)
Deposits............................................................................... -- (1,064,655)
Unrealized loss on loans held for sale................................................. -- 313,765
Changes in operating assets and liabilities:
Accrued interest receivable............................................................ (20,649) 227,958
Other assets........................................................................... (386,636) (151,801)
Other liabilities...................................................................... (455,338) 844,508
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Net cash provided by operating activities.............................................. 227,005 580,367
See notes to consolidated financial statements.
8
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
SIX MONTHS ENDED JUNE 30,
----------------------------
1997 1996
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INVESTING ACTIVITIES
Purchase of certificates of deposit in other financial institutions................. (5,000,000) (8,000,000)
Proceeds from maturities of certificates of deposit in other financial
institutions...................................................................... 5,000,000 --
Purchase of Federal Home Loan Bank stock............................................ (25,700) --
Proceeds from sales of Federal Home Loan Bank stock................................. 1,204,800 1,062,800
Purchase of securities held to maturity............................................. (298,406) (1,020,625)
Proceeds from maturities of securities held to maturity............................. 1,000,000 3,000,000
Purchase of securities available for sale........................................... (2,507,814) (2,725,008)
Proceeds from sales of securities available for sale................................ 2,500,000 2,000,000
Principal remittances on mortgage-backed securities available for sale.............. -- 764,831
Proceeds from sales of mortgage-backed securities available for sale................ -- 10,068,189
Proceeds from sales of loans........................................................ -- 7,290,962
Net (increase) decrease in net loans................................................ (9,879,663) 8,561,611
Proceeds from sales of foreclosed properties........................................ 1,187,991 3,442,320
Increase in foreclosed properties................................................... (209,795) (128,203)
Increase in mortgage servicing rights............................................... (289,251) (62,408)
Purchase of premises and equipment.................................................. (37,543) (105,627)
Proceeds from sales of premises and equipment....................................... 602,037 654,980
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Net cash provided by (used in) investing activities................................. (6,753,344) 24,803,822
FINANCING ACTIVITIES
Deposits sold in connection with branch sale:
NOW and savings deposits............................................................ -- (2,326,445)
Certificates of deposit............................................................. -- (24,510,192)
Net increase in NOW and savings deposits............................................ 7,668,739 1,045,108
Net increase in certificates of deposit............................................. 7,301,000 3,250,772
Proceeds from Federal Home Loan Bank advances....................................... 14,500,000 --
Repayment of Federal Home Loan Bank advances........................................ (13,571,667) (3,571,666)
Payments on capital lease obligations............................................... (25,436) (18,729)
Payments on mortgages payable on foreclosed properties.............................. (10,391) (25,258)
Net proceeds from common stock issued under
Employee Stock Purchase Plan........................................................ 3,961 4,235
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Net cash provided by (used in) financing activities................................. 15,866,206 (26,152,175)
------------- -------------
Increase (decrease) in cash and cash equivalents.................................... 9,339,867 (767,986)
Cash and cash equivalents at beginning of period.................................... 6,195,251 16,008,718
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Cash and cash equivalents at end of period.......................................... $ 15,535,118 $ 15,240,732
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See notes to consolidated financial statements.
9
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
SIX MONTHS ENDED JUNE 30,
--------------------------
1997 1996
------------ ------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans to foreclosed properties........................................ $ 964,609 $ 882,671
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.......................................................................... $ 4,428,629 $ 8,314,228
Income taxes...................................................................... -- --
See notes to consolidated financial statements.
10
ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Essex
Bancorp, Inc. and subsidiaries ("EBI") have been prepared in accordance with
generally accepted accounting principles for condensed interim financial
statements and, therefore, do not include all information required by generally
accepted accounting principles for complete financial statements. The notes
included herein should be read in conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in this
report, and the notes to EBI's financial statements for the year ended December
31, 1996 included in the EBI 1996 Annual Report.
In the opinion of management, the accompanying unaudited financial
statements include all adjustments (including normal recurring entries)
necessary for a fair presentation of EBI's financial condition and interim
results of operations. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and the disclosures of contingent assets and liabilities at the date of the
financial statements and that affect the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 2--EARNINGS PER SHARE
Earnings per share ("EPS") is computed based upon income adjusted for
preferred stock dividends, divided by the average number of common shares
outstanding. If dilutive for any period, warrants and options are treated as
outstanding using the modified treasury stock method. The weighted average
number of common and common equivalent shares outstanding used in the EPS
calculation was 1,054,082 and 1,050,150 for the six months ended June 30, 1997
and 1996, respectively, and 1,054,763 and 1,050,588 for the three months ended
June 30, 1997 and 1996, respectively.
In February 1997, the Financial Accounting Standards Board (the "Board")
issued Statement of Financial Accounting Standards No. 128--Earnings Per
Share ("SFAS 128"). SFAS 128 specifies the computation, presentation, and
disclosure requirements for EPS for entities with publicly-held common stock
or potential common stock, such as EBI. SFAS 128 is effective for financial
statements for both interim and annual periods ending after December 15,
1997. Earlier application is not permitted; however, after the effective
date, all prior-period EPS data presented shall be restated to conform with
the provisions of SFAS 128. Under SFAS 128, basic EPS will replace primary
EPS and will be computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the
period. Therefore, to the extent that EBI's primary EPS calculations for
prior periods considered the dilutive impact of warrants and options for
common stock, EBI's SFAS 128 restatement will result in significantly higher
basic EPS. For the six month and three month periods ended June 30, 1997 and
1996, however, EBI's basic EPS under SFAS 128 were the same as EBI's primary
EPS presented in the statements of operations.
Also in February 1997, the Board issued Statement of Financial Accounting
Standards No. 129 - Disclosure of Information about Capital Structure ("SFAS
129"), which is effective contemporaneously with SFAS 128. However, because EBI
is currently subject to similar disclosure requirements of the Securities and
Exchange Commission, SFAS 129 will have no effect on EBI's disclosures regarding
its capital structure.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets of EBI at June 30, 1997 were $190.1 million as compared to
$174.3 million at December 31, 1996, an increase of approximately $15.8 million
or 9.1%. The increase in assets was primarily attributable to an $8.8 million
increase in loans held for investment and a $9.3 million increase in cash and
cash equivalents. These increases were partially offset by a $1.2 million
decrease in Federal Home Loan Bank ("FHLB") stock, a $704,000 decrease in
securities held to maturity and a $703,000 decrease in premises and equipment.
The increase in loans held for investment resulted from (i) the purchase of an
adjustable-rate first mortgage loan portfolio and (ii) mortgage loan
originations by Essex First Mortgage Corporation ("Essex First"). The increase
in cash and cash equivalents resulted from excess liquidity maintained at June
30, 1997 in order to fund the July acquisition of adjustable-rate first mortgage
loans. The decrease in FHLB stock resulted from the FHLB's new policy regarding
stock holdings in excess of membership requirements, which limits any FHLB
member's excess stock to no more than $500,000. The decrease in securities held
to maturity resulted from the maturity of a U.S. Treasury Note during the first
quarter of 1997. The decrease in premises and equipment resulted from the sale
of Essex Savings Bank, F.S.B.'s (the "Bank") Portsmouth and Newport News,
Virginia former branch facilities, which had been vacant since the sale of
related deposits in September 1996.
EBI's nonperforming assets, net of specific reserves for
collateral-dependent real estate loans ("CDRELs") and foreclosed properties,
decreased from $5.2 million, or 2.99% of total assets, at December 31, 1996 to
$5.0 million, or 2.63% of total assets, at June 30, 1997, and are summarized as
follows (in thousands):
JUNE 30, DECEMBER 31,
1997 1996
----------- -------------
Nonaccrual loans:
CDRELs, net.......................................................................... $ 829 $ 609
Other................................................................................ 1,430 2,299
Accruing loans 90 days or more past due................................................ 384 30
Troubled debt restructured loans....................................................... 299 223
----------- ------
Total nonperforming loans, net..................................................... 2,942 3,161
Foreclosed properties, net............................................................. 2,050 2,054
----------- ------
Total nonperforming assets, net of specific reserves............................... $ 4,992 $ 5,215
----------- ------
----------- ------
Accruing loans in the 30-59 day and 60-89 day delinquency categories
decreased, as shown below (in thousands):
DELINQUENCY JUNE 30,
CATEGORY 1997
------------- -----------
30-59 days past due $ 623 $ 1,156
60-89 days past due 351 335
---------- ---------
$ 974 $ 1,491
---------- ---------
The decrease in nonperforming assets occurred primarily in nonaccrual loans,
and was partially offset by an increase in accruing loans 90 days or more past
due, which resulted from the continued delinquency of a $288,000 loan secured by
an apartment complex in Suffolk, Virginia. In accordance with an interim
bankruptcy plan, all payments made by the borrower on this loan must be applied
to interest, resulting in a delinquency in principal collections. While efforts
are being pursued directly with the borrower, the ultimate resolution of this
matter will be subject to a
12
confirmation hearing at a later date. This loan had been reported in the
30-59 day delinquency category at December 31, 1996.
Deposits, the primary source of EBI's funds, totaled $146.0 million at June
30, 1997 as compared to $131.0 million at December 31, 1996, an increase of
$15.0 million or 11.4%. The increase in deposits was attributable to increases
in money market accounts and certificates of deposit. While deposits grew at
each of the Bank's branches, the most significant growth occurred at the
Richmond, Virginia branch. In addition, because of the improvement in the Bank's
overall financial condition, Essex Home Mortgage Servicing Corporation ("Essex
Home") transferred a portion of its servicing escrow accounts from a
nonaffiliated financial institution to the Bank. This transfer was reflected in
the increase in noninterest-bearing deposits.
Total shareholders' equity at June 30, 1997 was $15.5 million. However, the
Series B and Series C preferred stock has a stated value and liquidation
preference of $15.0 million, exclusive of cumulative but undeclared dividends
and accrued interest thereon of $2.6 million at June 30, 1997. To the extent
that EBI's income is not sufficient to cover the cumulative dividends and
accrued interest on the Series B and C preferred stock, the equity of EBI's
common shareholders will be affected. Accordingly, EBI's board of directors and
the Strategic Evaluation Committee continue to evaluate profitability
enhancements and possibilities for corporate restructurings.
RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1997 COMPARED TO FIRST SIX MONTHS OF 1996
EBI's net income for the six months ended June 30, 1997 totaled $408,000,
compared to a net loss of $6.9 million for the six months ended June 30, 1996.
EBI's net income for the first six months of 1997 included an aggregate gain of
$97,000 on the sale of the Bank's Portsmouth and Newport News, Virginia former
branch facilities and termination fees approximating $113,000 received by Essex
Home in connection with a previously-disclosed cancellation of a subservicing
client's contract effective May 31, 1997. During the first six months of 1996,
EBI's operating results included (i) $1.3 million of nonrecurring income
associated with the Bank's sale of its Charlotte, North Carolina retail bank
branch on March 15, 1996, (ii) a $5.9 million write down in the net asset value
of certain of the Bank's Virginia retail bank branches, which were subsequently
sold in 1996 and (iii) an $800,000 loan loss provision resulting from the
allocation of additional loss reserves to the Bank's largest problem credit,
which was charged off in its entirety in 1996. Excluding the impact of these
transactions in 1997 and 1996, EBI's net income for the first six months of 1997
effectively improved $1.7 million over the first six months of 1996. This
improvement reflected the impact of (i) an increase in the net yield on
interest-earning assets and (ii) a decrease in noninterest expense resulting
from the Bank's sale of nine retail bank branches during 1996 and a decline in
stock option compensation expense. These favorable impacts were partially offset
by the loss of net interest income associated with assets sold in connection
with the branch sales.
13
NET INTEREST INCOME. The table below presents average balances for
interest-earning assets and interest-bearing liabilities, as well as related
weighted average yields earned and rates paid for the six months ended June 30:
1997 1996
---------------------------------- ----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD/ RATE BALANCE INTEREST YIELD/ RATE
---------- --------- ----------- ---------- --------- -----------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans (1)............................................ $ 153,491 $ 6,553 8.54% $ 265,458 $ 10,575 7.97%
Investment securities................................ 7,610 209 5.50 12,100 343 5.67
Mortgage-backed securities........................... 1,905 62 6.46 9,333 360(2) 7.82
Federal funds sold and securities purchased under
agreements to resell............................... 2,752 74 5.35 6,533 171 5.23
Other................................................ 4,744 127 5.38 11,501 325(3) 5.37
---------- --------- ---------- ---------
Total interest-earning assets...................... $ 170,502 7,025 8.24 $ 304,925 11,774(2)(3) 7.71
---------- ----------
---------- ----------
Interest-bearing liabilities:
Deposits............................................. $ 135,461 3,644 5.42 $ 265,847 7,391 5.56
FHLB advances........................................ 25,519 760 6.01 28,580 856 5.99
Notes payable........................................ 96 5 9.61 120 6 9.47
Subordinated capital notes........................... -- -- -- 630 37 11.71
Other................................................ 374 37 18.44 416 66(4) 18.30
---------- --------- ---------- ---------
Total interest-bearing liabilities................. $ 161,450 4,446 5.50 $ 295,593 8,356(4) 5.63
---------- --------- ---------- ---------
---------- ----------
Net interest earnings.................................. $ 2,579 $ 3,418
--------- ---------
--------- ---------
Net interest spread (2),(3),(4)........................ 2.74% 2.08%
---- ----
---- ----
Net yield on interest-earning assets (2),(3),(4)....... 3.03% 2.25%
---- ----
---- ----
- ------------------------
(1) Nonaccrual loans are included in the average balance of loans.
(2) Calculation is based on historical cost balances of mortgage-backed
securities available for sale and does not give effect to changes in fair
value that are reflected as a component of shareholders' equity.
(3) Calculation in 1997 and 1996 includes the accretion of net deferred loan
fees and excludes $1,952 and $16,288, respectively, which consists primarily
of interest earned on custodial accounts maintained for servicing investors.
(4) Calculation in 1997 and 1996 excludes $2,388 and $28,589, respectively,
which consists primarily of interest paid on escrow accounts.
14
The table below sets forth certain information regarding changes in EBI's
interest income and interest expense between the periods indicated.
INCREASE (DECREASE) FROM THE FIRST SIX MONTHS
OF 1996 TO THE FIRST SIX MONTHS OF 1997 DUE TO
-----------------------------------------------
VOLUME (1) RATE (1) NET
----------- ----------- ----------
(IN THOUSANDS)
Interest income on:
Loans (2)....................................... $(4,733) $711 $(4,022)
Investment securities........................... (124) (10) (134)
Mortgage-backed securities...................... (245) (53) (298)
Federal funds sold and
securities purchased under
agreements to resell.......................... (101) 4 (97)
Other interest-earning assets................... (199) 1 (198)
------ ---- ------
Total interest income (2)..................... (5,402) 653 (4,749)
Interest expense on:
Deposits........................................ (3,569) (178) (3,747)
FHLB advances................................... (98) 2 (96)
Notes payable................................... (1) -- (1)
Subordinated capital notes...................... (19) (18) (37)
Other interest-bearing liabilities................ (29) -- (29)
------ ---- ------
Total interest expense........................ (3,716) (194) (3,910)
------- ---- ------
Net interest income........................... $(1,686) $847 $ (839)
-------- ---- ------
-------- ---- ------
- ------------------------
(1) Changes attributable to the combined impact of volume and rate have been
allocated proportionately to changes due to volume and changes due to rate.
(2) Interest income includes the amortization of premiums and the accretion of
net deferred loan fees.
Net interest income decreased from $3.4 million for the first six months of
1996 to $2.6 million for the first six months of 1997, primarily as a result of
the loss of net interest income associated with assets sold in connection with
the Bank's sale of nine branches during 1996. However, the annualized net yield
on interest-earning assets increased 78 basis points from 2.25% for the first
six months of 1996 to 3.03% for the first six months of 1997 as a result of an
increase in the ratio of interest-earning assets to interest-bearing liabilities
along with an increase in the yield on loans, which reflects the Bank's emphasis
on investment in adjustable-rate single-family residential loans.
PROVISION FOR LOAN LOSSES. Changes in the allowance for loan losses for the
six months ended June 30 are as follows (in thousands):
1997 1996
--------- ---------
Balance at beginning of period..................... $ 2,556 $ 5,251
Provision for loan losses.......................... 85 803
--------- ---------
2,641 6,054
Loans charged-off, net of recoveries............... (513) (521)
--------- ---------
Balance at end of period........................... $ 2,128 $ 5,533
--------- ---------
--------- ---------
Management reviews the adequacy of the allowance for loan losses on a
continual basis to ensure that amounts provided are reasonable. Accordingly,
management determined that a provision for loan losses was necessary during the
first six months of 1997 in order to maintain the loan loss reserves at adequate
levels to absorb losses.
15
During the first six months of 1996, management's assessment of the
uncertainty regarding the successful rehabilitation and ultimate sale of a
low-income apartment complex securing the Bank's most significant problem credit
resulted in the allocation of additional loss reserves to this CDREL, which
further resulted in an $800,000 provision for loan losses in order to replenish
the general loan loss allowance to a level sufficient to absorb losses. This
CDREL was charged off in its entirety during 1996.
NONINTEREST INCOME. The significant components of noninterest income for
the six months ended June 30 are presented below:
INCREASE
1997 1996 (DECREASE)
------------ ------------ -------------
Loan servicing fees.................................................... $ 760,612 $ 835,115 $ (74,503)
Mortgage banking income................................................ 183,958 271,121 (87,163)
Other service charges and fees......................................... 213,470 277,525 (64,055)
Net gain (loss) on sales of:
Securities........................................................... -- 153,188 (153,188)
Loans................................................................ -- 588 (588)
Deposits............................................................. -- 1,064,655 (1,064,655)
Other.................................................................. 250,955 87,216 163,739
------------ ------------ -------------
$ 1,408,995 $ 2,689,408 $ (1,280,413)
------------ ------------ -------------
------------ ------------ -------------
Noninterest income for the first six months of 1997 totaled $1.4 million
as compared to $2.7 million for the first six months of 1996. However,
noninterest income during the first six months of 1997 included (i) an
aggregate gain of $97,000 on the sale of the Bank's Newport News and
Portsmouth, Virginia former branch facilities, which had been vacant since
the sale of related deposits in September 1996 and (ii) termination fees
approximating $113,000 received by Essex Home in connection with a
previously-disclosed cancellation of a subservicing client's contract
effective May 31, 1997. Noninterest income in 1996 included the gains on
sales of securities, loans, deposits, and premises and equipment, which
totaled $1.3 million, associated with the Bank's sale of its Charlotte, North
Carolina retail bank branch. Exclusive of the impacts of these transactions
during 1997 and 1996, the effective decline in noninterest income for the
first six months of 1997 was $207,000. This decline was primarily
attributable to (i) lower loan servicing fees resulting from fluctuations in
loan servicing volume including the initial impact of the subservicing
contract cancellation effective May 31, 1997, (ii) lower mortgage banking
income resulting from fewer loans originated for sale in the secondary market
as Essex First focused on expanding its construction lending programs and
(iii) lower service charges and fees resulting primarily from the Bank's sale
of nine branches during 1996.
Loan servicing fee and ancillary servicing fee income in future periods will
be negatively impacted by the transfer of Essex Home's largest subservicing
client to another servicer effective May 31, 1997. Because no assurances can be
made that this significant servicing volume can be replaced in its entirety in
the near term, Essex Home has implemented a plan for operating expense
reductions. Notwithstanding the impact of the cancellation of this subservicing
contract, Essex Home increased its mortgage loan servicing volume since December
31, 1996 by approximately 700 loans with an aggregate principal balance of $74.2
million as of June 30, 1997.
16
NONINTEREST EXPENSE. The significant components of noninterest expense for
the six months ended June 30 are presented below:
INCREASE
1997 1996 (DECREASE)
------------ ------------- -------------
Salaries and employee benefits........................................ $ 1,460,764 $ 2,675,869 $ (1,215,105)
Net occupancy and equipment........................................... 538,766 781,327 (242,561)
Deposit insurance premiums............................................ 230,694 437,926 (207,232)
Amortization of intangible assets..................................... 266,568 6,733,243 (6,466,675)
Service bureau........................................................ 241,643 321,568 (79,925)
Professional fees..................................................... 144,515 283,880 (139,365)
Foreclosed properties, net............................................ 53,770 86,107 (32,337)
Other................................................................. 559,202 904,895 (345,693)
------------ ------------- -------------
$ 3,495,922 $ 12,224,815 $ (8,728,893)
------------ ------------- -------------
------------ ------------- -------------
Noninterest expense decreased from $12.2 million in the first six months of
1996 to $3.5 million in the first six months of 1997. The Bank's sale of nine
branches during 1996 had a pervasive impact on the decrease in noninterest
expense. In addition to the $5.9 million write down in the net asset value of
certain of the sold branches, total noninterest expense associated with the sold
branches, including amortization of goodwill, approximated $1.3 million during
the first six months of 1996. The decline in noninterest expense during 1997
also reflected (i) a decrease of $198,000 in compensation expense associated
with EBI's stock options, (ii) the impact of a corporate downsizing strategy,
which resulted in a decrease of 29 personnel positions, excluding positions
eliminated in connection with the branch sales, from January 1, 1996 to June 30,
1997, (iii) the relocation of EBI's corporate headquarters to a smaller, more
economical facility and (iv) a decrease in professional fees resulting from the
cancellation of a consulting contract.
The significant components of other noninterest expense for the six months
ended June 30 are presented below:
INCREASE
1997 1996 (DECREASE)
---------- ---------- -----------
Loan expense................................................................ $ 72,057 $ 133,377 $ (61,320)
Telephone................................................................... 88,304 122,257 (33,953)
Postage and courier......................................................... 88,155 114,845 (26,690)
Stationery and supplies..................................................... 51,228 71,234 (20,006)
Advertising and marketing................................................... 87,404 105,895 (18,491)
Corporate insurance......................................................... 59,536 97,303 (37,767)
Travel...................................................................... 22,232 40,745 (18,513)
Provision for servicing losses.............................................. 12,000 12,000 --
Other....................................................................... 78,286 207,239 (128,953)
---------- ---------- -----------
$ 559,202 $ 904,895 $ (345,693)
---------- ---------- -----------
---------- ---------- -----------
INCOME TAXES. There was no income tax provision recognized for financial
reporting purposes during the six months ended June 30, 1997 or 1996, because
EBI had significant net operating loss carryforwards, which approximated $21.1
million at December 31, 1996. Also, until consistent profitability is
demonstrated, deferred income tax assets related to EBI's net operating loss
carryforwards and temporary differences will not be recognized.
17
SECOND QUARTER OF 1997 COMPARED TO SECOND QUARTER OF 1996
EBI's net income for the three months ended June 30, 1997 totaled $390,000,
compared to a net loss of $7.5 million for the three months ended June 30, 1996.
Factors contributing to the second quarter improvement in 1997 consist of many
of the same factors described in the six-month comparison. EBI's net income for
the second quarter of 1997 included an aggregate gain of $97,000 on the sale of
the Bank's Portsmouth and Newport News, Virginia former branch facilities and
termination fees approximating $113,000 received by Essex Home in connection
with a previously-disclosed cancellation of a subservicing client's contract
effective May 31, 1997. EBI's net loss for the second quarter of 1996 included a
$5.9 million write down in the net asset value of certain of the Bank's Virginia
retail bank branches, which were subsequently sold in 1996, and an $800,000 loan
loss provision resulting from the allocation of additional loss reserves to the
Bank's largest problem credit, which was charged off in its entirety in 1996.
Excluding the impacts of these transactions in 1997 and 1996, EBI's net income
for the second quarter of 1997 effectively improved $1.0 million over the second
quarter of 1996. This improvement reflects the impact of (i) an increase in the
net yield on interest-earning assets and (ii) a decrease in noninterest expense
resulting from the Bank's sale of nine retail bank branches during 1996 and a
decline in stock option compensation expense. These favorable impacts were
partially offset by the loss of net interest income associated with assets sold
in connection with the branch sales.
[intentionally blank]
18
NET INTEREST INCOME. The table below presents average balances for
interest-earning assets and interest-bearing liabilities, as well as related
weighted average yields earned and rates paid for the three months ended
June 30:
1997 1996
-------------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- --------- --------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans (1)......................................... $ 156,195 $ 3,403 8.72% $ 259,200 $ 5,133 7.92%
Investment securities............................. 6,655 89 5.36 11,030 154 5.58
Mortgage-backed
securities...................................... 1,905 31 6.54 4,939 110(2) 9.02
Federal funds sold and
securities purchased under
agreements to resell............................ 2,716 37 5.49 6,080 79 5.19
Other............................................. 6,606 93 5.47 13,697 187(3) 5.25
---------- --------- ---------- ---------
Total interest-earning
assets....................................... $ 174,077 3,653 8.39 $ 294,946 5,663(2)(3) 7.67
---------- ----------
---------- ----------
Interest-bearing liabilities:
Deposits.......................................... $ 139,120 1,886 5.44 $ 255,647 3,538 5.54
FHLB advances..................................... 25,388 381 6.02 27,687 415 6.00
Notes payable..................................... 96 2 9.61 120 3 9.47
Subordinated capital notes........................ -- -- -- 632 18 11.71
Other............................................. 367 17 18.35 411 38(4) 18.30
---------- --------- ---------- ---------
Total interest-bearing
liabilities.................................. $ 164,971 2,286 5.56 $ 284,497 4,012(4) 5.61
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Net interest earnings............................... $ 1,367 $ 1,651
--------- ---------
--------- ---------
Net interest spread (2),(3),(4)..................... 2.83% 2.06%
--------- ---------
--------- ---------
Net yield on interest-earning
assets (2),(3),(4)................................ 3.13% 2.25%
--------- ---------
--------- ---------
- ------------------------
(1) Nonaccrual loans are included in the average balance of loans.
(2) Calculation is based on historical cost balances of mortgage-backed
securities available for sale and does not give effect to changes in fair
value that are reflected as a component of shareholders' equity.
(3) Calculation in 1997 and 1996 includes the accretion of net deferred loan
fees and excludes $1,952 and $7,538, respectively, which consists primarily
of interest earned on custodial accounts maintained for servicing investors.
(4) Calculation in 1997 and 1996 excludes $286 and $18,855, respectively, which
consists primarily of interest paid on escrow accounts.
19
The table below sets forth certain information regarding changes in EBI's
interest income and interest expense between the periods indicated.
INCREASE (DECREASE) FROM THE SECOND QUARTER OF
1996 TO THE SECOND QUARTER OF 1997 DUE TO
----------------------------------------------
VOLUME (1) RATE (1) NET
----------- ----------- ---------
(IN THOUSANDS)
Interest income on:
Loans (2)....................................... $(2,204) $474 $(1,730)
Investment securities........................... (59) (6) (65)
Mortgage-backed securities...................... (54) (25) (79)
Federal funds sold and
securities purchased under
agreements to resell.......................... (46) 4 (42)
Other interest-earning assets................... (101) 7 (94)
------- ---- -------
Total interest income (2)..................... (2,464) 454 (2,010)
Interest expense on:
Deposits........................................ (1,589) (63) (1,652)
FHLB advances................................... (36) 2 (34)
Notes payable................................... (1) -- (1)
Subordinated capital notes...................... (9) (9) (18)
Other interest-bearing liabilities.............. (21) -- (21)
------- ---- -------
Total interest expense........................ (1,656) (70) (1,726)
------- ---- -------
Net interest income........................... $ (808) $524 $ (284)
-------- ---- -------
-------- ---- -------
- ------------------------
(1) Changes attributable to the combined impact of volume and rate have been
allocated proportionately to changes due to volume and changes due to rate.
(2) Interest income includes the amortization of premiums and the accretion of
net deferred loan fees.
Net interest income decreased from $1.7 million for the second quarter of
1996 to $1.4 million for the second quarter of 1997, primarily as a result of
the loss of net interest income associated with assets sold in connection with
the Bank's sale of nine branches during 1996. However, the annualized net yield
on interest-earning assets increased 88 basis points from 2.25% for the second
quarter of 1996 to 3.13% for the second quarter of 1997 as a result of an
increase in the ratio of interest-earning assets to interest-bearing liabilities
along with an increase in the yield on loans.
PROVISION FOR LOAN LOSSES. Changes in the allowance for loan losses for the
three months ended June 30 are as follows (in thousands):
1997 1996
--------- ---------
Balance at beginning of period............................................................. $ 2,362 $ 4,955
Provision for loan losses.................................................................. 107 802
--------- ---------
2,469 5,757
Loans charged-off, net of recoveries....................................................... (341) (224)
--------- ---------
Balance at end of period................................................................... $ 2,128 $ 5,533
--------- ---------
--------- ---------
Management determined that a provision for loan losses was necessary
during the second quarter of 1997 in order to maintain the loan loss reserves
at adequate levels to absorb losses. During the second quarter of 1996 an
$800,000 provision was necessary to ensure the adequacy of the general loan
loss allowance after allocating additional loss reserves to the Bank's
problem credit secured by a low-income apartment complex in Richmond,
Virginia, which was charged off in its entirety in 1996.
20
NONINTEREST INCOME. The significant components of noninterest income for
the three months ended June 30 are presented below:
INCREASE
1997 1996 (DECREASE)
---------- ---------- -----------
Loan servicing fees...................................................... $ 358,714 $ 422,375 $ (63,661)
Mortgage banking income.................................................. 95,739 151,011 (55,272)
Other service charges and fees........................................... 102,508 133,047 (30,539)
Other.................................................................... 249,406 (24,607) 274,013
---------- ---------- -----------
$ 806,367 $ 681,826 $ 124,541
---------- ---------- -----------
---------- ---------- -----------
Noninterest income for the second quarter of 1997 totaled $806,000, an
increase of 18.3% compared to $682,000 for the second quarter of 1996.
Noninterest income for the second quarter of 1997 included a $97,000 aggregate
gain on two of the Bank's former branch facilities and $113,000 in termination
fees collected by Essex Home in connection with the cancellation of a
subservicing client's contact. Noninterest income for the second quarter of 1996
included a $314,000 unrealized loss on loans held for sale recognized in
connection with the sale of certain of the Bank's branches in July 1996, which
was partially offset by a $249,000 gain on futures contracts executed to hedge
the interest rate risk of these loans. Excluding the impact of these
transactions in 1997 and 1996, noninterest income effectively declined $151,000
as a result of (i) lower loan servicing fees resulting from fluctuations in loan
servicing volume including the initial impact of the subservicing contract
cancellation effective May 31, 1997, (ii) lower mortgage banking income
resulting from fewer loans originated for sale in the secondary market as Essex
First focused on expanding its construction lending programs and (iii) lower
service charges and fees resulting primarily from the Bank's sale of nine
branches during 1996.
NONINTEREST EXPENSE. The significant components of noninterest expense for
the three months ended June 30 are presented below:
INCREASE
1997 1996 (DECREASE)
------------ ------------ -------------
Salaries and employee benefits..................................... $ 689,135 $ 1,288,215 $ (599,080)
Net occupancy and equipment........................................ 246,571 394,967 (148,396)
Deposit insurance premiums......................................... 118,349 218,423 (100,074)
Amortization of intangible assets.................................. 141,142 6,304,624 (6,163,482)
Service bureau..................................................... 114,892 162,170 (47,278)
Professional fees.................................................. 74,854 136,667 (61,813)
Foreclosed properties, net......................................... 58,668 81,090 (22,422)
Other.............................................................. 233,145 460,751 (227,606)
------------ ------------ -------------
$ 1,676,756 $ 9,046,907 $ (7,370,151)
------------ ------------ -------------
------------ ------------ -------------
Noninterest expense decreased from $9.0 million in the second quarter of
1996 to $1.7 million in the second quarter of 1997. In addition to the $5.9
million write down in the net asset value of certain of the sold branches,
total noninterest expense associated with the sold branches, including
amortization of goodwill, approximated $543,000 during the second quarter of
1996. Further, the decline in noninterest expense during 1997 reflected (i) a
decrease of $95,000 in compensation expense associated with EBI's stock
options, (ii) the impact of a corporate downsizing strategy, which resulted
in a decrease of 29 personnel positions, excluding positions eliminated in
connection with the branch sales, from January 1, 1996 to June 30, 1997,
(iii) the relocation of EBI's corporate headquarters to a smaller, more
economical facility and (iv) a decrease in professional fees resulting from
the cancellation of a consulting contract.
21
The significant components of other noninterest expense for the three months
ended June 30 are presented below:
INCREASE
1997 1996 (DECREASE)
---------- ---------- -----------
Loan expense......................................................... $ 13,553 $ 73,112 $ (59,559)
Telephone............................................................ 47,440 62,802 (15,362)
Postage and courier.................................................. 39,910 59,773 (19,863)
Stationery and supplies.............................................. 23,581 37,610 (14,029)
Advertising and marketing............................................ 43,961 68,495 (24,534)
Corporate insurance.................................................. 28,290 49,126 (20,836)
Travel............................................................... 11,036 17,132 (6,096)
Provision for servicing losses....................................... 6,000 6,000 --
Other................................................................ 19,374 86,701 (67,327)
---------- ---------- -----------
$ 233,145 $ 460,751 $ (227,606)
---------- ---------- -----------
---------- ---------- -----------
LIQUIDITY
The Office of Thrift Supervision ("OTS") has established minimum liquidity
requirements for savings associations. These regulations provide, in part, that
members of the FHLB system maintain daily average balances of liquid assets
equal to a certain percentage of net withdrawable deposits plus current
borrowings. Current regulations require a liquidity level of at least 5%. The
Bank's liquidity ratio at June 30, 1997 was 12.78%. This ratio reflected excess
liquidity maintained at June 30, 1997 in order to fund the July acquisition of
adjustable-rate first mortgage loans.
REGULATORY MATTERS
REGULATORY CAPITAL. The Bank is required pursuant to the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and OTS
regulations promulgated thereunder to satisfy three separate requirements of
specified capital as a percent of the appropriate asset base. At June 30,
1997, the Bank was in compliance with the capital requirements established by
FIRREA.
Section 38 of the Federal Deposit Insurance Act, as added by the FDIC
Improvement Act ("FDICIA"), requires each appropriate agency and the Federal
Deposit Insurance Corporation to, among other things, take prompt corrective
action ("PCA") to resolve the problems of insured depository institutions that
fall below certain capital ratios. Federal regulations under FDICIA classify
savings institutions based on four separate requirements of specified capital as
a percent of the appropriate asset base. As of June 30, 1997, the Bank was "well
capitalized" for PCA purposes.
By December 31, 1996, after completing the sale of nine of the Bank's
retail bank branches during 1996, EBI's total assets had been reduced to
$174.3 million. By June 30, 1997, EBI's total assets had grown to $190.1
million. The increase in EBI's total assets primarily resulted from growth in
the Bank's deposits from $131.0 million at December 31, 1996 to $146.0
million at June 30, 1997. Notwithstanding this growth, the Bank exceeded all
regulatory capital requirements at June 30, 1997.
22
The Bank's capital amounts and ratios as of June 30, 1997 are presented
below (in thousands):
REQUIRED
REQUIRED TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ACTUAL ADEQUACY PURPOSES PCA PROVISIONS
-------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- ----- --------- ----------
Total capital (to risk-weighted assets).... $16,768 14.48% $9,263 8.0% $11,578 >=10.0%
Tier I capital (to risk-weighted assets)... 15,424 13.32% 4,631 4.0% 6,947 >= 6.0%
Tier I capital (to total assets)........... 15,424 8.13% 7,591 4.0% 9,489 >= 5.0%
Tangible capital (to total assets)......... 15,424 8.13% 2,847 1.5% -- --
REGULATORY COMPLIANCE. While all supervisory agreements with the OTS have
been terminated, the boards of directors of EBI and the Bank have undertaken, as
required by the OTS, to continue to implement and adhere to the spirit of the
provisions of the agreements. Such provisions include restrictions on dividend
payments and expense reimbursements, and among other areas of compliance,
restrictions on transactions with affiliates, continued oversight of asset
quality, and the submission of an updated business plan for 1997, which was
submitted to the OTS on January 3, 1997 and amended on April 25, 1997. The
business plan, as amended, was approved by the OTS on May 9, 1997.
[intentionally blank]
23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS--NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES--NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 29, 1997, an annual meeting of stockholders of EBI was held for the
purpose of considering and voting upon the election of two directors for terms
of three years each. At the meeting, (i) the election of Mr. Gene D. Ross as a
director was approved by a vote of 913,508 EBI common shares voting in favor and
41,273 shares abstaining and (ii) the election of Mr. Harry F. Radcliffe as a
director was approved by a vote of 911,688 shares voting in favor and 43,275
shares abstaining. No other business was conducted at the meeting.
ITEM 5. OTHER INFORMATION--NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--The following exhibits are filed as part of this Part II:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K--None
[intentionally blank]
24
SIGNATURE
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.
Essex Bancorp, Inc.
August 6, 1997 By: /s/ Gene D. Ross
-------------- ---------------
(Date) Gene D. Ross
Chairman, President,
and Chief Executive Officer
August 6, 1997 By: /s/ Mary-Jo Rawson
-------------- ---------------
(Date) Mary-Jo Rawson
Chief Accounting Officer
25