EXHIBIT 13.0
Portions of the 1999 Annual Report to Stockholders
TABLE OF CONTENTS
West Essex Bancorp, Inc. is a $348.3 million savings and loan holding company
headquartered in Caldwell, New Jersey. Through its subsidiary, West Essex Bank,
the Company operates 8 banking offices in Essex, Morris and Bergen County.
Founded in 1915, West Essex Bank is a federally-chartered FDIC-insured stock
savings bank.
Financial Highlights ....................................................... 1
President's Message ........................................................ 2
Selected Consolidated Financial and Other Data ............................. 4
Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. 6
Management Responsibility Statement ........................................ 20
Independent Auditor's Report ............................................... 21
Consolidated Statements of Financial Condition ............................. 22
Consolidated Statements of Income .......................................... 23
Consolidated Statements of Comprehensive Income ............................ 24
Consolidated Statements of Changes in Stockholders' Equity ................. 25
Consolidated Statements of Cash Flows ...................................... 26
Notes to Consolidated Financial Statements ................................. 28
Directors and Officers ..................................................... 60
Investor and Corporate Information ........................ Inside Back Cover
WEST ESSEX BANCORP, INC.
FINANCIAL HIGHLIGHTS
(Dollar amounts in thousands, except per share date)
At or for the Year Ended December 31,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
Total assets .................................. $ 348,307 $ 328,609 $ 299,025
Total investment and mortgage-backed securities 165,729 155,532 160,184
Total loans receivable ........................ 156,196 143,002 116,127
Allowance for loan losses ..................... 1,400 1,717 1,885
Total deposits ................................ 234,978 238,313 238,192
Borrowed money ................................ 64,340 42,101 30,300
Total stockholders' equity .................... 47,110 46,754 29,275
Net interest income ........................... 10,891 9,096 8,460
Provision for (recapture of) loan losses ...... -- (131) 487
Net income (1)(2) ............................. 3,043 1,397 737
Basic and diluted earnings per share (1)(3) ... 0.76 0.34 N/A
Book value per share .......................... 11.62 11.14 N/A
Average interest rate spread .................. 2.66% 2.48% 2.87%
Return on average assets (1)(2) ............... 0.89% 0.44% 0.29%
Return on average stockholders' equity (1)(2) . 6.46% 4.10% 2.51%
Common shares outstanding at year end ......... 4,054,357 4,197,233 N/A
(1) Results for 1998 include $842,000 of charitable contributions
representing the initial funding by the Company of the West Essex
Bancorp Charitable Foundation. Exclusive of this contribution, net
income would have been $1,936,000, or $0.48 per share, which reflects a
return on average assets of 0.61% and a return on average stockholders'
equity of 5.68%.
(2) Results for 1997 include a $1.6 million loss recorded on the excess of
cost over assets acquired in conjunction with deposits purchased from
another institution. Exclusive of this loss, net income would have been
$1,752,000, which reflects a return on average assets of 0.69% and a
return on average stockholders' equity of 5.96%.
(3) Assumes the stock conversion was completed on January 1, 1998.
- 1 -
WEST ESSEX BANCORP, INC.
ANNUAL REPORT
PRESIDENT'S MESSAGE
In reviewing 1999, our first full year as a publicly traded company, we
recorded excellent growth in earnings per share and return on equity. I am also
pleased to report a substantial increase in cash earnings, net interest income
and total assets. Also, a smooth transition into the year 2000 occurred despite
speculation by many of a Y2K meltdown.
While we are excited about our long-term growth opportunities for West
Essex Bank, our enthusiasm is quieted by the reaction of the marketplace to the
equities of financial companies. With the equity market seemingly focused on the
Internet community, it appears large and small cap banks and financial companies
have been relegated to the rear of the marketplace for the time being. Having
said this, we believe West Essex Bancorp is well positioned to continuously seek
out opportunities that enhance shareholder value. With a solid financial base
and prudent management we will strive to grow the earnings and assets of the
Company in a qualitative manner thereby enhancing the Company's franchise value.
Management's vision is to make West Essex Bank the community bank of
choice in each location where we are established. Our mission is to demonstrate
through product delivery and excellent service, how we can strengthen the
economic and social fabric of our community. While mergers and acquisitions
continue to reduce the number of banks in the country, we continue to see the
demand for community-oriented institutions such as ours. We are excited about
the opportunities of the new millennium and the rapid changes that technology is
providing and look forward to capitalizing on these factors.
Significant highlights for the Company in 1999 include the initiation
of a $.30 per share annual dividend on our common stock, asset growth of $19.7
million to $348.3 million and loan and investment growth of $23.2 million to
$319.1 million. Net income rose from $1.4 million in 1998 to $3.0 million in
1999, an increase of 118%. Cash earnings increased significantly from $1.8
million in 1998 to $3.4 million in 1999, an increase of 93%. Loan originations
for 1999 totaled $43.2 million, and our loan to deposit ratio increased to 66%
from 60% in the prior period. Finally, as of December 31, 1999, core deposits
represented 40.4% of deposit account balances.
Other measures of performance include improvements in the return on
average assets to .89% from 0.44% in the prior period and an increase in the
return an average equity to 6.46% from 4.10%. Also very important was the
significant improvement in the Company's efficiency ratio from 71.41% for 1998
to 54.45% for 1999. Earnings per share (diluted), also increased to $0.76 in
1999 from $0.34 for 1998. Net interest margin increased to 3.31% from 3.01% at
the same time that operating expenses to average assets decreased to 2.00% for
1999 from 2.40% for 1998.
-2-
In August of 1999, the Company received regulatory approval to
repurchase up to 15% of it's publicly traded common shares. Through the end of
1999, the Company was successful in repurchasing approximately 79% of those
shares. While limited liquidity in the Company's stock has impeded the Company's
efforts to repurchase its shares, the Company is committed to aggressively
managing its excess capital through stock repurchases.
In the year ahead, the Company will continue to seek means to enhance
stockholder value through continued stock repurchases, balance sheet growth, a
possible increase in our cash dividends, possible branch expansion, and other
reasonable opportunities that may become available to the Company. The Bank's
web site, which initially will only provide information to customers, will
ultimately allow transactions. Through our service provider, our web site will
give us the ability to deliver not only our current products and services to our
customer base, but new products and services as well, including on-line banking
and the ability to pay bills over the Internet.
We remain optimistic about our long-term outlook, especially with the
recent passage of financial modernization legislation permitting banking
institutions to engage in any financial activities complementing the financial
service industry. We will continue to focus on those opportunities and markets
that are in alignment with the strategic position and objectives of West Essex
Bancorp.
I would be remiss if I did not recognize the efforts and contributions
of our very dedicated directors, officers and staff who continue to work to
achieve the goals and aspirations of the Company, its shareholders and customers
and we will continue as always to remain grateful for the confidence and loyalty
you have placed in us.
Sincerely,
/s/Leopold W. Montanaro
-----------------------
Leopold W. Montanaro
President & CEO
-3-
WEST ESSEX BANCORP, INC.
Selected Consolidated Financial and Other Data
- - ----------------------------------------------
The selected consolidated financial and other data of the Company set
forth below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and Notes thereto presented
elsewhere in this Annual Report.
At December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In Thousands)
Selected Consolidated Financial Data:
Total assets (1) .................... $348,307 $328,609 $299,025 $235,969 $223,165
Loans receivable, net (2) ........... 153,276 140,272 112,735 82,134 85,031
Securities available-for-sale:
Investment securities, net ..... 2,924 8,282 7,081 1,647 1,932
Securities held-to-maturity:
Investment securities, net ..... 41,582 36,873 22,929 22,476 18,482
Mortgage-backed securities, net 121,223 110,376 130,174 113,254 100,032
Deposits (1) ........................ 234,978 238,313 238,192 179,946 178,392
Borrowed money ...................... 64,340 42,101 30,300 23,650 17,000
Total stockholders' equity .......... 47,110 46,754 29,275 28,452 26,856
For the Years Ended December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In Thousands)
Selected Operating Data:
Interest income ............................... $ 22,751 $ 21,315 $ 18,116 $ 16,467 $ 15,735
Interest expense .............................. 11,860 12,219 9,656 8,300 7,618
-------- -------- -------- -------- --------
Net interest income ...................... 10,891 9,096 8,460 8,167 8,117
Provision for (recapture of) loan
losses ...................................... -- (131) 487 232 510
-------- -------- -------- -------- --------
Net interest income after ................
provision for (recapture of) loan losses 10,891 9,227 7,973 7,935 7,607
Noninterest income ............................ 685 529 373 476 332
Noninterest expense (3) ....................... 6,869 7,607 7,173 5,919 4,446
-------- -------- -------- -------- --------
Income before income taxes (3) ................ 4,707 2,149 1,173 2,492 3,493
Income taxes (3) .............................. 1,664 752 436 836 1,221
-------- -------- -------- -------- --------
Net income .................................... $ 3,043 $ 1,397 $ 737 $ 1,656 $ 2,272
======== ======== ======== ======== ========
(continued on next page)
-4-
At or For the Years Ended December 31,
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Selected Financial Ratios and Other Data:
Performance Ratios (4):
Return on average assets (3) .............. 0.89 % 0.44 % 0.29 % 0.74 % 1.07 %
Return on average stockholders' equity (3) 6.46 4.10 2.51 5.95 8.84
Average stockholders' equity
/average assets ......................... 13.73 10.75 11.55 12.37 12.09
Interest rate spread (5) .................. 2.66 2.48 2.87 3.15 3.34
Net interest margin (6) ................... 3.31 3.01 3.44 3.74 3.93
Non-interest expenses to average assets (3) 2.00 2.40 2.82 2.63 2.09
Stockholders' equity to total assets ...... 13.53 14.23 9.79 12.06 12.03
Efficiency ratio (7) ...................... 54.45 71.41 57.04 56.58 52.86
Regulatory Capital Ratios (4):
Tangible capital .......................... 10.69 10.44 7.98 12.06 12.02
Core capital .............................. 10.69 10.44 7.98 12.06 12.02
Risk-based capital ........................ 28.55 28.81 26.10 39.15 37.50
Asset Quality Ratios (4):
Non-performing loans to total assets ...... 0.25 0.67 0.84 1.26 0.96
Non-performing loans to total loans
receivable .............................. 0.57 1.46 2.16 3.51 2.46
Non-performing assets to total assets ..... 0.51 0.84 1.24 1.85 1.57
Allowance for loan losses to
non-performing loans .................... 158.37 78.47 75.19 52.70 55.84
Average interest-earning assets to average
interest-bearing liabilities ............ 117.99 112.99 114.39 115.46 115.94
Net interest income after provision for
loan losses to non-interest expenses (3) 158.55 121.30 111.15 134.06 171.10
Number of full-service customer facilities ........ 8 8 8 5 5
(1) The increase in assets in fiscal 1997 was due primarily to the purchase
of three branch offices from Summit Bank.
(2) The allowance for loan losses at December 31, 1999, 1998, 1997, 1996,
and 1995 was $1.4 million, $1.7 million, $1.9 million, $1.6 million, and
$1.2 million, respectively.
(3) Includes, for the year ended December 31, 1996, the SAIF Special
Assessment of $1.1 million and the related income tax benefit of
$395,000. If excluded, return on average assets, return on average
stockholders' equity, non-interest expenses to average assets and net
interest income after provision for loan losses to non-interest expenses
would be 1.05%, 8.47% 2.14% and 164.59%, respectively, for the year
ended December 31, 1996. Includes, for the years ended December 31,
1999, 1998 and 1997, amortization expense related to the excess of cost
over assets acquired from Summit Bank of $593,000, $593,000, and $1.7
million, respectively, and the related income tax benefit of $213,000,
$213,000 and $627,000, respectively. If excluded, return on average
assets, return on average stockholders' equity, non-interest expenses to
average assets and net interest income after provision for loan losses
to non-interest expense would be 1.00%, 7.26%, 1.83% and 173.53%,
respectively, for the year ended December 31, 1999, 0.56%, 5.21%, 2.21%
and 131.55%, respectively, for the year ended December 31, 1998 and
0.73%, 6.30%, 2.13% and 146.83%, respectively, for the year ended
December 31, 1997.
(4) With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods and are annualized
where appropriate.
(5) The interest rate spread represents the difference between the weighted
average yield on average interest- earning assets and the weighted
average cost of average interest-bearing liabilities.
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) The efficiency ratio represents non-interest expenses, excluding the
SAIF special Assessment, impairment loss and amortization relating to
intangible assets and loss on REO, divided by the sum of net interest
and non-interest income excluding income on REO and security gain/loss.
-5-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
West Essex Bancorp, Inc. ("the Company"), is the stock holding company
for West Essex Bank ("the Bank"). The Company is headquartered in Caldwell, New
Jersey and its principal business currently consists of the operations of the
Bank. West Essex Bancorp, M.H.C., a mutual holding company formed in connection
with the Bank's conversion to stock form and reorganization into the holding
company form of organization, which was consummated October 2, 1998, owns 58.0%
of the Company's outstanding common stock. The Bank's results of operations are
dependent primarily on net interest income, which is the difference between the
income earned on its loan and investment portfolios and its cost of funds,
consisting of the interest paid on deposits and borrowings. Results of
operations are also affected by the Bank's provision for loan losses and fees
and other service charges. The Bank's noninterest expense principally consists
of compensation and employee benefits, office occupancy and equipment expense,
federal deposit insurance premiums, the cost of foreclosed real estate
operations, data processing, advertising and business promotion and other
expenses. Results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities. Future changes in
applicable law, regulations or government policies may materially impact the
Bank.
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking
statements which are based on certain assumptions and describe future plans,
strategies and expectations of the Company. These forward-looking statements are
generally identified by use of the words "believe", "expect", "intend",
"anticipate", "estimate", "project", or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations of the Company and the subsidiaries include, but are not limited to,
changes in: interest rates, general economic conditions, legislative/regulatory
changes, monetary and fiscal policies of the U.S. Government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality or composition
of the loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. The Company does not undertake - and
specifically disclaims any obligation - to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
Management of Interest Rate Risk and Market Risk Analysis
The principal objectives of the Company's interest rate risk management
is to evaluate the interest rate risk included in certain balance sheet
accounts; determine the level of risk appropriate given the Company's business
strategy, operating environment, capital and liquidity requirements and
performance objectives; and manage the risk consistent with the Board of
Directors' approved guidelines. Through such management, the Company seeks to
reduce the vulnerability of its operations to changes in interest rates. The
Board of Directors of the Bank has established an Asset/Liability Committee,
which is responsible for reviewing asset/liability policies and interest rate
risk position. The Asset/Liability Committee meets at least on a quarterly
basis, reports trends and interest rate risk position to the Board of Directors
and reviews with the Board its activities and strategies, the effect of those
strategies on the Bank's net interest margin, the market value of the portfolio,
and the effect the changes in interest rates will have on the Bank's portfolio
and exposure limits. The extent of the movement of interest rates is an
uncertainty that could have a negative impact on the earnings of the Company.
- 6 -
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
To manage its interest rate risk and help offset the originations of
long-term fixed rate mortgage loans, the Company has employed the following
strategies: (i) utilizing adjustable-rate mortgage-backed securities to offset
the effect of holding long-term fixed rate mortgage loans and (ii) lengthening
the maturities of both borrowed money and deposits.
The Bank continues to seek opportunities to originate for its portfolio
one-to four-family residential mortgage loans, as well as other loans, in its
primary market area of Essex, Morris and Bergen Counties, New Jersey. The Bank's
total loan portfolio had decreased as a percent of the Bank's total assets from
1993 through 1996 when loan originations, primarily due to intense competition
in the Bank's market area for loan originations, began to decrease. To address
this situation, the Bank began to pursue loan originations more aggressively and
began, in 1997, to use outside mortgage brokers to generate increased volume.
During 1999, the Bank, as part of its efforts to generate new loans, moved to
aggressively promote its loan products by using newspaper advertisements and by
instituting an incentive program with its employees. The latter program proved
highly successful and will be continued in 2000. Further, due to the relatively
low interest rate environment that has existed in recent years, the Bank has
originated primarily fixed-rate one-to four-family mortgage loans. The Bank's
purchase of adjustable-rate mortgage-backed securities, as well as various
shorter term debt obligations of federal, state and local governments, has
enabled the Company to effectively manage its interest rate risk. At December
31, 1999, the Company had $121.2 million or 34.8% of total assets in
mortgage-backed securities classified as held-to-maturity, and $44.5 million or
12.8% of total assets in investment securities, of which $2.9 million or 0.8% of
total assets were classified as available-for-sale. At the same date, loans
receivable, net, totalled $153.3 million or 44.0% of total assets.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored
by management through the use of the OTS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV
is the present value of expect cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. The OTS produced its analysis based upon data submitted on the
Bank's quarterly Thrift Financial Reports.
The following table sets forth the Bank's NPV as of December 31, 1999, as
calculated by the OTS.
NPV as % of Portfolio
Change in Net Portfolio Value Value of Assets
Interest Rates ------------------------------------------ ---------------------------
In Basis Points $ % NPV
(Rate Shock) Amount Change Change Ratio Change (1)
------------ ------ ------ ------ ----- ----------
300 $ 10,792 $ (21,276) (66)% 3.53 % (605)
200 18,266 (13,802) (43) 5.79 (379)
100 25,444 (6,624) (21) 7.82 (176)
Static 32,068 - - 9.58 -
(100) 37,248 5,180 16 10.87 129
(200) 40,539 8,470 26 11.61 203
(300) 41,334 9,265 29 11.71 213
(1) Expressed in basis points.
-7-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Average Balance Sheet. The following table sets forth certain
information relating to the Company at December 31, 1999, and for the years
ended December 31, 1999, 1998 and 1997. The average yields and costs are derived
by dividing income or expense by the average balance of interest-earning assets
or interest-bearing liabilities, respectively, for the period shown except where
noted otherwise and reflect annualized yields and costs. Average balances are
derived from average month-end balances except for the average balances of other
interest-earning assets and borrowed money, which are derived from average daily
balances. Management does not believe that the use of average monthly balances
instead of average daily balances has caused any material differences in the
information presented. The yields and costs include fees which are considered
adjustments to yields.
At December 31, 1999
---------------------
Yield/
Balance Cost
------- ----
Assets: (Dollars in Thousands)
Interest-earning assets:
Loans receivable ....................................... $ 154,677 7.44 %
Mortgage-backed securities ............................. 121,223 6.55
Investment securities(1) ............................... 44,506 6.84
Other interest-earning assets .......................... 10,290 4.58
---------
Total interest-earning assets ......... 330,696 6.94
Allowance for loan losses .............................. (1,400)
Non-interest-earning assets ............................ 19,011
---------
Total assets .......................... $ 348,307
=========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Interest-bearing deposits:
Demand deposits ................................. $ 21,092 1.39
Savings and club accounts ....................... 57,735 2.04
Certificates of deposit ......................... 140,140 5.05
---------
Total interest-bearing deposits ....... 218,967 3.90
Borrowed money ......................................... 64,340 5.66
---------
Total interest-bearing liabilities .... 283,307 4.30
Non-interest bearing deposits ................................ 16,011
Other non-interest-bearing liabilities ....................... 1,879
---------
Total liabilities ..................... 301,197
Retained earnings ............................................ 47,110
---------
Total liabilities and retained earnings $ 348,307
=========
Interest rate spread ......................................... 2.64 %
====
Net interest-earning assets .................................. $ 47,389
=========
Ratio of average interest-earning assets to average
interest-bearing liabilities ........................... 1.17x
====
(1) Included securities available for sale.
-8-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Years Ended December 31,
----------------------------------------------------------------
1999 1998
------------------------------ ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
Assets: (Dollars in Thousands)
Interest-earning assets:
Loans receivable $ 149,356 $ 11,240 7.53 % $ 129,416 $ 10,083 7.79 %
Mortgage-backed securities 119,953 7,722 6.44 121,346 7,853 6.47
Investment securities (1) 47,227 3,177 6.73 39,195 2,695 6.88
Other interest-earning assets 12,241 611 4.99 12,419 684 5.51
--------- -------- --------- --------
Total interest-earning assets 328,777 22,750 6.92 302,376 21,315 7.05
------- -------
Allowance for loan losses (1,546) (1,832)
Other non-interest-earning assets 15,912 16,503
--------- ---------
Total assets $ 343,143 $ 317,047
========= =========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Interest-bearing deposits:
Demand $ 20,732 284 1.37 $ 20,412 339 1.66
Savings and club 58,727 1,210 2.06 62,120 1,672 2.69
Certificates of deposit 141,432 7,090 5.01 142,714 7,736 5.42
--------- -------- --------- --------
Total interest-bearing deposits 220,891 8,584 3.89 225,246 9,747 4.33
Borrowed money 57,756 3,275 5.67 42,364 2,472 5.84
--------- -------- --------- --------
Total interest-bearing liabilities 278,647 11,859 4.26 267,610 12,219 4.57
-------- --------
Non-interest-bearing deposits 15,576 13,219
Other non-interest-bearing liabilities 1,796 2,121
--------- ---------
Total liabilities 296,019 282,950
Stockholders' equity 47,124 34,097
--------- ---------
Total liabilities and stockholders' equity $ 343,143 $ 317,047
========= =========
Net interest income/interest rate spread $ 10,891 2.66 % $ 9,096 2.48 %
======== ==== ======= ====
Net interest-earning assets/net yield on
interest-earning assets $ 50,130 3.31 % $ 34,766 3.01 %
========= ==== ======== ====
Ratio of interest-earning assets to interest-bearing
liabilities 1.18x 1.13x
===== =====
------------------------------------
1997
------------------------------------
Average
Average Yield/
Balance Interest Cost
------- -------- ----
Assets:
Interest-earning assets:
Loans receivable $ 97,277 $ 7,908 8.13 %
Mortgage-backed securities 114,996 7,909 6.88
Investment securities (1) 26,774 1,897 7.09
Other interest-earning assets 7,019 401 5.71
-------- -------
Total interest-earning assets 246,016 18,115 7.36
--------
Allowance for loan losses (1,739)
Other non-interest-earning assets 10,422
---------
Total assets $ 254,699
=========
Liabilities and Retained Earnings:
Interest-bearing liabilities:
Interest-bearing deposits:
Demand $ 16,360 293 1.79
Savings and club 53,221 1,357 2.55
Certificates of deposit 119,272 6,439 5.40
-------- -------
Total interest-bearing deposits 188,853 8,089 4.28
Borrowed money 26,223 1,566 5.97
--------- ------
Total interest-bearing liabilities 215,076 9,655 4.49
--------
Non-interest-bearing deposits 8,503
Other non-interest-bearing liabilities 1,711
---------
Total liabilities 225,290
29,409
Stockholders' equity ---------
Total liabilities and stockholders' equity $ 254,699
=========
Net interest income/interest rate spread $ 8,460 2.87 %
======== ====
Net interest-earning assets/net yield on
interest-earning assets $ 30,940 3.44 %
======== ====
Ratio of interest-earning assets to interest-bearing 1.14x
liabilities =====
(1) Includes securities available for sale.
-9-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Company's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated on a proportional basis between changes in rate and volume.
Year Ended Year Ended
December 31, 1999 December 31, 1998
Compared to Compared to
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------------------- ------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------- -----------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In Thousands)
Interest income:
Loans receivable ............ $ 1,504 $ (347) $ 1,157 $ 2,517 $ (342) $ 2,175
Mortgage-backed securities .. (93) (38) (131) 427 (483) (56)
Investment securities ....... 542 (60) 482 856 (58) 798
Other interest-earning assets (10) (63) (73) 298 (15) 283
------- ------- ------- ------- ------- -------
Total ............................ 1,943 (508) 1,435 4,098 (898) 3,200
------- ------- ------- ------- ------- -------
Interest expense:
Demand deposits (1) ......... 5 (60) (55) 69 (23) 46
Savings and club accounts ... (87) (375) (462) 237 78 315
Certificates of deposit ..... (69) (577) (646) 1,273 24 1,297
Borrowed money .............. 877 (74) 803 941 (35) 906
------- ------- ------- ------- ------- -------
Total ............................ 726 (1,086) (360) 2,520 44 2,564
------- ------- ------- ------- ------- -------
Net change in net interest income $ 1,217 $ 578 $ 1,795 $ 1,578 $ (942) $ 636
======= ======= ======= ======= ======= =======
(1) Includes NOW and Money Market accounts.
Comparison of Financial Condition at December 31, 1999 and December 31, 1998
Total assets were $348.3 million at December 31, 1998, compared to
$328.6 million at December 31, 1998, an increase of $19.7 million, or 6.0%. The
increase in assets was funded primarily by an increase in FHLB borrowings of
$22.3 million.
Cash and cash equivalents, primarily interest-bearing deposits with the
FHLB, decreased $3.7 million to $12.7 million at December 31, 1999 from $16.4
million at December 31, 1998. The decrease in cash and cash equivalents was used
to fund securities purchases.
-10-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the aggregate, mortgage-backed securities and investment securities,
including available-for- sale and held-to-maturity issues, totalled $165.7
million at December 31, 1999, an increase of $10.2 million from $155.5 million
at December 31, 1998. Such increase was funded by the aforementioned decrease in
cash and cash equivalents and by increased borrowings. Mortgage-backed
securities, all of which are held-to-maturity, increased $10.8 million due to
purchases exceeding repayments. Investment securities held-to-maturity increased
$4.7 million, due to security purchases exceeding maturities, while investment
securities available-for-sale decreased $5.4 million, primarily due to $5.0
million in securities sold. At December 31, 1999, 75.9% of the investment
securities, including available-for-sale and held-to-maturity issues, consisted
of U.S. Government and Agency obligations, while 72.0% of the mortgage-backed
securities portfolio consisted of Fannie Mae ("FNMA"), Freddie Mac ("FHLMC") and
Ginnie Mae ("GNMA") issues. Investment securities available for sale included
$2.0 million of U.S. Treasury notes and $909,000 of U.S. Government Agency notes
while investment securities held-to-maturity consisted of $500,000 of U.S.
Treasury notes, $30.4 million of U.S. Government Agency notes, $10.0 million in
trust preferred securities and $733,000 in municipal bonds and notes.
Loans receivable increased $13.0 million to $153.3 million at December
31, 1999 from $140.3 million at December 31, 1998. The increase was primarily in
the one- to four-family mortgage and home equity loan categories, which
increased $7.6 million and $4.8 million, respectively. At December 31, 1999,
87.5% of the outstanding balance of loans in the portfolio consisted of one-to
four-family related loans, compared to 86.9% at December 31, 1998.
Deposits totalled $235.0 million at December 31, 1999, a decrease of
$3.3 million or 1.4% from the $238.3 million balance at December 31, 1998.
Borrowed money increased $22.3 million to $64.3 million at December 31,
1999, as compared to $42.0 million at December 31, 1998. Based on the lower cost
of wholesale funds as compared to comparable maturity retail deposits,
management chose to fund the asset growth discussed above with additional FHLB
borrowings. During the year ended December 31, 1999, short-term borrowings
increased $6.0 million to $6.0 million, with an average cost of 5.80% at year
end, while long-term debt increased $16.3 million to $58.3 million, the result
of $24.0 million in new borrowings with 1 to 10 year maturities and an average
cost of 5.75% and the repayment of current maturities of long-term debt of $7.7
million. The increased borrowed money was used to fund increased lending.
Stockholders' equity increased $356,000 or 0.8%, to $47.1 million at
December 31, 1999 from $46.8 million at the prior year end. During 1999, net
income of $3.0 million was largely offset by $1.5 million in treasury stock
acquisitions, $739,000 used to fund the Company's newly implemented Stock-Based
Incentive Plan, and $496,000 in dividends declared to stockholders.
Comparison of Operating Results for the Years Ended December 31, 1999 and 1998
Net Income. Net income for 1999 was $3.04 million, an increase of $1.64
million from $1.40 million in 1998. The increase was primarily the result of two
factors. The primary factor was the $1.79 million increase in net interest
income to $10.89 million in 1999 compared to $9.10 million in 1998, which was
the result of an increase in total interest income and a decrease in total
interest expense. Additionally, charitable contribution expenses totalled
$17,000 in 1999, a decrease of $846,000 from the 1998 total of $863,000.
$842,000 of the 1998 charitable contribution expense related to the initial
funding of the West Essex Bancorp Charitable Foundation, a charitable foundation
established in
-11-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
connection with the Company's initial public stock offering, with a $100,000
cash contribution and a contribution by the Company of 74,214 shares of Company
common stock. The aforementioned two factors combined to increase income before
income taxes and net income by $2.64 million and $1.69 million, respectively.
Interest Income. Total interest income increased 6.7% to $22.75 million
for 1999 as compared to $21.31 million for 1998. The increase was due to a $26.4
million or 8.7% increase in average interest-earning assets during 1999, which
more than offset a drop of 13 basis points in the yield earned thereon to 6.92%
in 1999 from 7.05% in 1998. The increased average balances of earning assets
were funded by increased FHLB borrowings.
Interest income on loans during 1999 increased by $1.16 million, or
11.5%, to $11.24 million when compared to $10.08 million during 1998. During the
years ended December 31, 1999 and 1998, the yield earned on the loan portfolio
was 7.53% and 7.79%, respectively. The average balance of loans outstanding
during the years ended December 31, 1999 and 1998 totalled $149.4 million and
$129.4 million, respectively. The decreased yield is the result of the lower
market interest rates prevailing during much of 1999. The increased average
balance during 1999 is the result of the continued increase in loan origination
efforts, including the use of outside mortgage brokers, which began in 1997.
Loan originations were $42.2 million in 1999 and $50.5 million in 1998.
Interest on mortgage-backed securities, all of which are
held-to-maturity, decreased $131,000, or 1.7%, during 1998 to $7.72 million
compared to $7.85 million for 1998. During the year ended December 31, 1999, the
average balance of mortgage-backed securities outstanding decreased $1.3
million, or 1.1%, to $120.0 million when compared to $121.3 million for 1998.
The yield earned on the mortgage-backed securities portfolio decreased
marginally to 6.44% in 1999 from 6.47% in 1998.
Interest earned on investment securities, including both
available-for-sale and held-to-maturity issues, increased by $482,000, or 17.9%,
to $3.2 million for 1999, when compared to $2.7 million for 1998. The increase
resulted from an increase of $8.0 million, or 20.5%, in the average balance of
the investment securities portfolio, which more than offset a decrease of 15
basis points in the yield earned on the investment securities portfolio to 6.73%
in 1999 from 6.88% in 1998. The increased average balance is the result of
purchases during 1999 while the decreased yield is due to the lower market rates
available thereon.
Interest on other interest-earning assets totalled $611,000 and
$684,000 during 1999 and 1998, respectively. The yield earned on other
interest-earning assets decreased to 4.99% in 1999 from 5.51% in 1998, while the
average balance of other interest-earning assets outstanding decreased $178,000
or 1.4%.
Interest Expense. Interest expense on deposits decreased $1.17 million,
or 11.9%, to $8.58 million during 1999 compared to $9.75 million for 1998. The
decrease during 1999 was attributable to a decrease of 44 basis points in the
average cost of interest-bearing deposits to 3.89% for 1999 from 4.33% or 1998,
along with a decrease of $4.4 million, or 1.9%, in the average balance of
interest-bearing deposits outstanding. The decreased cost of deposits was due to
the lower market rates prevailing for much of 1999 and was seen in all deposit
categories.
-12-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense on borrowed money increased $803,000, or 32.5%, to
$3.3 million during 1999 compared to $2.5 million for 1998. The increase during
1999 was attributable to an increase of $15.4 million in the average balance of
borrowings outstanding, partially offset by a decrease of 17 basis points in the
cost of borrowings to 5.67% for 1999 from 5.84% for 1998. The increased average
balance reflects management's increased use of borrowed funds to compensate for
deposit loss, leverage the balance sheet and to manage interest rate risk. The
decreased interest rate on borrowings resulted from the paydown of older debt
having higher interest rates.
Net Interest Income. Net interest income for 1999 increased $1.8
million, or 19.7%, to $10.9 million in 1999 from $9.1 million in 1998. The net
interest rate spread increased to 2.66% in 1999 from 2.48% in 1998 and the
interest rate margin increased to 3.31% in 1999 from 3.01% in 1998. These
increases primarily resulted from a 31 basis point decrease in the cost of
interest-bearing liabilities to 4.26% in 1999 from 4.57% in 1998, which more
than offset a 13 basis point decrease in the yield earned on average
interest-earning assets to 6.92% in 1999 from 7.05% in 1998. In addition to the
increases in interest rate spread and margin, the Company was able to improve
net interest income by increasing net interest-earning assets by $15.4 million
and by leveraging the balance sheet through increased borrowings.
Provision for Loan Losses. During 1999, the Company did not record a
provision for loan losses as management determined that the existing allowance
for loan losses was adequate. During 1998, the Bank recorded a recapture of
$131,000 from the allowance for loan losses as a credit to provision for loan
losses. The recaptured allowance of $131,000 in 1998 represented 6.9% of the
allowance for loan losses at the end of 1997 and reflected a $405,000 or 16.3%
decrease in loans delinquent ninety days or more. At December 31, 1999 and 1998,
the Bank's loan portfolio included loans totalling $792,000 and $2.1 million,
respectively, which were delinquent ninety days or more. The Bank maintains an
allowance for loan losses based on management's evaluation of the risks inherent
in its loan portfolio which gives due consideration to changes in general market
conditions and in the nature and volume of the Bank's loan activity. The
allowance for loan losses amounted to $1.40 million at December 31, 1999,
representing 0.90% of total loans and 176.8% of loans delinquent ninety days or
more, compared to an allowance of $1.72 million at December 31, 1998,
representing 1.20% of total loans and 82.4% of loans delinquent ninety days or
more. During 1999 and 1998, the Bank charged off loans aggregating $317,000 and
$37,000, respectively. The $317,000 charge-off in 1999 represented the final
resolution of the Bank's largest nonperforming loan, a construction loan that
had been in default for over six years. The Bank monitors its loan portfolio and
intends to continue to provide for loan losses based on its ongoing periodic
review of the loan portfolio and general market conditions.
The Bank has established a standardized process to assess the adequacy
of the allowance for loan losses and to identify the risks inherent in the loan
portfolio. The process incorporates credit reviews and gives consideration to
areas of exposure such as concentrations of credit, local economic conditions,
trends in delinquencies, collateral coverage, the composition of the performing
and non-performing loan portfolios, and other risks inherent in the loan
portfolio.
-13-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Specific allocations of the allowance for loan losses are identified by
individual loan based upon a detailed credit review of each such loan. General
loan loss allowances are allocated to pools of loans categorized by type and
assigned allowance percentages which take into effect past charge off history,
industry averages and current trends and risks. Finally, an unallocated portion
of the allowance is maintained to account for the general inherent risk in the
loan portfolio, known circumstances which are not addressed in the allocated
portion of the allowance (such as the increased dependence on outside mortgage
brokers for originations), and the necessary imprecision in the determination of
the allocated portion of the allowance.
The allowance for loan losses includes specific, general and
unallocated allowances of $50,000, $878,000 and $472,000, respectively, at
December 31, 1999, as compared to $492,000, $817,000 and $408,000, respectively,
at December 31, 1998. The decrease in the specific allowance primarily reflects
the final resolution of several loans related to a large condominium project
which had been in default since 1993. The general allowance at December 31, 1999
represents 0.56% of total loans, a slight decrease from 0.57% at the prior year
end. The unallocated allowance at December 31, 1999 represents 0.30% of total
loans, a slight increase from 0.29% at the prior year end. A factor included in
the unallocated allowance at both December 31, 1999 and 1998 is the large volume
of loan originations generated by the Bank via the use of outside mortgage
brokers since 1997 as compared to no such loans in prior years. The Company
believes the use of outside brokers somewhat increases the inherent risks in the
loan portfolio. The general and unallocated allowances increased primarily due
to the $13.2 million increase in the loan portfolio.
Non-Interest Income. Non-interest income increased by $156,000, or
29.5% to $685,000 during 1999 as compared to $529,000 for 1998. The increase in
non-interest income during 1999 resulted primarily from $127,000 in gains on
sales of securities during 1999 compared to none in 1998, and increases in fees
and service charges of $21,000, or 5.7%, and miscellaneous income of $8,000, or
4.9%.
Non-Interest Expenses. Non-interest expenses decreased $738,000, or
9.7%, to $6.9 million during 1999 compared to $7.6 million for 1998. Charitable
contribution expense totalled $17,000 in 1999, a decrease of $846,000 over the
1998 amount of $863,000. $842,000 of the 1998 charitable contribution expense
related to the initial funding of the West Essex Bancorp Charitable Foundation
with a $100,000 cash contribution and a contribution by the Company of 74,214
shares of Company common stock. Loss on real estate owned decreased by $98,000
to $42,000 in 1999 as compared to $140,000 in 1998, due to a reduction in loss
provisions recorded to $ - 0 - in 1999 from $131,000 in 1998. Excluding the
aforementioned factors, non-interest expenses were $6.81 million in 1999, or
$207,000 higher than the $6.60 million comparable amount in 1998. This increase
of 3.1% is attributable to the growth of the Company, which is reflected by a
8.2% increase in average total assets. In accordance with the foregoing,
salaries and employee benefits increased $179,000 or 5.8%, occupancy and
equipment expenses increased $25,000, or 2.5%, and miscellaneous expenses
increased $3,000 or 0.2%. Included in miscellaneous expenses, among other
things, are legal fees, accounting and auditing fees, director fees, FHLB demand
deposit charges, insurance costs, telephone expenses and stationery and supplies
expenses and the nonrecurring expenses associated with Year 2000 compliance
issues.
Income Taxes. Income tax expense totalled $1.66 million and $752,000
during 1999 and 1998, respectively. The increase in 1999 resulted primarily from
an increase in pre-tax income of $2.56 million. The Company's effective income
tax rate was 35.3% in 1999 and 35.0% in 1998.
-14-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
Net Income. Net income for 1998 was $1.40 million, an increase of
$660,000 from $737,000 in 1997. The increase was primarily the result of four
factors. The amortization of the excess of cost over assets acquired in
connection with the October 1997 purchase of deposits from Summit Bank totalled
$593,000 in 1998, or $1.15 million less than the comparable 1997 figure of $1.74
million, which included a $1.59 million loss upon the reassessment of the
carrying value of this asset at the end of 1997. Charitable contribution expense
totalled $863,000 in 1998, an increase of $849,000 over the 1997 amount of
$14,000. $842,000 of the 1998 charitable contribution expense related to the
initial funding of the West Essex Bancorp Charitable Foundation, a charitable
foundation established in connection with the Company's initial public stock
offering, with a $100,000 cash contribution and a contribution by the Company of
74,214 shares of Company common stock. In 1998, a $131,000 recapture of
provision for loan losses represented an improvement of $618,000 over the
provision of $487,000 recorded in 1997. Finally, loss on real estate owned
decreased by $240,000 to $140,000 in 1998 as compared to $380,000 in 1997. The
aforementioned four factors combined to increase income before income taxes and
net income by $1.16 million and $742,000, respectively. The remaining decrease
of $82,000 in net income was the result of increased non-interest expenses,
exclusive of those discussed above, partially offset by increased non-interest
income, and the income tax effect thereon.
Interest Income. Total interest income increased 17.7% to $21.3 million
for 1998 as compared to $18.1 million or 1997. The increase was due to a $56.4
million or 22.9% increase in average interest-earning assets during 1998, which
more than offset a drop of 31 basis points in the yield earned thereon to 7.05%
in 1998 from 7.36% in 1997. Increased average balances and decreased yield were
experienced in all categories of interest-earning assets. The increased average
balances of earning assets were the result of increased loan originations and
securities purchases funded by the $16.6 million net proceeds of the Company's
1998 initial public stock offering, the Summit deposit purchase of late 1997 and
increased FHLB borrowings.
Interest income on loans during 1998 increased by $2.2 million, or
27.5%, to $10.1 million when compared to $7.9 million during 1997. During the
years ended December 31, 1998 and 1997, the yield earned on the loan portfolio
was 7.79% and 8.13%, respectively. The average balance of loans outstanding
during the years ended December 31, 1998 and 1997 totalled $129.4 million and
$97.3 million, respectively. The decreased yield is the result of the lower
market interest rates prevailing during 1998. The increased average balance
during 1998 is the result of the continued increase in loan origination efforts,
including the use of outside mortgage brokers, which began in 1997. Originations
were $50.5 million in 1998, up from $47.1 million in 1997.
Interest on mortgage-backed securities, all of which are
held-to-maturity, decreased $56,000 or 0.7%, during 1998 to $7.85 million
compared to $7.91 million for 1997. During the year ended December 31, 1998, the
average balance of mortgage-backed securities outstanding increased $6.3
million, or 5.5%, to $121.3 million when compared to $115.0 million for 1997.
The yield earned on the mortgage-backed securities portfolio decreased to 6.47%
in 1998 from 6.88% in 1997. The decrease in the average yield on mortgage-backed
securities during 1998 resulted primarily from lower market interest rates.
-15-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest earned on investment securities, including both
available-for-sale and held-to-maturity issues, increased by $798,000, or 42.1%,
to $2.7 million for 1998, when compared to $1.9 million for 1997. The increase
resulted from an increase of $12.4 million, or 46.4%, in the average balance of
the investment securities portfolio, which more than offset a decrease of 21
basis points in the yield earned on the investment securities portfolio to 6.88%
in 1998 from 7.09% in 1997. The increased average balance is the result of
purchases during 1998 while the decreased yield is due to the lower market rates
available thereon.
Interest on other interest-earning assets totalled $684,000 and
$401,000 during 1998 and 1997, respectively. The yield earned on other
interest-earning assets decreased to 5.51% in 1998 from 5.71% in 1997, which
partially offset an increase of $5.4 million, or 76.9%, in the average balance
of other interest-earning assets outstanding. The increased average balance in
1998 is due to the temporary investment of net proceeds of the initial public
stock offering in overnight deposits.
Interest Expense. Interest expense on deposits increased $1.7 million,
or 13.1%, to $9.74 million during 1998 compared to $8.09 million for 1997. The
increase during 1998 was attributable to an increase of five basis points in the
average cost of interest-bearing deposits to 4.33% for 1998 from 4.28% or 1997,
along with an increase of $36.4 million, or 19.3%, in the average balance of
interest-bearing deposits outstanding. The increased average balance of
interest-bearing deposits primarily reflects the purchase of deposits from
Summit Bank during October 1997.
Interest expense on borrowed money increased $906,000, or 57.9%, to
$2.5 million during 1998 compared to $1.6 million for 1997. The increase during
1998 was attributable to an increase of $16.1 million in the average balance of
borrowings outstanding, partially offset by a decrease of 13 basis points in the
cost of borrowings to 5.84% for 1998 from 5.97% for 1997. The increased average
balance reflects management's increased use of borrowed funds to leverage the
balance sheet. The decreased interest rate on borrowings resulted from the
paydown of older debt having higher interest rates as well as the lower interest
rates available on new borrowings obtained in 1998.
Net Interest Income. Net interest income for 1998 increased $636,000,
or 7.5%, to $9.1 million in 1998 from $8.5 million in 1997. The net interest
rate spread decreased to 2.48% in 1998 from 2.87% in 1997 and the interest rate
margin decreased to 3.01% in 1998 from 3.44% in 1997. These decreases primarily
resulted from a 31 basis point decrease in the yield earned on interest-earning
assets to 7.05% in 1998 from 7.36% in 1997 coupled with an 8 basis point
increase in the cost of average interest-bearing liabilities to 4.57% in 1998
from 4.49% in 1997. Despite the decreases in interest rate spread and margin,
the Company was able to improve net interest income by increasing net
interest-earning assets by $3.8 million and by leveraging the balance sheet
through increased borrowings.
Provision for Loan Losses. During 1998, the Bank recorded a recapture
of $131,000 from the allowance for loan losses as a credit to provision for loan
losses. During 1997, the Bank provided $487,000 for loan losses. The recaptured
allowance of $131,000 in 1998 represented 6.9% of the allowance for loan losses
at the end of 1997 and reflected the $405,000 or 16.3% decrease in loans
delinquent ninety days or more and the reduced uncertainty involving
circumstances discussed in the third succeeding paragraph. At December 31, 1998
and 1997, the Bank's loan portfolio included loans totalling $2.1 million and
$2.5 million, respectively, which were delinquent ninety days or more. The Bank
maintains an allowance for loan losses based on management's evaluation of the
risks inherent in
-16-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
its loan portfolio which give due consideration to changes in general market
conditions and in the nature and volume of the Bank's loan activity. The
allowance for loan losses amounted to $1.72 million at December 31, 1998,
representing 1.20% of total loans and 82.4% of loans delinquent ninety days or
more compared to an allowance of $1.89 million at December 31, 1997,
representing 1.62% of total loans and 75.7% of loans delinquent ninety days or
more. During 1998 and 1997, the Bank charged off loans aggregating $37,000 and
$166,000, respectively. The Bank monitors its loan portfolio and intends to
continue to provide for loan losses based on its ongoing periodic review of the
loan portfolio and general market conditions.
The Bank has established a standardized process to assess the adequacy
of the allowance for loan losses and to identify the risks inherent in the loan
portfolio. The process incorporates credit reviews and gives consideration to
areas of exposure such as concentrations of credit, local economic conditions,
trends in delinquencies, collateral coverage, the composition of the performing
and non-performing loan portfolios, and other risks inherent in the loan
portfolio.
Specific allocations of the allowance for loan losses are identified by
individual loan based upon a detailed credit review of each such loan. General
loan loss allowances are allocated to pools of loans categorized by type and
assigned allowance percentages which take into effect past charge off history,
industry averages and current trends and risks. Finally, an unallocated portion
of the allowance is maintained to account for the general inherent risk in the
loan portfolio, known circumstances which are not addressed in the allocated
portion of the allowance (such as the increased dependence on outside mortgage
brokers for originations), and the necessary imprecision in the determination of
the allocated portion of the allowance.
The allowance for loan losses includes specific, general and
unallocated allowances of $492,000, $817,000 and $408,000, respectively, at
December 31, 1998, as compared to $605,000, $761,000 and $518,000, respectively,
at December 31, 1997. The decrease in the specific allowance primarily reflects
the continued resolution of loans related to a large condominium project which
had been in default since 1993 and was subject to bankruptcy proceedings and a
lawsuit. The uncertainty in regard to these credits is also accounted for in the
unallocated allowance in amounts which decrease as the ability to clearly
quantify the specific losses increases. Another factor included in the
unallocated allowance at December 31, 1998 and 1997 is the large volume of loan
originations generated by the bank by outside mortgage brokers during 1998 and
1997 as compared to no such loans in prior years. The Company believes the use
of outside brokers increases the inherent risks in the loan portfolio. The
general allowance increased primarily due to the $26.9 million increase in the
loan portfolio.
Non-Interest Income. Non-interest income increased by $156,000, or
41.8%, to $529,000 during 1998 as compared to $373,000 for 1997. The increase in
non-interest income during 1998 resulted primarily from a $20,000 loss on sale
of securities available for sale during 1997 compared to none in 1998, and
increases in fees and service charges of $93,000 and miscellaneous income of
$43,000. The increase during the 1998 period in fees and service charges
resulted primarily from the increased number of deposit accounts serviced since
the October 1997 Summit Bank deposit purchase.
Non-Interest Expenses. Non-interest expense increased $434,000, or 6.1%
to $7.6 million during 1998 compared to $7.2 million for 1997. During 1997, in
conjunction with the purchase of three branches and related deposit liabilities
from Summit Bank, the Bank recorded $7.6 million in excess of cost over assets
acquired. The amortization of the excess of cost over assets acquired in
connection with the October 1997 purchase of deposits from Summit Bank totalled
$593,000 in 1998, or $1.15 million
-17-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
less than the comparable 1997 figure of $1.74 million, which included a $1.59
million loss upon the reassessment of the carrying value of this asset at the
end of 1997. Charitable contribution expense totalled $863,000 in 1998, an
increase of $849,000 over the 1997 amount of $14,000. $842,000 of the 1998
charitable contribution expense related to the initial funding of the West Essex
Bancorp Charitable foundation, a charitable foundation established in connection
with the Company's initial public stock offering, with a $100,000 cash
contribution and a contribution by the Company of 74,214 shares of Company
common stock. Loss on real estate owned decreased by $240,000 to $140,000 in
1998 as compared to $380,000 in 1997, due to a reduction in loss provisions
recorded to $131,000 in 1998 from $373,000 in 1997. Excluding the aforementioned
factors, non-interest expenses were $6.0 million in 1998, or $974,000 higher
than the $5.0 million comparable amount in 1997. This increase of 19.3% is
attributable to the growth of the Company, which is reflected by a 24.5% growth
in average total assets and an increase in business locations from five to eight
effective October 1997. In accordance with the foregoing, salaries and employee
benefits increased $255,000 or 9.0%, occupancy and equipment expenses increased
$253,000 or 34.1% and miscellaneous expense increased $445,000 or 33.4%.
Included in miscellaneous expenses, among other things, are legal fees,
accounting and auditing fees, director fees, FHLB demand deposit charges,
insurance costs, telephone expense and stationery and supplies expenses and
expenses associated with Year 2000 compliance issues.
Income Taxes. Income tax expense totalled $752,000 and $436,000 during
1998 and 1997, respectively. The increase in 1998 resulted primarily from an
increase in pre-tax income of $976,000 and from the purchase, in 1998, of trust
preferred securities which are afforded favorable income tax treatment under the
internal revenue code. The Company's effective income tax rate was 35.0% in 1998
and 37.2% in 1997.
Liquidity and Capital Resources
The Bank's primary sources of funds on a long-term and short-term basis
are deposits, principal and interest payments on loans, mortgage-backed and
investment securities and FHLB borrowings. The Bank uses the funds generated to
support its lending and investment activities as well as any other demands for
liquidity such as deposit outflows. While maturities and scheduled amortization
of loans are predictable sources of funds, deposit flows, mortgage prepayments
and the exercise of call features are greatly influenced by general interest
rates, economic conditions and competition. The Bank has continued to maintain
the required levels of liquid assets as defined by OTS regulations. This
requirement of the OTS, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The Bank's currently required liquidity
ratio is 4.0%. At December 31, 1999, the Bank's regulatory liquidity ratio was
25.40%.
At December 31, 1999, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $36.6 million, or 10.7%, of total
adjusted assets, which is above the required level of $5.1 million, or 1.5%;
core capital of $36.6 million, or 10.7%, of total adjusted assets, which is
above the required level of $13.7 million, or 4%; and risk-based capital of
$38.0 million, or 28.6%, of risk-weighted assets, which is above the required
level of $10.6 million, or 8%.
The most liquid assets are cash and cash equivalents and investment
securities available for sale. The levels of these assets are dependent on
operating, financing, lending and investing activities during any given period.
At December 31, 1999, cash and cash equivalents and investment securities
available for sale totalled $15.7 million, or 4.5% of total assets.
-18-
WEST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company and the Bank have other sources of liquidity if a need for
additional funds arises, including FHLB borrowings. At December 31, 1999, the
Bank had $64.3 million in borrowings outstanding from the FHLB. Depending on
market conditions and the pricing of deposit products and FHLB borrowings, the
Bank may continue to rely on FHLB borrowing to fund asset growth.
At December 31, 1999, the Bank had commitments to originate and
purchase loans and fund unused outstanding lines of credit and undisbursed
proceeds of construction mortgages totaling $12.1 million. The Bank anticipates
that it will have sufficient funds available to meet its current loan
origination commitments. Certificate accounts, including Individual Retirement
Account ("IRA") accounts, which are scheduled to mature in less than one year
from December 31, 1999, totalled $111.8 million. The Bank expects that
substantially all of the maturing certificate accounts will be retained by the
Bank at maturity.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results generally in terms of historical
dollar amounts without considering the changes in the relative purchasing power
of money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Company's operations. Unlike industrial companies, nearly
all of the assets and liabilities of the Company are monetary in nature. As a
result, interest rates have a greater impact on the Company's performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the prices of goods and
services.
Accounting for Derivative Instruments and Hedging Activities. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
addition, certain provisions of this statement will permit, at the date of
initial adoption of SFAS No. 133, the transfer of any held-to-maturity security
into either the available-for-sale or trading category and the transfer of any
available-for-sale security into the trading category. Transfers from the
held-to-maturity portfolio at the date of initial adoption will not call into
question the entity's intent to hold other debt securities to maturity in the
future. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 and is not expected to have a material impact on
the Company and the Bank, which do not intend to adopt SFAS No. 133 earlier than
required.
-19-
January 27, 2000
MANAGEMENT RESPONSIBILITY STATEMENT
Management of West Essex Bancorp, Inc. and Subsidiaries is responsible for the
preparation of the consolidated financial statements and all other consolidated
financial information included in this report. The consolidated financial
statements were prepared in accordance with generally accepted accounting
principles applied on a consistent basis. All consolidated financial information
included in this report agrees with the consolidated financial statements. In
preparing the consolidated financial statements, management makes informed
estimates and judgments, with consideration given to materiality, about the
expected results of various events and transactions.
Management maintains a system of internal accounting control that includes
personnel selection, appropriate division of responsibilities and formal
procedures and policies consistent with high standards of accounting and
administrative practice. Consideration has been given to the necessary balance
between costs of systems of internal control and the benefits derived.
Management reviews and modifies its systems of accounting and internal control
in light of changes in conditions and operations as well as in response to
recommendations from the independent certified public accountants. Management
believes the accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
The Board of Directors (the "Board") is responsible for determining that
management fulfills its responsibilities in the preparation of the consolidated
financial statements and in the control of operations. The Board appoints the
independent certified public accountants. The Board meets with management, the
independent certified public accountants and the internal auditor, approved the
overall scope of audit work and related fee arrangements and reviews audit
reports and findings.
/s/ Dennis A. Petrello /s/ Leopold W. Montanaro
- - -------------------------- -------------------------
Dennis A. Petrello Leopold W. Montanaro
Executive Vice President President & CEO
/s/ Charles E. Filippo
-------------------------
Charles E. Filippo
Executive Vice President
-20-
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors and Stockholders
West Essex Bancorp, Inc.
We have audited the accompanying consolidated statements of financial condition
of West Essex Bancorp, Inc. (the "Bancorp") and Subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income, comprehensive
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Bancorp's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of West Essex Bancorp, Inc. and Subsidiaries as of December
31, 1999 and 1998, and the results of their operations and cash flows for each
of the years in the three-year period ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/Radics & Co., LLC
--------------------
Radics & Co., LLC
Pine Brook, New Jersey
January 27, 2000
-21-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
-----------------------------------
Assets Note(s) 1999 1998
- - ------ ------- -------------- --------------
Cash and amounts due from depository institutions $ 5,728,992 $ 1,547,464
Interest-bearing deposits in other banks 7,016,853 14,823,967
------------- -------------
Total cash and cash equivalents 1 and 18 12,745,845 16,371,431
Securities available for sale 1, 3, 12 and 18 2,923,750 8,282,450
Investment securities held to maturity 1, 4, 12 and 18 41,582,003 36,873,165
Mortgage-backed securities held to maturity 1, 5, 12 and 18 121,223,315 110,376,072
Loans receivable 1, 6 and 18 153,276,187 140,272,203
Real estate owned 1 and 7 899,738 582,138
Premises and equipment 1 and 8 2,737,456 2,947,374
Federal Home Loan Bank of New York stock 12 3,272,700 2,607,300
Accrued interest receivable 1, 9 and 18 2,005,563 2,004,809
Excess of cost over assets acquired 1 and 10 4,643,348 5,236,116
Other assets 15 2,996,932 3,055,825
-------------- --------------
Total assets $ 348,306,837 $ 328,608,883
============== ==============
Liabilities and Stockholders' Equity
- - ------------------------------------
Liabilities
- - -----------
Deposits 11 and 18 $ 234,977,812 $ 238,312,941
Borrowed money 12 and 18 64,340,115 42,009,880
Advance payments by borrowers for taxes and insurance 1,044,140 921,958
Other liabilities 14 and 15 834,824 610,050
------------- -------------
Total liabilities 301,196,891 281,854,829
------------- -------------
Commitments and contingencies 17 and 18 - -
Stockholders' Equity 1, 2, 13, 14 and 15
- - --------------------
Preferred stock (par value $.01), 1,000,000 shares
authorized; no shares issued or outstanding - -
Common stock (par value $.01), 9,000,000 shares
authorized; shares issued 4,197,233; shares outstanding
4,054,357 (1999) and 4,197,233 (1998) 41,972 41,972
Additional paid-in capital 17,332,133 17,339,291
Retained earnings - substantially restricted 33,054,528 30,507,475
Common stock acquired by Employee Stock Ownership
Plan ("ESOP") (1,178,874) (1,326,233)
Unearned Incentive Plan stock (655,549) -
Treasury stock, at cost; 142,876 shares (1999) (1,436,550) -
Accumulated other comprehensive (loss) income - Unrealized
(loss) gain on securities available for sale, net of income taxes (47,714) 191,549
------------- -------------
Total stockholders' equity 47,109,946 46,754,054
------------- -------------
Total liabilities and stockholders' equity $ 348,306,837 $ 328,608,883
============= =============
See notes to consolidated financial statements.
-22-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
----------------------------------------------
Note(s) 1999 1998 1997
------ ------------ ------------ -----------
Interest income:
Loans 1 and 6 $ 11,240,049 $ 10,082,633 $ 7,908,541
Mortgage-backed securities 1 7,722,483 7,852,565 7,908,940
Investment securities 1 2,834,753 2,216,231 1,661,624
Securities available for sale 1 341,975 478,981 235,529
Other interest-earning assets 611,308 684,273 400,842
------------ ------------ -----------
Total interest income 22,750,568 21,314,683 18,115,476
------------ ------------ -----------
Interest expense:
Deposits 11 8,583,870 9,747,271 8,089,473
Borrowed money 3,275,525 2,471,538 1,566,165
------------ ------------ -----------
Total interest expense 11,859,395 12,218,809 9,655,638
------------ ------------ -----------
Net interest income 10,891,173 9,095,874 8,459,838
Provision for (recapture of) loan losses 6 - (130,630) 487,015
------------ ------------ -----------
Net interest income after provision for (recapture of) loan losses 10,891,173 9,226,504 7,972,823
------------ ------------ -----------
Non-interest income:
Fees and service charges 387,300 366,319 273,443
Gain (loss) on dispositions of securities 1, 3 and 4 126,597 - (20,245)
Other 170,957 163,331 120,039
------------ ------------ -----------
Total non-interest income 684,854 529,650 373,237
------------ ------------ -----------
Non-interest expenses:
Salaries and employee benefits 1 and 14 3,282,547 3,103,230 2,847,886
Net occupancy expense of premises 1 and 17 354,017 334,699 245,879
Equipment 1 665,517 659,998 495,742
Loss on real estate owned 1 and 7 41,891 140,277 379,870
Charitable contributions 2 17,178 863,434 14,401
Amortization of intangibles 10 592,768 592,768 1,743,062
Other 1,915,377 1,912,411 1,446,101
------------ ------------ -----------
Total non-interest expenses 6,869,295 7,606,817 7,172,941
------------ ------------ -----------
Income before income taxes 4,706,732 2,149,337 1,173,119
Income taxes 1 and 15 1,663,383 752,037 436,279
------------ ------------ -----------
Net income $ 3,043,349 $ 1,397,300 $ 736,840
============ ============ ===========
Net income per common share: 1 and 16
Basic $ 0.76 $ 0.34(1) N/A(1)
============ ============ ===========
Diluted $ 0.76 $ 0.34(1) N/A(1)
============ ============ ===========
Weighted average number of common shares outstanding: 1 and 16
Basic 4,004,069 4,062,395(1) N/A(1)
============ ============ =========
Diluted 4,007,751 4,062,395(1) N/A(1)
============ ============ =========
(1) West Essex Bank converted to stock form on October 2, 1998.
See notes to consolidated financial statements.
-23-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
Net income .................................................. $ 3,043,349 $ 1,397,300 $ 736,840
----------- ----------- -----------
Other comprehensive (loss) income, net of income taxes:
Unrealized holding (losses) gains on securities
available for sale, net of income taxes
of $122,051, $(71,384) and $(36,269), respectively (217,166) 127,015 65,387
Reclassification adjustment
for realized (gains) losses on securities
available for sale, net of income taxes
of $12,418, $ - 0 - and $ - 0 - , respectively ... (22,097) -- 20,245
----------- ----------- -----------
Other comprehensive (loss) income ........................... (239,263) 127,015 85,632
----------- ----------- -----------
Comprehensive income ........................................ $ 2,804,086 $ 1,524,315 $ 822,472
=========== =========== ===========
See notes to consolidated financial statements.
-24-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Retained
Additional Earnings - Common Stock
Common Paid-In Substantially Acquired by
Stock Capital Restricted ESOP
----- ------- ---------- ----
Balance - December 31, 1996 ......................... $ -- $ -- $ 28,473,335 $ --
Net income for the year ended December 31, 1997 ..... -- -- 736,840 --
Unrealized gain on securities available
for sale, net of income taxes ..................... -- -- -- --
------------ ------------ ------------ ------------
Balance - December 31, 1997 ......................... -- -- 29,210,175 --
Net income for the year ended December 31, 1998 ..... -- -- 1,397,300 --
Net proceeds from initial public stock offering ..... 41,972 17,340,088 -- --
Common stock acquired by ESOP ....................... -- -- -- (1,473,584)
ESOP shares committed to be released ................ -- (797) -- 147,351
Initial capitalization of mutual holding company .... -- -- (100,000) --
Unrealized gain on securities available for sale, net
of income taxes ................................... -- -- -- --
------------ ------------ ------------ ------------
Balance - December 31, 1998 ......................... 41,972 17,339,291 30,507,475 (1,326,233)
Net income for the year ended December 31, 1999 ..... -- -- 3,043,349 --
Purchase of 144,500 shares of treasury stock ........ -- -- -- --
Acquisition of 73,884 shares of common stock by
Incentive Plan .................................... -- -- -- --
Incentive Plan stock earned ......................... -- -- -- --
ESOP shares committed to be released ................ -- (5,940) -- 147,359
Reissuance of 1,624 shares of treasury stock ........ -- (1,218) -- --
Cash dividends declared on common stock ............. -- -- (496,296) --
Unrealized loss on securities available for sale,
net of income taxes ............................... -- -- -- --
------------ ------------ ------------ ------------
Balance - December 31, 1999 ......................... $ 41,972 $ 17,332,133 $ 33,054,528 $ (1,178,874)
============ ============ ============ ============
Accumulated
Other
Unearned Comprehensive Total
Incentive Treasury (Loss) Stockholders'
Plan Stock Stock Income Equity
---------- ----- ------ ------
Balance - December 31, 1996 ......................... $ -- $ -- $ (21,098) $ 28,452,237
Net income for the year ended December 31, 1997 ..... -- -- -- 736,840
Unrealized gain on securities available
for sale, net of income taxes ..................... -- -- 85,632 85,632
------------ ------------ ------------ ------------
Balance - December 31, 1997 ......................... -- -- 64,534 29,274,709
Net income for the year ended December 31, 1998 ..... -- -- -- 1,397,300
Net proceeds from initial public stock offering ..... -- -- -- 17,382,060
Common stock acquired by ESOP ....................... -- -- -- (1,473,584)
ESOP shares committed to be released ................ -- -- -- 146,554
Initial capitalization of mutual holding company .... -- -- -- (100,000)
Unrealized gain on securities available for sale, net
of income taxes ................................... -- -- 127,015 127,015
------------ ------------ ------------ ------------
Balance - December 31, 1998 ......................... -- -- 191,549 46,754,054
Net income for the year ended December 31, 1999 ..... -- -- -- 3,043,349
Purchase of 144,500 shares of treasury stock ........ -- (1,453,094) -- (1,453,094)
Acquisition of 73,884 shares of common stock by
Incentive Plan .................................... (738,840) -- -- (738,840)
Incentive Plan stock earned ......................... 83,291 -- -- 83,291
ESOP shares committed to be released ................ -- -- -- 141,419
Reissuance of 1,624 shares of treasury stock ........ -- 16,544 -- 15,326
Cash dividends declared on common stock ............. -- -- -- (496,296)
Unrealized loss on securities available for sale,
net of income taxes ............................... -- -- (239,263) (239,263)
------------ ------------ ------------ ------------
Balance - December 31, 1999 ......................... $ (655,549) $ (1,436,550) $ (47,714) $ 47,109,946
=== ==== ============ ============ ============ ============
See notes to consolidated financial statements.
-25-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net income ................................................................. $ 3,043,349 $ 1,397,300 $ 736,840
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization of premises and equipment ............... 235,426 278,355 230,524
Net accretion of premiums, discounts and deferred loan fees ........... (180,677) (245,904) (127,373)
Amortization of intangibles ........................................... 592,768 592,768 1,743,062
Provision for (recapture of) loan losses .............................. -- (130,630) 487,015
Provision for losses on real estate owned ............................. -- 130,630 372,985
(Gain) loss on sale of securities available for sale .................. (34,515) -- 20,245
(Gain) on sale of investment security held to maturity ................ (92,082) -- --
(Gain) on sale of real estate owned ................................... -- (5,386) (30,080)
(Gain) on trade-in of automobile ...................................... -- (16,401) --
Deferred income tax (benefit) ......................................... 219,825 (11,944) (725,335)
(Increase) decrease in accrued interest receivable ................... (754) 7,388 (360,770)
(Increase) in other assets ............................................ (26,463) (67,304) (11,726)
Increase (decrease) in interest payable .............................. 115,353 (29,160) 90,624
Increase (decrease) in other liabilities .............................. 12,172 124,497 (2,815,465)
Amortization of Incentive Plan cost ................................... 83,291 -- --
Contribution of common stock .......................................... -- 742,140 --
ESOP shares committed to be released .................................. 141,419 146,554 --
------------ ------------ ------------
Net cash provided by (used in) operating activities ............... 4,109,112 2,912,903 (389,454)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale ....................... 5,021,875 -- 1,588,229
Proceeds from repayments on and calls of securities available for sale ..... -- -- 115,272
Purchases of securities available for sale ................................. -- (1,000,000) (7,033,784)
Proceeds from sale of security held to maturity ............................ 1,000,000 -- --
Proceeds from maturities and calls of investment securities held to maturity 15,700,000 9,889,845 10,000,000
Purchases of investment securities held to maturity ........................ (21,044,969) (23,640,389) (10,399,678)
Principal repayments on mortgage-backed securities held to maturity ........ 35,580,321 41,586,542 20,084,461
Purchases of mortgage-backed securities held to maturity ................... (46,531,053) (21,891,969) (37,026,167)
Purchases of loans receivable .............................................. (970,155) (280,707) --
Net (increase) decrease in loans receivable ................................ (12,333,080) (26,973,831) (31,617,835)
Proceeds from sales of real estate owned ................................... -- 503,458 483,300
Proceeds from other payments received on real estate owned ................. -- 4,000 39,602
Capitalized cost of real estate owned ...................................... (8,362) -- (6,665)
Additions to premises and equipment ........................................ (25,508) (86,744) (352,753)
Purchase of Federal Home Loan Bank of New York stock ....................... (665,400) (423,500) (513,400)
------------ ------------ ------------
Net cash (used in) investing activities ........................... (24,276,331) (22,313,295) (54,639,418)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from initial public stock offering ............................ -- 16,639,920 --
Initial capitalization of mutual holding company ........................... -- (100,000) --
Common stock acquired by ESOP .............................................. -- (1,473,584) --
Net (decrease) increase in deposits ........................................ (3,344,709) 149,960 7,148,632
Net (decrease) increase in short-term borrowed money ....................... 6,000,000 (18,000,000) 12,000,000
Proceeds of long-term borrowed money ....................................... 24,000,000 38,000,000 3,000,000
Repayment of long-term borrowed money ...................................... (7,669,765) (8,290,120) (8,350,000)
Net increase in advance payments by borrowers for
taxes and insurance ....................................................... 122,182 149,529 150,239
Purchases of treasury stock ................................................ (1,453,094) -- --
Cost of Incentive Plan stock ............................................... (738,840) -- --
Cash dividends paid on common stock ........................................ (374,141) -- --
Cash received in connection with branch purchases .......................... -- -- 42,021,857
------------ ------------ ------------
Net cash provided by financing activities ......................... 16,541,633 27,075,705 55,970,728
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents ........................... (3,625,586) 7,675,313 941,856
Cash and cash equivalents - beginning ............................................ 16,371,431 8,696,118 7,754,262
------------ ------------ ------------
Cash and cash equivalents - ending ............................................... $ 12,745,845 $ 16,371,431 $ 8,696,118
============ ============ ============
See notes to consolidated financial statements.
-26-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------------------
1999 1998 1997
------------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes ............................................ $ 1,358,707 $ 860,000 $ 1,035,078
============= =========== ===========
Interest ................................................ $ 11,744,042 $12,241,337 $ 9,501,814
============= =========== ===========
Supplemental schedule of noncash investing activities:
Unrealized (loss) gain on securities
available or sale, net of income taxes ............ $ (239,263) $ 127,015 $ 85,632
============= =========== ===========
Loans receivable transferred to real estate owned ....... $ 309,238 $ -- $ 679,914
============= =========== ===========
Assets acquired in connection with branch purchases:
Loans receivable ................................... $ -- $ -- $ 54,693
Premises and equipment ............................. -- -- 1,360,000
Excess of cost over assets acquired ................ -- -- 7,571,946
Other assets ....................................... -- -- 457
------------- ----------- -----------
$ -- $ -- $ 8,987,096
============= =========== ===========
Liabilities acquired in connection with branch purchases:
Deposits ........................................... $ -- $ -- $51,007,382
Other liabilities .................................. -- -- 1,571
------------- ----------- -----------
$ -- $ -- $51,008,953
============= =========== ===========
Issuance of treasury stock to fund Supplemental Employee
Retirement Plan ....................................... $ 15,326 $ -- $ --
============= =========== ===========
Cash dividend declared, not paid ........................ $ 122,155 $ -- $ --
============= =========== ===========
See notes to consolidated financial statements.
-27-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - -----------------------------------------------
Basis of consolidated financial statement presentation
------------------------------------------------------
The consolidated financial statements include the accounts of West
Essex Bancorp, Inc. ("Bancorp"), the Bancorp's wholly owned subsidiary,
West Essex Bank ("Bank") and the Bank's wholly owned subsidiary, West
Essex Insurance Agency, Inc. ("Subsidiary"), and have been prepared in
conformity with generally accepted accounting principles. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the dates of the consolidated
statements of financial condition and revenues and expenses for the
periods then ended. Actual results could differ significantly from
those estimates. Material estimates that are particularly susceptible
to significant changes relate to the determination of the allowance for
loan losses, the valuation of real estate owned and the recoverability
of excess of cost over assets acquired. Management believes that the
allowance for loan losses is adequate and that real estate owned and
excess of cost over assets acquired are appropriately valued. While
management uses available information to recognize losses on loans and
real estate owned and to assess the recoverability of excess of cost
over assets acquired, future additions to the allowance for loan losses
or further writedowns of real estate owned and excess of cost over
assets acquired may be necessary based on changes in economic and
market conditions in the Bank's market area.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses and real estate owned valuations. Such agencies may require the
Bank to recognize additions to the allowance or additional writedowns
based on their judgments about information available to them at the
time of their examination.
Cash and cash equivalents
-------------------------
Cash and cash equivalents include cash and amounts due from depository
institutions and interest-bearing deposits in other banks with original
maturities of three months or less.
Investments and mortgage-backed securities
------------------------------------------
Debt securities over which there exists positive intent and ability to
hold to maturity are classified as held-to-maturity securities and
reported at amortized cost. Debt and equity securities that are bought
and held principally for the purpose of selling them in the near term
are classified as trading securities and reported at fair value, with
unrealized holding gains and losses included in earnings. Debt and
equity securities not classified as trading securities nor as
held-to-maturity securities are classified as available for sale
securities and reported at fair value, with unrealized holding gains or
losses, net of deferred income taxes, reported in a separate component
of stockholders' equity.
Premiums and discounts on all securities are amortized/accreted using
the interest method. Interest and dividend income on securities, which
includes amortization of premiums and accretion of discounts, is
recognized in the consolidated financial statements when earned. The
adjusted cost basis of an identified security sold or called is used
for determining security gains and losses recognized in the
consolidated statements of income.
-28-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- - -----------------------------------------------
Loans receivable
----------------
Loans receivable are stated at unpaid principal balances less the
allowance for loan losses and net deferred loan (costs) fees. Interest
is calculated by the use of the actuarial method.
The Bank defers loan origination fees and certain direct loan
origination costs and amortizes such amounts, using a method which
approximates the level-yield method, as an adjustment of yield over the
contractual lives of the related loans.
Uncollectible interest on loans that are contractually delinquent
ninety days or more is charged off and the related loans placed on
nonaccrual status, or, alternatively, an allowance for uncollectible
interest is established by a charge to interest income equal to all
interest previously accrued. Under either method, income is
subsequently recognized only to the extent that cash payments are
received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments is probable, in which
case the loan is returned to an accrual status.
Allowance for loan losses
-------------------------
An allowance for loan losses is maintained at a level considered
adequate to absorb loan losses. Management of the Bank, in determining
the allowance for loan losses, considers the risks inherent in its loan
portfolio and changes in the nature and volume of its loan activities,
along with the general economic and real estate market conditions.
The Bank utilizes a two tier approach: (1) identification of impaired
loans and the establishment of specific loss allowances on such loans;
and (2) establishment of general valuation allowances on the remainder
of its loan portfolio. The Bank maintains a loan review system which
allows for a periodic review of its loan portfolio and the early
identification of potential impaired loans. Such system takes into
consideration, among other things, delinquency status, size of loans,
type and estimated fair value of collateral and financial condition of
the borrowers. Specific loan loss allowances are established for
identified loans based on a review of such information. General loan
loss allowances are based upon a combination of factors including, but
not limited to, actual loan loss experience, composition of the loan
portfolio, current economic conditions and management's judgment.
Although management believes that adequate loan loss allowances are
established, actual losses are dependent upon future events and, as
such, further additions to the level of the allowance for loan losses
may be necessary.
-29-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- - ------------------------------------------------
Allowance for loan losses (Cont'd)
-------------------------
A loan evaluated for impairment is deemed to be impaired when based on
current information and events, it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms of
the loan agreement. The amount of loan impairment is measured based on
the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. All loans identified as impaired are
evaluated independently. The Bank does not aggregate such loans for
evaluation purposes. Payments received on impaired loans are applied
first to interest receivable and then to principal.
Real estate owned
-----------------
Real estate owned consists of real estate acquired by foreclosure or
deed in lieu of foreclosure. Real estate owned is recorded at the lower
of cost or fair value at date of acquisition and thereafter carried at
the lower of such initially recorded amount or fair value less
estimated selling costs. Costs incurred in developing or preparing
properties for sale are capitalized. Income and expense related to the
holding and operating of properties are recorded in operations. Gains
and losses from sales of such properties are recognized as incurred.
Concentration of risk
---------------------
The Bank's real estate and lending activity is concentrated in real
estate and loans secured by real estate located in the State of New
Jersey
Premises and equipment
----------------------
Premises and equipment are comprised of land, at cost, and buildings
and improvements, leasehold improvements and furnishings and equipment,
at cost less accumulated depreciation and amortization. Depreciation
and amortization charges are computed on the straight-line method over
the following estimated useful lives.
Buildings and improvements 10 to 50 years
Leasehold improvements Shorter of useful life
or term of lease
Furnishing and equipment 3 to 10 years
Significant renewals and betterments are charged to the property and
equipment account. Maintenance and repairs are charged to expense in
the year incurred. Rental income is netted against occupancy costs in
the consolidated statements of income.
-30-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- - ------------------------------------------------
Excess of cost over assets acquired
-----------------------------------
The cost in excess of the fair value of net assets acquired was
recorded on October 17, 1997 in conjunction with the acquisition of
certain assets and assumption of certain liabilities of three branch
offices of another financial institution. This asset primarily consists
of core deposit intangibles, which represent the intangible value of
depositor relationships assumed in the transaction, and is being
amortized to expense over a ten-year period by use of the straight-line
method.
On a periodic basis, management reviews the excess of cost over assets
acquired and evaluates events or changes in circumstances that may
indicate impairment in the carrying amount of such asset. In such
instances, impairment, if any, is measured on a discounted estimated
cash flow basis.
Interest-rate risk
------------------
The Bank is principally engaged in the business of attracting deposits
from the general public and using these deposits, together with
borrowings and other funds, to purchase securities and to make loans
secured by real estate. The potential for interest-rate risk exists as
a result of the generally shorter duration of the Bank's
interest-sensitive liabilities compared to the generally longer
duration of its interest-sensitive assets. In a rising interest rate
environment, liabilities will reprice faster than assets, thereby
reducing net interest income. For this reason, management regularly
monitors the maturity structure of the Bank's interest-earning assets
and interest-bearing liabilities in order to measure its level of
interest-rate risk and to plan for future volatility.
Accounting for stock-based compensation
---------------------------------------
Statement of Financial Accounting Standards ("Statement") No. 123
"Accounting for Stock-Based Compensation", issued by the Financial
Accounting Standards Board ("FASB"), establishes financial accounting
and reporting standards for stock-based employee compensation plans.
While all entities are encouraged to adopt the "fair value based
method" of accounting for employee stock compensation plans, Statement
No. 123 also allows an entity to continue to measure compensation cost
under such plans using the "intrinsic value based method" specified in
Accounting Principles Board Opinion No. 25. The Bancorp has elected to
apply the intrinsic value based method. Included in Note 14 to
consolidated financial statements are the pro forma disclosures
required by Statement No. 123.
Income taxes
------------
The Bancorp and Subsidiaries file a consolidated federal income tax
return. Income taxes are allocated based on the contribution of income
to the consolidated income tax return. Separate state income tax
returns are filed.
-31-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
- - ------------------------------------------------
Income taxes (Cont'd.)
------------
Federal and state income taxes have been provided on the basis of
reported income. The amounts reflected on the income tax returns differ
from these provisions due principally to temporary differences in the
reporting of certain items for financial reporting and tax reporting
purposes. The income tax effect of these temporary differences is
accounted for as deferred income taxes applicable to future periods.
Net income per common share
---------------------------
Basic net income per common share is computed by dividing net income
for the year by the weighted average number of shares of common stock
outstanding, adjusted for unearned shares of the ESOP. Diluted net
income per common share is computed by adjusting the weighted average
number of shares of common stock outstanding to include the effect of
outstanding stock options and compensation grants, if dilutive, using
the treasury stock method. For 1998, per share amounts were calculated
based upon income for the entire year 1998, although the Bank converted
to stock form on October 2, 1998, and the weighted average number of
shares outstanding since October 2, 1998 as if such shares were
outstanding during all of 1998.
Reclassification
----------------
Certain amounts as of and for the year ended December 31, 1998 and 1997
have been reclassified to conform with the current year's presentation.
2. REORGANIZATION AND STOCKHOLDERS' EQUITY
- - --------------------------------------------
The Bancorp is a business corporation formed at the direction of the Bank under
the laws of the United States on October 2, 1998. On October 2, 1998: (i) the
Bank reorganized from a federally chartered mutual savings bank to a federally
chartered stock savings bank in the mutual holding company form of organization;
(ii) the Bank issued all of its outstanding capital stock to the Bancorp; and
(iii) the Bancorp consummated its initial public offering of common stock, par
value $.01 per share (the "Common Stock"), by selling at a price of $10.00 per
share, 1,772,898 of common stock to certain eligible account holders of the Bank
who had subscribed for such shares, by issuing 2,350,121 shares of Common Stock
to West Essex Bancorp, M.H.C. ("MHC"), a mutual holding company formed at the
direction of the Bank (collectively, the "Reorganization and Offering") and by
contributing 74,214 shares of Common Stock to West Essex Bancorp Charitable
Foundation (the "Foundation"). The MHC was initially funded with $100,000
received from the Bank. The Reorganization and Offering resulted in net proceeds
of $16.6 million, after expenses of $1.1 million. The Bancorp also established
the Foundation, which is dedicated to the communities served by the Bank. In
connection with the Reorganization and Offering, the Common Stock contributed by
the Bancorp to the Foundation at a value of $742,140, along with $100,000 in
cash, was charged to charitable contribution expense.
During the year ended December 31, 1999, the MHC waived its right to receive
cash dividends on the shares of Company common stock it owns. If MHC had not
waived its rights to receive dividends, the amount of such dividends would have
been $705,000.
-32-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. REORGANIZATION AND STOCKHOLDERS' EQUITY (Cont'd.)
- - -------------------------------------------------------
In addition to the 9,000,000 authorized shares of Common Stock, the Bancorp
authorized 1,000,000 shares of preferred stock with a par value of $0.01 per
share (the "Preferred Stock"). The Board of Directors is authorized, subject to
any limitations by law, to provide for the issuance of the shares of Preferred
Stock in series, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences,
and rights of the shares of each such series and any qualifications, limitations
or restriction thereof. As of December 31, 1999 and 1998, there were no shares
of Preferred Stock issued.
3. SECURITIES AVAILABLE FOR SALE
- - ----------------------------------
December 31, 1999
-----------------------------------------------------
Gross Unrealized
Amortized ------------------------ Carrying
Cost Gains Losses Value
---------- ---------- ---------- ----------
U.S. Government (including agencies) obligations:
Due after one year through five years ...... $1,998,280 $ 16,720 $ -- $2,015,000
Due after ten years ........................ 1,000,000 -- 91,250 908,750
---------- ---------- ---------- ----------
$2,998,280 $ 16,720 $ 91,250 $2,923,750
========== ========== ========== ==========
December 31, 1998
-----------------------------------------------------
Gross Unrealized
Amortized ------------------------ Carrying
Cost Gains Losses Value
---------- ---------- ---------- ----------
U.S. Government (including agencies) obligations:
Due after one year through five years ...... $6,983,248 $ 300,452 $ -- $7,283,700
Due after ten years ........................ 1,000,000 -- 1,250 998,750
---------- ---------- ---------- ----------
$7,983,248 $ 300,452 $ 1,250 $8,282,450
========== ========== ========== ==========
The following table presents details of sales of securities available for sale:
Year Ended December 31,
----------------------------------------------
1999 1998 1997
---------- --------- ----------
Sales proceeds ........... $5,021,875 $ -- $1,588,229
Gross gains .............. 34,515 -- --
Gross losses ............. -- -- 20,245
-33-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENT SECURITIES HELD TO MATURITY
- - -------------------------------------------
December 31, 1999
--------------------------------------------------------
Gross Unrealized
Carrying -------------------------- Estimated
Value Gains Losses Fair Value
----------- ----------- ----------- -----------
U.S. Government (including agencies):
Due after five years through ten years . $ 8,000,000 $ -- $ 229,690 $ 7,770,310
After ten years ........................ 22,856,030 106,438 1,829,053 21,133,415
----------- ----------- ----------- -----------
30,856,030 106,438 2,058,743 28,903,725
----------- ----------- ----------- -----------
Obligations of states and municipalities:
Due in one year or less ................ 150,000 -- -- 150,000
After ten years ........................ 583,074 -- 53,665 529,409
----------- ----------- ----------- -----------
733,074 -- 53,665 679,409
----------- ----------- ----------- -----------
Trust preferred securities due after ten years 9,992,899 -- 707,296 9,285,603
----------- ----------- ----------- -----------
$41,582,003 $ 106,438 $ 2,819,704 $38,868,737
=========== =========== =========== ===========
December 31, 1998
--------------------------------------------------------
Gross Unrealized
Carrying -------------------------- Estimated
Value Gains Losses Fair Value
----------- ----------- ----------- -----------
U.S. Government (including agencies):
Due in one year or less ................ $ 999,854 $ 8,896 $ -- $ 1,008,750
After one year through five years ...... 2,000,000 1,250 -- 2,001,250
After five years through ten years ..... 14,000,000 67,341 -- 14,067,341
After ten years ........................ 8,582,551 287,313 63,067 8,806,797
----------- ----------- ----------- -----------
25,582,405 364,800 63,067 25,884,138
----------- ----------- ----------- -----------
Obligations of states and municipalities:
Due in one year or less ................ 150,000 -- -- 150,000
After ten years ........................ 237,859 -- 11 237,848
----------- ----------- ----------- -----------
387,859 -- 11 387,848
----------- ----------- ----------- -----------
Trust preferred securities due after ten years 10,902,901 -- 284,151 10,618,750
----------- ----------- ----------- -----------
$ 36,873,165 $ 364,800 $ 347,229 $36,890,736
============ =========== =========== ===========
During the year ended December 31, 1999, proceeds of $1,000,000 were received
and a gain of $92,082 recorded as the result of the sale of one security. The
issuer of the security was involved in a merger/acquisition and issued a tender
offer to buy back the security at par value. There were no sales of investment
securities held to maturity during the years ended December 31, 1998 and 1997.
-34-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
- - ------------------------------------------------
December 31, 1999
------------------------------------------------------------
Gross Unrealized
Carrying ---------------------------- Estimated
Value Gains Losses Fair Value
------------ ------------ ------------ ------------
Government National Mortgage Association .... $ 51,615,620 $ 358,293 $ 212,091 $ 51,761,822
Federal Home Loan Mortgage Corporation ...... 18,781,288 67,310 272,548 18,576,050
Federal National Mortgage Association ....... 16,894,108 51,290 157,943 16,787,455
Collateralized mortgage obligations ......... 33,927,305 -- 2,250,606 31,676,699
Other ....................................... 4,994 -- -- 4,994
------------ ------------ ------------ -------------
$121,223,315 $ 476,893 $ 2,893,188 $118,807,020
============ ============ ============ =============
December 31, 1998
------------------------------------------------------------
Gross Unrealized
Carrying ---------------------------- Estimated
Value Gains Losses Fair Value
------------ ------------ ------------ ------------
Government National Mortgage Association .... $ 58,815,923 $ 684,197 $ -- $ 59,500,120
Federal Home Loan Mortgage Corporation ...... 26,698,689 323,089 3,333 27,018,445
Federal National Mortgage Association ....... 20,100,956 167,237 1,375 20,266,818
Collateralized mortgage obligations ......... 4,754,425 4,325 37,500 4,721,250
Other ....................................... 6,079 -- -- 6,079
------------ ------------ ------------ ------------
$110,376,072 $ 1,178,848 $ 42,208 $111,512,712
============ ============ ============ =============
There were no sales of mortgage-backed securities held to maturity during the
years ended December 31, 1999, 1998 and 1997.
-35-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LOANS RECEIVABLE
- - ---------------------
December 31,
--------------------------------
1999 1998
------------- --------------
Real estate mortgage:
Conventional .................... $ 136,950,614 $ 127,710,491
FHA insured and VA guaranteed ... 386,890 511,667
------------- -------------
137,337,504 128,222,158
------------- -------------
Agency for International Development .. 40,136 48,510
------------- -------------
Construction and land development ..... 3,819,271 4,393,956
------------- -------------
Consumer:
Passbook or certificate ......... 340,492 401,484
Equity .......................... 14,381,738 9,631,219
Automobile ...................... 242,641 273,888
Credit reserve .................. 33,732 31,053
------------- -------------
14,998,603 10,337,644
------------- -------------
Total loans .................. 156,195,514 143,002,268
------------- -------------
Less:
Loans in process ............. 1,885,739 1,311,520
Allowance for loan losses .... 1,400,366 1,716,790
Net deferred loan (costs) fees (366,778) (298,245)
------------- -------------
2,919,327 2,730,065
------------- -------------
$ 153,276,187 $ 140,272,203
============= =============
The Bank has granted loans to officers and directors of the Bank and to their
associates. Related party loans do not involve more than normal risk of
collectibility. The aggregate dollar amount of these loans was $1,419,000 and
$1,550,000 at December 31, 1999 and 1998, respectively. During the year ended
December 31, 1999, no new loans were granted and repayments totalled $131,000.
-36-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LOANS RECEIVABLE (Cont'd.)
- - ---------------------
Nonperforming loans consist of nonaccrual and renegotiated loans. Nonaccrual
loans are those on which income under the accrual method has been discontinued
with subsequent interest payments credited to interest income when received, or
if ultimate collectibility of principal is in doubt, applied as principal
reductions. Renegotiated loans are loans whose contractual interest rates have
been reduced or where other significant concessions have been made due to a
borrower's financial difficulties. Interest on renegotiated loans is accrued to
interest income.
Nonperforming loans were as follows:
December 31,
--------------------------------------
1999 1998 1997
------ ------ ------
(In Thousands)
Nonaccrual ..................... $ 792 $2,084 $2,413
Renegotiated ................... 92 94 94
------ ------ ------
$ 884 $2,178 $2,507
====== ====== ======
The impact of nonperforming loans on interest income is as follows:
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Interest income if performing in accordance with original terms $ 70 $191 $234
Interest income actually recorded ............................. 47 29 57
---- ---- ----
Interest income lost .......................................... $ 23 $162 $177
==== ==== ====
The following is an analysis of the allowance for loan losses:
Year Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
Balance - beginning ....................... $ 1,716,790 $ 1,885,021 $ 1,563,991
Provision (credited) charged to operations -- (130,630) 487,015
Loans charged off to allowance ............ (316,424) (37,601) (165,985)
----------- ----------- -----------
$ 1,400,366 $ 1,716,790 $ 1,885,021
=========== =========== ===========
-37-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LOANS RECEIVABLE (Cont'd.)
- - ---------------------
Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows:
December 31,
---------------------
1999 1998
------- -------
(In Thousands)
Recorded investment in impaired loans:
With recorded allowances ....................... $ 189 $1,159
Without recorded allowances .................... -- 303
------ ------
Total impaired loans ................... 189 1,462
Related allowance for loan losses .............. 35 442
------ ------
Net impaired loans ..................... $ 154 $1,020
====== ======
For the years ended December 31, 1999, 1998 and 1997, the average recorded
investment in impaired loans totalled $647,000, $1,537,000 and $1,916,000,
respectively. During the years ended December 31, 1999, 1998 and 1997, interest
income of $147,000, $ - 0 - and $ - 0 - , respectively, was recognized on such
loans, all on the cash basis, during the time each loan was impaired.
7. REAL ESTATE OWNED
- - ----------------------
December 31,
---------------------
1999 1998
-------- ---------
Acquired in settlement of loans .............. $899,738 $582,138
Allowance for losses ......................... -- --
-------- ---------
$899,738 $ 582,138
======== =========
The following is an analysis of the allowance for losses:
Year Ended December 31,
-------------------------------------
1999 1998 1997
---------- --------- ---------
Balance - beginning ............ $ -- $ 174,000 $ 98,000
Provisions charged to operations -- 130,630 372,985
Losses charged to allowance .... -- (304,630) (296,985)
---------- --------- ---------
Balance - ending ............... $ -- $ -- $ 174,000
========== ========= =========
-38-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. REAL ESTATE OWNED (Cont'd.)
- - ----------------------
The following is an analysis of the (loss) on real estate owned:
Year Ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
Gain on sale, net .................. $ -- $ 5,386 $ 30,080
Carrying costs, net of rental income (41,891) (15,033) (36,965)
Provision for losses ............... -- (130,630) (372,985)
--------- --------- ---------
$ (41,891) $(140,277) $(379,870)
========= ========= =========
8. PREMISES AND EQUIPMENT
- - ---------------------------
December 31,
----------------------------
1999 1998
---------- ----------
Land ....................................... $ 979,315 $ 979,315
---------- ----------
Buildings and improvements ................. 2,171,300 2,171,300
Less accumulated depreciation .............. 933,255 858,469
---------- ----------
1,238,045 1,312,831
---------- ----------
Leasehold improvements ..................... 112,754 112,754
Less accumulated amortization .............. 112,136 111,077
---------- ----------
618 1,677
---------- ----------
Furnishings and equipment .................. 2,678,794 2,654,522
Less accumulated depreciation .............. 2,159,316 2,000,971
---------- ----------
519,478 653,551
---------- ----------
$2,737,456 $2,947,374
========== ==========
-39-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. ACCRUED INTEREST RECEIVABLE
- - --------------------------------
December 31,
------------------------
1999 1998
---------- ----------
Loans .......................................... $ 770,427 $ 736,133
Mortgage-backed securities ..................... 697,578 661,895
Investments and other interest-earning assets .. 549,467 620,352
---------- ----------
2,017,472 2,018,380
Less allowance for uncollected interest on loans 11,909 13,571
---------- ----------
$2,005,563 $2,004,809
========== ==========
10. EXCESS OF COST OVER ASSETS ACQUIRED
- - -----------------------------------------
On October 17, 1997, the Bank acquired three branch locations from another
financial institution. The amounts related to the transaction are reflected
separately in the consolidated statement of cash flows for the year ended
December 31, 1997. The $7,571,946 excess of cost over assets acquired initially
recorded was based upon the amount of deposits the Bank had acquired. The
deposits purchased declined at a rate significantly in excess of that expected
before stabilizing by December 31, 1997. Management performed a reassessment of
the carrying value of this asset and, as a result, a loss of $1,585,313 was
recorded. Such loss is included in "Amortization of intangibles" in the
consolidated statement of income for the year ended December 31, 1997.
11. DEPOSITS
- - -------------
December 31,
-----------------------------------------------------------------------------
1999 1998
-------------------------------------- ------------------------------------
Weighted Weighted
Average Average
Rate Amount Percent Rate Amount Percent
---- ------ ------- ---- ------ -------
Demand accounts:
Non-interest-bearing ........ 0.00% $ 16,011,384 6.81 0.00% $ 16,142,250 6.77
Interest-bearing ............ 1.39% 21,091,606 8.98 1.30% 20,695,238 8.69
------------ ----- ------------ -----
0.79% 37,102,990 15.79 0.73% 36,837,488 15.46
Savings and club accounts .......... 2.04% 57,735,315 24.57 2.52% 60,306,242 25.30
Certificates of deposit ............ 5.05% 140,139,507 59.64 5.26% 141,169,211 59.24
------------ ----- ------------ -----
3.64% $234,977,812 100.00 3.87% $238,312,941 100.00
============ ====== ============ ======
The amount of certificates of deposit with balances of $100,000 or more at
December 31, 1999 and 1998 were approximately $18,156,000 and $17,656,000,
respectively.
-40-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. DEPOSITS (Cont'd.)
- - -------------------------
The scheduled maturities of certificates of deposit are as follows (in
thousands):
December 31,
--------------------------
1999 1998
-------- ---------
One year or less ........................... $111,800 $118,317
After one to three years ................... 24,400 19,572
After three years .......................... 3,940 3,280
-------- --------
$140,140 $141,169
======== ========
A summary of interest on deposits is as follows (in thousands):
Year Ended December 31,
-----------------------------------
1999 1998 1997
------ ------ ------
Demand accounts ...................... $ 284 $ 339 $ 293
Savings and club accounts ............ 1,210 1,672 1,357
Certificates of deposit .............. 7,090 7,736 6,439
------ ------ ------
$8,584 $9,747 $8,089
====== ====== ======
-41-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BORROWED MONEY
- - --------------------
December 31,
--------------------------------------------------------------
1999 1998
------------------------- --------------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
---- ------ ---- ------
Securities sold under agreements to
to repurchase maturing within one year ...... 5.80% $ 6,000,000 --% $ --
Convertible advances (a):
due May 14, 2001 ........................ --% -- 5.55% 2,000,000
due November 13, 2006 ................... 5.90% 5,000,000 --% --
due March 24, 2008 ...................... 5.33% 10,000,000 5.33% 10,000,000
due March 25, 2008 ...................... 5.59% 10,000,000 5.59% 10,000,000
due May 12, 2008 ........................ 5.23% 3,000,000 5.23% 3,000,000
due March 24, 2009 ...................... 5.42% 5,000,000 -- % --
Monthly amortizing advances:
Payable in 37 monthly principal
and interest installments of $96,286 and
a final payment of $192,818 on
February 24, 2003 ...................... 5.84% 3,412,916 5.84% 4,339,572
Payable in 97 monthly principal
and interest installments of $55,591 and
a final payment of $111,347 on
February 25, 2008 ...................... 6.03% 4,327,199 6.03% 4,720,308
Term advances maturing during:
1999 --% -- 6.50% 4,350,000
2000 6.40% 1,600,000 6.99% 600,000
2001 6.27% 1,000,000 -- % --
2002 6.42% 1,000,000 -- % --
2003 6.55% 1,000,000 -- % --
2004 5.60% 10,000,000 -- % --
2008 5.55% 3,000,000 5.55% 3,000,000
----------- -----------
5.66% $64,340,115 5.69% $42,009,880
=========== ===========
(a) Convertible at lender option to replacement funding at then current rates
on February 12, 1999, November 12, 2002, March 24, 2001, March 25, 2003,
May 12, 1999 and March 24, 2004, respectively, and quarterly thereafter.
During 1999, the lender exercised its option on the advance due May 14,
2001 and the Bank chose to repay the advance.
Certain information concerning borrowed money is summarized as follows:
Year Ended December 31,
-------------------------------
1999 1998 1997
------- ------- -------
(Dollars in Thousands)
Average balance outstanding ................ $57,756 $42,364 $26,223
Maximum month-end balance outstanding ...... 65,453 52,145 43,675
Average interest rate ...................... 5.67% 5.84% 5.97%
-42-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BORROWED MONEY (Cont'd.)
- - ---------------------
The foregoing borrowings were secured by pledges of the Bank's investment in the
following:
December 31,
---------------------
1999 1998
------- -------
(In Thousands)
FHLB capital stock ................................. $ 3,273 $ 2,677
Mortgage-backed securities held to maturity ........ 51,596 53,785
Investment securities held to maturity ............. 19,847 --
Securities available for sale ...................... 2,015 --
------- -------
$76,731 $56,462
======= =======
13. REGULATORY CAPITAL
- - ------------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the Bank.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to adjusted total assets (as defined). The following
tables present a reconciliation of capital per generally accepted accounting
principles ("GAAP") and regulatory capital and information as to the Bank's
capital levels at the dates presented:
December 31,
-----------------------
1999 1998
-------- --------
(In Thousands)
GAAP capital ....................................... $ 41,187 $ 38,428
Less: excess of cost over assets acquired .......... (4,643) (5,236)
Less: unrealized loss (gain) on debt securities .... 48 (192)
-------- --------
Core and tangible capital .......................... 36,592 33,000
Add: loan valuation allowance, as limited .......... 1,400 1,500
-------- --------
Total regulatory capital .................... $ 37,992 $ 34,500
======== ========
-43-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. REGULATORY CAPITAL (Cont'd.)
- - ------------------------
As of December 31, 1999
----------------------------------------------------------------------
To Be Well
Capitalized
Under prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
----------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Total Capital
(to risk-weighted assets) $37,992 28.55% $10,645 8.00% $13,306 10.00%
Tier 1 Capital
(to risk-weighted assets) 36,592 27.50% - - 7,983 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 36,592 10.69% 13,693 4.00% 17,116 5.00%
Tangible Capital
(to adjusted total assets) 36,592 10.69% 5,135 1.50% - -
As of December 31, 1999
----------------------------------------------------------------------
To Be Well
Capitalized
Under prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
----------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Total Capital
(to risk-weighted assets) $34,500 28.81% $ 9,580 8.00% $11,975 10.00%
Tier 1 Capital
(to risk-weighted assets) 33,000 27.56% - - 7,185 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 33,000 10.44% 12,649 4.00% 15,811 5.00%
Tangible Capital
(to adjusted total assets) 33,000 10.44% 4,743 1.50% - -
As of March 31, 1999, the most recent notification from the OTS, the Bank was
categorized as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.
-44-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. BENEFIT PLANS
- - -----------------
Pension Plan
------------
The Bank has a non-contributory pension plan covering all eligible
employee. The plan is a defined benefit plan which provides benefits
based on a participant's years of service and compensation. The Bank's
funding policy is to contribute annually the maximum amount that can be
deducted for federal income tax purposes.
The following table sets forth the plan's funded status:
December 31,
---------------------------
1999 1998
------------ -----------
Actuarial present value of benefit obligation, including
vested benefits of $2,668,704 and $2,977,510, respectively $ 2,704,530 $ 3,016,288
=========== ===========
Projected benefit obligation - beginning .................... $ 3,622,467 $ 3,257,644
Service cost ................................................ 151,864 116,891
Interest cost ............................................... 233,456 217,015
Actuarial (gain) loss ....................................... (581,255) 132,101
Benefits paid ............................................... (100,372) (97,951)
Settlements ................................................. (41,848) (3,233)
----------- -----------
Projected benefit obligation - ending ....................... 3,284,312 3,622,467
----------- -----------
Plan assets at fair value - beginning ....................... 3,393,200 2,984,086
Actual return on assets ..................................... 474,093 367,471
Employer's contributions .................................... 125,466 142,827
Benefits paid ............................................... (100,372) (97,951)
Settlements ................................................. (41,848) (3,233)
----------- -----------
Plan assets at fair value - ending .......................... 3,850,539 3,393,200
----------- -----------
Funded status ............................................... 566,227 (229,267)
Unrecognized net transition obligation ...................... 126,582 158,227
Unrecognized past service cost .............................. 61,386 70,937
Unrecognized net gain ....................................... (973,632) (156,686)
----------- -----------
Accrued pension cost included in other liabilities .......... $ (219,437) $ (156,789)
=========== ===========
Included in the $973,632 unrecognized gain at December 31, 1999 is
$600,604 related to the change in assumptions used to value the plan.
See the second succeeding table for such assumptions.
The following table sets forth the components of net periodic pension
cost:
Year Ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
Net periodic pension cost
included the following components:
Service cost ............................ $ 151,864 $ 116,891 $ 109,752
Interest cost ........................... 233,456 217,015 206,416
Expected return on plan assets .......... (238,402) (210,282) (180,400)
Amortization of net transition obligation 31,645 31,645 31,645
Amortization of past service cost ....... 9,553 9,553 9,553
--------- --------- ---------
Net periodic pension cost
included in salaries and employee benefits . $ 188,116 $ 164,822 $ 176,966
========= ========= =========
-45-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. BENEFIT PLANS
- - -----------------
Pension Plan (Cont'd.)
------------
Assumptions used to value the pension plan were as follows:
December 31,
--------------------------------------------------
1999 1998 1997
---- ---- ----
Discount rate 8.00% 6.50% 6.75%
Expected long-term rate of return 8.00% 7.00% 7.00%
Rate of increase in compensation levels 5.50% 4.50% 4.50%
ESOP
----
Effective upon the consummation of the Bank's reorganization, an ESOP
was established for all eligible employees who had completed a
twelve-month period of employment with the Bank and at least 1,000
hours of service and had attained the age of 21. The ESOP used
$1,473,854 in proceeds from a term loan obtained from the Bancorp to
purchase 147,768 shares of Bancorp common stock in the open market. The
term loan principal is payable over ten equal annual installments
through December 31, 2007. Interest on the term loan is fixed at a rate
of 8.25%. Each year, the Bank intends to make discretionary
contributions to the ESOP which will be equal to principal and interest
payments required on the term loan. The loan is further paid down by
the amount of dividends paid, if any, on the common stock owned by the
ESOP.
Shares purchased with the loan proceeds were initially pledged as
collateral for the term loan and are held in a suspense account for
future allocation among participants. Contributions to the ESOP and
shares released from the suspense account will be allocated among the
participants on the basis of compensation, as described by the Plan, in
the year of allocation.
The ESOP is accounted for in accordance with Statement of Position 93-6
"Accounting for Employee Stock Ownership Plans", which was issued by
the American Institute of Certified Public Accountants in November
1993. Accordingly, the ESOP shares pledged as collateral are reported
as unearned ESOP shares in the consolidated statements of financial
condition. As shares are committed to be released from collateral, the
Bank reports compensation expense equal to the current market price of
the shares, and the shares become outstanding for basic net income per
common share computations. ESOP compensation expense was $141,419 and
$146,554 for the years ended December 31, 1999 and 1998, respectively.
The ESOP shares were as follows:
December 31,
----------------------------
1999 1998
---------- ----------
Allocated shares ........................... 29,554 14,777
Shares committed to be released ............ -- --
Unreleased shares .......................... 118,214 132,991
---------- ----------
Total ESOP shares .......................... 147,768 147,768
========== ==========
Fair value of unreleased shares ............ $1,108,256 $1,255,103
========== ==========
-46-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. BENEFIT PLANS (Cont'd.)
- - ----------------------------
ESOP (Cont'd.)
---------------
In addition to the above, the Bancorp has established a supplemental
benefit plan to offset the ESOP benefit reduction applicable to certain
members of Bancorp management due to limitations imposed by the
Internal Revenue Code. The amount expensed related to this plan
totalled approximately $15,000 for each of the years ended December 31,
1999 and 1998. The 1998 liability was settled via the issuance of 1,624
shares of Bancorp common stock during the year ended December 31, 1999.
The Bancorp plans to settle the 1999 liability in the same manner.
1999 Stock-Based Incentive Plan (the "Incentive Plan")
------------------------------------------------------
In April 1999, the Bancorp's stockholders approved, and the Bancorp
implemented the Incentive Plan. Under the Incentive Plan, employees of
the Bancorp and it's subsidiaries may be awarded up to 73,884 shares of
Bancorp common stock (the "Stock Awards") and issued options to
purchase up to 184,711 shares of Bancorp common stock (the "Stock
Options"). Additional information on the Stock Awards and Stock Options
is contained in the succeeding paragraphs.
Stock Awards
------------
Stock Awards under the Incentive Plan are granted in the form of
Bancorp common stock, which are held by the Incentive Plan Trust, and
vest over a period of five years (20% annually from the date of grant).
The Stock Awards become fully vested upon the death or disability of
the holder. On April 30, 1999, the Bancorp awarded 65,756 shares of its
common stock (47,286 shares to employees and 18,470 shares to outside
directors). At December 31, 1999, none of the Stock Awards were vested
and up to 8,128 shares are available for future grants. During the year
ended December 31, 1999, approximately $83,000 in expense related to
the Stock Awards was recorded. The amount of expense recorded for the
Stock Awards is based upon the number of shares awarded, the market
price of the Bancorp's common stock at the grant date ($9.50 per share)
and the period over which the Stock Awards are earned (60 months).
Stock Options
-------------
Stock Options granted under the Incentive Plan may be either options
that qualify as incentive stock options as defined in Section 422 of
the Internal Revenue Code of 1986, as amended, or non-statutory
options. Options granted will vest and will be exercisable on a
cumulative basis in equal installments at the rate of 20% per year
commencing one year from the date of grant. All options granted will be
exercisable in the event the optionee terminates his employment due to
death or disability. The options expire ten years from the date of
grant.
On April 30, 1999, options to purchase 176,048 shares of Bancorp common
stock were granted, which include non-incentive stock options to
directors and incentive stock options to officers and employees. The
options granted, none of which were exercised during 1999 or
exercisable at December 31, 1999, are summarized as follows:
-47-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. BENEFIT PLANS (Cont'd.)
- - ----------------------------
Stock Options (Cont'd.)
------------------------
Shares Weighted
-------------------------------------- Average
Non- Exercise Exercise
Incentive Incentive Total Price Price
--------- --------- ----- ----- -----
46,855 129,193 176,048 $ 9.50 $ 9.50
====== ======= ======= ======== ========
At December 31, 1999, stock options for up to 8,663 shares of Bancorp
common stock remain available for future grants.
The Bancorp, as permitted by Statement No. 123, recognizes compensation
cost for stock options granted based on the intrinsic value method
instead of the fair value based method. The weighted-average grant-date
fair value of the stock options granted during 1999, which have an
exercise price equal to the market price of the Bancorp's common stock
at the grant date, is estimated using the Black-Scholes option-pricing
model. Such fair value and the assumptions used for estimating fair
value are as follows:
Weighted average grant-date fair value per share $2.54
Expected common stock dividend yield 3.16%
Expected volatility 27.66%
Expected option life 6.5 years
Risk-free interest rate 5.36%
Had the Bancorp used the fair value based method, net income for the
year ended December 31, 1999 would have been decreased to $3,005,000
and both basic and diluted net income per common share would have been
reduced to $0.75 for the year ended December 31, 1999.
15. INCOME TAXES
- - -----------------
The Bank qualifies as a Savings Institution under the provisions of the Internal
Revenue Code and, therefore, must calculate its bad debt deduction using either
the experience method or the specific charge off method. Retained earnings at
December 31, 1999, include approximately $6.8 million of such bad debt allowance
for which federal income taxes have not been provided. If such amount is used
for purposes other then for bad debt losses, including distributions in
liquidation, it will be subject to income tax at the then current rate.
-48-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INCOME TAXES (Cont'd.)
- - ----------------------------
The components of income taxes are summarized as follows:
Year Ended December 31,
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
Current tax expense:
Federal income ............. $ 1,336,166 $ 676,231 $ 1,066,590
State income ............... 107,392 87,750 95,024
----------- ----------- -----------
1,443,558 763,981 1,161,614
----------- ----------- -----------
Deferred tax expense (benefit):
Federal income ............. 192,560 (6,746) (664,857)
State income ............... 27,265 (5,198) (60,478)
----------- ----------- -----------
219,825 (11,944) (725,335)
----------- ----------- -----------
$ 1,663,383 $ 752,037 $ 436,279
=========== =========== ===========
The components of the net deferred income tax asset are as follows:
December 31,
-------------------------
1999 1998
---------- -----------
Deferred tax assets:
Allowance for loan losses ......................... $ 501,162 $ 650,010
Benefit plans ..................................... 134,307 49,569
Goodwill .......................................... 645,052 610,762
Charitable contribution carryforward .............. 62,394 209,717
Unrealized loss on securities available for sale .. 26,816 --
Other ............................................. 18,250 19,142
---------- ----------
Total deferred tax assets ..................... 1,387,981 1,539,200
---------- ----------
Deferred tax liabilities:
Deferred loan origination fees, net ............... 188,407 162,415
Unrealized gain on securities available for sale .. -- 107,653
Other ............................................. 17,196 1,398
---------- ----------
Total deferred tax liabilities ................ 205,603 271,466
---------- ----------
Net deferred tax asset included in other assets $1,182,378 $1,267,734
========== ==========
Refundable income taxes totalling $121,575 and $129,079 are included in other
assets at December 31, 1999 and 1998, respectively. Income taxes payable
totalling $76,687 and $1,754 are included in other liabilities at December 31,
1999 and 1998, respectively.
-49-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INCOME TAXES (Cont'd.)
- - ----------------------------
The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:
Year Ended December 31,
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
Federal income tax ............................ $ 1,600,289 $ 730,775 $ 398,860
Increases (reductions) in taxes resulting from:
New Jersey savings institution tax,
net of federal income tax effect ......... 88,814 54,484 22,800
Other items, net .......................... (25,720) (33,222) 14,619
----------- ----------- -----------
Effective income tax .......................... $ 1,663,383 $ 752,037 $ 436,279
=========== =========== ===========
16. NET INCOME PER COMMON SHARE
- - ---------------------------------
Year Ended December 31, 1999
----------------------------------------
Weighted
Net Average Per Share
Income Shares Amounts
------ ------ -------
Basic net income per share ......... $3,043,349 4,004,069 $ 0.76
========
Effect of dilutive securities:
Stock options ................ -- 2,681
Unearned Incentive Plan shares -- 1,001
---------- --------- --------
Diluted net income per share ....... $3,043,349 4,007,751 $ 0.76
========== ========= ========
Year Ended December 31, 1998
-------------------------------------------
Weighted
Net Average Per Share
Income Shares (1) Amounts (1)
------ ---------- -----------
Basic and diluted net income per share $1,397,300 4,062,395 $ 0.34
========== ========= ========
(1) West Essex Bank converted to stock form on October 2, 1998. Amounts
have been calculated based upon net income for the entire year ended
December 31, 1998 and as if the conversion took place on January 1,
1998.
-50-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. COMMITMENTS AND CONTINGENCIES
- - ----------------------------------
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments primarily include commitments to extend credit. Such instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated statements of financial condition.
The contractual amounts of these instruments reflect the extent of involvement
the Bank has in those particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
At December 31, 1999 and 1998, the Bank had $5,134,000 and $7,209,000,
respectively, in outstanding commitments to originate and purchase loans. The
outstanding commitments at December 31, 1999 include $530,000 for fixed rate
mortgage loans with an interest rate of 7.875%, $2,923,000 for adjustable rate
mortgage loans with initial rates ranging from 7.00% to 7.375%, $256,000 for
home equity loans at fixed rates ranging from 7.25% to 7.50%, $125,000 for
floating rate equity lines of credit with initial rates of 7.75% to 8.00% and
$1,300,000 for purchases of loan participations, consisting of a $300,000
adjustable rate loan on which the initial rate will be fixed at funding for five
years at 1.60% above the Federal Home Loan Bank CIP advance rate and will adjust
every fifth year thereafter and a $1,000,000 construction loan which will carry
a floating interest rate of 0.375% above the prime rate.
At December 31, 1999 and 1998, undisbursed funds from approved lines of credit
under a homeowners' equity lending program amounted to approximately $5,001,000
and $4,970,000, respectively. Unless they are specifically cancelled by notice
from the Bank, these funds represent firm commitments available to the
respective borrowers on demand. The interest rate charged for any month on funds
disbursed under the program ranges from 0.50% below to 1.75% above the prime
rate published in The Wall Street Journal on the last day of the preceding
month.
At December 31, 1999 and 1998, undisbursed funds from approved unsecured lines
of credit under the Credit Reserve program totalled $79,000 and $75,000,
respectively. Funds drawn on these lines are assessed interest at a rate of
15.00%.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but primarily
includes commercial and residential real estate.
At December 31, 1999, the Bank was committed to purchase a $246,000
participation in a Federal National Mortgage Association mortgage-backed
security, the terms of which have not yet been determined.
-51-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. COMMITMENTS AND CONTINGENCIES (Cont'd.)
- - ---------------------------------------------
Rentals under a long-term operating lease for a branch office amounted to
approximately $57,000, $49,000 and $50,000 for the years ended December 31,
1999, 1998 and 1997, respectively. At December 31, 1999, the minimum rental
commitment under this noncancellable lease expiring in October, 2003 is
$214,000, consisting of $56,000 for each of the years 2000 through 2002 and
$46,000 for 2003.
The Bank also has, in the normal course of business, commitments for services
and supplies. Management does not anticipate losses on any of these
transactions.
The Bank is a party to various litigation which arises primarily in the ordinary
course of business. In the opinion of management, the ultimate disposition of
such litigation should not have a material effect on the consolidated financial
position or operations of the Bancorp.
18. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
- - ---------------------------------------------------
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale. Significant estimations were used for
the purposes of this disclosure. Estimated fair values have been determined
using the best available data and estimation methodology suitable for each
category of financial instruments. For those loans and deposits with floating
interest rates, it is presumed that estimated fair values generally approximate
their recorded book balances. The estimation methodologies used and the
estimated fair values and carrying values of the Bank's financial instruments
are set forth below:
Cash and cash equivalents and accrued interest receivable
---------------------------------------------------------
The carrying amounts for cash and cash equivalents and accrued interest
receivable approximate fair value.
Securities
----------
The fair values for securities available for sale, investment
securities held to maturity and mortgage-backed securities held to
maturity are based on quoted market prices or dealer prices, if
available. If quoted market prices or dealer prices are not available,
fair value is estimated using quoted market prices or dealer prices for
similar securities.
Loans
-----
The fair value of loans is estimated by discounting future cash flows,
using the current rates at which similar loans with similar remaining
maturities would be made to borrowers with similar credit ratings.
-52-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)
- - --------------------------------------------------------------
Deposits
--------
For demand, savings and club accounts, fair value is the carrying
amount reported in the consolidated financial statements. For
certificates of deposit, fair value is estimated by discounting future
cash flows, using rates currently offered for deposits of similar
remaining maturities.
Borrowed money
--------------
Fair value is estimated using rates currently offered for liabilities
of similar remaining maturities, or when available, quoted market
prices.
Commitments to extend credit
----------------------------
The fair value of credit commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates.
The carrying values and estimated fair values of financial instruments
are as follows (in thousands):
December 31,
---------------------------------------------------
1999 1998
------------------------- ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------ ----------- ----------- -----------
Financial assets
----------------
Cash and cash equivalents $12,746 $12,746 $16,371 $16,371
Securities available for sale 2,924 2,924 8,282 8,282
Investment securities held to maturity 41,582 38,869 36,873 36,891
Mortgage-backed securities held to maturity 121,223 118,807 110,376 111,513
Loans receivable 153,276 153,454 140,272 145,855
Accrued interest receivable 2,006 2,006 2,005 2,005
Financial liabilities
---------------------
Deposits 234,978 235,892 238,313 239,702
Borrowed money 64,340 60,032 42,010 41,843
Commitments
-----------
Loan origination and purchase 5,134 5,134 7,209 7,209
Unused lines of credit 5,080 5,080 5,045 5,045
Security purchase 246 246 2,500 2,500
-53-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)
- - --------------------------------------------------------------
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the entire holdings of a particular financial instrument.
Because no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature, involve uncertainties and matters of judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
In addition, fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business, and exclude the value of assets and liabilities that are not
considered financial instruments. Other significant assets and liabilities that
are not considered financial assets and liabilities include premises and
equipment, real estate owned and advance payments by borrowers for taxes and
insurance. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.
19. PARENT ONLY FINANCIAL INFORMATION
- - ---------------------------------------
West Essex Bancorp, Inc. operates its wholly owned subsidiary, West Essex Bank.
The earnings of the subsidiary are recognized by the holding company using the
equity method of accounting. Accordingly, earnings of the subsidiary are
recorded as increases in the investment in the subsidiary. The following are the
condensed financial statements for West Essex Bancorp, Inc. (Parent company
only).
-54-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. PARENT ONLY FINANCIAL INFORMATION (Cont'd.)
- - --------------------------------------------------
STATEMENTS OF CONDITION
-----------------------
December 31,
---------------------------
1999 1998
----------- -----------
Assets:
Cash and due from banks ................ $ 10,904 $ 95,743
Interest-bearing deposits .............. 1,372,748 5,855,678
Securities held to maturity ............ 1,057,907 907,315
Loan receivable from the Bank .......... 4,391,828 1,294,464
Real estate owned ...................... 135,000 --
Investment in subsidiaries ............. 41,186,716 38,427,846
Other assets ........................... 91,362 213,911
----------- -----------
Total assets .................... $48,246,465 $46,794,957
=========== ===========
Liabilities:
Due to subsidiaries .................... $ 1,045,914 $ 39,149
Other liabilities ...................... 173,896 1,754
----------- -----------
1,219,810 40,903
Stockholders' equity ........................... 47,026,655 46,754,054
----------- -----------
Total liabilities and stockholders' equity ..... $48,246,465 $46,794,957
=========== ===========
-55-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. PARENT ONLY FINANCIAL INFORMATION (Cont'd.)
- - --------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
From Inception
Year Ended October 2, 1998
December 31, to December 31,
1999 1998
----------- ----------
Dividend from the Bank ................................ $ -- $ 100,000
Interest income ....................................... 433,046 73,912
Gain on disposition of security ....................... 92,082 --
---------- ----------
Total income ........................... 525,128 173,912
---------- ----------
Charitable contributions .............................. -- 842,140
Other expenses ........................................ 179,841 4,259
---------- ----------
Total expenses ......................... 179,841 846,399
---------- ----------
Income (loss) before income tax (benefit) and equity in
undistributed earnings of subsidiaries ............. 345,287 (672,487)
Income tax (benefit) .................................. 125,405 (261,251)
---------- ----------
Income (loss) before equity in undistributed
earnings of subsidiaries ............................ 219,882 (411,236)
Equity in undistributed
earnings of subsidiaries ............................ 2,823,467 329,268
---------- ----------
Net income (loss) ..................................... $3,043,349 $ (81,968)
========== ==========
-56-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. PARENT ONLY FINANCIAL INFORMATION (Cont'd.)
- - --------------------------------------------------
STATEMENT OF CASH FLOWS
Year Ended October 2, 1998
December 31, to December 31,
1999 1998
------------ ---------------
Cash flows from operating activities:
Net income (loss) ................................................ $ 3,043,349 $ (81,968)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Accretion of discount ..................................... (603) (525)
Gain on disposition of security ........................... (92,082) --
Deferred income taxes ..................................... 152,937 (209,717)
Contribution of common stock to foundation ................ -- 742,140
Other, net ................................................ (49,464) 36,709
Equity in undistributed earnings of subsidiaries .......... (2,823,467) (329,268)
---------- ----------
Net cash provided by operating activities .......... 230,670 157,371
---------- ----------
Cash flows from investing activities:
Purchase of securities held to maturity .......................... -- (906,790)
Proceeds from disposition of security ............................ 1,000,000 --
Increase in loan receivable from Bank ............................ (3,097,364) (1,294,464)
Purchase of real estate owned from subsidiary .................... (135,000) --
---------- ----------
Net cash (used in) investing activities ............ (2,232,364) (2,201,254)
---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock ....................... -- 7,995,304
Purchase of treasury stock ....................................... (1,453,094) --
Purchase of incentive plan stock ................................. (738,840) --
Cash dividends paid to stockholders .............................. (374,141) --
---------- ----------
Net cash (used in ) provided by financing activities (2,566,075) 7,995,304
---------- ----------
Net (decrease) increase in cash and cash equivalents ..................... (4,567,769) 5,951,421
Cash and cash equivalents - beginning .................................... 5,951,421 --
---------- ----------
Cash and cash equivalents - ending ....................................... $ 1,383,652 $ 5,951,421
=========== ===========
-57-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
- - ------------------------------------------
Quarter Ended
---------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
---- ---- ---- ----
(In thousands, except for per share amounts)
........................
Total interest income ...... $5,559 $5,711 $5,746 $5,735
Total interest expense ..... 2,825 3,004 3,013 3,018
------ ------ ------ ------
Net interest income ........ 2,734 2,707 2,733 2,717
Provision for loan losses .. -- -- -- --
Non-interest income ........ 157 174 128 226
Non-interest expenses ...... 1,716 1,737 1,652 1,765
Income taxes ............... 423 410 426 404
------ ------ ------ ------
Net income ................. $ 752 $ 734 $ 783 $ 774
====== ====== ====== ======
Net income per common share:
Basic .................. $0.185 $0.180 $0.195 $0.200
Diluted ................ 0.185 0.180 0.195 0.200
Weighted average number of
common shares outstanding:
Basic .................. 4,066 4,070 4,010 3,871
Diluted ................ 4,066 4,070 4,018 3,877
Quarter Ended
---------------------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
---- ---- ---- ----
(In thousands, except for per share amounts)
Total interest income .................... $ 5,115 $ 5,342 $ 5,460 $ 5,398
Total interest expense ................... 2,870 3,117 3,216 3,016
------- ------- ------- -------
Net interest income ...................... 2,245 2,225 2,244 2,382
(Recapture of) loan losses ............... (22) -- (19) (90)
Non-interest income ...................... 140 121 133 135
Non-interest expenses .................... 1,636 1,607 1,632 2,732
Income taxes ............................. 260 257 278 (43)
------- ------- ------- -------
Net income (loss) ........................ $ 511 $ 482 $ 486 $ (82)
======= ======= ======= =======
Net income (loss) per common share - basic
and diluted ............................ N/A (1) N/A (1) N/A (1) $(0.020)
======= ======= ======= =======
Weighted average number of
common shares outstanding -
basic and diluted ...................... N/A (1) N/A (1) N/A (1) 4,062 (1)
======= ======= ======= ===========
(1) Converted to stock form on Otober 2, 1998.
-58-
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. IMPACT OF NEW ACCOUNTING STANDARDS
- - ----------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statements of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative (that
is, gains and losses) depends on the intended use of the derivative and the
resulting designation.
At the date of initial application of SFAS No. 133, an entity may transfer any
held-to-maturity security into the available-for-sale category or the trading
category. An entity will then be able in the future to designate a security
transferred into the available-for-sale category as the hedged item, or its
variable interest payments as the cash flow hedged transactions, in a hedge of
the exposure to changes in market interest rates, changes in foreign currency
exchange rates, or changes in the overall fair value. (SFAS No. 133 precludes a
held-to-maturity security from being designated as the hedged item in a fair
value hedge of market interest rate risk or the risk of changes in its overall
fair value and precludes the variable cash flows of a held-to-maturity security
from being designated as the hedged transaction in a cash flow hedge of market
interest rate risk). SFAS No. 133 provides that such transfers from the
held-to-maturity category at the date of initial adoption shall not call into
question an entity's intent to hold other debt securities to maturity in the
future.
SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000, the quarter ended March 31, 2001 for the Bancorp and
subsidiaries. Initial application shall be as of the beginning of an entity's
fiscal quarter. Earlier application of all of the provisions of SFAS No. 133 is
permitted only as of the beginning of a fiscal quarter. Earlier application of
selected provisions or retroactive application of provisions of SFAS No. 133 are
not permitted.
Management of the Bancorp and subsidiaries has not yet determined when SFAS No.
133 will be implemented, but does not believe the ultimate implementation of
SFAS No. 133 will have a material impact on their consolidated financial
position or results of operations.
-59-
WEST ESSEX BANCORP, INC.
- - ------------------------
Corporate Headquarters
417 Bloomfield Avenue
Caldwell, New Jersey 07006
(973) 226-7911
Bank Branch Offices
Montville
267 Changebridge Road
Pine Brook, NJ 07058
(973) 575-7080
Franklin Lakes
574 Franklin Avenue
Franklin Lakes, NJ 07417
(201) 891-5500
Northvale
119 Paris Avenue
Northvale, NJ 07647
(201) 768-7800
Old Tappan
207 Old Tappan Road
Old Tappan, NJ 07675
(201) 767-0007
Pleasant Valley Way
487 Pleasant Valley Way
West Orange, NJ 07052
(973) 731-4630
River Vale
653 Westwood Avenue
River Vale, NJ 07675
(201) 664-3700
Tory Corner
216 Main Street
West Orange, NJ 07052
(973) 325-1230
DIRECTORS AND OFFICERS
- - ----------------------
Directors of
West Essex Bancorp, Inc.
and West Essex Bank
- - ------------------------
Leopold W. Montanaro
Chairman of the Board
of West Essex Bancorp, Inc.
William J. Foody
Chairman of the Board
of West Essex Bank
Managing Partner
Trammell Crow
Everett N. Leonard
Retired,
Verona Boro Administrator
John J. Burke
President
JJ Burke & Associates
David F. Brandley, Esq.
Partner in the Law Firm of
Brandley & Kleppe
James P. Vreeland
Retired New Jersey State Senator
Principal Officers of
West Essex Bancorp, Inc.
- - ------------------------
Leopold W. Montanaro
President and Chief
Executive Officer
Dennis A. Petrello
Executive Vice President
and Chief Financial Officer
Charles E. Filippo
Executive Vice President
Craig L. Montanaro
Senior Vice President
and Secretary and Treasurer
Principal Officers of
West Essex Bank
- - -----------------------
Leopold W. Montanaro
President and Chief Executive Officer
Executive Officer
Dennis A. Petrello
Executive Vice
and Chief Financial Officer
Charles E. Filippo
Executive Vice President
and Chief Lending Officer
Craig L. Montanaro
Senior Vice President
and Secretary and Treasurer
Michael T. Sferrazza
Vice President and Controller
Lisa A. Mulligan
Vice President and Personnel
Officer
Donna Duess
Vice President
John E. Gerasimow
Vice President
-60-
INVESTOR AND CORPORATE INFORMATION
- - ----------------------------------
CORPORATE HEADQUARTERS
West Essex Bancorp, Inc.
417 Bloomfield Avenue, Caldwell, New Jersey 07006
(973) 226-7911
Annual Meeting
The annual meeting of shareholders will be held at 10:00 a.m. on Thursday, April
27, 2000 at the Radisson Hotel, Route 46 East, Fairfield, New Jersey.
Shareholders are encouraged to attend.
Annual Report on Form 10-K
A copy of West Essex Bancorp, Inc.'s annual report on Form 10-K without exhibits
is available without charge to shareholders upon written request. Requests
should be sent to Mr. Dominic Tangredi, Compliance Officer.
Stock Transfer/Register
Questions regarding the transfer of stock, lost certificates, address changes,
account consolidation and cash dividends should be addressed to Registrar and
Transfer Company, 10 Commerce, Cranford, New Jersey 07203, phone number
(908)241-9880. Allow three weeks for a reply.
Special Counsel
Muldoon, Murphy and Faucette LLP, 5101 Wisconsin Avenue, NW, Washington, DC
20016.
Independent Accountants
Radics & Co., LLC, Route 46 East, Pine Brook, New Jersey 07058.
Inquiries
Security analysts, retail brokers and shareholders seeking financial information
should contact Dennis A. Petrello, Executive Vice President and Chief Financial
Officer. Requests for written materials can be forwarded to the attention of Mr.
Dominic Tangredi, Investor Relations Department.
Stock Information
West Essex Bancorp, Inc., is traded on the Nasdaq National Market under the
ticker symbol "WEBK." As of December 31, 1999, West Essex Bancorp, Inc. had
4,054,357 shares of common stock outstanding and approximately 452 shareholders
of record.
Stock Price and Dividends
The following table discloses the dividends declared and the high and low bids
for the Company's common stock on the Nasdaq National Market for each quarterly
period indicated. The Company did not declare or pay dividends in 1998.
Dividends High Low
Quarter ended Per Share Price Price
- - ------------- --------- ----- -----
December 31, 1999 $ 0.075 $ 10.000 $ 9.375
September 30, 1999 0.075 10.250 9.250
June 30, 1999 0.075 9.625 9.000
March 31, 1999 0.075 10.000 9.000
December 31, 1998 None 10.125 9.250