UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ------- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-29770
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WEST ESSEX BANCORP, INC.
- - -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
UNITED STATES 22-3597632
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
417 Bloomfield Avenue, Caldwell, New Jersey 07006
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 973-226-7911
--------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
4,034,074 shares of common stock, par value $0.01 par share, were outstanding as
of July 31, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
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WEST ESSEX BANCORP, INC.
FORM 10-QSB
For the Quarter Ended June 30, 2000
INDEX
Page
Number
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Statements of Financial Condition at
June 30, 2000 and December 31, 1999 (Unaudited) 2
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 2000 and 1999 (Unaudited) 3
Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended June 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 (Unaudited) 5-6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan
of Operations 8-16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
WEST ESSEX BANCORP, INC.
PART I. FINANCIAL INFORMATION
June 30, 2000
---------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Certain information and footnote disclosures required under generally accepted
accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. West Essex Bancorp, Inc. (the "Registrant"
or the "Company") believes that the disclosures presented are adequate to assure
that the information presented is not misleading in any material respect. It is
suggested that the following consolidated financial statements be read in
conjunction with the year-end consolidated financial statements and notes
thereto included in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999.
The results of operations for the three and six month periods ended June 30,
2000, are not necessarily indicative of the results to be expected for the
entire fiscal year.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
June 30, December 31,
2000 1999
-------------------- --------------------
Assets
- - ------
Cash and amounts due from depository institutions $ 1,428,882 $ 5,728,992
Interest-bearing deposits in other banks 3,080,616 7,016,853
------------- -------------
Total cash and cash equivalents 4,509,498 12,745,845
Securities available for sale 2,916,560 2,923,750
Investment securities held to maturity 41,727,696 41,582,003
Mortgage-backed securities held to maturity 122,455,755 121,223,315
Loans receivable 164,541,814 153,276,187
Real estate owned 870,409 899,738
Premises and equipment 2,690,020 2,737,456
Federal Home Loan Bank of New York stock 3,558,400 3,272,700
Accrued interest receivable 2,132,373 2,005,563
Excess of cost over assets acquired 4,346,964 4,643,348
Other assets 3,234,433 2,996,932
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Total assets $ 352,983,922 $ 348,306,837
============= =============
Liabilities and Stockholders' Equity
- - ------------------------------------
Liabilities
Deposits $ 235,410,999 $ 234,977,812
Borrowed money 67,050,553 64,340,115
Advance payments by borrowers for taxes and insurance 1,132,316 1,044,140
Other liabilities 953,666 834,824
------------- -------------
Total liabilities 304,547,534 301,196,891
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Stockholders' Equity
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 4,034,074 (2000)
and 4,054,357 (1999) 41,972 41,972
Additional paid-in capital 17,324,919 17,332,133
Retained earnings - substantially restricted 34,441,937 33,054,528
Common stock acquired by Employee Stock Ownership
Plan ("ESOP") (1,105,195) (1,178,874)
Unearned Incentive Plan stock (593,107) (655,549)
Treasury stock, at cost; 163,159 shares (2000) and
142,876 shares (1999) (1,621,533) (1,436,550)
Accumulated other comprehensive loss - Unrealized
loss on securities available for sale, net of income taxes (52,605) (47,714)
------------- -------------
Total stockholders' equity 48,436,388 47,109,946
------------- -------------
Total liabilities and stockholders' equity $ 352,983,922 $ 348,306,837
============= =============
See notes to consolidated financial statements.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Interest income:
Loans $ 3,066,429 $ 2,703,672 $ 5,982,959 $ 5,514,759
Mortgage-backed securities 2,106,444 2,016,636 4,154,338 3,800,926
Investment securities 766,660 833,127 1,530,440 1,604,722
Other interest-earning assets 88,443 157,227 212,232 349,586
------------ ------------ ------------ ------------
Total interest income 6,027,976 5,710,662 11,879,969 11,269,993
------------ ------------ ------------ ------------
Interest expense:
Deposits 2,264,353 2,152,753 4,403,603 4,324,253
Borrowed money 981,702 851,409 1,909,141 1,504,752
------------ ------------ ------------ ------------
Total interest expense 3,246,055 3,004,162 6,312,744 5,829,005
------------ ------------ ------------ ------------
Net interest income 2,781,921 2,706,500 5,567,225 5,440,988
Provision for loan losses - - - -
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 2,781,921 2,706,500 5,567,225 5,440,988
------------ ------------ ------------ ------------
Non-interest income:
Fees and service charges 103,213 91,131 191,771 184,756
Gain on sale of securities available for sale - 34,515 - 34,515
Other 35,510 48,022 94,000 111,171
------------ ------------ ------------ ------------
Total non-interest income 138,723 173,668 285,771 330,442
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 832,784 768,550 1,660,309 1,590,295
Net occupancy expense of premises 81,858 77,888 181,392 180,551
Equipment 182,362 159,479 352,905 328,023
(Gain) loss on real estate owned (58,531) 10,899 (166,770) 18,655
Amortization of intangibles 148,192 148,192 296,384 296,384
Miscellaneous 459,597 572,404 877,179 1,039,460
------------ ------------ ------------ ------------
Total non-interest expenses 1,646,262 1,737,412 3,201,399 3,453,368
------------ ------------ ------------ ------------
Income before income taxes 1,274,382 1,142,756 2,651,597 2,318,062
Income taxes 453,581 409,063 950,860 832,790
------------ ------------ ------------ ------------
Net income $ 820,801 $ 733,693 $ 1,700,737 $ 1,485,272
============ ============ ============ ============
Net income per common share - basic and diluted $ 0.21 $ 0.18 $ 0.44 $ 0.37
============ ============ ============ ============
Dividends declared per common share $ 0.10 $ 0.075 $ 0.20 $ 0.15
============ ============ ============ ============
Weighted average number of common shares
outstanding - basic and diluted 3,858,743 4,069,783 3,858,886 4,067,936
============ ============ ============ ============
See notes to consolidated financial statements.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- -------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- -------------
Net income $ 820,801 $ 733,693 $ 1,700,737 $ 1,485,272
-------------- --------------- -------------- -------------
Other comprehensive income -
Unrealized holding (losses) on securities available
for sale, net of income taxes of $2,245, $54,915,
$2,748 and $94,278, respectively (3,995) (97,711) (4,891) (167,750)
Reclassification adjustment for realized gains on
securities available for sale, net of income
taxes of $12,418 in 1999 - (22,096) - (22,096)
-------------- --------------- -------------- -------------
Total other comprehensive income (3,995) (119,807) (4,891) (189,846)
-------------- --------------- -------------- -------------
Comprehensive income $ 816,806 $ 613,886 $ 1,695,846 $ 1,295,426
============== =============== ============== =============
See notes to consolidated financial statements.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------
(Unaudited)
Six Months Ended June 30,
------------------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 1,700,737 $ 1,485,272
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 129,776 119,116
Net accretion of premiums, discounts and deferred loan fees (199,378) (64,228)
Amortization of intangibles 296,384 296,384
(Gain) on sale of securities available for sale - (34,515)
(Gain) on sale of real estate owned (195,461) -
(Increase) in accrued interest receivable (126,810) (92,683)
(Increase) in other assets (234,753) (70,824)
Increase in interest payable 53,272 24,503
Increase in other liabilities 113,210 101,221
Amortization of Incentive Plan cost 62,442 -
ESOP shares committed to be released 67,275 68,998
------------ -------------
Net cash provided by operating activities 1,666,694 1,833,244
------------ -------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale - 5,021,875
Proceeds from maturities and calls of investment securities held to maturity - 13,000,000
Purchases of investment securities held to maturity - (19,344,969)
Principal repayments on mortgage-backed securities held to maturity 11,148,681 21,194,105
Purchases of mortgage-backed securities held to maturity (12,337,689) (36,245,370)
Purchase of loans receivable (3,249,507) (831,426)
Net (increase) in loans receivable (8,171,585) (9,804,755)
Proceeds from sales of real estate owned 390,059 -
Additions to premises and equipment (82,340) (11,683)
Purchase of Federal Home Loan Bank of New York stock (285,700) (571,700)
------------ -------------
Net cash (used in) investing activities (12,588,081) (27,593,923)
------------ -------------
Cash flows from financing activities:
Net increase (decrease) in deposits 398,154 (2,365,650)
Net change in short-term borrowed money 7,000,000 9,000,000
Proceeds of long-term borrowed money - 15,000,000
Repayment of long-term borrowed money (4,289,562) (5,000,181)
Net increase in advance payments by borrowers for taxes and insurance 88,176 112,237
Purchases of treasury stock (198,400) -
Cash dividends paid (313,328) (277,067)
------------ -------------
Net cash provided by financing activities 2,685,040 16,469,339
------------ -------------
Net (decrease) in cash and cash equivalents (8,236,347) (9,291,340)
Cash and cash equivalents - beginning 12,745,845 16,371,431
------------ -------------
Cash and cash equivalents - ending $ 4,509,498 $ 7,080,091
============ =============
See notes to consolidated financial statements.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------
(Unaudited)
Six Months Ended June 30,
-------------------------------------
2000 1999
----------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 1,085,980 $ 773,400
============ ============
Interest $ 6,259,472 $ 5,804,502
============ ============
Supplemental schedule of noncash investing activities:
Unrealized (loss) on securities
available or sale, net of income taxes $ (4,891) $ (189,846)
============ ============
Loans receivable transferred to real estate owned $ 165,269 $ 192,063
============ ============
Issuance of treasury stock to fund Supplemental Employee
Retirement Plan $ 12,607 $ -
============ ============
See notes to consolidated financial statements.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. PRINCIPLES OF CONSOLIDATION
- - ------------------------------
The consolidated financial statements include the accounts of West Essex
Bancorp, Inc. (the "Company"), the Company's wholly owned subsidiary, West Essex
Bank (the "Bank") and the Bank's wholly owned subsidiary, West Essex Insurance
Agency, Inc. The Company's business is conducted principally through the Bank.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
2. BASIS OF PRESENTATION
- - --------------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and regulations S-X and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements have been included.
The results of operations for the three and six months ended June 30, 2000 are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
3. STOCKHOLDERS' EQUITY
- - --------------------------
At June 30, 2000, West Essex Bancorp, M.H.C. ("MHC"), a mutual holding company,
owns 2,340,121 shares of Company common stock, representing 58.3% of all Company
common stock outstanding. During both 2000 and 1999, MHC waived its right to
receive cash dividends on the shares of Company common stock it owns. The amount
of such waived dividends was approximately $235,000 and $176,000 during the
three months ended June 30, 2000 and 1999, respectively, and $470,000 and
$353,000 during the six months ended June 30, 2000 and 1999, respectively.
4. NET INCOME PER COMMON SHARE
- - --------------------------------
Basic net income per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding, adjusted for the
unallocated portion of shares held by the ESOP in accordance with the American
Institute of Certified Public Accountants' Statement of Position 93-6. Diluted
net income per share is calculated by adjusting the weighted average number of
shares of common stock outstanding to include the effect of unallocated ESOP
shares, unearned Incentive Plan shares and stock options, if dilutive, using the
treasury stock method. As of and for the three and six month periods ended June
30, 2000 and 1999, none of the potentially dilutive securities were included in
the computation of diluted net income per share as they were anti-dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21F of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company intends such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Reform Act of 1995, and is including this statement
for purposes of these safe harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and
expectations of the Company, 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 its subsidiaries
include, but are not limited to, changes in interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal polices 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. Further information
concerning the Company and its business, including additional factors that could
materially affect the Company's financial results, is included in the Company's
filings with the Securities and Exchange Commission (the "SEC").
The Company does not undertake - and specifically disclaims any obligation
- - - to publicly release the results 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's Discussion and Analysis or Plan of Operation
General
The Company is the federally chartered stock holding company for West Essex
Bank, a federally chartered stock savings bank. The Company, the Bank and West
Essex Bancorp, M.H.C., a mutual holding company and majority owner of the
Company, are regulated by the Office of Thrift Supervision (the "OTS"). The
Company's and the Bank's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on
interest-earning assets, primarily the loan and investment portfolios, and the
cost of funds, consisting of interest paid on deposits and borrowings. Results
of operations are also affected by the provision for loan losses and
non-interest expense. Non-interest expense principally consists of salaries and
employee benefits, office occupancy and equipment expense, amortization of
intangibles, advertising, federal deposit insurance premiums, expenses of real
estate owned 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.
Management Strategy
The Company's current strategic plan is to maintain profitability and its
well-capitalized position to take advantage of future expansion or growth
opportunities, while managing growth, maintaining asset quality, controlling
expenses and reducing exposure to credit and interest rate risk. Management
seeks to accomplish these goals by: (1) emphasizing its retail banking services
through its network of branch offices, which includes the origination of
one-to-four family mortgage loans, as well as commercial real estate, home
equity, multi-family, construction and development and consumer loans, in the
communities it serves as market conditions permit; (2) enhancing earnings and
offsetting the effects of the extreme competition for real estate loans in the
Bank's market area primarily through the purchase of adjustable-rate
mortgage-backed securities, which provide a source of liquidity, low credit risk
and low administrative cost as well as helping to manage interest rate risk; and
(3) continuing to monitor interest rate risk. Management has aggressively sought
to increase loan originations in recent years and was successful in increasing
loans receivable, net, from $82.1 million at December 31, 1996 to $140.3
million, $153.3 million and $164.5 million at December 31, 1998, December 31,
1999 and June 30, 2000, respectively. Management was successful in increasing
loan originations primarily by increasing the amount of advertising the Bank
does in its primary market area, paying fees to mortgage brokers who send loan
applicants to the Bank to whom the Bank originates loans and providing cash
incentives to its mortgage origination and retail staff to increase loan
originations. Competition, however, has remained intense in the Bank's market
area, which has resulted in the Company's total securities portfolio
representing a greater percentage of total assets than its loan portfolio in
each of the last five years. Management believes that continuing to seek lending
opportunities, as well as investing in mortgage-backed securities, the majority
of which are adjustable-rate, enables the Company to effectively control its
interest rate risk while at the same time enabling it to maintain a balance of
high quality, diversified investments, provide collateral for short and
long-term borrowings and lessen exposure to credit risk.
Comparison of Financial Condition at June 30, 2000 and December 31, 1999
Total assets were $353.0 million at June 30, 2000, compared to $348.3
million at December 31, 1999, an increase of $4.7 million, or 1.3%. The increase
in assets was funded primarily by net income of $1.7 million and an increase in
Federal Home Loan Bank of New York ("FHLB") borrowings of $2.7 million.
Cash and cash equivalents, primarily interest-bearing deposits with the
FHLB, decreased $8.2 million to $4.5 million at June 30, 2000 from $12.7 million
at December 31, 1999. The decrease in cash and cash equivalents was used
primarily to fund loan purchases and originations.
In the aggregate, mortgage-backed securities and investment securities,
including available-for-sale and held to maturity issues, totalled $167.1
million at June 30, 2000, an increase of $1.4 million, or 0.8%, from $165.7
million at December 31, 1999. Mortgage-backed securities, all of which are held
to maturity, increased $1.2 million due to purchases exceeding repayments.
Investment securities held to maturity and securities available for sale
reflected only marginal changes.
Loans receivable increased by $11.2 million, or 7.3%, to $164.5 million at
June 30, 2000 from $153.3 million at December 31, 1999. Such increase was funded
by the aforementioned decrease in cash and cash equivalents and by a $2.7
million increase in borrowings.
Deposits totalled $235.4 million at June 30, 2000, an increase of $433,000,
or 0.2%, over the $235.0 million balance at December 31, 1999.
Borrowed money increased $2.71 million, or 4.2%, to $67.05 million at June
30, 2000, as compared to $64.34 million at December 31, 1999. During the six
months ended June 30, 2000, long-term debt of $4.3 million was repaid and
short-term borrowings were increased by $7.0 million.
Stockholders' equity increased $1.3 million, or 2.8%, to $48.4 million,
primarily due to the retention of net income.
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
1999
Net Income. Net income increased $87,000, or 11.9%, to $821,000 for the
three months ended June 30, 2000 compared with $734,000 for the same 1999
period. The increase in net income during the 2000 period resulted primarily
from a $75,000 increase in net interest income and a $91,000 decrease in
non-interest expenses, which were partially offset by a decrease in non-interest
income of $35,000 and an increase in income taxes of $44,000.
Interest Income. Total interest income increased $317,000, or 5.6%, to $6.0
million for the three months ended June 30, 2000 from $5.7 million for the same
1999 period. The increase was the result of a $6.0 million, or 1.8%, increase in
average interest-earning assets between the periods, along with a 25 basis point
increase in yield. The increase in the average balance was the result of loan
originations during the past twelve months funded by increased borrowed money.
The increase in yield was the result of higher rates obtained on securities
purchased and loans originated since December 31, 1999.
Interest income on loans increased by $363,000 or 13.4% to $3.1 million
during the three months ended June 30, 2000 when compared with $2.7 million for
the same 1999 period. The increase during the 2000 period resulted from an
increase of $15.7 million, or 10.7%, in the average balance of loans
outstanding, along with an 18 basis point increase to 7.52% in the yield earned
on the loan portfolio. The increased average balance was the result of strong
lending volume. The increased yield is the result of higher rates obtained on
originations as well as upward interest rate adjustments on the Bank's
adjustable-rate mortgage loans.
Interest on mortgage-backed securities, all of which are held-to-maturity,
increased $89,000 or 4.4%, to $2.1 million during the three months ended June
30, 2000 when compared with $2.0 million for the same 1999 period. The increase
during the 2000 period resulted from increases of $2.1 million, or 1.7%, in the
average balance of mortgage-backed securities and 17 basis points, to 6.75%, in
yield. The increased average balance is the result of purchases of
mortgage-backed securities exceeding repayments. The increased yield is the
result of higher rates obtained on securities purchased.
Interest earned on investment securities, including both available-for-sale
and held-to-maturity issues, decreased by $66,000, or 7.9%, to $767,000 during
the three months ended June 30, 2000, when compared to $833,000 during the same
1999 period, primarily due to a decrease of $6.3 million, or 12.4%, in the
average balance of such assets, which more than offset a 34 basis point increase
to 6.88% in the yield earned. The decrease in average balance was the result of
maturities of securities exceeding purchases thereof. The increase in yield was
the result of the higher rates available on securities purchased.
Interest on other interest-earning assets decreased $69,000, or 43.9%, to
$88,000 during the three months ended June 30, 2000 as compared to $157,000 for
the same 1999 period. The decrease was due to a decrease of $5.5 million, or
47.1%, in the average balances of such assets, partially offset by an increase
of 31 basis points, to 5.68%, in yield.
Interest Expense. Interest expense on deposits increased $112,000, or
11.5%, to $2.27 million during the three months ended June 30, 2000 when
compared to $2.15 million during the same 1999 period. Such increase was
primarily attributable to an increase of 27 basis points, to 4.14%, in the cost
of interest-bearing deposits, partially offset by a $3.7 million, or 1.7%,
decrease in the average balance thereof. The increase in cost is due to higher
interest rates paid on certificates of deposits, which averaged 5.35% for the
three months ended June 30, 2000 as compared to 5.00% for the same 1999 period.
The average cost of non-certificate deposits was 1.85% for the three months
ended June 30, 2000 as compared to 1.87% for the same prior year period.
Interest expense on borrowed money increased by $130,000, or 15.3%, to
$981,000 during the three months ended June 30, 2000 when compared with $851,000
during the same 1999 period, primarily due to an increase of $7.5 million, or
12.6%, in the average balance of borrowings outstanding from the FHLB, along
with a 13 basis point increase to 5.85% in the cost of borrowed money. During
the three months ended June 30, 2000, the Bank repaid $947,000 in long-term
borrowings having an average interest rate of 6.60%. Short-term borrowings
totalled $13.0 million at June 30, 2000 and had an average interest rate of
6.44% as compared to $11.0 million at March 31, 2000, at an average rate of
6.03%.
Net Interest Income. Net interest income increased $75,000, or 2.8%, during
the three months ended June 30, 2000, when compared with the same 1999 period.
Such increase was due to an increase in total interest income of $317,000,
partially offset by an increase in total interest expense of $242,000. The net
interest rate spread decreased to 2.58% in 2000 from 2.61% in 1999. The decrease
in the interest rate spread resulted from an increase of 28 basis points in the
cost of interest-bearing liabilities, which more than offset a 25 basis point
increase in the yield on interest-earning assets. Net interest income improved
despite the decline in spread due to the additional income generated by a $6.0
million increase in average interest-earning assets, which more than offset the
additional cost incurred by a $3.8 million increase in average interest-bearing
liabilities.
Provision for Loan Losses. During the three months ended June 30, 2000 and
1999, the Bank did not record a provision for loan losses as the existing
balance of the allowance for loan losses was considered adequate. There were no
loan charge-offs or recoveries during the three months ended June 30, 2000.
During the three months ended June 30, 1999, there was a $316,000 charge-off
related to the final resolution of a $694,000 construction loan and no loan
recoveries. The allowance for loan losses is based on management's evaluation of
the risk inherent in its loan portfolio and gives due consideration to the
changes in general market conditions and in the nature and volume of the Bank's
loan activity. The Bank intends to continue to provide for loan losses based on
its periodic review of the loan portfolio and general market conditions. At June
30, 2000 and 1999, loans delinquent ninety days or more totalled $142,000 and
$847,000, respectively, representing 0.08% and 0.55%, respectively, of total
loans. At June 30, 2000, the allowance for loan losses stood at $1.37 million,
representing 0.81% of total loans and 959.0% of loans delinquent ninety days or
more. At December 31, 1999, the allowance for loan losses stood at $1.40
million, representing 0.90% of total loans and 176.8% of loans delinquent ninety
days or more. At June 30, 1999, the allowance for loan losses stood at $1.40
million, representing 0.92% of total loans and 165.4% of loans delinquent ninety
days or more. The Bank monitors its loan portfolio on a continuing basis and
intends to continue to provide for loan losses based on its ongoing 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 allocation portion of the allowance.
Management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover losses inherent in the loan
portfolio at this time. However, no assurance can be given that the level of the
allowance for loan losses will be sufficient to cover future possible loan
losses or that future adjustments to the allowance for loan losses will not be
necessary if economic and other conditions differ substantially from the
economic and other conditions considered by management to determine the current
level of the allowance for loan losses. Management may in the future increase
the level of the allowance for loan losses as a percentage of total loans and
non-performing loans in the event it increases the level of commercial real
estate, multifamily, or consumer lending as a percentage of the total loan
portfolio. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan losses.
Such agencies may require the Bank to provide additions to the allowance based
upon judgments different from those of management.
The allowance for loan losses includes specific, general and unallocated
allowances of $23,000, $986,000 and $356,000, respectively, at June 30, 2000, as
compared to $ -0- , $941,000 and $424,000, respectively, at March 31, 2000. The
general allowance has increased 4.8% since the prior quarter end due to a 5.0%
increase in total loans.
Non-Interest Income. Non-interest income decreased $35,000, or 20.1%, to
$139,000 during the three months ended June 30, 2000 from $174,000 during the
same 1999 period. The 1999 amount includes a $35,000 gain on the sale of a
security available for sale.
Non-Interest Expenses. Non-interest expenses decreased by $89,000, or 5.1%,
to $1.65 million during the three months ended June 30, 2000 when compared with
$1.74 million during the same 1999 period. The primary components of the period
decrease were a $69,000 improvement in results related to real estate owned and
a $113,000 decrease in miscellaneous non-interest expenses, partially offset by
a $64,000 increase in salaries and employee benefits. The improved real estate
owned results were attributable to $64,000 in gains from property sales in the
current period as compared to no sales in the comparable prior year period.
Salaries and employee benefits, the largest component of non-interest expenses,
increased $64,000, or 8.3%, to $833,000 during the three months ended June 30,
2000 from $769,000 during the prior year quarter. Miscellaneous non-interest
expenses decreased $112,000, or 19.6%, to $460,000 during the three months ended
June 30, 2000 from $572,000 during the prior year quarter due primarily to three
factors: reduced Federal Deposit Insurance Corporation deposit insurance costs,
reduced expenditures related to advertising the Bank's products and the higher
level of a variety of costs during the prior year period as a result of the
Company being in its first full year as a public entity. All other elements of
non-interest expense remained little changed at $412,000 and $386,000 during the
three months ended June 30, 2000 and 1999, respectively.
Income Taxes. Income tax expense totalled $454,000, or 35.6% of income
before income taxes, during the three months ended June 30, 2000 as compared to
$409,000, or 35.8% of income before income taxes, during the comparable 1999
period.
Comparison of Operating Results for the Six Months Ended June 30, 2000 and 1999
Net Income. Net income increased $216,000, or 14.5%, to $1.7 million for
the six months ended June 30, 2000 compared with $1.5 million for the same 1999
period. The increase in net income during the 2000 period resulted primarily
from a $126,000 increase in net interest income and a $252,000 decrease of
non-interest expenses, which were partially offset by a decrease in non-interest
income of $44,000 and an increase in income taxes of $118,000.
Interest Income. Total interest income increased $610,000, or 5.4%, to
$11.9 million for the six months ended June 30, 2000 from $11.3 million for the
same 1999 period. The increase was the result of a $11.3 million, or 3.5%,
increase in average interest-earning assets between the periods, along with a 13
basis point increase in yield. The increase in the average balance was the
result of loan originations during the past twelve months funded by increased
borrowed money.
Interest income on loans increased by $468,000, or 8.5%, to $6.0 million
during the six months ended June 30, 2000 when compared with $5.5 million for
the same 1999 period. The increase during the 2000 period resulted from an
increase of $15.1 million, or 10.4%, in the average balance of loans
outstanding, which was sufficient to offset a 13 basis point decrease to 7.48%
in the yield earned on the loan portfolio. The increased average balance was the
result of strong lending volume. The decreased yield is the result of lower
rates obtained on originations during the last half of 1999 as well as downward
interest rate adjustments on the Bank's adjustable-rate mortgage loans during
that period. As noted in the three month analysis, the trend in interest rates
reversed in the second quarter of 2000, with that quarter's yield exceeding that
of the prior year quarter for the first time in several years.
Interest on mortgage-backed securities, all of which are held-to-maturity,
increased $353,000, or 9.3%, to $4.2 million during the six months ended June
30, 2000 when compared with $3.8 million for the same 1999 period. The increase
during the 2000 period resulted from increases of $6.6 million, or 5.6%, in the
average balance of mortgage-backed securities and 22 basis points, to 6.64%, in
yield. The increased average balance is the result of purchases of
mortgage-backed securities exceeding repayments. The increase in yield is the
result of higher interest rates obtained on securities purchased.
Interest earned on investment securities, including both available-for-sale
and held-to-maturity issues, decreased by $74,000, or 4.6%, to $1.5 million
during the six months ended June 30, 2000, when compared to $1.6 million during
the same 1999 period, primarily due to a decrease of $3.9 million, or 8.0%, in
the average balance of such assets, which more than offset a 25 basis point
increase to 6.87% in the yield earned. The decrease in average balance was the
result of calls and maturities exceeding purchases of such securities. The
increase in yield was the result of the higher rates available on securities
purchased.
Interest on other interest-earning assets decreased $138,000, or 39.4%, to
$212,000 during the six months ended June 30, 2000 as compared to $350,000 for
the same 1999 period. The decrease was due to a decrease of $6.5 million, or
48.2%, in the average balance of such assets, which was more than sufficient to
offset an 87 basis point increase in yield.
Interest Expense. Interest expense on deposits increased $80,000, or 1.9%,
to $4.4 million during the six months ended June 30, 2000 when compared to $4.3
million during the same 1999 period. Such increase was primarily attributable to
an increase of 13 basis points, to 4.01%, in the cost of interest-bearing
deposits, partially offset by a $3.2 million, or 1.4%, decrease in the average
balance thereof. The increase in cost is due to higher interest rates paid on
certificates of deposit, which averaged 5.19% for the six months ended June 30,
2000 as compared to 5.01% for the same 1999 period. The average cost of
non-certificate deposits was 1.84% for the six months ended June 30, 2000 as
compared to 1.90% for the same prior year period.
Interest expense on borrowed money increased by $404,000, or 21.2%, to $1.9
million during the six months ended June 30, 2000 when compared with $1.5
million during the same 1999 period, primarily due to an increase of $12.4
million, or 23.0%, in the average balance of borrowings outstanding from the
FHLB, along with an 18 basis point increase to 5.78% in the cost of borrowed
money. During the six months ended June 30, 2000, the Bank repaid $4.3 million
in long-term borrowings having an average interest rate of 5.58%. At June 30,
2000 and December 31, 1999, short-term borrowings totalled $13.0 million and
$6.0 million, respectively, and carried an average rate of 6.44% and 5.80%,
respectively.
Net Interest Income. Net interest income increased $126,000, or 2.3%,
during the six months ended June 30, 2000, when compared with the same 1999
period. Such increase was due to an increase in total interest income of
$610,000, partially offset by an increase in total interest expense of $484,000.
The net interest rate spread decreased to 2.64% in 2000 from 2.71% in 1999. The
decrease in the interest rate spread resulted from an increase of 20 basis
points in the cost of interest-bearing liabilities which more than offset a 13
basis point increase in the yield on interest-earning assets. Net interest
income improved despite the decline in spread due to the additional income
generated by an $11.3 million increase in average interest-earning assets, which
more than offset the additional cost incurred by a $9.1 million increase in
average interest-bearing liabilities.
Provision for Loan Losses. During the six months ended June 30, 2000 and
1999, the Bank did not record a provision for loan losses as the existing
balance of the allowance for loan losses was considered adequate. During the six
months ended June 30, 2000 and 1999, charge-offs totalled $35,000 and $316,000,
respectively. The 1999 charge-off related to the final resolution of a $694,000
construction loan. There were no recoveries during the six months ended June 30,
2000 and 1999. The allowance for loan losses is based on management's evaluation
of the risk inherent in its loan portfolio and gives due consideration to the
changes in general market conditions and in the nature and volume of the Bank's
loan activity. The Bank intends to continue to provide for loan losses based on
its periodic review of the loan portfolio and general market conditions. At June
30, 2000 and 1999, loans delinquent ninety days or more totalled $142,000 and
$847,000, respectively, representing 0.08% and 0.55%, respectively, of total
loans. At June 30, 2000, the allowance for loan losses stood at $1.37 million,
representing 0.81% of total loans and 959.0 % of loans delinquent ninety days or
more. At December 31, 1999, the allowance for loan losses stood at $1.40
million, representing 0.90% of total loans and 176.8% of loans delinquent ninety
days or more. At June 30, 1999, the allowance for loan losses stood at $1.40
million, representing 0.92% of total loans and 165.4% of loans delinquent ninety
days or more. The Bank monitors its loan portfolio on a continuing basis and
intends to continue to provide for loan losses based on its ongoing 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 allocation portion of the allowance.
Management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover losses inherent in the loan
portfolio at this time. However, no assurance can be given that the level of the
allowance for loan losses will be sufficient to cover future possible loan
losses or that future adjustments to the allowance for loan losses will not be
necessary if economic and other conditions differ substantially from the
economic and other conditions considered by management to determine the current
level of the allowance for loan losses. Management may in the future increase
the level of the allowance for loan losses as a percentage of total loans and
non-performing loans in the event it increases the level of commercial real
estate, multifamily, or consumer lending as a percentage of the total loan
portfolio. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan losses.
Such agencies may require the Bank to provide additions to the allowance based
upon judgments different from those of management.
The allowance for loan losses includes specific, general and unallocated
allowances of $23,000, $986,000 and $356,000, respectively, at June 30, 2000, as
compared to $50,000, $878,000 and $472,000, respectively, at December 31, 1999.
The general allowance has increased 12.3% since December 31, 1999, due primarily
to an 8.3% increase in total loans.
Non-Interest Income. Non-interest income decreased $44,000, or 13.3%, to
$286,000 during the six months ended June 30, 2000 from $330,000 during the same
1999 period. The 1999 amount includes a $35,000 gain on the sale of a security
available for sale.
Non-Interest Expenses. Non-interest expenses decreased by $252,000, or
7.3%, to $3.20 million during the six months ended June 30, 2000 when compared
with $3.45 million during the same 1999 period. The primary components of the
period decrease were a $185,000 improvement in results related to real estate
owned and a $162,000 decrease in miscellaneous non-interest expenses, partially
offset by a $70,000 increase in salaries and employee benefits. The improved
real estate owned results were attributable to $195,000 in gains from property
sales in the current period as compared to no sales in the comparable prior year
period. Salaries and employee benefits, the largest component of non-interest
expenses, increased $70,000, or 4.4%, to $1.7 million during the six months
ended June 30, 2000 from $1.6 million during the prior year period.
Miscellaneous non-interest expenses decreased $162,000, or 15.6%, to $877,000
during the six months ended June 30, 2000, from $1.04 million during the
comparable prior year period, primarily due to three factors: reduced Federal
Deposit Insurance Corporation deposit insurance costs, reduced expenditures
related to advertising the Bank's products and the higher level of a variety of
costs during the prior year period as a result of the Company being in its first
full year as a public entity. All other elements of non-interest expense
remained little changed at $831,000 and $805,000 during the six months ended
June 30, 2000 and 1999, respectively.
Income Taxes. Income tax expense totalled $951,000, or 35.9% of income
before income taxes, during the six months ended June 30, 2000 as compared to
$833,000, or 35.9% of income before income taxes, during the comparable 1999
period.
Liquidity and Capital Resources
The Company's and 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 on debt securities 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 June 30, 2000 and
December 31, 1999, the Bank's regulatory liquidity ratios were 22.62% and
25.40%, respectively.
At June 30, 2000, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $38.5 million, or 11.1% of total
adjusted assets, which is above the required level of $5.2 million, or 1.5%;
core capital of $38.5 million, or 11.1% of total adjusted assets, which is above
the required level of $13.9 million, or 4.0%; and risk-based capital of $39.9
million, or 28.5% of risk-weighted assets, which is above the required level of
$11.2 million, or 8.0%.
The Company's most liquid assets are cash and cash equivalents and
securities available for sale. The levels of these assets are dependent on
operating, financing, lending and investing activities during any given period.
At June 30, 2000, cash and cash equivalents and securities available for sale
totalled $7.4 million, or 2.1% of total assets.
The Company, through its Bank subsidiary, has other sources of liquidity if
a need for additional funds arises, including FHLB borrowings. At June 30, 2000,
the Bank had $67.1 million in borrowings outstanding from the FHLB. Depending on
market conditions, the pricing of deposit products and FHLB borrowings, the Bank
may continue to rely on FHLB borrowings to fund asset growth.
At June 30, 2000, the Bank had commitments to originate and purchase loans
and fund unused outstanding lines of credit and undisbursed proceeds of
construction mortgages totalling $13.5 million and no commitments to purchase
securities. The Bank anticipates that it will have sufficient funds available to
meet its current commitments. Certificate accounts, including Individual
Retirement Account accounts, which are scheduled to mature in less than one year
from June 30, 2000, totalled $115.9 million. The Bank expects that substantially
all of the maturing certificate accounts will be retained by the Bank.
The initial impact of the reorganization and offering on the liquidity and
capital resources of the Company was to substantially increase the liquid assets
of the Company and the capital base on which the Company operates. Subsequently,
a substantial majority of the offering proceeds was invested in readily
marketable investment grade securities. The additional capital resulting from
the offerings increased the capital bases of the Company and the Bank. At June
30, 2000, the Company and the Bank had total equity, determined in accordance
with generally accepted accounting principles, of $48.4 million and $42.8
million, respectively, or 13.7% and 12.2%, respectively, of total assets. The
Bank's regulatory tangible capital at that date, which excludes intangible
assets of $4.3 million and unrealized securities losses, net of deferred income
taxes, of $53,000, was $38.5 million, or 11.1% of adjusted total assets. An
institution with a ratio of tangible capital to adjusted total assets of greater
than or equal to 5.0% is considered to be "well-capitalized" pursuant to OTS
regulations.
WEST ESSEX BANCORP, INC.
PART II . OTHER INFORMATION
June 30, 2000
ITEM 1. Legal Proceedings
- - --------------------------
The Company and the Bank are parties to various litigation which
arises primarily in the ordinary course of business. Included in this
litigation are various claims and lawsuits involving the Bank, such as
claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interest, claims involving the making
and servicing of real property loans and other issues incident to the
Bank's 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 Company.
ITEM 2. Changes in Securities
- - -------------------------------
None.
ITEM 3. Defaults Upon Senior Securities
- - -----------------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
- - -------------------------------------------------------------
This information was reported in the Company's Form 10-QSB for the
quarter ended March 31, 2000.
ITEM 5. Other Information
- - ---------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
- - ----------------------------------------
(a) Exhibits:
3.1 Charter of West Essex Bancorp, Inc. *
3.2 Bylaws of West Essex Bancorp, Inc. *
4.0 Form of Common Stock Certificate *
11.0 Statement regarding computation of per share earnings
27.0 Financial Data Schedule
* Incorporated herein by reference into this document from the
Exhibits to Form S-1 Registration Statement and any
amendments thereto, Registration No. 333-56729.
(b) Reports on Form 8-K:
None
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WEST ESSEX BANCORP, INC.
Date: August 8, 2000 By /s/ Leopold W. Montanaro
------------------------ ----------------------------------------
Leopold W. Montanaro
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 8, 2000 By: /s/ Dennis A. Petrello
------------------------ ---------------------------------------
Dennis A. Petrello
Executive Vice President and
and Chief Financial Officer
(Principal Financial and
Accounting Officer)