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 September 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:
3,996,991 shares of common stock, par value $0.01 par share, were
outstanding as of October 31, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
WEST ESSEX BANCORP, INC.
FORM 10-QSB
For the Quarter Ended September 30, 2000
INDEX
Page
Number
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PART I FINANCIAL INFORMATION
Financial Statements 1
Item 1.
Consolidated Statements of Financial Condition at
September 30, 2000 and December 31, 1999 (Unaudited) 2
Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 2000 and 1999 (Unaudited) 3
Consolidated Statements of Comprehensive Income for the Three
and Nine Months Ended September 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 (Unaudited) 5 - 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan
of Operation 8 - 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
WEST ESSEX BANCORP, INC.
PART I. FINANCIAL INFORMATION
September 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 nine month periods ended September
30, 2000, are not necessarily indicative of the results to be expected for the
entire fiscal year.
1.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
2000 1999
-------------- ----------------
Assets
Cash and amounts due from depository institutions $ 1,690,417 $ 5,728,992
Interest-bearing deposits in other banks 3,487,693 7,016,853
---------- ---------
Total cash and cash equivalents 5,178,110 12,745,845
Securities available for sale 2,931,250 2,923,750
Investment securities held to maturity 41,652,028 41,582,003
Mortgage-backed securities held to maturity 119,595,154 121,223,315
Loans receivable 165,601,408 153,276,187
Real estate owned 601,595 899,738
Premises and equipment 2,617,688 2,737,456
Federal Home Loan Bank of New York stock 3,558,400 3,272,700
Accrued interest receivable 2,345,781 2,005,563
Excess of cost over assets acquired 4,198,772 4,643,348
Other assets 2,998,003 2,996,932
---------- ---------
Total assets $ 351,278,189 $ 348,306,837
============== =============
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 235,162,743 $ 234,977,812
Borrowed money 65,498,093 64,340,115
Advance payments by borrowers for taxes and insurance 946,634 1,044,140
Other liabilities 836,884 834,824
-------- -------
Total liabilities 302,444,354 301,196,891
------------ -----------
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 3,996,991 (2000)
and 4,054,357 (1999) 41,972 41,972
Additional paid-in capital 17,325,618 17,332,133
Retained earnings - substantially restricted 35,115,037 33,054,528
Common stock acquired by Employee Stock Ownership
Plan ("ESOP") (1,068,356) (1,178,874)
Unearned Incentive Plan stock (561,887) (655,549)
Treasury stock, at cost; 200,242 shares (2000) and
142,876 shares (1999) (1,975,149) (1,436,550)
Accumulated other comprehensive loss - Unrealized
loss on securities available for sale, net of income taxes (43,400) (47,714)
-------- --------
Total stockholders' equity 48,833,835 47,109,946
----------- ----------
Total liabilities and stockholders' equity $ 351,278,189 $ 348,306,837
============== =============
See notes to consolidated financial statements.
2.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- ----------------------------------
2000 1999 2000 1999
----------- ------------ ------------ --------------
Interest income:
Loans $ 3,144,119 $ 2,846,394 $ 9,127,078 $ 8,361,153
Mortgage-backed securities 2,070,154 1,983,390 6,224,492 5,784,316
Investment securities 777,468 780,689 2,307,908 2,385,411
Other interest-earning assets 95,917 135,089 308,149 484,675
------------ ------------ ------------ ------------
Total interest income 6,087,658 5,745,562 17,967,627 17,015,555
------------ ------------ ------------ ------------
Interest expense:
Deposits 2,420,648 2,141,585 6,824,251 6,465,838
Borrowed money 973,986 871,114 2,883,127 2,375,866
------------ ------------ ------------ ------------
Total interest expense 3,394,634 3,012,699 9,707,378 8,841,704
------------ ------------ ------------ ------------
Net interest income 2,693,024 2,732,863 8,260,249 8,173,851
Provision for loan losses -- -- -- --
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 2,693,024 2,732,863 8,260,249 8,173,851
------------ ------------ ------------ ------------
Non-interest income:
Fees and service charges 94,831 95,157 286,602 279,913
Gain on sale of securities available for sale -- -- -- 34,515
Other 27,550 32,347 121,550 143,518
------------ ------------ ------------ ------------
Total non-interest income 122,381 127,504 408,152 457,946
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 813,440 791,576 2,473,749 2,381,871
Net occupancy expense of premises 79,832 87,359 261,224 267,910
Equipment 181,286 160,821 534,191 488,844
(Gain) loss on real estate owned (29,516) 11,250 (196,286) 29,905
Amortization of intangibles 148,192 148,192 444,576 444,576
Miscellaneous 405,576 452,399 1,282,755 1,491,859
------------ ------------ ------------ ------------
Total non-interest expenses 1,598,810 1,651,597 4,800,209 5,104,965
------------ ------------ ------------ ------------
Income before income taxes 1,216,595 1,208,770 3,868,192 3,526,832
Income taxes 393,585 425,378 1,344,445 1,258,168
------------ ------------ ------------ ------------
Net income $ 823,010 $ 783,392 $ 2,523,747 $ 2,268,664
============ ============ ============ ============
Net income per common share:
Basic $ 0.21 $ 0.20 $ 0.65 $ 0.56
Diluted 0.21 0.19 0.65 0.56
============ ============ ============ ============
Weighted average number of common shares
outstanding:
Basic 3,843,058 4,009,842 3,853,610 4,048,571
Diluted 3,859,311 4,017,888 3,859,028 4,051,253
============ ============ ============ ============
See notes to consolidated financial statements.
3.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------------
2000 1999 2000 1999
--------- --------- ----------- -----------
Net income $ 823,010 $ 783,392 $ 2,523,747 $ 2,268,664
--------- --------- ----------- -----------
Other comprehensive income (loss) -
Unrealized holding gains (losses) on securities available for sale,
net of income taxes of $(5,173), $10,232, $(2,425) and 9,205 (18,207) 4,314 (185,956)
$104,511, respectively
Reclassification adjustment for realized gains on securities
available for sale, net of income taxes of $12,418 in 1999 -- -- -- (22,097)
--------- --------- ----------- -----------
Total other comprehensive income (loss) 9,205 (18,207) 4,314 (208,053)
--------- --------- ----------- -----------
Comprehensive income $ 832,215 $ 765,185 $ 2,528,061 $ 2,060,611
========= ========= =========== ===========
See notes to consolidated financial statements.
4.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------
(Unaudited)
Nine Months Ended September 30,
--------------------------------
2000 1999
------------- --------------
Cash flows from operating activities:
Net income $ 2,523,747 $ 2,268,664
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 196,516 177,193
Net accretion of premiums, discounts and deferred loan fees (306,759) (120,303)
Amortization of intangibles 444,576 444,576
(Gain) on sale of securities available for sale -- (34,515)
(Gain) on sale of real estate owned (234,635) --
(Increase) in accrued interest receivable (340,218) (181,073)
(Increase) decrease in other assets (3,496) 178,582
Increase in interest payable 1,266 69,179
Increase in other liabilities 56,582 198,712
Amortization of Incentive Plan cost 93,662 --
ESOP shares committed to be released 104,813 105,327
------------ ------------
Net cash provided by operating activities 2,536,054 3,106,342
------------ ------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale -- 5,021,875
Purchases of securities available for sale -- --
Proceeds from maturities and calls of investment securities held to maturity 150,000 14,000,000
Purchases of investment securities held to maturity -- (21,044,969)
Principal repayments on mortgage-backed securities held to maturity 17,033,606 29,614,358
Purchases of mortgage-backed securities held to maturity (15,337,689) (42,457,596)
Purchase of loans receivable (3,584,564) (957,203)
Net (increase) in loans receivable (8,887,709) (11,296,975)
Proceeds from sales of real estate owned 698,047 --
Proceeds from other payments received on real estate owned -- --
Additions to premises and equipment (76,748) (16,589)
Purchase of Federal Home Loan Bank of New York stock (285,700) (571,700)
------------ ------------
Net cash (used in) investing activities (10,290,757) (27,708,799)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits 141,750 (4,376,306)
Net increase in short-term borrowed money 5,800,000 11,000,000
Proceeds of long-term borrowed money -- 15,000,000
Repayment of long-term borrowed money (4,642,022) (5,332,512)
Net (decrease) increase in advance payments by borrowers for taxes
and insurance (97,506) 14,815
Purchase of treasury stock (552,016) (1,845,684)
Cash dividends paid (463,238) (407,388)
------------ ------------
Net cash provided by financing activities 186,968 14,052,925
------------ ------------
Net (decrease) in cash and cash equivalents (7,567,735) (10,549,532)
Cash and cash equivalents - beginning 12,745,845 16,371,431
------------ ------------
Cash and cash equivalents - ending $ 5,178,110 $ 5,821,899
============ ============
See notes to consolidated financial statements.
5.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2000 1999
--------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $1,285,980 $ 948,400
========== ==========
Interest $9,706,112 $8,772,525
========== ==========
Supplemental schedule of noncash investing activities:
Loans receivable transferred to real estate owned $ 165,269 $ 192,063
========== ==========
Issuance of treasury stock to fund Supplementary Employee
Retirement Plan $ 12,607 $ --
========== ==========
See notes to consolidated financial statements.
6.
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 regulation S-B 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 nine months ended September 30, 2000
are not necessarily indicative of the results which may be expected for the
entire fiscal year.
3. STOCKHOLDERS' EQUITY
At September 30, 2000, West Essex Bancorp, M.H.C. ("MHC"), a mutual holding
company, owns 2,350,121 shares of Company common stock, representing 58.8% 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 amounts of such waived dividends were approximately $235,000 and $176,000
during the three months ended September 30, 2000 and 1999, respectively, and
$470,000 and $529,000 during the nine months ended September 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 nine month periods ended
September 30, 1999, none of the potentially dilutive securities were included in
the computation of diluted net income per share as they were anti-dilutive.
7.
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.
8.
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 $165.6 million at December 31, 1998, December 31,
1999 and September 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 September 30, 2000 and December 31, 1999
Total assets were $351.3 million at September 30, 2000, compared to
$348.3 million at December 31, 1999, an increase of $3.0 million, or 0.9%. The
increase in assets was funded primarily by net income of $2.5 million.
Cash and cash equivalents, primarily interest-bearing deposits with the
FHLB, decreased $7.5 million to $5.2 million at September 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 $164.2
million at September 30, 2000, a decrease of $1.5 million, or 0.9%, from $165.7
million at December 31, 1999. Mortgage-backed securities, all of which are held
to maturity, decreased $1.6 million due to repayments exceeding purchases.
Investment securities held to maturity and securities available for sale
reflected only marginal changes.
Loans receivable increased by $12.3 million, or 8.0%, to $165.6 million
at September 30, 2000 from $153.3 million at December 31, 1999. Such increase
was primarily funded by the aforementioned decreases in cash and cash
equivalents and securities and by a $1.2 million increase in borrowings.
Deposits totalled $235.2 million at September 30, 2000, an increase of
$185,000, or 0.1%, over the $235.0 million balance at December 31, 1999.
9.
Borrowed money increased $1.2 million, or 1.9%, to $65.5 million at
September 30, 2000, as compared to $64.3 million at December 31, 1999. During
the nine months ended September 30, 2000, long-term debt of $4.6 million was
repaid and short-term borrowings were increased by $5.8 million.
Stockholders' equity increased $1.7 million, or 3.6%, to $48.8 million,
primarily due to the retention of net income.
Comparison of Operating Results for the Three Months Ended September 30, 2000
and 1999
Net Income. Net income increased $40,000, or 5.1%, to $823,000 for the
three months ended September 30, 2000, compared with $783,000 for the same 1999
period. The increase in net income during the 2000 period resulted primarily
from decreases in non-interest expenses and income taxes of $53,000 and $32,000,
respectively, partially offset by decreases in net interest income and
non-interest income of $40,000 and $5,000, respectively.
Interest Income. Total interest income increased $342,000, or 6.0%, to
$6.09 million for the three months ended September 30, 2000, from $5.75 million
for the same 1999 period. The increase was the result of a $6.8 million, or
2.1%, increase in average interest-earning assets between the periods, along
with an increase of 26 basis points, to 7.19%, in the yield earned on such
assets. The increase in the average balance was the result of continued strong
loan originations volume during the past twelve months while the increased yield
reflects increased market interest rates, a shift in assets toward higher
yielding loans and upward adjustments in the yields on adjustable rate assets.
Interest income on loans increased by $298,000, or 10.5%, to $3.14
million during the three months ended September 30, 2000, when compared with
$2.85 million for the same 1999 period. The increase during the 2000 period
resulted from an increase of $12.2 million, or 7.9%, in the average balance of
loans outstanding, along with an 18 basis point increase, to 7.57%, 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 $87,000, or 1.5%, to $2.07 million during the three
months ended September 30, 2000, when compared with $1.98 million for the same
1999 period. The increase during the 2000 period resulted from an increase of 28
basis points, to 6.84%, in yield. The average balance of mortgage-backed
securities increased $253,000, or 0.2%, between the periods.
Interest earned on investment securities, including both
available-for-sale and held-to-maturity issues, decreased by $4,000, or 0.5%, to
$777,000 during the three months ended September 30, 2000, when compared to
$781,000 during the same 1999 period, primarily due to a $1.8 million, or 4.0%,
decrease in the average balance of such assets, which more than offset a 24
basis point increase to 6.96% in the yield earned thereon. The decrease in
average balance was the result of calls and maturities of securities exceeding
purchases thereof. The increase in yield was the result of the higher rates
available on securities purchased and increasing yields on adjustable rate
investments due to higher market interest rate conditions.
Interest on other interest-earning assets decreased $39,000, or 28.9%,
to $96,000 during the three months ended September 30, 2000, as compared to
$135,000 for the same 1999 period. The decrease was due to a decrease of $3.8
million, or 35.8%, in the average balance of such assets, partially offset by a
58 basis point increase in yield. The reduced usage of lower yielding short-term
deposits in other banks was largely responsible for both the reduced average
balance and increased yield.
10.
Interest Expense. Interest expense on deposits increased $278,000, or
13.0%, to $2.42 million during the three months ended September 30, 2000, when
compared to $2.14 million during the same 1999 period. Such increase was
primarily attributable to an increase of 51 basis points, to 4.41%, in the cost
of interest-bearing deposits, as the average balance of interest-bearing
deposits was little changed. The increased cost is due to higher interest rates
paid on deposits, particularly certificates of deposits. The average cost of
certificates of deposit was 5.66% for the three months ended September 30, 2000,
as compared to 5.01% for the same 1999 period. The average cost of
non-certificate deposits decreased minimally to 1.88 % for the three months
ended September 30, 2000, as compared to 1.89% for the same prior year period.
Interest expense on borrowed money increased by $103,000, or 11.8%, to
$974,000 during the three months ended September 30, 2000, when compared with
$871,000 during the same 1999 period, primarily due to an increase of $5.8
million, or 9.6%, in the average balance of borrowings outstanding, along with
an 11 basis point increase to 5.90% in the cost of borrowed money. During the
three months ended September 30, 2000, the Bank repaid $352,000 in long-term
borrowings having an average interest rate of 5.92% and incurred no new
long-term debt. Short-term borrowings at September 30, 2000 stood at $11.8
million and carried an average interest rate of 6.58%, as compared to $13.0
million having an average rate of 6.44% at June 30, 2000.
Net Interest Income. Net interest income decreased $40,000, or 1.5%, to
$2.69 million during the three months ended September 30, 2000, when compared
with $2.73 million for the same 1999 period. Such decrease was due to an
increase in total interest expense of $382,000, partially offset by an increase
in total interest income of $342,000. The net interest rate spread decreased to
2.44% in 2000 from 2.63% in 1999. The decrease in the interest rate spread
resulted from an increase of 45 basis points in the cost of interest-bearing
liabilities, partially offset by a 26 basis point increase in the yield on
interest-earning assets. Additionally, net interest income improved due to the
additional income generated by a $6.8 million increase in average
interest-earning assets in excess of the increased cost incurred by a $5.6
million increase in average interest-bearing liabilities.
Provision for Loan Losses. During the three months ended September 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 three months ended September 30, 2000, loan charge-offs totalled
$2,000 and there were no recoveries. There were no loan charge-offs or
recoveries during the three months ended September 30, 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 September 30, 2000 and
1999, loans delinquent ninety days or more totalled $96,000 and $883,000,
respectively, representing 0.06% and 0.57%, respectively, of total loans. At
September 30, 2000, the allowance for loan losses stood at $1.36 million,
representing 0.80% of total loans and 1419.8% 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 September 30, 1999, the allowance for loan losses stood at
$1.40 million, representing 0.91% of total loans and 158.6% 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.
11.
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 $5,000, $999,000 and $359,000, respectively, at
September 30, 2000, as compared to $23,000, $986,000 and $356,000, respectively,
at June 30, 2000.
Non-Interest Income. Non-interest income decreased $6,000, or 4.7%, to
$122,000 during the three months ended September 30, 2000, from $128,000 during
the same 1999 period.
Non-Interest Expenses. Non-interest expenses decreased by $53,000, or
3.2%, to $1.60 million during the three months ended September 30, 2000, when
compared with $1.65 million during the same 1999 period. A primary reason for
the decrease was the improved results of real estate owned operations, which
reflected a gain of $30,000 during the quarter ended September 30, 2000, as
compared to a loss of $11,000 during the same prior year quarter. The
improvement was the result of $39,000 in gains on property sales in the current
period versus none in the prior period. Salaries and employee benefits, the
largest component of non-interest expenses, increased $21,000, or 2.7%, to
$813,000 during the three months ended September 30, 1999, from $792,000 during
the prior year quarter. Miscellaneous non-interest expenses decreased $46,000,
or 10.2%, to $406,000 for the three months ended September 30, 2000, from
$452,000 during the comparable prior year period due primarily to decreased
legal and FDIC insurance expenses and the lack of year 2000 remediation expenses
in the current year period. All other elements of non-interest expense remained
little changed at $409,000 and $396,000 during the three months ended September
30, 2000 and 1999, respectively.
Income Taxes. Income tax expense totalled $394,000, or 32.4% of income
before income taxes, during the three months ended September 30, 2000, as
compared to $425,000, or 35.2% of income before income taxes, during the
comparable 1999 period.
Comparison of Operating Results for the Nine Months Ended September 30, 2000 and
1999
Net Income. Net income increased $255,000, or 11.2%, to $2.52 million
for the nine months ended September 30, 2000, compared with $2.27 million for
the same 1999 period. The increase in net income during the 2000 period resulted
primarily from an $86,000 increase in net interest income and a $305,000
decrease in non-interest expenses, which were partially offset by a decrease in
non-interest income of $50,000 and an increase in income taxes of $86,000.
12.
Interest Income. Total interest income increased $952,000, or 5.6%, to
$17.97 million for the nine months ended September 30, 2000, from $17.02 million
for the same 1999 period. The increase was the result of a $9.8 million, or
3.0%, increase in average interest-earning assets between the periods, along
with a 17 basis point increase, to 7.10%, in the yield earned on such assets.
The increase in the average balance was the result of continued strong loan
originations volume during the past twelve months, while the increased yield
reflects increased market interest rates, a shift in assets toward higher
yielding loans and upward adjustments in rates on adjustable rate assets.
Interest income on loans increased by $766,000, or 9.2%, to $9.13
million during the nine months ended September 30, 2000, when compared with
$8.36 million for the same 1999 period. The increase during the 2000 period
resulted from an increase of $14.1 million, or 9.5%, in the average balance of
loans outstanding, which was sufficient to offset a 3 basis point decrease to
7.51% in the yield earned on the loan portfolio. The increased average balance
was the result of strong lending volume.
Interest on mortgage-backed securities, all of which are
held-to-maturity, increased $440,000, or 7.6%, to $6.22 million during the nine
months ended September 30, 2000, when compared with $5.78 million for the same
1999 period. The increase during the 2000 period resulted from an increase of 24
basis points, to 6.71%, in yield, along with an increase of $4.5 million, or
3.8%, in the average balance of mortgage-backed securities. The increased yield
reflects higher market interest rates and upward adjustments of rates on
adjustable rate issues.
Interest earned on investment securities, including both
available-for-sale and held-to-maturity issues, decreased by $78,000, or 3.3%,
to $2.31 million during the nine months ended September 30, 2000, when compared
to $2.39 million during the same 1999 period, primarily due to a decrease of
$3.2 million, or 6.7%, in the average balance of such assets, which more than
offset a 24 basis point increase to 6.90% in the yield earned. The decrease in
average balance was the result of calls and maturities of securities exceeding
purchases thereof. The increase in yield was the result of the higher rates
available on securities purchased and increasing yields on adjustable rate
issues.
Interest on other interest-earning assets decreased $177,000, or 36.5%,
to $308,000 during the nine months ended September 30, 2000, as compared to
$485,000 for the same 1999 period. The decrease was due to a decrease of $5.6
million, or 44.8%, in the average balance of such assets, partially offset by a
77 basis point increase, to 5.91%, in yield. The reduced usage of lower yielding
short-term deposits in other banks was responsible for both the reduced average
balance and increased yield.
Interest Expense. Interest expense on deposits increased $358,000, or
5.5%, to $6.82 million during the nine months ended September 30, 2000, when
compared to $6.47 million during the same 1999 period. Such increase was
primarily attributable to an increase of 26 basis points, to 4.15%, in the cost
of interest-bearing deposits, partially offset by a $2.2 million, or 1.0%,
decrease in the average balance thereof. The increase in cost is due to higher
interest rates paid on deposits, particularly certificates of deposit. The
average cost of certificates of deposit was 5.35% for the nine months ended
September 30, 2000 as compared to 5.01% for the same 1999 period. The average
cost of non-certificate deposits decreased to 1.85 % for the nine months ended
September 30, 2000, as compared to 1.90% for the same prior year period.
Interest expense on borrowed money increased by $507,000, or 21.3%, to
$2.88 million during the nine months ended September 30, 2000, when compared
with $2.38 million during the same 1999 period, primarily due to increases of
$10.2 million, or 18.2%, in the average balance of borrowings outstanding and 15
basis points, to 5.82%, in the cost of borrowed money. During the nine months
ended September 30, 2000, the Bank repaid $4.6 million in long-term borrowings
having an average interest rate of 5.61% and incurred no new long-term
borrowings. Short-term borrowings at September 30, 2000, totalled $11.8 million
at an average rate of 6.58%, as compared to $6.0 million at 5.80% at December
31, 1999.
13.
Net Interest Income. Net interest income increased $86,000, or 1.1%, to
$8.26 million during the nine months ended September 30, 2000, when compared
with $8.17 million for the same 1999 period. Such increase was due to an
increase in total interest income of $951,000, partially offset by an increase
in total interest expense of $865,000. The net interest rate spread decreased to
2.57% in 2000 from 2.68% in 1999. The decrease in the interest rate spread
resulted from an increase of 28 basis points in the cost of interest-bearing
liabilities, partially offset by a 17 basis point increase in the yield on
interest-earning assets. Additionally, net interest income improved due to the
additional income generated by a $9.8 million increase in average
interest-earning assets in excess of the increased cost incurred by an $8.0
million increase in average interest-bearing liabilities.
Provision for Loan Losses. During the nine months ended September 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 nine months ended September 30, 2000, charge-offs totalled $37,000
and there were no recoveries. During the nine months ended September 30, 1999,
charge-offs totalled $317,000, including a $316,000 charge-off related to the
final resolution of a $694,000 construction loan, and recoveries totalled
$1,000. 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
September 30, 2000 and 1999, loans delinquent ninety days or more totalled
$96,000 and $883,000, respectively, representing 0.06% and 0.57%, respectively,
of total loans. At September 30, 2000, the allowance for loan losses stood at
$1.36 million, representing 0.80% of total loans and 1419.8% 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 September 30, 1999, the allowance for loan
losses stood at $1.40 million, representing 0.91% of total loans and 158.6% 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 allowance for loan losses includes specific, general and
unallocated allowances of $5,000, $999,000 and $359,000, respectively, at
September 30, 2000, as compared to $50,000, $878,000 and $472,000, respectively,
at December 31, 1999, and $115,000, $872,000 and $413,000, respectively, at
September 30, 1999.
Non-Interest Income. Non-interest income decreased $50,000, or 10.9%,
to $408,000 during the nine months ended September 30, 2000, from $458,000
during the same 1999 period. The 1999 period includes a gain of $35,000 related
to the sale of securities available for sale.
Non-Interest Expenses. Non-interest expenses decreased by $305,000, or
6.0%, to $4.80 million during the nine months ended September 30, 2000 when
compared with $5.10 million during the same 1999 period. A primary reason for
the decrease in non-interest expenses was a $226,000 improvement related to real
estate operations, which reflected a $196,000 gain for the nine months ended
September 30, 2000, as compared to a $30,000 loss in the prior year period. The
improved results are due to $235,000 in gains on real estate sales in the
current period as compared to none in the prior year period. Salaries and
employee benefits, the largest component of non-interest expenses, increased
$92,000, or 3.9%, to $2.47 million during the nine months ended September 30,
2000, from $2.38 million during the prior year period. Miscellaneous
non-interest expenses decreased $209,000, or 14.0%, to $1.28 million during the
nine months ended September 30, 2000, as compared to $1.49 million in the
comparable prior year period, reflecting decreased legal and FDIC insurance
expenses and the absence of year 2000 remediation expenses in the current year
period. All other elements of non-interest expense remained little changed at
$1.24 million and $1.20 million during the nine months ended September 30, 2000
and 1999, respectively.
14.
Income Taxes. Income tax expense totalled $1.34 million, or 34.8% of
income before income taxes, during the nine months ended September 30, 2000, as
compared to $1.26 million, or 35.7% 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 September 30, 2000,
and December 31, 1999, the Bank's regulatory liquidity ratios were 21.10% and
25.40%, respectively.
At September 30, 2000, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $39.5 million, or 11.4% of total
adjusted assets, which is above the required level of 5.2 million, or 1.5%; core
capital of $39.5 million, or 11.4% of total adjusted assets, which is above the
required level of $13.9 million, or 4.0%; and risk-based capital of $40.8
million, or 29.10% 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 September 30, 2000, cash and cash equivalents and securities available for
sale totalled $8.1 million, or 2.3% 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
September 30, 2000, the Bank had $65.5 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 September 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 $13.2 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 September 30, 2000, totalled $120.5 million. The Bank expects
that substantially all of the maturing certificate accounts will be retained by
the Bank.
At September 30, 2000, the Company and the Bank had total equity,
determined in accordance with generally accepted accounting principles, of $48.8
million and $43.6 million, respectively, or 13.9% and 12.5%, respectively, of
total assets. The Bank's regulatory tangible capital at that date, which
excludes intangible assets of $4.2 million and unrealized securities losses, net
of deferred income taxes of $43,000, was $39.5 million, or 11.4% 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.
15.
WEST ESSEX BANCORP, INC.
PART II . OTHER INFORMATION
September 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 Company and Bank hold security interests, 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
None.
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
16.
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: November 13, 2000 By /s/ Leopold W. Montanaro
------------------------ ------------------------------------
Leopold W. Montanaro
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 By: /s/ Dennis A. Petrello
------------------------ -------------------------------------
Dennis A. Petrello
Executive Vice President and
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
17.