UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-29770
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WEST ESSEX BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
UNITED STATES 22-3597632
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
417 Bloomfield Avenue, Caldwell, New Jersey 07006
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(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:
3,962,788 shares of common stock, par value $0.01 par share, were
outstanding as of July 31, 2001.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
WEST ESSEX BANCORP, INC.
FORM 10-QSB
For the Quarter Ended June 30, 2001
INDEX
Page
Number
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Statements of Financial Condition at
June 30, 2001 and December 31, 2000 (Unaudited) 2
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 2001 and 2000 (Unaudited) 3
Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended June 30, 2001 and 2000 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2001 and 2000 (Unaudited) 5-6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan
of Operations 8-14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
WEST ESSEX BANCORP, INC.
PART I. FINANCIAL INFORMATION
June 30, 2001
----------------------------------------
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-KSB for the year
ended December 31, 2000.
The results of operations for the three and six month periods ended June 30,
2001, 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)
June 30, December 31,
2001 2000
Assets
Cash and amounts due from depository institutions $ 2,066,588 $ 2,416,155
Interest-bearing deposits in other banks 16,328,814 6,461,762
------------- -------------
Total cash and cash equivalents 18,395,402 8,877,917
Term deposits 300,000 --
Securities available for sale 980,000 2,994,063
Investment securities held to maturity 34,318,693 41,727,821
Mortgage-backed securities held to maturity 123,859,209 130,627,541
Loans receivable 164,838,472 164,037,987
Real estate owned 360,790 601,595
Premises and equipment 2,569,845 2,595,036
Federal Home Loan Bank of New York stock 3,558,400 3,558,400
Accrued interest receivable 2,122,981 2,307,828
Excess of cost over assets acquired 3,754,197 4,050,580
Other assets 5,384,051 3,026,894
------------- -------------
Total assets $ 360,442,040 $ 364,405,662
============= =============
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 236,543,211 $ 237,956,208
Borrowed money 71,109,083 62,290,413
Advance payments by borrowers for taxes and insurance 1,018,147 1,032,953
Due to broker -- 12,768,419
Other liabilities 1,456,432 909,657
------------- -------------
Total liabilities 310,126,873 314,957,650
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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 3,962,788 (2001)
and 3,986,991 (2000) 41,972 41,972
Additional paid-in capital 17,355,924 17,332,221
Retained earnings - substantially restricted 36,801,672 35,733,815
Common stock acquired by Employee Stock Ownership
Plan ("ESOP") (957,837) (1,031,516)
Unearned Incentive Plan stock (468,199) (530,666)
Treasury stock, at cost; 234,445 shares (2001) and
210,242 shares (2000) (2,445,561) (2,094,524)
Accumulated other comprehensive loss - Unrealized
loss on securities available for sale, net of income taxes (12,804) (3,230)
------------- -------------
Total stockholders' equity 50,315,167 49,448,012
------------- -------------
Total liabilities and stockholders' equity $ 360,442,040 $ 364,405,662
============= =============
See notes to consolidated financial statements.
2.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Interest income:
Loans $ 3,053,035 $ 3,066,429 $ 6,196,372 $ 5,982,959
Mortgage-backed securities 2,052,663 2,106,444 4,227,767 4,154,338
Investment securities 572,208 766,660 1,241,227 1,530,440
Other interest-earning assets 205,553 88,443 346,827 212,232
------------ ------------ ------------ ------------
Total interest income 5,883,459 6,027,976 12,012,193 11,879,969
------------ ------------ ------------ ------------
Interest expense:
Deposits 2,348,360 2,264,353 4,774,466 4,403,603
Borrowed money 923,797 981,702 1,850,200 1,909,141
------------ ------------ ------------ ------------
Total interest expense 3,272,157 3,246,055 6,624,666 6,312,744
------------ ------------ ------------ ------------
Net interest income 2,611,302 2,781,921 5,387,527 5,567,225
Provision for loan losses 3,506 -- -- --
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 2,607,796 2,781,921 5,387,527 5,567,225
------------ ------------ ------------ ------------
Non-interest income:
Fees and service charges 80,660 103,213 162,048 191,771
Gain on sale of securities available for sale -- -- 45,000 --
Other 70,314 35,510 120,457 94,000
------------ ------------ ------------ ------------
Total non-interest income 150,974 138,723 327,505 285,771
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 939,340 832,784 1,798,736 1,660,309
Net occupancy expense of premises 82,455 81,858 204,700 181,392
Equipment 184,872 182,362 377,249 352,905
(Gain) loss on real estate owned (16,790) (58,531) (2,382) (166,770)
Amortization of intangibles 148,192 148,192 296,384 296,384
Miscellaneous 333,360 459,597 714,255 877,179
------------ ------------ ------------ ------------
Total non-interest expenses 1,671,429 1,646,262 3,388,942 3,201,399
------------ ------------ ------------ ------------
Income before income taxes 1,087,341 1,274,382 2,326,090 2,651,597
Income taxes 375,175 453,581 815,764 950,860
------------ ------------ ------------ ------------
Net income $ 712,166 $ 820,801 $ 1,510,326 $ 1,700,737
============ ============ ============ ============
Net income per common share:
Basic $ 0.186 $ 0.213 $ 0.395 $ 0.441
Diluted 0.183 0.213 0.389 0.441
============== =========== ============ ============
Dividends declared per common share: $ 0.15 $ 0.10 $ 0.30 $ 0.20
============== =========== ============ ============
Weighted average number of common shares outstanding:
Basic 3,823,860 3,858,743 3,824,157 3,858,886
Diluted 3,890,242 3,858,743 3,882,769 3,858,886
============== =========== ============ ============
See notes to consolidated financial statements.
3.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-------------------------------------------------------------------------------
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net income $ 712,166 $ 820,801 $ 1,510,326 $ 1,700,737
----------- ----------- ----------- -----------
Other comprehensive income -
Unrealized holding (losses) gains on securities available for sale,
net of income taxes of $2,474, $2,245, $(10,844) and $2,748, (4,401) (3,995) 19,295 (4,891)
respectively
Reclassification adjustment for realized gains on securities
available for sale, net of income taxes of $16,191 in 2001 -- -- (28,809) --
----------- ----------- ----------- -----------
Total other comprehensive income (4,401) (3,995) (9,514) (4,891)
----------- ----------- ----------- -----------
Comprehensive income $ 707,765 $ 816,806 $ 1,500,812 $ 1,695,846
=========== =========== =========== ===========
See notes to consolidated financial statements.
4.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
(Unaudited)
Six Months Ended June 30,
----------------------------
2001 2000
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Cash flows from operating activities:
Net income $ 1,510,326 $ 1,700,737
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 130,228 129,776
Net accretion of premiums, discounts and deferred loan fees (105,297) (199,378)
Amortization of intangibles 296,383 296,384
(Gain) on sale of securities available for sale (45,000) --
(Gain) on sale of real estate owned (23,913) (195,461)
Decrease (increase) in accrued interest receivable 118,736 (126,810)
(Increase) in other assets (651,810) (234,753)
Increase in interest payable 249,345 53,272
Increase in other liabilities 458,474 113,210
Amortization of Incentive Plan cost 62,467 62,442
ESOP shares committed to be released 98,895 67,275
------------ ------------
Net cash provided by operating activities 2,098,834 1,666,694
------------ ------------
Cash flows from investing activities:
Purchases of term deposits (300,000) --
Proceeds from sales of securities available for sale 2,045,000 --
Proceeds from maturities and calls of investment securities held to maturity 9,548,188 --
Purchases of investment securities held to maturity (2,000,000) --
Principal repayments on mortgage-backed securities held to maturity 20,707,101 11,148,681
Purchases of mortgage-backed securities held to maturity (26,663,695) (12,337,689)
Purchase of loans receivable (2,453,011) (3,249,507)
Net decrease (increase) in loans receivable 1,640,583 (8,171,585)
Proceeds from sales of real estate owned 264,718 390,059
Additions to premises and equipment (105,037) (82,340)
Purchase of Federal Home Loan Bank of New York stock -- (285,700)
Purchase of life insurance (1,700,000) --
------------ ------------
Net cash provided by (used in) investing activities 983,847 (12,588,081)
------------ ------------
Cash flows from financing activities:
Net (decrease) increase in deposits (1,559,779) 398,154
Net (decrease) increase in short-term borrowed money (450,000) 7,000,000
Proceeds of long-term borrowed money 10,000,000 --
Repayment of long-term borrowed money (731,330) (4,289,562)
Net (decrease) increase in advance payments by borrowers for taxes
and insurance (14,806) 88,176
Purchases of treasury stock (384,625) (198,400)
Proceeds from sales of treasury stock 17,813 --
Cash dividends paid (442,469) (313,328)
------------ ------------
Net cash provided by financing activities 6,434,804 2,685,040
------------ ------------
Net increase (decrease) in cash and cash equivalents 9,517,485 (8,236,347)
Cash and cash equivalents - beginning 8,877,917 12,745,845
------------ ------------
Cash and cash equivalents - ending $ 18,395,402 $ 4,509,498
============ ============
See notes to consolidated financial statements.
5.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
(Unaudited)
Six Months Ended June 30,
-----------------------------
2001 2000
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Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 1,038,020 $ 1,085,980
============ ============
Interest $ 6,375,321 $ 6,259,472
============ ============
Supplemental schedule of noncash investing activities:
Unrealized (loss) on securities
available or sale, net of income taxes $ (9,514) $ (4,891)
============ ============
Security purchased in 2000, settled in 2001:
Mortgage-backed security held to maturity $ 12,702,308 $ --
Accrued interest receivable 66,111 --
------------ ------------
Due to broker $ 12,768,419 $ --
============ ============
Loans receivable transferred to real estate owned $ -- $ 165,269
============ ============
Issuance of treasury stock to fund Supplemental Employee
Retirement Plan $ 14,262 $ 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 six months ended June 30, 2001 are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
3. 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 months ended June 30,
2001, 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
the 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.
Comparison of Financial Condition at June 30, 2001 and December 31, 2000
Total assets were $360.4 million at June 30, 2001, compared to
$364.4 million at December 31, 2000, a decrease of $4.0 million, or 1.1%. The
decrease in total assets was primarily due to a $12.8 million security purchase
in December 2000 which was funded via a broker liability until paid for in
January 2001. Excluding this item, total assets increased by $8.8 million or
2.5%.
8.
Cash and cash equivalents, primarily interest-bearing deposits
with the Federal Home Loan Bank of New York ("FHLB"), increased $9.5 million to
$18.4 million at June 30, 2001 from $8.9 million at December 31, 2000. The
increase in cash and cash equivalents was the result of proceeds received on
several securities called in advance of final maturity which had not yet been
reinvested.
In the aggregate, mortgage-backed securities and investment
securities, including available-for-sale and held to maturity issues, totalled
$159.2 million at June 30, 2001, a decrease of $16.1 million, or 9.2%, from
$175.3 million at December 31, 2000. Mortgage-backed securities, all of which
are held to maturity, decreased $6.7 million due to repayments exceeding
purchases. Investment securities held to maturity decreased $7.4 million due
primarily to calls of several higher yielding securities in advance of scheduled
maturities. Securities available for sale decreased $2.0 million due to a
security sale.
Loans receivable increased by $800,000, or 0.5%, to $164.8
million at June 30, 2001 from $164.0 million at December 31, 2000.
Deposits totalled $236.5 million at June 30, 2001, a decrease of
$1.5 million, or 0.6%, from the $238.0 million balance at December 31, 2000.
Borrowed money increased $8.8 million to $71.1 million at June
30, 2001, as compared to $62.3 million at December 31, 2000. During the six
months ended June 30, 2001, a 10-year, $10.0 million borrowing was obtained,
long-term debt of $731,000 was repaid and short-term borrowings were reduced by
$500,000.
Stockholders' equity increased $867,000, or 1.8%, to $50.3
million, primarily due to the retention of net income.
Comparison of Operating Results for the Three Months Ended June 30, 2001 and
2000
Net Income. Net income decreased $109,000, or 13.3%, to $712,000
for the three months ended June 30, 2001 compared with $821,000 for the same
2000 period. The decrease in net income during the 2001 period resulted
primarily from a $171,000 decrease in net interest income and a $25,000 increase
in non-interest expenses, which were partially offset by an increase in
non-interest income of $12,000 and a decrease in income taxes of $79,000.
Interest Income. Total interest income decreased $145,000, or
2.4%, to $5.9 million for the three months ended June 30, 2001 from $6.0 million
for the same 2000 period. The decrease was the result of a 24 basis point
decline to 6.88% in yield, which was partially offset by a $3.2 million, or
0.9%, increase in average interest-earning assets between the periods. The
decrease in yield was the result of lower market interest rates.
Interest income on loans decreased by $14,000 or 0.5% to $3.05
million during the three months ended June 30, 2001 when compared with $3.07
million for the same 2000 period. The decrease during the 2001 period resulted
from a 15 basis point decline to 7.37% in the yield earned on the loan
portfolio, partially offset by a $2.6 million, or 1.6%, increase in average
loans outstanding. The decreased yield is the result of lower rates obtained on
originations as well as downward interest rate adjustments on the Bank's
adjustable-rate mortgage loans.
9.
Interest on mortgage-backed securities, all of which are
held-to-maturity, decreased $53,000, or 2.5%, to $2.05 million during the three
months ended June 30, 2001 when compared with $2.11 million for the same 2000
period. The decrease during the 2001 period resulted from decreases of $2.2
million, or 1.7%, in the average balance of mortgage-backed securities and 5
basis points, to 6.70%, in yield. The decreased yield is the result of downward
interest rate adjustments on adjustable rate issues.
Interest earned on investment securities, including both
available-for-sale and held-to-maturity issues, decreased by $195,000, or 25.4%,
to $572,000 during the three months ended June 30, 2001, when compared to
$767,000 during the same 2000 period, due to decreases of $9.8 million, or
22.1%, in the average balance of such assets and 30 basis points to 6.58% in the
yield earned thereon. The decrease in average balance was the result of calls,
sales and maturities of securities exceeding purchases thereof. The decrease in
yield was the result of calls of several higher yielding securities.
Interest on other interest-earning assets increased $117,000, or
133.0%, to $205,000 during the three months ended June 30, 2001 as compared to
$88,000 for the same 2000 period. The increase was due to an increase of $12.6
million, or 203.6%, in the average balances of such assets, partially offset by
a decrease of 132 basis points, to 4.36%, in yield. The reduced yield is
reflective of the decline in market interest rates.
Interest Expense. Interest expense on deposits increased $84,000,
or 3.7%, to $2.35 million during the three months ended June 30, 2001 when
compared to $2.26 million during the same 2000 period. Such increase was
primarily attributable to an increase of 12 basis points, to 4.26%, in the cost
of interest-bearing deposits, along with a $1.5 million, or 0.7%, increase in
the average balance thereof. The increase in cost is due to higher interest
rates paid on certificates of deposits, which averaged 5.47% for the three
months ended June 30, 2001 as compared to 5.35% for the same 2000 period. The
average cost of non-certificate deposits was 1.82% for the three months ended
June 30, 2001 as compared to 1.85% for the same prior year period.
Interest expense on borrowed money decreased by $58,000, or 5.9%,
to $924,000 during the three months ended June 30, 2001 when compared with
$982,000 during the same 2000 period, primarily due to a 34 basis point decrease
to 5.51% in the cost of borrowed money as the average balance of borrowings was
little changed. During the three months ended June 30, 2001, the Bank repaid
$368,000 in long-term borrowings having an average interest rate of 5.97%.
Short-term borrowings totalled $7.5 million at June 30, 2001 and had an average
interest rate of 4.40% as compared to $2.4 million at March 31, 2001, having an
average rate of 5.67% and $13.0 million at June 30, 2000, having an average rate
of 6.44%.
Net Interest Income. Net interest income decreased $171,000, or
6.1%, to $2.6 million during the three months ended June 30, 2001, when compared
with $2.8 million for the same 2000 period. Such decrease was due to a decrease
in total interest income of $144,000, along with a decrease in total interest
expense of $25,000. The net interest rate spread decreased to 2.33% in 2001 from
2.58% in 2000. The decrease in the interest rate spread resulted from an
increase of 1 basis point in the cost of interest-bearing liabilities, along
with a 24 basis point decrease in the yield on interest-earning assets.
Provision for Loan Losses. During the three months ended June 30,
2001, the Bank recorded a $4,000 provision for loan losses. During the three
months ended June 30, 2000, the Bank did not record a provision for loan losses.
At both period ends, 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, 2001. 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
10.
based on its periodic review of the loan portfolio and general market
conditions. At June 30, 2001 and 2000, loans delinquent ninety days or more
totalled $138,000 and $142,000, respectively, representing 0.08% of total loans
at each date. At June 30, 2001, the allowance for loan losses stood at $1.36
million, representing 0.81% of total loans and 985.0% of loans delinquent ninety
days or more. At March 31, 2001, the allowance for loan losses stood at $1.36
million, representing 0.82% of total loans and 503.7% of loans delinquent ninety
days or more. 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. 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.
Non-Interest Income. Non-interest income increased $12,000, or
8.6%, to $151,000 during the three months ended June 30, 2001 from $139,000
during the same 2000 period.
Non-Interest Expenses. Non-interest expenses increased by
$25,000, or 1.5%, to $1.67 million during the three months ended June 30, 2001
when compared with $1.65 million during the same 2000 period. The primary
components of the period increase were a $42,000 decline in results related to
real estate owned and a $106,000 increase in salaries and employee benefits,
partially offset by a $126,000 decrease in miscellaneous non-interest expenses.
The decline in real estate owned results were largely attributable to $27,000 in
gains from property sales in the current period as compared to $64,000 in gains
from property sales in the comparable prior year period. Salaries and employee
benefits, the largest component of non-interest expenses, increased $106,000, or
12.7%, to $939,000 during the three months ended June 30, 2001 from $833,000
during the prior year quarter. Miscellaneous non-interest expenses decreased
$127,000, or 27.6%, to $333,000 during the three months ended June 30, 2001 from
$460,000 during the prior year quarter as management has sought to reduce costs.
Among the elements of miscellaneous non-interest expenses which have been
reduced are legal fees, insurance expense, advertising and outside conference
costs. All other elements of non-interest expense remained little changed at
$416,000 and $412,000 during the three months ended June 30, 2001 and 2000,
respectively.
Income Taxes. Income tax expense totalled $375,000, or 34.5% of
income before income taxes, during the three months ended June 30, 2001 as
compared to $454,000, or 35.6% of income before income taxes, during the
comparable 2000 period.
Comparison of Operating Results for the Six Months Ended June 30, 2001 and 2000
Net Income. Net income decreased $190,000, or 11.2%, to $1.5
million for the six months ended June 30, 2001 compared with $1.7 million for
the same 2000 period. The decrease in net income during the 2001 period resulted
primarily from a $180,000 decrease in net interest income and a $188,000
increase of non-interest expenses, which were partially offset by an increase in
non-interest income of $42,000 and a decrease in income taxes of $135,000.
Interest Income. Total interest income increased $132,000, or
1.1%, to $12.0 million for the six months ended June 30, 2001 from $11.9 million
for the same 2000 period. The increase was the result of a $5.9 million, or
1.7%, increase in average interest-earning assets between the periods, partially
offset by a 5 basis point decrease to 7.01% in yield.
11.
Interest income on loans increased by $213,000, or 3.6%, to $6.2
million during the six months ended June 30, 2001 when compared with $6.0
million for the same 2000 period. The increase during the 2001 period resulted
from an increase of $5.8 million, or 3.6%, in the average balance of loans
outstanding, which was sufficient to offset a one basis point decrease to 7.47%
in the yield earned on the loan portfolio.
Interest on mortgage-backed securities, all of which are
held-to-maturity, increased $74,000, or 1.8%, to $4.23 million during the six
months ended June 30, 2001 when compared with $4.15 million for the same 2000
period. The increase during the 2001 period resulted from an increase of 13
basis points to 6.77% in yield, partially offset by a decline of $106,000 or
0.1%, in the average balance of mortgage-backed securities.
Interest earned on investment securities, including both
available-for-sale and held-to-maturity issues, decreased by $290,000, or 18.9%,
to $1.2 million during the six months ended June 30, 2001, when compared to $1.5
million during the same 2000 period, primarily due to decreases of $7.5 million,
or 16.7%, in the average balance of such assets, and 18 basis points to 6.69% in
the yield earned thereon. The decrease in average balance was the result of
calls, sales and maturities exceeding purchases of such securities. The decrease
in yield was the result of the calls of several higher yielding securities.
Interest on other interest-earning assets increased $135,000, or
60.8%, to $347,000 during the six months ended June 30, 2001 as compared to
$212,000 for the same 2000 period. The increase was due to an increase of $7.6
million, or 107.9%, in the average balance of such assets, which was more than
sufficient to offset a 128 basis point decrease in yield. The reduced yield is
reflective of the decline in market interest rates.
Interest Expense. Interest expense on deposits increased
$370,000, or 8.4%, to $4.8 million during the six months ended June 30, 2001
when compared to $4.4 million during the same 2000 period. Such increase was
primarily attributable to an increase of 32 basis points, to 4.33%, in the cost
of interest-bearing deposits, along with a $1.3 million, or 0.6%, increase in
the average balance thereof. The increase in cost is due to higher interest
rates paid on certificates of deposit, which averaged 5.56% for the six months
ended June 30, 2001 as compared to 5.19% for the same 2000 period. The average
cost of non-certificate deposits was 1.82% for the six months ended June 30,
2001 as compared to 1.84% for the same prior year period.
Interest expense on borrowed money decreased by $59,000, or 3.1%,
to $1.85 million during the six months ended June 30, 2001 when compared with
$1.91 million during the same 2000 period, primarily due to a 20 basis point
decrease to 5.58% in the cost of borrowed money, which more than offset a
$181,000, or 0.3%, increase in average borrowings. During the six months ended
June 30, 2001, the Bank obtained a 10-year $10.0 million borrowing at 5.40% and
repaid $731,000 in long-term borrowings having an average interest rate of
5.97%. At June 30, 2001 and December 31, 2000, short-term borrowings totalled
$7.5 million and $8.0 million, respectively, and carried an average rate of
4.40% and 6.52%, respectively.
Net Interest Income. Net interest income decreased $180,000, or
3.2%, to $5.4 million during the six months ended June 30, 2001, when compared
with $5.6 million the same 2000 period. Such decrease was due to an increase in
total interest expense of $312,000, partially offset by an increase in total
interest income of $132,000. The net interest rate spread decreased to 2.39% in
2001 from 2.64% in 2000. The decrease in the interest rate spread resulted from
an increase of 20 basis points in the cost of interest-bearing liabilities along
with a 5 basis point decrease in the yield on interest-earning assets.
12.
Provision for Loan Losses. During the six months ended June 30,
2001 and 2000, 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, 2001, there were no charge-offs. During the
six months ended June 30, 2000, charge-offs totalled $35,000. There were no
recoveries during the six months ended June 30, 2001 and 2000. 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, 2001 and 2000,
loans delinquent ninety days or more totalled $138,000 and $142,000,
respectively, representing 0.08% of total loans at each date. At June 30, 2001,
the allowance for loan losses stood at $1.36 million, representing 0.81% of
total loans and 985.0 % of loans delinquent ninety days or more. At December 31,
2000, the allowance for loan losses stood at $1.36 million, representing 0.81%
of total loans and 1251.7% of loans delinquent ninety days or more. 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. 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.
Non-Interest Income. Non-interest income decreased $42,000, or
14.7%, to $328,000 during the six months ended June 30, 2001 from $286,000
during the same 2000 period. The 2001 amount includes a $45,000 gain on the sale
of a security available for sale.
Non-Interest Expenses. Non-interest expenses increased by
$188,000, or 5.9%, to $3.4 million during the six months ended June 30, 2001
when compared with $3.2 million during the same 2000 period. The primary
components of the period increase were a $165,000 decline in results related to
real estate owned and a $138,000 increase in salaries and employee benefits,
partially offset by a $163,000 decrease in miscellaneous non-interest expenses.
The decline in real estate owned results were attributable to $24,000 in gains
from property sales in the current period as compared to $195,000 in gains from
property sales in the comparable prior year period. Salaries and employee
benefits, the largest component of non-interest expenses, increased $138,000, or
8.3%, to $1.8 million during the six months ended June 30, 2001 from $1.7
million during the prior year period. Miscellaneous non-interest expenses
decreased $163,000, or 18.6%, to $714,000 during the six months ended June 30,
2001, from $877,000 million during the comparable prior year period as
management has sought to reduce costs. Among the elements of miscellaneous
non-interest expense which have been reduced are legal fees, insurance expense,
advertising and outside conference costs. All other elements of non-interest
expense remained little changed at $878,000 and $831,000 during the six months
ended June 30, 2001 and 2000, respectively.
Income Taxes. Income tax expense totalled $816,000, or 35.1% of
income before income taxes, during the six months ended June 30, 2001 as
compared to $951,000, or 35.9% of income before income taxes, during the
comparable 2000 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.
13.
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, 2001, cash and cash equivalents and securities available for sale
totalled $18.7 million, or 5.2% 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, 2001, the Bank had $71.1 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, 2001, the Bank had commitments to originate and
purchase loans and fund unused outstanding lines of credit and undisbursed
proceeds of construction mortgages totalling $27.9 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, 2001, totalled $124.6 million. The Bank expects that
substantially all of the maturing certificate accounts will be retained by the
Bank.
At June 30 , 2001, the Company had total equity, determined in
accordance with generally accepted accounting principles, of $50.3 million, or
14.0% of total assets. At June 30, 2001, the Bank exceeded all of its regulatory
capital requirements with a tangible capital level of $42.2 million, or 11.9% of
total adjusted assets, which is above the required level of $5.3 million, or
1.5%; core capital of $42.2 million, or 11.9% of total adjusted assets, which is
above the required level of $14.2 million, or 4.0%; and risk-based capital of
$43.6 million, or 30.9% of risk-weighted assets, which is above the required
level of $11.3 million, or 8.0%. 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.
14.
WEST ESSEX BANCORP, INC.
PART II . OTHER INFORMATION
June 30, 2001
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, 2001.
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
* 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.
15.
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 3, 2001 By /s/ Leopold W. Montanaro
----------------- -----------------------------------------
Leopold W. Montanaro
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 3, 2001 By: /s/ Dennis A. Petrello
----------------- -----------------------------------------
Dennis A. Petrello
Executive Vice President and
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
16.