FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
-----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________to________________
Commission file number 1-10506
---------------------------------------------
Essex Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1721085
-------- ----------
(State of organization) (I.R.S. Employer
Identification No.)
The Koger Center
Building 9, Suite 200
Norfolk, Virginia 23502
----------------- -----
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (757) 893-1300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Essex Bancorp, Inc.
Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1998
Table of Contents
Page
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets (unaudited)
as of March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1998
and 1997 5
Consolidated Statement of Shareholders' Equity
(unaudited) for the three months ended
March 31, 1998 7
Consolidated Statements of Cash
Flows (unaudited) for the three months
ended March 31, 1998 and 1997 8
Notes to Consolidated Financial
Statements (unaudited) 10
Item 2.Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
Item 3.Quantitative and Qualitative Disclosures About
Market Risk 16
Part II OTHER INFORMATION
Item 1.Legal Proceedings 17
Item 2.Changes in Securities 17
Item 3.Defaults Upon Senior Securities 17
Item 4.Submission of Matters to a Vote
of Security Holders 17
Item 5.Other Information 17
Item 6.Exhibits and Reports on Form 8-K 17
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, December 31,
1998 1997
---- ----
ASSETS
Cash............................................................... $ 1,805,452 $ 2,023,197
Interest-bearing deposits.......................................... 2,733,658 6,261,686
Federal funds sold and securities purchased under
agreements to resell............................................. 1,677,476 2,748,000
------------- --------------
Cash and cash equivalents..................................... 6,216,586 11,032,883
Federal Home Loan Bank stock....................................... 1,431,000 1,431,000
Securities available for sale - cost approximates market........... 17,689 17,451
Securities held for investment - market value of
$2,232,000 in 1998 and $2,217,000 in 1997........................ 2,299,325 2,299,120
Mortgage-backed securities held for investment - market
value of $1,930,000 in 1998 and $1,886,000 in 1997............... 1,904,868 1,904,989
Loans, net of allowance for loan losses of $2,322,000
in 1998 and $2,382,000 in 1997................................... 167,866,101 167,440,733
Loans held for sale................................................ 3,959,513 2,165,074
Mortgage servicing rights.......................................... 1,063,114 1,169,766
Foreclosed properties, net......................................... 1,489,157 1,511,629
Accrued interest receivable........................................ 1,158,644 1,196,980
Excess of cost over net assets acquired............................ 144,238 159,754
Advances for taxes, insurance, and other........................... 690,284 633,053
Premises and equipment............................................. 2,212,605 1,926,729
Other assets....................................................... 2,594,360 2,198,598
------------- --------------
Total Assets.............................................. $ 193,047,484 $ 195,087,759
============= ==============
See notes to consolidated financial statements.
3
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, December 31,
1998 1997
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing........................................... $ 5,472,980 $ 5,055,545
Interest-bearing.............................................. 149,899,366 148,871,154
------------- -------------
Total deposits............................................ 155,372,346 153,926,699
Federal Home Loan Bank advances.................................... 20,260,833 23,546,667
Notes payable...................................................... - 72,102
Capitalized lease obligations...................................... 317,074 331,970
Other liabilities.................................................. 2,181,298 2,393,814
------------- -------------
Total Liabilities......................................... 178,131,551 180,271,252
SHAREHOLDERS' EQUITY
Series B preferred stock, $6.67 stated value:
Authorized shares - 2,250,000
Issued and outstanding shares - 2,125,000........................ 14,173,750 14,173,750
Series C preferred stock, $6.67 stated value:
Authorized shares - 125,000
Issued and outstanding shares - 125,000.......................... 833,750 833,750
Common stock, $.01 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 1,058,510 in 1998
and 1,058,136 in 1997......................................... 10,585 10,581
Capital in excess of par........................................... 8,683,285 8,681,739
Accumulated deficit................................................ (8,785,437) (8,883,313)
------------- -------------
Total Shareholders' Equity................................ 14,915,933 14,816,507
------------- -------------
Total Liabilities and Shareholders' Equity................ $ 193,047,484 $ 195,087,759
============= =============
See notes to consolidated financial statements.
4
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
INTEREST INCOME
Loans, including fees................................................ $3,487,565 $3,149,138
Federal funds sold and securities purchased
under agreements to resell......................................... 40,254 36,347
Investment securities, including dividend income..................... 54,133 118,137
Mortgage-backed securities........................................... 31,488 30,364
Other................................................................ 74,411 37,250
----------- -----------
Total Interest Income....................................... 3,687,851 3,371,236
----------- -----------
INTEREST EXPENSE
Deposits ............................................................ 1,999,932 1,758,250
Federal Home Loan Bank advances...................................... 287,640 379,417
Notes payable........................................................ 792 2,277
Other................................................................ 14,905 19,472
----------- -----------
Total Interest Expense...................................... 2,303,269 2,159,416
----------- -----------
Net Interest Income......................................... 1,384,582 1,211,820
PROVISION FOR LOAN LOSSES................................................ - (22,453)
----------- -----------
Net Interest Income After
Provision for Loan Losses................................... 1,384,582 1,234,273
NONINTEREST INCOME
Loan servicing fees.................................................. 275,658 401,898
Mortgage banking income, including
gain on sale of loans.............................................. 158,887 88,219
Other service charges and fees....................................... 87,683 110,962
Other................................................................ 30,083 1,549
----------- -----------
Total Noninterest Income.................................... 552,311 602,628
----------- -----------
See notes to consolidated financial statements.
5
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
NONINTEREST EXPENSE
Salaries and employee benefits....................................... 801,718 771,629
Net occupancy and equipment.......................................... 229,291 292,195
Deposit insurance premiums........................................... 121,095 112,345
Amortization of intangible assets.................................... 122,167 125,426
Service bureau....................................................... 106,126 126,751
Professional fees.................................................... 75,485 69,661
Foreclosed properties, net........................................... 46,371 (4,898)
Other................................................................ 336,764 326,057
----------- -----------
Total Noninterest Expense................................... 1,839,017 1,819,166
----------- -----------
Income Before Income Taxes.................................. 97,876 17,735
PROVISION FOR INCOME TAXES............................................... - -
----------- -----------
Net Income.................................................. $ 97,876 $ 17,735
============ ===========
Loss available to common shareholders (Note 2)....................... $ (335,085) $ (377,555)
============ ===========
Basic and diluted loss per common share (Note 2)..................... $ (.32) $ (.36)
============ ===========
See notes to consolidated financial statements.
6
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
For the three months ended March 31, 1998
Series B Series C
Common Preferred Preferred Capital in
Stock, $.01 Stock, $6.67 Stock, $6.67 Excess Accumulated
Par Value Stated Value Stated Value of Par Deficit Total
--------- ------------ ------------ ------ ------- -----
Balance at January 1, 1998......... $10,581 $14,173,750 $833,750 $8,681,739 $(8,883,313) $14,816,507
Common stock issued under
Employee Stock Purchase
Plan............................ 4 - - 1,546 - 1,550
Net income......................... - - - - 97,876 97,876
---------- ----------- -------- ---------- ----------- -----------
Balance, March 31, 1998............ $ 10,585 $14,173,750 $833,750 $8,683,285 $(8,785,437) $14,915,933
========== =========== ======== ========== =========== ===========
See notes to consolidated financial statements.
7
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
OPERATING ACTIVITIES
Net income........................................................... $ 97,876 $ 17,735
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Provisions for:
Losses on loans, foreclosed properties and other.............. 35,665 14,148
Depreciation and amortization of premises
and equipment............................................. 100,459 108,786
Amortization (accretion) of:
Premiums and discounts on:
Loans................................................... 34,048 43,024
Mortgage-backed securities held to maturity............. 121 57
Securities held to maturity............................. (200) 3,074
Mortgage servicing rights................................. 106,652 109,910
Excess of costs over equity in net assets
acquired................................................ 15,516 15,516
Mortgage banking activities:
Net (increase) decrease in loans originated
for resale................................................ (1,652,222) 180,452
Realized gains from sale of loans............................. (142,217) (79,955)
Realized (gains) and losses from sales of:
Premises and equipment........................................ (225) 33,975
Foreclosed properties......................................... 1,155 (57,221)
Changes in operating assets and liabilities:
Accrued interest receivable................................... 38,336 (20,435)
Other assets.................................................. (458,993) (544,812)
Other liabilities............................................. (212,516) (27,438)
------------ ------------
Net cash used in operating activities................................ (2,036,545) (203,184)
See notes to consolidated financial statements.
8
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
INVESTING ACTIVITIES
Purchase of Federal Home Loan Bank certificates of
deposit.......................................................... (4,000,000) -
Redemption of Federal Home Loan Bank certificates of
deposit.......................................................... 4,000,000 -
Proceeds from redemption of Federal Home Loan
Bank stock....................................................... - 1,204,800
Purchase of securities held for investment........................... (5) (298,406)
Proceeds from maturities of securities held for investment........... - 1,000,000
Purchase of securities available for sale............................ (238) (2,507,588)
Proceeds from sales of securities available for sale................. - 2,500,000
Purchases of loans................................................... (5,404,807) (4,974,952)
Net (increase) decrease in net loans................................. 4,658,016 (2,703,082)
Proceeds from sales of foreclosed properties......................... 299,597 451,312
Increase in foreclosed properties.................................... (20,570) (57,383)
Increase in mortgage servicing rights................................ - (236,155)
Purchase of premises and equipment................................... (386,335) (21,313)
Proceeds from sales of premises and equipment........................ 225 3,790
------------- ------------
Net cash used in investing activities................................ (854,117) (5,638,977)
FINANCING ACTIVITIES
Net increase in NOW and savings deposits............................. 1,674,835 3,021,138
Net increase (decrease) in certificates of deposit................... (229,188) 2,948,049
Proceeds from Federal Home Loan Bank advances........................ 5,000,000 7,000,000
Repayment of Federal Home Loan Bank advances......................... (8,285,834) (7,285,833)
Repayment of note payable............................................ (72,102) -
Payments on capital lease obligations................................ (14,896) (12,430)
Common stock issued under Employee Stock
Purchase Plan..................................................... 1,550 1,875
------------- ------------
Net cash provided by (used in) financing activities.................. (1,925,635) 5,672,799
------------- ------------
Decrease in cash and cash equivalents................................ (4,816,297) (169,362)
Cash and cash equivalents at beginning of period..................... 11,032,883 6,195,251
------------- ------------
Cash and cash equivalents at end of period........................... $ 6,216,586 $ 6,025,889
============ ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans to foreclosed properties......................... $ 287,375 $ 619,823
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest......................................................... $ 2,348,288 $ 2,148,231
See notes to consolidated financial statements.
9
ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Essex Bancorp,
Inc. and subsidiaries ("EBI") have been prepared in accordance with generally
accepted accounting principles for condensed interim financial statements and,
therefore, do not include all information required by generally accepted
accounting principles for complete financial statements. The notes included
herein should be read in conjunction with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in this
report, and the notes to EBI's financial statements for the year ended December
31, 1997 included in the EBI 1997 Annual Report.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments (including normal recurring entries) necessary for a
fair presentation of EBI's financial condition and interim results of
operations. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the financial
statements and that affect the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - EARNINGS PER SHARE
EBI calculates its basic and diluted earnings per share ("EPS") in
accordance with Statement of Financial Accounting Standards No. 128 - Earnings
Per Share. Accordingly, the components of EBI's EPS calculations for the three
months ended March 31 are as follows:
1998 1997
---- ----
Net income $ 97,876 $ 17,735
Preferred stock dividends (432,961) (395,290)
---------- ----------
Net loss available to common shareholders $ (335,085) $ (377,555)
========== ==========
Weighted average common shares outstanding 1,058,144 1,053,394
========== ==========
EBI's common stock equivalents are antidilutive with respect to loss available
to common shareholders for all periods presented; therefore, basic and diluted
EPS are the same.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Total assets of EBI at March 31, 1998 were $193.0 million as compared
to $195.1 million at December 31, 1997, a decrease of approximately $2.0 million
or 1.0%. The decline in total assets resulted from the utilization of funds
provided by loan prepayments and an increase in deposits to fund the origination
and acquisition of mortgage loans and to reduce the level of higher-costing
Federal Home Loan Bank advances.
Deposits, the primary source of EBI's funds, totaled $155.4 million at
March 31, 1998 as compared to $153.9 million at December 31, 1997, an increase
of $1.4 million or .9%. The increase in noninterest-bearing deposits reflected
the continuing transfer of escrow accounts maintained by Essex Home Mortgage
Servicing Corporation ("Essex Home") from nonaffiliated financial institutions.
The increase in interest-bearing deposits occurred primarily at EBI's branches
in Emporia and Suffolk, Virginia, where Essex Savings Bank, F.S.B. (the "Bank")
has a significant market presence.
Results of Operations
First Quarter of 1998 Compared to First Quarter of 1997
EBI's net income for the three months ended March 31, 1998 totaled
$98,000, compared to net income of $18,000 for the three months ended March 31,
1997. The improvement in 1998 resulted from (i) an increase in net interest
income, which reflected an increase in the net interest margin from 2.91% for
the first quarter of 1997 to 3.00% for the first quarter of 1998 and (ii) an
increase in mortgage banking income resulting from increased production of
residential loans held for sale in the secondary market. These increases were
partially offset by the anticipated decline in mortgage loan servicing fees
resulting from the nonrenewal of a significant subservicing contract effective
May 1997.
[intentionally blank]
11
Net Interest Income. The table below presents average balances for
interest-earning assets and interest-bearing liabilities, as well as related
weighted average yields earned and rates paid for the three months ended March
31:
1998 1997
-------------------------------- -------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(dollars in thousands)
Interest-earning assets:
Loans (1)...................... $170,411 $3,488 8.19% $150,756 $3,149 8.36%
Investment securities.......... 3,748 54 5.78 8,575 118 5.51
Mortgage-backed
securities................. 1,905 32 6.61 1,905 30 6.37
Federal funds sold and
securities purchased under
agreements to resell......... 2,949 40 5.46 2,789 37 5.21
Other.......................... 5,497 74 5.41 2,861 37 5.21
-------- ------ -------- ------
Total interest-earning
assets (1)................ $184,510 3,688 7.99 $166,886 3,371 8.08
======== ------ ======== ------
Interest-bearing liabilities:
Deposits....................... $148,908 2,000 5.45 $131,761 1,758 5.41
FHLB advances.................. 20,514 287 5.69 25,653 379 6.00
Notes payable.................. 34 1 9.32 96 2 9.61
Other.......................... 326 15 18.54 380 20 18.52
-------- ------ -------- ------
Total interest-bearing
liabilities............... $169,782 2,303 5.50 $157,890 2,159 5.54
======== ------ ======== ------
Net interest earnings............. $1,385 $1,212
====== ======
Net interest spread (1)........... 2.49% 2.54%
==== ====
Net interest margin (1)........... 3.00% 2.91%
==== ====
(1) Nonaccrual loans are included in the average balance of loans. Yield
calculation includes the accretion of net deferred loan fees.
12
The table below sets forth certain information regarding changes in
EBI's interest income and interest expense between the periods indicated.
Increase (Decrease) From First Quarter of 1997
to First Quarter of 1998 Due to
Volume (1) Rate (1) Net
------ ---- -----
(in thousands)
Interest income on:
Loans (2)................................ $403 $(64) $339
Investment securities.................... (69) 5 (64)
Mortgage-backed securities............... - 2 2
Federal funds sold and
securities purchased under
agreements to resell.................. 2 1 3
Other interest-earning assets............ 36 1 37
---- ---- ----
Total interest income (2)............. 372 (55) 317
Interest expense on:
Deposits................................. 230 12 242
FHLB advances............................ (73) (19) (92)
Notes payable............................ (1) - (1)
Other interest-bearing liabilities....... (5) - (5)
---- ---- ----
Total interest expense................ 151 (7) 144
---- ---- ----
Net interest income................... $221 $(48) $173
==== ==== ====
(1) Changes attributable to the combined impact of volume and rate have
been allocated proportionately to changes due to volume and changes due
to rate.
(2) Interest income includes the amortization of premiums and the accretion
of net deferred loan fees.
Net interest income increased from $1.2 million for the first quarter
of 1997 to $1.4 million for the first quarter of 1998, which reflected the
favorable impact of the increase in the ratio of average interest-earning assets
to average interest-bearing liabilities. However, there was a decline in the net
interest spread resulting from the impact of the lower interest rate environment
in 1998 on the volume of refinancings to lower fixed rate loans. Typically,
declining interest rates favorably impact EBI's earnings due to the repricing of
deposits with shorter maturities as compared to interest-earning assets,
predominantly loans, which have either fixed interest rates or interest rates
that adjust over longer periods. However, in an extended period of lower
interest rates, EBI can expect an increase in the volume of refinancings to
lower fixed-rate loans. While EBI continues to emphasize investment in
adjustable-rate loan portfolios, customer demand for such loans is lessening as
borrowers' demand for lower fixed-rate loans is increasing. Within the spectrum
of loan products offered by the Bank, the percentage of balloon payment and
adjustable-rate loans with longer initial adjustment terms has increased.
Further, in order to provide higher-yielding asset growth, the Bank has
committed to purchasing in May 1998 a portfolio of second mortgage and unsecured
loans aggregating approximately $3.2 million.
Provision for Loan Losses. Changes in the allowance for loan losses for
the three months ended March 31 are as follows (in thousands):
1998 1997
---- ----
Balance at beginning of period................... $2,382 $2,556
Provision for loan losses........................ - (22)
------ ------
2,382 2,534
Loans charged-off, net of recoveries............. (60) (172)
------ ------
Balance at end of period......................... $2,322 $2,362
====== ======
13
Management reviews the adequacy of the allowance for loan losses on a
continual basis to ensure that amounts provided are reasonable. At March 31,
1998, the unallocated portion of the general loan loss allowance approximated
$238,000. Management considered the loan loss allowance adequate to absorb
losses and did not provide for additional losses during the first quarter of
1998.
Noninterest Income. The significant components of noninterest income
for the three months ended March 31 are presented below:
Increase
1998 1997 (Decrease)
---- ---- ----------
Loan servicing fees..................... $275,658 $401,898 $(126,240)
Mortgage banking income................. 158,887 88,219 70,668
Other service charges and fees.......... 87,683 110,962 (23,279)
Other................................... 29,536 1,549 27,987
-------- -------- ---------
$551,764 $602,628 $ (50,864)
======== ======== =========
Noninterest income declined from $603,000 for the first quarter of 1997
to $552,000 for the first quarter of 1998. This decline was primarily
attributable to lower loan servicing fees and other service charges and fees
resulting from the nonrenewal of a significant subservicing contract effective
May 1997. However, during the first quarter of 1998, Essex Home was successful
in negotiating subservicing contracts with three new clients. These contracts
provide for servicing a substantial number of loans, which will generate
servicing and ancillary fee income in future periods to significantly mitigate
the impact of the lost servicing volume in 1997.
Mortgage banking income increased from $88,000 for the first quarter of
1997 to $159,000 for the first quarter of 1998, which was an increase of 80.1%.
This increase resulted from the impact of the lower interest rate environment in
1998 on Essex First Mortgage Corporation's production of residential loans held
for sale in the secondary market.
Noninterest Expense. The significant components of noninterest expense
for the three months ended March 31 are presented below:
Increase
1998 1997 (Decrease)
---- ---- ----------
Salaries and employee benefits.......... $ 801,718 $ 771,629 $ 30,089
Net occupancy and equipment............. 229,291 292,195 (62,904)
Deposit insurance premiums.............. 121,095 112,345 8,750
Amortization of intangible assets....... 122,167 125,426 (3,259)
Service bureau.......................... 106,126 126,751 (20,625)
Professional fees....................... 75,485 69,661 5,824
Foreclosed properties, net.............. 46,371 (4,898) 51,269
Other................................... 336,764 326,057 10,707
---------- ---------- --------
$1,839,017 $1,819,166 $ 19,851
========== ========== ========
Noninterest expense increased slightly from the first quarter of 1997
to the first quarter of 1998. The increase was primarily attributable to
increases in (i) salaries and employee benefits resulting from an adjustment to
stock option compensation in the first quarter of 1997 reflecting the decline in
EBI's common stock price, (ii) foreclosed properties expense resulting from
gains recognized during the first quarter of 1997 on the sales of foreclosed
properties and (iii) other noninterest expense, the primary components of which
are detailed below. These increases were partially offset by decreases in (i)
occupancy and equipment expense resulting from the first quarter 1998 reversal
of a significant portion of a lease termination penalty recognized in December
14
1997 in connection with the relocation of the Bank's Suffolk, Virginia branch
and a decline in equipment rent and (ii) service bureau expense resulting from
Essex Home's lower servicing volume during the first quarter of 1998.
The significant components of other noninterest expense for the three
months ended March 31 are presented below:
Increase
1998 1997 (Decrease)
---- ---- ----------
Loan expense............................ $ 36,056 $ 58,504 $(22,448)
Telephone............................... 44,426 40,864 3,562
Postage and courier..................... 41,691 48,245 (6,554)
Stationery and supplies................. 24,921 27,647 (2,726)
Advertising and marketing............... 43,199 43,443 (244)
Corporate insurance..................... 23,968 31,246 (7,278)
Travel.................................. 12,713 11,196 1,517
Licensing fees.......................... 11,706 12,825 (1,119)
Franchise and other taxes............... 19,749 42,207 (22,458)
Other................................... 78,335 9,880 68,455
-------- --------- ------
$ 336,764 $ 326,057 $10,707
========= ========= ========
Income Taxes. There was no income tax provision recognized for
financial reporting purposes during the three months ended March 31, 1998 or
1997, because EBI had significant net operating loss carryforwards, which
approximated $19.9 million at December 31, 1997. Also, until consistent
profitability is demonstrated, deferred income tax assets related to EBI's net
operating loss carryforwards and temporary differences will not be recognized.
Liquidity
The Office of Thrift Supervision ("OTS") has established minimum
liquidity requirements for savings associations. These regulations provide, in
part, that members of the FHLB system maintain daily average balances of liquid
assets equal to a certain percentage of net withdrawable deposits plus current
borrowings. Current regulations require a liquidity level of at least 4%. The
Bank has consistently exceeded such regulatory liquidity requirement and, at
March 31, 1998, had a liquidity ratio of 9.85%. A portion of the excess
liquidity will be used to fund the purchase of a loan portfolio in May 1998.
Regulatory Matters
Regulatory Capital. The Bank is required pursuant to the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and OTS
regulations promulgated thereunder to satisfy three separate requirements of
specified capital as a percent of the appropriate asset base. At March 31, 1998,
the Bank was in compliance with the capital requirements established by FIRREA.
Section 38 of the Federal Deposit Insurance Act, as added by the FDIC
Improvement Act ("FDICIA"), requires each appropriate agency and the Federal
Deposit Insurance Corporation to, among other things, take prompt corrective
action ("PCA") to resolve the problems of insured depository institutions that
fall below certain capital ratios. Federal regulations under FDICIA classify
savings institutions based on four separate requirements of specified capital as
a percent of the appropriate asset base. As of March 31, 1998, the Bank was
"well capitalized" for PCA purposes.
15
The Bank's capital amounts and ratios as of March 31, 1998 are
presented below (in thousands):
To Be Well
For Capital Capitalized Under
Actual Adequacy Purposes PCA Provisions
------------------ ----------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total capital (to
risk-weighted assets) $16,875 14.44% $9,349 8.0% $11,686 =>10.0%
Tier I capital (to
risk-weighted assets) 15,414 13.19% 4,675 4.0% 7,012 =>6.0%
Tier I capital (to
total assets) 15,414 8.00% 7,707 4.0% 9,634 =>5.0%
Tangible capital (to
total assets) 15,414 8.00% 2,890 1.5% - -
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk exposures that
affect the quantitative or qualitative disclosures presented as of the preceding
year end in the EBI 1997 Annual Report.
[intentionally blank]
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings -- Not Applicable
Item 2. Changes in Securities -- Not Applicable
Item 3. Defaults Upon Senior Securities -- Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders -- Not Applicable
Item 5. Other Information -- Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- The following exhibits are filed as part of this Part
II:
Exhibit No. Description
----------- -----------
10.1 Essex Bancorp, Inc. Management Recognition Plan
27 Financial Data Schedule
(b) Reports on Form 8-K -- None
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Essex Bancorp, Inc.
May 8, 1998 By: /s/ Gene D. Ross
----------- -------------------------
(Date) Gene D. Ross
Chairman, President,
and Chief Executive
Officer
May 8, 1998 By: /s/ Mary-Jo Rawson
----------- -------------------------
(Date) Mary-Jo Rawson
Chief Accounting Officer
18