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 March 31, 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
WEST ESSEX BANCORP, INC.
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(Exact name of small business issuer as specifed 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)
Registrant's telephone number, including area code 973-226-7911
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
4,038,357 shares of common stock, par value $0.01 par share, were
outstanding as of April 30, 2000.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
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WEST ESSEX BANCORP, INC.
FORM 10-QSB
For the Quarter Ended March 31, 2000
INDEX
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Page
Number
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Statements of Financial Condition at
March 31, 2000 and December 31, 1999 (Unaudited) 2
Consolidated Statements of Income for the
Three Months Ended March 31, 2000 and 1999 (Unaudited) 3
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 (Unaudited) 5 - 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan
of Operations 8 - 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14 - 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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WEST ESSEX BANCORP, INC.
PART I. FINANCIAL INFORMATION
March 31, 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 month period ended March 31, 2000, are
not necessarily indicative of the results to be expected for the entire fiscal
year.
1
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<CAPTION>
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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March 31, December 31,
2000 1999
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(unaudited)
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Assets
Cash and amounts due from depository institutions $ 1,546,267 $ 5,728,992
Interest-bearing deposits in other banks 2,423,406 7,016,853
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Total cash and cash equivalents 3,969,673 12,745,845
Securities available for sale 2,922,800 2,923,750
Investment securities held to maturity 41,654,118 41,582,003
Mortgage-backed securities held to maturity 128,744,286 121,223,315
Loans receivable 158,769,455 153,276,187
Real estate owned 997,507 899,738
Premises and equipment 2,708,366 2,737,456
Federal Home Loan Bank of New York stock 3,305,700 3,272,700
Accrued interest receivable 2,028,847 2,005,563
Excess of cost over assets acquired 4,495,156 4,643,348
Other assets 3,244,371 2,996,932
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Total assets $ 352,840,279 $ 348,306,837
============= =============
Liabilities and Stockholders' Equity
Liabilities
Deposits $ 236,676,081 $ 234,977,812
Borrowed money 65,997,869 64,340,115
Advance payments by borrowers for taxes and insurance 1,093,807 1,044,140
Other liabilities 1,320,879 834,824
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Total liabilities 305,088,636 301,196,891
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Stockholders' Equity
Preferred stock (par value $.01), 1,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock (par value $.01), 9,000,000 shares authorized;
shares issued 4,197,233; shares outstanding 4,038,357 (2000)
and 4,054,357 (1999) 41,972 41,972
Additional paid-in capital 17,329,048 17,332,133
Retained earnings - substantially restricted 33,774,754 33,054,528
Common stock acquired by Employee Stock Ownership
Plan ("ESOP") (1,142,035) (1,178,874)
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<CAPTION>
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Unearned Incentive Plan stock (618,936) (655,549)
Treasury stock, at cost; 158,876 shares (2000) and
142,876 shares (1999) (1,584,550) (1,436,550)
Accumulated other comprehensive loss - Unrealized
loss on securities available for sale, net of income taxes (48,610) (47,714)
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Total stockholders' equity 47,751,643 47,109,946
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Total liabilities and stockholders' equity $ 352,840,279 $ 348,306,837
============= =============
</TABLE>
See notes to consolidated financial statements.
2
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<CAPTION>
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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Three Months Ended March 31,
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2000 1999
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(unaudited)
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Interest income:
Loans $ 2,916,530 $ 2,811,087
Mortgage-backed securities 2,047,894 1,784,290
Investment securities 763,780 771,595
Other interest-earning assets 123,789 192,359
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Total interest income 5,851,993 5,559,331
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Interest expense:
Deposits 2,139,250 2,171,500
Borrowed money 927,439 653,343
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Total interest expense 3,066,689 2,824,843
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Net interest income 2,785,304 2,734,488
Provision for loan losses
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Net interest income after provision for loan losses 2,785,304 2,734,488
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Non-interest income:
Fees and service charges 88,558 93,625
Other 58,490 63,149
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Total non-interest income 147,048 156,774
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Non-interest expenses:
Salaries and employee benefits 827,525 821,745
Net occupancy expense of premises 99,534 102,663
Equipment 170,543 168,544
(Income) loss on real estate owned (108,239) 7,756
Amortization of intangibles 148,192 148,192
Other 417,582 467,056
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Total non-interest expenses 1,555,137 1,715,956
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Income before income taxes 1,377,215 1,175,306
Income taxes 497,279 423,727
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Net income $ 879,936 $ 751,579
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Net income per common share - basic and diluted $ 0.23 $ 0.18
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Weighted average number of common shares
outstanding - basic and diluted 3,859,029 4,066,089
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</TABLE>
See notes to consolidated financial statements.
3
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WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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Three Months Ended March 31,
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2000 1999
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(unaudited)
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Net income $ 879,936 $ 751,579
Other comprehensive loss -
Unrealized holding losses on securities available for sale,
net of income taxes of $503 and $39,363, respectively (896) (70,039)
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Comprehensive income $ 879,040 $ 681,540
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See notes to consolidated financial statements.
4
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WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended March 31,
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2000 1999
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(unaudited)
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Cash flows from operating activities:
Net income $ 879,936 $ 751,579
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 59,659 60,706
Net accretion of premiums, discounts and deferred loan fees (97,951) (10,544)
Amortization of intangibles 148,192 148,192
(Gain) on sale of real estate owned (116,033) --
(Increase) in accrued interest receivable (23,284) (73,826)
(Increase) in other assets (246,936) (113,738)
Increase in interest payable 14,015 17,623
Increase in other liabilities 489,964 470,127
Amortization of Incentive Plan cost 36,613 --
ESOP shares committed to be released 33,754 34,831
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Net cash provided by operating activities 1,177,929 1,284,950
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Cash flows from investing activities:
Proceeds from maturities and calls of investment securities held to maturity -- 10,000,000
Purchases of investment securities held to maturity -- (19,244,969)
Principal repayments on mortgage-backed securities held to maturity 4,834,711 11,323,919
Purchases of mortgage-backed securities held to maturity (12,337,689) (16,740,957)
Purchase of loans receivable (634,971) (529,692)
Net (increase) in loans receivable (5,016,172) (91,549)
Proceeds from sales of real estate owned 183,533 --
Additions to premises and equipment (30,569) --
Purchase of Federal Home Loan Bank of New York stock (33,000) --
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Net cash (used in) investing activities (13,034,157) (15,283,248)
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Cash flows from financing activities:
Net increase in deposits 1,680,345 444,212
Net increase in short-term borrowed money 5,000,000 --
Proceeds of long-term borrowed money -- 10,000,000
Repayment of long-term borrowed money (3,342,246) (322,701)
Net increase in advance payments by borrowers for taxes and insurance 49,667 74,019
Purchases of treasury stock (148,000) --
Cash dividends paid (159,710) (138,533)
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Net cash provided by financing activities 3,080,056 10,056,997
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Net (decrease) in cash and cash equivalents (8,776,172) (3,941,301)
Cash and cash equivalents - beginning 12,745,845 16,371,431
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Cash and cash equivalents - ending $ 3,969,673 $ 12,430,130
============ ============
See notes to consolidated financial statements.
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5
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<TABLE>
<CAPTION>
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
Three Months Ended March 31,
---------------------------------------
2000 1999
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(unaudited)
Supplemental disclosure of cash flow information:
Cash paid during the year for:
<S> <C> <C>
Income taxes $ -- $ --
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Interest $3,052,674 $2,807,220
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Supplemental schedule of noncash investing activities:
Loans receivable transferred to real estate owned $ 165,269 $ 192,063
========== ==========
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See notes to consolidated financial statements.
6
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WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of West Essex
Bancorp, Inc. (the "Company"), the Company's wholly owned subsidiary, West Essex
Bank (the "Bank") and the Bank's wholly owned subsidiary, West Essex Insurance
Agency, Inc. The Company's business is conducted principally through the Bank.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and regulations S-X and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements have been included.
The results of operations for the three months ended March 31, 2000 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 quarter ended March 31, 2000, none of
the potentially dilutive securities were included in the computation of diluted
net income per share as they were anti-dilutive. As of and for the quarter ended
March 31, 1999, there were no potentially dilutive securities.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Small Business Issuer
West Essex Bancorp, Inc. (the "Company") has met the definition of a
small business issuer at the end of the two most recent fiscal years. As a
result, the Company has elected to file as a small business issuer.
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
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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 $158.8 million at December 31, 1998, December 31,
1999 and March 31, 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 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 March 31, 2000 and December 31, 1999
Total assets were $352.8 million at March 31, 2000, compared to $348.3
million at December 31, 1999, an increase of $4.5 million, or 1.3%. The increase
in assets was funded primarily by increases in deposits and Federal Home Loan
Bank of New York ("FHLB") borrowings of $1.7 million each.
Cash and cash equivalents, primarily interest-bearing deposits with the
FHLB, decreased $8.7 million to $4.0 million at March 31, 2000 from $12.7
million at December 31, 1999. The decrease in cash and cash equivalents was used
primarily to fund additional investments in mortgage-backed securities and loan
originations.
In the aggregate, mortgage-backed securities and investment securities,
including available-for-sale and held to maturity issues, totalled $173.3
million at March 31, 2000, an increase of $7.6 million, or 4.6%, from $165.7
million at December 31, 1999. Such increase was largely funded by the
aforementioned decrease in cash and cash equivalents. Mortgage-backed
securities, all of which are held to maturity, increased $7.5 million due to
purchases exceeding repayments. Investment securities held to maturity and
securities available for sale reflected only marginal changes.
Loans receivable increased by $5.5 million, or 3.6%, to $158.8 million
at March 31, 2000 from $153.3 million at December 31, 1999. Such increase was
funded by the aforementioned decrease in cash and cash equivalents and by a $1.7
million increase in borrowings.
9
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Deposits totalled $236.7 million at March 31, 2000, an increase of $1.7
million, or 0.7%, over the $235.0 million balance at December 31, 1999.
Borrowed money increased $1.7 million to $66.0 million at March 31,
2000, as compared to $64.3 million at December 31, 1999. During the quarter
ended March 31, 2000, long-term debt of $3.3 million was repaid and short-term
borrowings were increased by $5.0 million.
Stockholders' equity increased $642,000, or 1.4%, to $47.8 million,
primarily due to the retention of net income.
Comparison of Operating Results for the Three Months Ended March 31, 2000 and
1999
Net Income. Net income increased $128,000 or 17.0% to $880,000 for the
three months ended March 31, 2000 compared with $752,000 for the same 1999
period. The increase in net income during the 2000 period resulted primarily
from a $51,000 increase in net interest income and a $161,000 decrease in
non-interest expense, which were partially offset by an increase in income taxes
of $73,000.
Interest Income. Total interest income increased $293,000 or 5.3% to
$5.85 million for the three months ended March 31, 2000 from $5.56 million for
the same 1999 period. The increase was the result of a $16.6 million, or 5.2%,
increase in average interest-earning assets between the periods, as the average
yield on interest earning assets was 6.99% during both periods. The increase in
the average balance was the result of loan originations and securities purchased
during the past twelve months funded by increased borrowed money.
Interest income on loans increased by $105,000 or 3.7% to $2.9 million
during the three months ended March 31, 2000 when compared with $2.8 million for
the same 1999 period. The increase during the 2000 period resulted from an
increase of $14.4 million, or 10.1%, in the average balance of loans
outstanding, which was sufficient to offset a 46 basis point decrease to 7.43%
in the yield earned on the loan portfolio. The increased average balance was the
result of continued strength in lending volume during the last twelve months.
The decreased yield is the result of lower rates obtained on originations during
the second and third quarters of 1999, many of which represented refinancings of
higher yield loans, as well as downward interest rate adjustments on many of the
Bank's adjustable-rate mortgage loans.
Interest on mortgage-backed securities, all of which are
held-to-maturity, increased $264,000, or 14.8%, to $2.0 million during the three
months ended March 31, 2000 when compared with $1.8 million for the same 1999
period. The increase during the 2000 period resulted from increases of $11.1
million, or 9.7%, in the average balance of mortgage-backed securities and 28
basis points, to 6.53%, in yield. The increased average balance is the result of
purchases exceeding repayments of mortgage-backed securities. The increase in
yield is the result of higher interest rates obtained on securities purchased
since March 31, 1999.
Interest earned on investment securities, including both
available-for-sale and held-to-maturity issues, decreased by $8,000 or 1.0% to
$764,000 during the three months ended March 31, 2000, when compared to $772,000
during the same 1999 period, primarily due to a decrease of $1.4 million, or
3.1%, in the average balance of such assets, which more than offset a 14 basis
point increase to 6.86% in the yield earned.
10
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Interest on other interest-earning assets decreased $68,000, or 35.4%,
to $124,000 during the three months ended March 31, 2000 as compared to $192,000
for the same 1999 period. The decrease was due to a decrease of $7.6 million, or
49.0%, in the average balance of such assets, which was partially offset by an
increase of 133 basis points, to 6.29%, in the yield earned. The decline in
average balance was the result of the redeployment of funds previously invested
in short-term interest bearing deposits into higher yielding loans and
mortgage-backed securities. The increase yield is reflective of both the
declining investment in lower yielding assets and the general increase in market
interest rates.
Interest Expense. Interest expense on deposits decreased $33,000, or
1.5%, to $2.1 million during the three months ended March 31, 2000 when compared
to $2.2 million during the same 1999 period. Such decrease was primarily
attributable to a decrease of 2 basis points, to 3.89%, in the cost of
interest-bearing deposits, along with a $2.8 million, or 1.2%, decrease in the
average balance thereof. The average cost of certificates of deposit was 5.03%
for both the three months ended March 31, 2000 and 1999. The average cost of
non-certificate deposits decreased to 1.83% for the three months ended March 31,
2000 as compared to 1.94% for the same prior year period.
Interest expense on borrowed money increased by $275,000, or 42.1%, to
$928,000 during the three months ended March 31, 2000 when compared with
$653,000 during the same 1999 period, primarily due to an increase of $17.2
million, or 35.8%, in the average balance of borrowings outstanding from the
FHLB, along with a 26 basis point increase, to 5.70%, in the cost of borrowed
money. During the three months ended March 31, 2000, the Bank repaid $3.3
million in long-term borrowings having an average interest rate of 5.30% and
increased short-term borrowings by $5.0 million. Included in long-term
borrowings repaid was $3.0 million having an interest rate of 5.23% due in 2008
on which the lender exercised its option to convert such debt to replacement
funding at the current market rate. The Bank opted to repay this amount.
Net Interest Income. Net interest income increased $51,000, or 1.9%,
during the three months ended March 31, 2000, when compared with the same 1999
period. Such increase was due to an increase in total interest income of
$293,000, partially offset by an increase in total interest expense of $242,000.
The Bank's net interest rate spread decreased to 2.68% in 2000 from 2.81% in
1999. The decrease in the interest rate spread resulted from a 13 basis point
increase in the cost of interest-bearing liabilities. Despite the decrease in
the net interest rate spread, net interest income improved due to the additional
income generated by a $16.6 million increase in average interest-earning assets,
which more than offset the additional cost incurred by a $14.4 million increase
in average interest-bearing liabilities.
Provision for Loan Losses. During both the three months ended March 31,
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 March 31, 2000, loan charge-offs totalled $35,000
and there were no loan recoveries. During the three months ended March 31, 1999,
loan charge-offs totalled less than $1,000 and there were no loan recoveries.
The allowance for loan losses is based on management's evaluation of the risk
inherent in its loan portfolio and gives due consideration to the changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The Bank intends to continue to provide for loan losses based on its
periodic review of the loan portfolio and general market conditions. At March
31, 2000 and 1999, loans delinquent ninety days or more totalled $221,000 and
$1.3 million, respectively, representing 0.14% and 0.91%, respectively, of total
loans. At March 31, 2000, the allowance for loan losses stood at $1.37 million,
representing 0.85% of total loans and 618.9% 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 March 31, 1999, the allowance for loan losses stood at $1.72
million, representing 1.19% of total loans and 130.7% of loans delinquent ninety
days or more. The $351,000 decrease in the allowance during the past twelve
months primarily reflects the final resolution in 1999 of the Bank's largest
nonperforming loan, which resulted in a charge-off of $316,000. 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.
11
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The Bank has established a standardized process to assess the adequacy
of the allowance for loan losses and to identify the risks inherent in the loan
portfolio. The process incorporates credit reviews and gives consideration to
areas of exposure such as concentrations of credit, local economic conditions,
trends in delinquencies, collateral coverage, the composition of the performing
and non-performing loan portfolios, and other risks inherent in the loan
portfolio.
Specific allocations of the allowance for loan losses are identified by
individual loan based upon a detailed credit review of each such loan. General
loan loss allowances are allocated to pools of loans categorized by type and
assigned allowance percentages which take into effect past charge-off history,
industry averages and current trends and risks. Finally, an unallocated portion
of the allowance is maintained to account for the general inherent risk in the
loan portfolio, known circumstances which are not addressed in the allocated
portion of the allowance (such as the increased dependence on outside mortgage
brokers for originations), and the necessary imprecision in the determination of
the allocation portion of the allowance.
Management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover losses inherent in the loan
portfolio at this time. However, no assurance can be given that the level of the
allowance for loan losses will be sufficient to cover future possible loan
losses or that future adjustments to the allowance for loan losses will not be
necessary if economic and other conditions differ substantially from the
economic and other conditions considered by management to determine the current
level of the allowance for loan losses. Management may in the future increase
the level of the allowance for loan losses as a percentage of total loans and
non-performing loans in the event it increases the level of commercial real
estate, multifamily, or consumer lending as a percentage of the total loan
portfolio. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan losses.
Such agencies may require the Bank to provide additions to the allowance based
upon judgments different from those of management.
The allowance for loan losses includes specific, general and
unallocated allowances of $- 0 - , $941,000 and $424,000, respectively, at
March 31, 2000, as compared to $50,000, $878,000 and $472,000,
respectively, at December 31, 1999.
Non-Interest Income. Non-interest income decreased $10,000, or 6.4%, to
$147,000 during the three months ended March 31, 2000 from $157,000 during the
same 1999 period.
Non-Interest Expenses. Non-interest expenses decreased by $161,000, or
9.4%, to $1.56 million during the three months ended March 31, 2000 when
compared with $1.72 million during the same 1999 period. The most significant
change in non-interest expense occurred in relation to real estate owned, where
income of $108,000 was recorded during the three months ended March 31, 2000, as
compared to an $8,000 loss in the comparable prior period. The $116,000
improvement was due to gains of $116,000 on real estate sales during the current
quarter as opposed to no sales in the prior period quarter.
Salaries and employee benefits, the largest component of non-interest
expenses, increased $6,000, or 0.7%, to $828,000 during the three months ended
March 31, 2000 from $822,000 during the prior year quarter. Other expenses
declined $49,000, or 10.5%, to $418,000 during the three months ended March 31,
2000 from $467,000 during the comparable prior period, due largely to decreases
in legal fees and the cost of federal deposit insurance. All other elements of
non-interest expense, which includes occupancy and equipment expense and
amortization of intangibles, remained little changed at $418,000 and $419,000
during the three months ended March 31, 2000 and 1999, respectively.
Income Taxes. Income tax expense totalled $497,000, or 36.1% of income
before income taxes, during the three months ended March 31, 2000 as compared to
$424,000, or 36.1% of income before income taxes, during the comparable 1999
period.
12
<PAGE>
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 March 31, 2000 and
December 31, 1999, the Bank's regulatory liquidity ratios were 25.14% and
25.40%, respectively.
At March 31, 2000, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $37.6 million, or 10.8% of total
adjusted assets, which is above the required level of $5.2 million, or 1.5%;
core capital of $37.6 million, or 10.8% of total adjusted assets, which is above
the required level of $13.9 million, or 4.0%; and risk-based capital of $38.9
million, or 28.7% of risk-weighted assets, which is above the required level of
$10.9 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 March 31, 2000, cash and cash equivalents and securities available for sale
totalled $6.9 million, or 2.0% 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
March 31, 2000, the Bank had $66.0 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 March 31, 2000, the Bank had commitments to originate and purchase
loans and fund unused outstanding lines of credit and undisbursed proceeds of
construction mortgages totalling $17.6 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 March 31, 2000, totalled $113.9 million. The Bank expects that
substantially all of the maturing certificate accounts will be retained by the
Bank.
The initial impact of the reorganization and offering on the liquidity
and capital resources of the Company was to substantially increase the liquid
assets of the Company and the capital base on which the Company operates.
Subsequently, a substantial majority of the offering proceeds was invested in
readily marketable investment grade securities. The additional capital resulting
from the offerings increased the capital bases of the Company and the Bank. At
March 31, 2000, the Company and the Bank had total equity, determined in
accordance with generally accepted accounting principles, of $47.8 million and
$42.0 million, respectively, or 13.5% and 12.0%, respectively, of total assets.
The Bank's regulatory tangible capital at that date, which excludes intangible
assets of $4.5 million and unrealized securities losses, net of deferred income
taxes, of $49,000, was $37.6 million, or 10.8% 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.
13
<PAGE>
WEST ESSEX BANCORP, INC.
PART II . OTHER INFORMATION
March 31, 2000
ITEM 1. Legal Proceedings
The Company and the Bank are parties to various litigation which
arises primarily in the ordinary course of business. Included in this
litigation are various claims and lawsuits involving the Bank, such as
claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interest, claims involving the making
and servicing of real property loans and other issues incident to the
Bank's business. In the opinion of management, the ultimate
disposition of such litigation should not have a material effect on
the consolidated financial position or operations of the Company.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
The 2000 Annual Meeting of Stockholders was held on April 27, 2000.
The following matters were submitted to the stockholders:
1. Election of two directors:
A. Directors elected at the meeting for terms to expire in 2003:
Number of Shares
------------------------------------
For Withheld
----------------- -----------------
Mr. William J. Foody 3,818,377 72,851
Mr. Leopold W. Montanaro 3,807,876 83,352
The following directors' terms of office as a
director continued after the meeting:
(i) Mr. David F. Brandly
(ii) Mr. John J. Burke
(iii) Mr. Everett N. Leonard
(iv) Mr. James P. Vreeland
14
<PAGE>
WEST ESSEX BANCORP, INC.
PART II . OTHER INFORMATION
March 31, 2000
ITEM 4. Submission of Matters to a Vote of Security Holders (Cont'd.)
<TABLE>
<CAPTION>
Number of Shares
---------------------------------------------------------------------
For Against Abstained Non-Vote
---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
2. The ratification of Amendments to the West Essex
Bancorp, Inc. 1999 Stock-Based Incentive Plan. 1,378,216 157,307 5,584 2,350,121
3. The ratification of Radics & Co., LLC
as independent auditors of the
Company for the fiscal year
ending December 31, 2000. 3,857,644 32,105 1,478 -
4. Stockholder proposal to recommend that the
Board of Directors take whatever actions
necessary to enhance shareholder value 246,282 3,001,450 261,811 381,685
</TABLE>
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
15
<PAGE>
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: May 12, 2000 By /s/ Leopold W. Montanaro
------------------------ ------------------------------
Leopold W. Montanaro
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 2000 By: /s/ Dennis A. Petrello
------------------------ ---------------------------
Dennis A. Petrello
Executive Vice President and
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
Exhibit 11
<TABLE>
<CAPTION>
WEST ESSEX BANCORP, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
March 31,
---------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
Net income $ 879,936 $ 751,579
Weighted average number of common shares outstanding 3,859,029 4,066,089
Common stock equivalents due to dilutive effect
of potential common shares -- --
Total weighted average number of common shares
and common share equivalents outstanding 3,859,029 4,066,089
Basic earnings per common share $ 0.23 $ 0.18
Diluted earnings per common share $ 0.23 $ 0.18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-QSB for the quarter ended March 31, 2000, and is qualified in its entirety by
reference to the unaudited financial statements contained herein.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,546,267
<INT-BEARING-DEPOSITS> 2,423,406
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,922,800
<INVESTMENTS-CARRYING> 170,398,404
<INVESTMENTS-MARKET> 164,937,717
<LOANS> 160,134,821
<ALLOWANCE> 1,365,366
<TOTAL-ASSETS> 352,840,279
<DEPOSITS> 236,676,081
<SHORT-TERM> 11,000,000
<LIABILITIES-OTHER> 2,414,686
<LONG-TERM> 54,997,869
0
0
<COMMON> 41,972
<OTHER-SE> 47,709,671
<TOTAL-LIABILITIES-AND-EQUITY> 352,840,279
<INTEREST-LOAN> 2,916,530
<INTEREST-INVEST> 2,811,674
<INTEREST-OTHER> 123,789
<INTEREST-TOTAL> 5,851,993
<INTEREST-DEPOSIT> 2,139,250
<INTEREST-EXPENSE> 3,066,689
<INTEREST-INCOME-NET> 2,785,304
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,555,137
<INCOME-PRETAX> 1,377,215
<INCOME-PRE-EXTRAORDINARY> 879,936
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 879,936
<EPS-BASIC> 0.23
<EPS-DILUTED> 0.23
<YIELD-ACTUAL> 3.33
<LOANS-NON> 220,621
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,400,366
<CHARGE-OFFS> 35,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,365,366
<ALLOWANCE-DOMESTIC> 941,366
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 424,000
</TABLE>
