<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended 6/30/95
_______
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 0-16143
_______
FIRST ESSEX BANCORP, INC.
_____________________________
(Exact name of registrant as specified in its charter)
Delaware 04-2943217
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
71 Main Street, Andover, MA 01810
_______________________________________ _________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 475-4313
______________
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
_______ ______
The number of shares outstanding of each of the registrant's classes of common
stock as of June 30, 1995:
Title of Class Shares Outstanding
____________________ __________________
Common Stock, $.10 par value 6,020,500
<PAGE> 2
FIRST ESSEX BANCORP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Page
ITEM 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 1995
and December 31, 1994 3
Consolidated Statements of Operations for the
three months ended June 30, 1995 and 1994 4
Consolidated Statements of Operations for the
six months ended June 30, 1995 and 1994 5
Consolidated Statements of Stockholders' Equity
for the year ended December 31, 1994
and the six months ended June 30, 1995 6
Consolidated Statements of Cash Flows for the
six months ended June 30, 1995 and 1994 7
Note to the Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-18
<PAGE> 3
<TABLE>
<CAPTION>
Item 1. Financial Statements
FIRST ESSEX BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
JUNE 30, DECEMBER 31,
1995 1994
_________ ____________
(Dollars in thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 26,774 $ 18,714
Mortgage-backed securities available-for-sale 35,188 35,200
Investment securities held-to-maturity (market value -
$64,939,000, and $84,582,000) 65,080 85,310
Mortgage-backed investments held-to-maturity (market value -
$193,629,000 and $199,759,000) 196,789 209,747
Stock in Savings Bank Life Insurance Company 1,194 1,194
Stock in Federal Home Loan Bank of Boston 14,049 12,775
Loans receivable, less allowance for possible loan losses of
$6,405,000 and $7,237,000 473,726 419,644
Mortgage loans held-for-sale 6,042 2,930
Foreclosed property, net of valuation reserve of $1,208,000
and $1,934,000 1,995 3,038
Bank premises and equipment 10,261 8,347
Accrued interest receivable 4,659 4,537
Other assets 5,743 5,436
_______ _______
Total assets $841,500 $806,872
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Depositors' accounts $484,107 $456,878
Borrowed funds 276,264 279,948
Mortgagors' escrow accounts 1,903 1,804
Other liabilities 21,272 13,485
________ ________
Total liabilities $783,546 $752,115
STOCKHOLDERS' EQUITY
Serial preferred stock: $.10 par value per share; 5,000,000 shares
authorized, no shares issued or outstanding
Common stock, $.10 par value per share; 25,000,000 shares
authorized, 8,006,500 shares issued and 6,020,500 shares outstanding $ 801 $ 801
Additional paid-in capital 58,192 58,192
Retained earnings 14,907 12,638
Treasury stock, at cost, 1,986,000 shares (15,842) (15,842)
Valuation allowance for unrealized depreciation of
investment securities available for sale (104) (1,032)
________ _________
Total stockholders' equity 57,954 54,757
________ _________
Total liabilities and stockholders' equity $841,500 $806,872
======== =========
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FIRST ESSEX BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30,
___________________________
1995 1994
____ ____
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Interest and dividend income:
Interest on mortgage loans $6,445 $4,719
Interest on other loans 3,645 1,135
Interest and dividends on investment securities 1,466 1,260
Interest on federal funds sold 34 12
Interest on mortgage-backed investments 3,752 3,018
______ ______
Total interest and dividend income 15,342 10,144
______ ______
Interest expense:
Interest on depositors' accounts 5,010 2,788
Interest on borrowed funds 4,326 2,050
______ ______
Total interest expense 9,336 4,838
______ ______
Net interest income: 6,006 5,306
Provision for possible loan losses 200 ---
______ ______
Net interest income after provision
for possible loan losses 5,806 5,306
Noninterest income:
Net gain on sales of mortgage loans 278 80
Loan fees 110 85
Other fee income 463 467
Other 14 6
______ ______
Total non-interest income 865 638
______ ______
Noninterest expense:
Salaries and employee benefits 2,141 2,005
Building and equipment 861 670
Professional services 329 361
Computer expense 318 249
Insurance 289 282
Retail branch cost recovery --- (420)
Expenses, gains and losses on
and write-downs of foreclosed property 258 402
Other 684 717
_____ _____
Total noninterest expenses 4,880 4,266
_____ _____
Income before provision (benefit) for income taxes 1,791 1,678
Provision (benefit) for income taxes 19 (74)
______ ________
Net income $1,772 $ 1,752
====== ========
Earnings per share $ .29 $ .29
======= ========
Dividends declared per share $ .08 $ .06
======= ========
Average common stock outstanding 6,074,436 6,038,535
========= =========
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
FIRST ESSEX BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended June 30,
_________________________
1995 1994
____ ____
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Interest and dividend income:
Interest on mortgage loans $12,800 $9,291
Interest on other loans 6,736 2,028
Interest and dividends on investment securities 2,968 2,195
Interest on federal funds sold 79 46
Interest on mortgage-backed investments 7,339 5,856
______ _______
Total interest and dividend income 29,922 19,416
______ _______
Interest expense:
Interest on depositors' accounts 9,323 5,486
Interest on borrowed funds 8,722 3,739
______ _______
Total interest expense 18,045 9,225
______ _______
Net interest income: 11,877 10,191
Provision for possible loan losses 329 ---
______ _______
Net interest income after provision
for possible loan losses 11,548 10,191
Noninterest income:
Net gain on sales of mortgage loans 295 161
Loan fees 228 181
Other fee income 900 934
Other 25 12
______ _______
Total non-interest income 1,448 1,288
Noninterest expense:
Salaries and employee benefits 4,479 4,005
Building and equipment 1,534 1,333
Professional services 552 652
Computer expense 584 478
Insurance 578 567
Retail branch cost recovery --- (420)
Expenses, gains and losses on
and write-downs of foreclosed property 491 1,001
Other 1,526 1,401
______ _______
Total noninterest expenses 9,744 9,017
______ _______
Income before provision (benefit) for income taxes 3,252 2,462
Provision (benefit) for income taxes 20 (198)
______ _______
Net income $3,232 $2,660
====== =======
Earnings per share $ .53 $ .44
====== ======
Dividends declared per share $ .16 $ .12
====== ======
Average common stock outstanding 6,072,055 6,038,535
========= =========
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
FIRST ESSEX BANCORP, INC.
Consolidated Statements of Stockholders' Equity
(unaudited)
Year Ended December 31, 1994
And The Six Months Ended June 30, 1995
______________________________________
Valuation Allowance
Additional Mortgage-Backed
Common Paid-in Retained Treasury Securities Available
Stock Capital Earnings Stock For Sale Total
________ __________ _________ ________ ____________________ _______
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 $800 $58,152 $7,797 $(15,842) (158) $50,749
Net income --- --- 6,526 --- --- 6,526
Cash dividends declared --- --- (1,685) --- --- (1,685)
Stock options exercised 1 40 --- --- --- 41
Change in valuation allowance
for unrealized depreciation of
investment securities available-for-sale --- --- --- --- (874) (874)
____ _____ _____ ______ ______ ______
BALANCE AT
DECEMBER 31, 1994 801 58,192 12,638 (15,842) (1,032) 54,757
NET INCOME --- --- 3,232 --- --- 3,232
CASH DIVIDENDS DECLARED --- --- (963) --- --- (963)
CHANGE IN VALUATION ALLOWANCE
FOR UNREALIZED DEPRECIATION OF
INVESTMENT SECURITIES AVAILABLE-FOR-SALE --- --- --- --- 928 928
_____ _____ _____ ___ _____ _____
BALANCE AT
JUNE 30, 1995 $ 801 $58,192 $14,907 $(15,842) $(104) $57,954
===== ======= ======= ========= ====== =======
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
FIRST ESSEX BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
___________________________
1995 1994
____ ____
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,232 $ 2,660
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible loan losses 329 ---
Provision for depreciation and amortization 714 583
Gain on sales of foreclosed property (52) (131)
Write-down of foreclosed property 265 428
Amortization of investment securities discounts and premiums, net 764 2,028
Deferred income taxes 20 (198)
Proceeds from sales of mortgage loans and servicing rights 15,611 25,367
Mortgage loans originated for sale (18,428) (26,648)
Realized gains on mortgage loan sales, net (295) (161)
Increase in accrued interest receivable (122) (264)
Increase in other assets (307) (857)
Increase in other liabilities 7,767 3,024
________ ________
Net cash provided by operating activities 9,498 5,831
Cash flows from investing activities:
Proceeds from maturities and principal payments of available-for-sale securities 949 2,260
Proceeds from maturities and principal payments of held-to-maturity securities 33,188 55,092
Purchases of investment securities held-to-maturity (773) (101,480)
Purchases of Federal Home Loan Bank stock (1,274) ---
Loans originated, net of principal collected (55,197) (23,196)
Proceeds from sales of foreclosed property 1,616 3,588
Purchases of bank premises and equipment (2,628) (595)
_________ _________
Net cash used in investing activities (24,119) (64,331)
Cash flows from financing activities:
Net decrease in demand deposits, NOW accounts
and savings accounts (12,013) (8,599)
Net increase of term deposits 39,242 16,894
Net increase (decrease) in borrowed funds
with maturities of three months or less (63,964) 9,157
Proceeds from borrowed funds with maturities in excess of three months 185,000 241,497
Repayments of borrowed funds with maturities in excess of three months (124,720) (204,974)
Increase in mortgagors' escrow accounts 99 119
Stock options exercised 21
Dividends paid (963) (722)
_________ ________
Net cash provided by financing activities 22,681 53,393
_________ ________
Net increase (decrease) in cash and cash equivalents 8,060 (5,107)
Cash and cash equivalents at beginning of period 18,714 15,232
_________ ________
Cash and cash equivalents at end of period $26,774 $10,125
========= ========
</TABLE>
<PAGE> 8
FIRST ESSEX BANCORP, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements are unaudited and include the
accounts of First Essex Bancorp, Inc. (the "Company") and its subsidiary, First
Essex Bank, FSB. These financial statements reflect, in management's opinion,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position and the results of its
operations and cash flows for the periods presented. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's 1994 annual report. Certain reclassifications have
been made to the 1994 financial statements to conform to the 1995 presentation.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FIRST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
JUNE 30, 1995
General
_______
First Essex Bancorp, Inc., (the "Company"), is a Delaware corporation whose
primary activity is to act as the parent holding company for First Essex Bank,
FSB, (the "Bank").
The Company's net earnings depend to a large extent upon its net interest
income, which is the difference between interest and dividend income earned on
its loans and investments and interest expense paid on its deposits and borrowed
funds. The Company's net earnings also depend upon its provision for possible
loan loss, non-interest income, non-interest expense (including expenses
relating to foreclosed property) and income tax expense. Interest and dividend
income and interest expense are significantly affected by general economic
conditions. These economic conditions, together with conditions in the local
real estate markets, affect the levels of non-performing assets and provisions
for possible loan losses.
Results of Operations
_____________________
General
_______
Net income for the three months ended June 30, 1995 was $1.8 million compared to
$1.8 million for the same period in 1994. Net interest income totalled $6.0
million for the quarter compared to $5.3 million for the same period in 1994.
During the quarter higher net interest income of $700,000 and higher
non-interest income of $227,000 was offset by an increase in the provision for
possible loan losses of $200,000 and an increase in non interest expense of
$614,000. The higher non-interest expense in 1995 compared to 1994 reflects the
recognition of $420,000 non-recurring recovery in the second quarter of 1994 of
previously abandoned lease costs associated with the re-opening of a retail
branch.
Net income for the six months ended June 30, 1995 was $3.2 million compared to
net income of $2.7 million for the same period in 1994. The increase in net
income over the comparative six months in 1994 was due primarily to higher net
interest income of $1.7 million and higher non-interest income of $160,000. This
was offset by an increase in the provisions for possible loan losses of $329,000
and increased non-interest expense of $727,000 of which $420,000 is due to the
impact of a non-recurring recovery of previously abandoned lease costs noted
above.
<PAGE> 10
The following table presents an analysis of average yields earned and rates paid
for the periods indicated:
<TABLE>
<CAPTION>
For The Three Months Ended June 30,
1995 1994
____________________ ___________________
INTEREST AVERAGE Interest Average
AVERAGE EARNED/ YIELD/ Average Earned/ Yield/
BALANCE PAID RATE Balance Paid Rate
_______ ________ _______ _______ ________ ________
(Dollars in thousands)
Assets
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Short-term investment $ 3,893 $ 34 3.49% $ 1,121 $ 12 4.28%
Investment and mortgage-
backed securities 326,545 5,218 6.39 343,413 4,278 4.98
________ _____ ________ _____
Total investments 330,438 5,252 6.36 344,534 4,290 4.98
________ _____ ________ _____
Mortgage loans(1) 318,891 6,445 8.08 237,188 4,719 7.96
Consumer and commercial loans(1) 145,398 3,645 10.03 52,839 1,135 8.59
________ _____ ________ _____
Total loans(1) 464,289 10,090 8.69 290,027 5,854 8.07
________ ______ ________ _____
Total earning assets 794,727 15,342 7.72 634,561 10,144 6.39
Allowance for possible
loan losses (6,297) (7,371)
_______ _______
Total earning assets less
allowance for possible loan losses 788,430 627,190
Other assets 30,001 30,536
_______ _______
Total assets $818,431 $657,726
======== ========
Liabilities and Stockholders' Equity
Deposits:
NOW accounts $28,015 $ 79 1.13% $ 30,466 $ 91 1.19%
Money market accounts 79,662 354 1.78 109,606 573 2.09
Savings and notice accounts 51,515 238 1.85 60,119 201 1.34
Savings certificates 299,665 4,339 5.79 185,229 1,923 4.15
________ ______ _______ _____
Total interest bearing deposits 458,857 5,010 4.37 385,420 2,788 2.89
Borrowed funds 267,989 4,326 6.46 195,181 2,050 4.20
________ ______ _______ _____
Total interest bearing deposits and
borrowed funds 726,846 9,336 5.14 580,601 4,838 3.33
________ _____ _______ _____
Demand deposit accounts 22,730 15,153
Other liabilities 11,631 10,164
_______ _______
Total liabilities 761,207 605,918
Stockholders' equity 57,224 51,808
________ ______
Total liabilities and
stockholders' equity $818,431 $657,726
======== ========
Net interest income $ 6,006 $ 5,306
======= =======
Weighted average interest
rate spread 2.58% 3.06%
Net yield on average
earning assets(2) 3.02% 3.34%
(1) Non-performing loans are included in the average balance.
(2) Net interest income before provision for possible loan losses divided by average earning assets. For purposes of
computing average yields on the loan portfolio as presented in the above analysis, non-performing loans
are included in the average loan balances.
</TABLE>
<PAGE> 11
The following table presents an analysis of average yields earned and rates paid
for the periods indicated:
<TABLE>
<CAPTION>
For The Six Months Ended June 30,
1995 1994
____________________ _____________________
INTEREST AVERAGE Interest Average
AVERAGE EARNED/ YIELD/ Average Earned/ Yield/
BALANCE PAID RATE Balance Paid Rate
_______ ________ _______ _______ ________ _______
(Dollars in thousands)
Assets
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Short-term investment $ 3,488 $ 79 4.53% $ 2,480 $ 46 3.71%
Investment and mortgage-
backed securities 333,344 10,307 6.18 331,326 8,051 4.86
________ ______ _______ _____
Total investments 336,832 10,386 6.17 333,806 8,097 4.85
________ ______ _______ _____
Mortgage loans(1) 315,462 12,800 8.12 239,481 9,291 7.76
Consumer and commercial loans(1) 136,089 6,736 9.90 48,633 2,028 8.34
________ ______ _______ _____
Total loans(1) 451,551 19,536 8.65 288,114 11,319 7.86
________ ______ _______ ______
Total earning assets 788,383 29,922 7.59 621,920 19,416 6.24
Allowance for possible
loan losses (6,492) (7,421)
________ _______
Total earning assets less
allowance for possible loan losses 781,891 614,499
Other assets 30,972 29,988
________ ________
Total assets $812,863 $644,487
======== ========
Liabilities and Stockholders' Equity
Deposits:
NOW accounts $27,888 $ 157 1.13% $ 30,295 $ 181 1.19%
Money market accounts 83,616 807 1.93 111,014 1,156 2.08
Savings and notice accounts 52,273 413 1.58 60,246 398 1.32
Savings certificates 286,173 7,946 5.55 181,871 3,751 4.12
_______ ______ _______ _____
Total interest bearing deposits 449,950 9,323 4.14 383,426 5,486 2.86
Borrowed funds 273,791 8,722 6.37 184,723 3,739 4.05
_______ ______ _______ _____
Total interest bearing deposits and
borrowed funds 723,741 18,045 4.99 568,149 9,225 3.25
_______ ______ _______ _____
Demand deposit accounts 20,660 14,807
Other liabilities 12,101 10,029
_______ _______
Total liabilities 756,502 592,985
Stockholders' equity 56,361 51,502
_______ _______
Total liabilities and
stockholders' equity $812,863 $644,487
======== ========
Net interest income $ 11,877 $10,191
======== =======
Weighted average interest
rate spread 2.60% 3.00%
Net yield on average
earning assets(2) 3.01% 3.28%
(1) Non-performing loans are included in the average balance.
(2) Net interest income before provision for possible loan losses divided by average earning assets. For purposes of
computing average yields on the loan portfolio as presented in the above analysis, non-performing loans
are included in the average loan balances.
</TABLE>
<PAGE> 12
Net Interest Income
___________________
Net interest income increased by $700,000 (13.2%) to $6.0 million for the three
months ended June 30, 1995 and by $1.7 million (16.5%) to $11.9 million for the
six months ended June 30, 1995. The comparative increases in net interest income
for each period are due to an increase in average earning assets of
approximately 25% partially offset by declines in net yields due primarily to
higher rates paid for deposits and borrowed funds.
Interest and Dividend Income
____________________________
Interest and dividend income increased by $5.2 million (51.2%) to $15.3 million,
and by $10.5 million (54.1%) to $29.9 million for the three and six month
periods ended June 30, 1995, respectively, from $10.1 million and $19.4 million
for the same periods in 1994. These increases are attributable to increased
rates and volume of earning assets, primarily from loan growth, for both the
three and six month periods ended June 30, 1995, compared to the same periods in
1994.
Interest Expense
________________
Interest expense increased by $4.5 million (93.0%) to $9.3 million and by $8.8
million (95.7%) to $18.0 million for the three month and six month periods ended
June 30, 1995, respectively, when compared to $4.8 million and $9.2 million for
the same periods in 1994. The increase in interest expense was attributable to
an increase in rates paid and volume of term deposits and borrowings used to
support the increased volume of earning assets.
Provision for Possible Loan Losses
__________________________________
Beginning in 1995, the Company adopted Financial Accounting Standards Board
Statement No. 114, as amended by No. 118, "Accounting by Creditors for
Impairment of a Loan" ("SFAS No. 114"). As a result of applying the standard,
certain impaired loans are being measured at net present value of the expected
future cash flows using the loan's effective interest rate, or at the fair value
of the collateral if the loan is collateral dependant. In accordance with the
standard, the Company generally considers a loan impaired when it is probable
that all amounts due, including interest, will not be collected according to the
contractual terms of the loan agreement.
Possible losses on loans are provided for under the accrual method of
accounting. Assessing the adequacy of the allowance for possible loan losses
involves substantial uncertainties and is based upon management's evaluation of
the amount required to meet estimated losses inherent in the loan portfolio
after weighing various factors, including the amounts and timing of future cash
flows expected to be received on impaired loans. Among the factors management
may consider are the quality of specific loans, risk characteristics of the loan
portfolio generally, the level of non-accruing loans, current economic
conditions, trends in delinquencies and charge-offs and collateral values of the
underlying security. Ultimate losses may vary significantly from the current
estimates.
Provisions for possible loan losses totalled $329,000 for the six months ended
June 30, 1995. No provision for possible loan losses was recorded for the same
period in 1994. Provisions result from management's continuing internal review
of the loan portfolio as well as its judgment as to the adequacy of the reserves
in light of the condition of the regional real estate market and the economy
generally. Non-accruing loans decreased to $5.1 million at June 30, 1995
compared to $7.3 million at December 31, 1994 and $8.2 million at June 30, 1994.
See also "Financial Condition - Non-Performing Assets".
The Bank's total allowance for possible loan losses was $6.4 million or 124.4%
of non-accruing loans at June 30, 1995 compared to $7.3 million or 98.8% at
December 31, 1994 and $7.5 million or 89.1% at June 30, 1994.
Non-Interest Income
___________________
Non-interest income consists of net gains from the sales of loans and loan
servicing rights, along with fee and other non-interest income.
Non-interest income increased by $227,000 (35.6%) to $865,000 for the three
months ended June 30, 1995, and by $160,000 (12.3%) to $1.4 million for the six
months ended June 30, 1995 when compared to $638,000 and $1.3 million for the
same periods in 1994. The increase in non-interest income is due mainly to
increased gains on the sale of loans and loan servicing rights.
<PAGE> 13
Non-Interest Expense
____________________
Non-interest expense increased by $614,000 (14.4%) to $4.9 million for the three
months ended June 30, 1995, and by $727,000 (8.1%) to $9.5 million for the six
months ended June 30, 1995 when compared to $4.3 million and $9.7 million for
the same periods in 1994. The increase reflects the recognition of $420,000
non-recurring recovery of previously abandoned lease costs associated with the
re-opening of a retail branch in the second quarter of 1994.
Salaries and employee benefits increased by $136,000 (6.8%) to $2.1 million for
the three months ended June 30, 1995, and by $.5 million (11.8%) to $4.5 million
for the six months ended June 30, 1995 when compared to $2.0 million and $4.0
million for the same periods in 1994.
Building and equipment costs increased by $191,000 to $861,000 for the three
months ended June 30, 1995 and by $201,000 to $1.5 million for the six months
ended June 30, 1995, when compared to $670,000 and $1.3 million for the same
periods in 1994.
Foreclosed property expense decreased by $144,000 (35.8%) to $258,000 for the
three months ended June 30, 1995 and by $510,000 to $491,000 (51.0%) when
compared to $402,000 and $1.0 million for the comparable periods in 1994. The
Company's continued success in selling foreclosed property resulted in the lower
level of foreclosed property ($2.0 million at June 30, 1995 compared to $3.0
million at December 31, 1994 and $4.1 million at June 30, 1994), which in turn
resulted in lower costs associated with professional services and operating
expenses for the properties in foreclosure.
Other operating expenses increased by $11,000 to $1,620,000 for the three months
ended June 30, 1995, and increased by $142,000 (4.6%) to $3.2 million for the
six months ended June 30, 1995 when compared to $1.6 million and $3.1 million
for the comparable periods in 1994.
Income Tax Expense
__________________
Deferred tax assets and liabilities are established for the temporary
differences between the accounting basis and the tax basis of the Company's
assets and liabilities at enacted tax rates expected to be in effect when the
amounts related to such temporary differences are realized or settled. The
Company's deferred tax asset is reviewed quarterly and adjustments to such
assets is recognized as deferred income tax expense or benefit based on
management's judgments relating to the realizability of such asset. While the
Company has chosen to use a look out period of one year for purposes of valuing
the realizability of its' tax asset, it will continue to review this policy on a
quarterly basis. A provision for taxes of $20,000 was recorded for the six
months ended June 30, 1995, compared to a benefit of $198,000 for the same
period in 1994.
<PAGE> 14
Financial Condition
___________________
Total assets amounted to $841.5 million at June 30, 1995 an increase of $34.6
million or 4.3% from $806.9 million at December 31, 1994. This increase is
attributable to an increase of $56.4 million in loans, before deducting the
allowance for possible loan losses, offset by a decrease of $25.2 million in the
investment portfolio (which includes short term investments).
Loans
_____
Loans increased $56.4 million from $429.8 million at December 31, 1994 to $486.2
million at June 30, 1995, representing 57.8% of total assets.
The following table sets forth information concerning the Company's loan
portfolio, including loans held for sale, at the dates indicated. The balances
shown in the table are net of unadvanced funds and unearned discounts and fees.
<TABLE>
<CAPTION>
JUNE 30, December 31,
1995 1994
________ __________
<S> <C> <C> <C> <C>
Mortgage Loans:
Residential $281,042 57.8% $264,848 61.6%
Commercial 39,340 8.1 25,786 6.0
Construction 12,144 2.5 15,527 3.6
________ ____ _______ ____
Total mortgage loans 332,526 68.4 306,161 71.2
________ ____ _______ ____
Commercial loans: $49,876 10.3 55,377 12.9
Consumer loans:
Home equity 12,907 2.6 12,943 3.0
Other secured 89,824 18.5 54,463 12.7
Unsecured 1,040 .2 867 0.2
_______ ____ ______ ____
Total consumer loans: 103,771 21.3 68,273 15.9
Total loans $486,173 100.0% $429,811 100.0%
======== ===== ======= =====
</TABLE>
Loan Origination
________________
Loan originations for the three and six month periods ended June 30, 1995
totalled $71.4 million and $125.0 million, respectively, compared to $69.4
million and $96.5 million for the respective periods in 1994. The Bank's
residential loan originations during the three and six month periods ended June
30, 1995, totalled $34.0 million and $49.6 million, respectively, compared to
$54.0 million and $64.0 million for the respective periods in 1994. During 1994
the Company initiated an indirect automobile lending program. This resulted in
significant growth of indirect automobile loan originations which amounted to
$19.8 million and $41.0 million for the three and six months ended June 30,
1995, respectively, compared to $5.5 million and $8.3 million for the respective
periods in 1994. During the second quarter of 1995 the Bank also purchased
approximately $7.0 million of loans, primarily commercial real estate loans, at
face value of the outstanding principal. The loans were performing in accordance
with the terms of the loan agreements.
<PAGE> 15
Non-Performing Assets
Non-performing assets consist of non-accruing loans (including loans impaired
under SFAS No. 114), foreclosed property and restructured loans. Non-performing
assets totalled $7.3 million at June 30, 1995 compared to $10.4 million at
December 31, 1994.
The bank's policy is to discontinue the accrual of interest on all loans for
which payment of interest or principal is 90 days or more past due or for such
other loans as considered necessary by management if collection of interest and
principal is doubtful. When a loan is placed on non-accrual status, all
previously accrued but uncollected interest is reversed against the current
period interest income.
Restructured loans are loans on which concessions have been made in light of the
debtor's financial difficulty with the objective of maximizing recovery and with
respect to which the renegotiated payment terms are met. At June 30, 1995, the
Bank had restructured loans of $135,000.
Foreclosed property consists mainly of real estate collateral from loans which
were foreclosed.
The following table shows the composition of non-performing assets at June 30,
1995 and December 31, 1994.
<TABLE>
<CAPTION>
JUNE 30, December 31,
1995 1994
________ __________
(Dollars in thousands)
<S> <C> <C>
Non-accruing loans:
Real Estate $ 4,123 $6,548
Other 1,025 776
_______ _______
Total non-accruing loans 5,148 7,324
Restructured loans 135 ----
Foreclosed property 1,995 3,038
_______ _______
Total non-performing assets $7,278 $10,362
======= =======
Percentage of non-performing assets
to total assets .86% 1.28%
Percentage of allowance for possible
loan losses to non-accruing loans 124.4% 98.8%
</TABLE>
At June 30, 1995 the recorded investment in loans that are considered to be
impaired under SFAS No. 114 totalled $288,000 with a related allowance for
possible credit losses of $120,000. The Company had an additional $1.3 million
of impaired loans that did not require a related allowance for possible loan
losses. The average recorded investment in impaired loans during the three and
six month periods ended June 30, 1995 was approximately $1.2 million and $1.1
million, respectively.
Interest income recognized on impaired loans, using the cash basis of income
recognition, amounted to approximately $27,000 and $72,000, for the three and
six month periods ending June 30, 1995, respectively.
<PAGE> 16
Allowance for Possible Loan Losses
__________________________________
The following table summarizes the activity in the allowance for possible loan
losses (including amounts established for loans impaired under SFAS No. 114) for
the six months ended June 30, 1995.
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Balance at December 31, 1994 $7,237
Provision for possible loan losses 329
Charge-offs:
Mortgage 1,198
Construction 0
Commercial 118
Consumer 242
______
Total charge-offs: 1,558
______
Recoveries:
Mortgage 166
Construction 0
Commercial 186
Consumer 45
______
Total recoveries 397
______
Net charge-offs 1,161
______
Balance at June 30, 1995 $6,405
======
Ratio of net charge-offs to average loans outstanding .26%
</TABLE>
See "Non-Performing Assets" for a discussion of the Company's impaired loans.
Investments
___________
At June 30, 1995 the investment portfolio, consisting of short-term investments,
investment securities, mortgage-backed securities, Federal Home Loan Bank
("FHLB") stock and stock in the Savings Bank Life Insurance Company of
Massachusetts, totalled $321.7 million or 38.2% of total assets, compared to
$346.9 million or 43.0% of total assets at December 31, 1994. Interest and
dividend income on the investment portfolio generated 34.7% of total interest
and dividend income for the six months ended June 30, 1995 compared to 41.7% for
the comparable period in 1994.
The Company has established policies and procedures designed to identify and
reduce risks associated with the investment portfolio. These policies and
procedures include stop loss limits and stress testing on a periodic basis.
Deposits
________
Deposits have historically been the primary source of funds for lending and
investment activities. Deposit flows vary significantly and are influenced by
prevailing interest rates, money market conditions, economic conditions and
competition. At June 30, 1995 the Bank had total deposits of $484.1 million
representing a net increase of $27.2 million compared to total deposits of
$456.9 million at December 31, 1994. This increase is attributable to an
increase of $39.2 million in term deposits offset by a decrease of $12.0 million
in Demand Deposits, Savings, NOW and Money Market accounts.
While deposit flows are by nature unpredictable, the Bank attempts to manage its
deposits through selective pricing. Due to the uncertainty of market conditions,
it is not possible for the Bank to predict how aggressively it will compete for
deposits in future quarters or the likely effect of any such decision on deposit
levels, interest expense and net interest income. Strategies are currently in
place to aggressively market more stable deposit sources in such accounts as NOW
and Demand Deposits.
<PAGE> 17
Borrowed Funds
______________
The Bank is a member of the FHLB and is entitled to borrow from the FHLB by
pledging certain assets. The Bank also utilizes short term repurchase agreements
with maturities less than three months, as an additional source of funds.
Repurchase agreements are secured by U.S. government and agency securities.
These borrowings are an alternative source of funds compared to deposits and
totalled $276.3 million at June 30, 1995 compared to $280.0 million at December
31, 1994.
Liquidity and Capital Resources
_______________________________
The Bank's principal sources of liquidity are customer deposits, borrowings from
the FHLB, scheduled amortization and prepayments of loan principal, cash flow
from operations, maturities of various investments and loan sales.
Management believes it is prudent to maintain an investment portfolio that not
only provides a source of income, but also provides a potential source of
liquidity to meet lending demand and deposit flows. The Bank adjusts the level
of its liquid assets and the mix of its loans and investments based upon
management's judgment as to the quality of specific investment opportunities and
the relative attractiveness of their maturities and yields.
At June 30, 1995 the Bank had outstanding commitments to loan funds, under
mortgage, construction, commercial and home equity lines of credit amounting to
$39.9 million compared to $42.6 million at June 30, 1994. Management believes
the sources of liquidity previously discussed are sufficient to meet its
commitments.
Net cash provided by operating activities totalled $9.5 million for the six
months ended June 30, 1995 compared to $5.8 million for the same period in 1994.
Net cash used in investing activities totalled $24.1 million for the six months
ended June 30, 1995 compared to $64.3 million for the comparable period in 1994.
The change reflects the Bank's reduction in investment securities and increase
in loans.
Net cash provided by financing activities totalled $22.7 million for the six
months ended June 30, 1995, compared to $53.4 million for the comparable period
in 1994. The change reflects the decrease in the amount of borrowings, and an
increase in term deposits.
As a federal savings institution regulated by the Office of Thrift Supervision,
the Bank is required to meet certain minimum regulatory capital requirements:
tangible capital, total capital, core/leverage capital, Tier 1 risk-based
capital and total risk- based capital. In addition, under the Prompt Corrective
Action provisions of the Federal Deposit Insurance Corporation Improvement Act
of 1991, (FDICIA), the Bank's capital position may be classified in one of five
different capital categories ranging from critically undercapitalized to well
capitalized. As of June 30, 1995, the Bank met all of the minimum regulatory
requirements of the well capitalized category under FDICIA. The Company's
core/leverage, Tier 1 risk-based and total risk- based capital together with
related regulatory minimum requirements are summarized below. The Company's
total capital, tangible capital and tangible equity ratios were equal to the
core/leverage capital ratio.
<TABLE>
<CAPTION>
Core Tier 1 Total
Leverage Risk-based Risk-based
Capital Capital Capital
_______ _______ _______
(Dollars in thousands)
<S> <C> <C> <C>
Core Capital $ 58,058 $ 58,058 $ 58,058
General Valuation Allowance ---- ---- 5,603
________ ________ ________
Regulatory Capital Measure $ 58,058 $ 58,058 $ 63,661
======== ======== ========
Total Assets $841,500 $841,500 $841,500
Adjusted Assets $841,500 $ --- $ ---
Risk-based Assets (unaudited) $ ---- $447,487 $447,487
Capital Ratio (unaudited) 6.90% 12.97% 14.23%
Regulatory minimum requirement 3.00% 4.00% 8.00%
</TABLE>
<PAGE> 18
Impact of Inflation
___________________
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles which require
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.
An important concept in understanding the effect of inflation on financial
institutions is the distinction between monetary and non-monetary items. In a
stable environment, monetary items are those assets and liabilities which are or
will be converted into a fixed amount of dollars regardless of changes in
prices. Examples of monetary items include cash, investment securities, loans,
deposits and borrowings. Non-monetary items are those assets and liabilities
which gain or lose general purchasing power as a result of the relationships
between specific prices for the items and price change levels. Examples of
non-monetary items include premises and equipment and real estate in
foreclosure. In the current environment in the New England region, where real
estate values have dramatically decreased, the deflationary impact of changing
prices of real estate securing loans significantly affects a financial
institution's performance. Additionally, interest rates do not necessarily move
in the same direction, or in the same magnitude, as the prices of goods and
services as measured by the consumer price index. In a volatile interest rate
environment, liquidity and the management of the maturity structure of assets
and liabilities are critical in maintaining acceptable profitability levels.
<PAGE> 19
SIGNATURES
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.
FIRST ESSEX BANCORP, INC.
_________________________
(Registrant)
Date: August 10, 1995 /s/ David W. Dailey
___________________________
David W. Dailey
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This legend contains summary information extracted from the Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000808246
<NAME> FIRST ESSEX BANCORP, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 17,332
<INT-BEARING-DEPOSITS> 442
<FED-FUNDS-SOLD> 9,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,188
<INVESTMENTS-CARRYING> 312,300
<INVESTMENTS-MARKET> 308,999
<LOANS> 480,131
<ALLOWANCE> 6,405
<TOTAL-ASSETS> 841,500
<DEPOSITS> 484,107
<SHORT-TERM> 143,955
<LIABILITIES-OTHER> 23,175
<LONG-TERM> 132,309
<COMMON> 801
0
0
<OTHER-SE> 57,153
<TOTAL-LIABILITIES-AND-EQUITY> 841,500
<INTEREST-LOAN> 19,536
<INTEREST-INVEST> 10,307
<INTEREST-OTHER> 79
<INTEREST-TOTAL> 29,922
<INTEREST-DEPOSIT> 9,323
<INTEREST-EXPENSE> 18,045
<INTEREST-INCOME-NET> 11,877
<LOAN-LOSSES> 329
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,744
<INCOME-PRETAX> 3,252
<INCOME-PRE-EXTRAORDINARY> 3,232
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,232
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
<YIELD-ACTUAL> 3.01
<LOANS-NON> 5,148
<LOANS-PAST> 0
<LOANS-TROUBLED> 135
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,237
<CHARGE-OFFS> 1,558
<RECOVERIES> 397
<ALLOWANCE-CLOSE> 6,405
<ALLOWANCE-DOMESTIC> 6,405
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
