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 3/31/95
_______
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 March 31, 1995:
Title of Class Shares Outstanding
______________ __________________
Common Stock, $.10 par value 6,020,500
<PAGE>
FIRST ESSEX BANCORP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 1995
and December 31, 1994 3
Consolidated Statements of Operations for the three
months ended March 31, 1995 and 1994 4
Consolidated Statements of Stockholders' Equity for the
year ended December 31, 1994 and the three months ended
March 31, 1995 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1995 and 1994 6
Note to the Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-16
<PAGE>
Item 1. Financial Statements
FIRST ESSEX BANCORP, INC.
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
_________ ____________
(Dollars in thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 16,627 $ 18,714
Mortgage-backed securities available-for-sale 35,330 35,200
Investment securities held-to-maturity (market value -
$81,446,000, and $84,582,000) 81,797 85,310
Mortgage-backed investments held-to-maturity (market
value - $197,016,000 and $199,759,000) 203,137 209,747
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 $6,371,000 and $7,237,000 445,298 419,644
Mortgage loans held-for-sale 1,483 2,930
Foreclosed property, net of valuation reserve of
$1,353,000 and $1,934,000 2,555 3,038
Bank premises and equipment 9,255 8,347
Accrued interest receivable 5,605 4,537
Other assets 5,633 5,436
________ ________
Total assets $821,963 $806,872
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Depositors' accounts $478,236 $456,878
Borrowed funds 272,474 279,948
Mortgagors' escrow accounts 2,359 1,804
Other liabilities 12,563 13,485
________ ________
Total liabilities $765,632 $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 13,616 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 (436) (1,032)
________ ________
Total stockholders' equity 56,331 54,757
________ ________
Total liabilities and stockholders' equity $821,963 $806,872
======== ========
</TABLE>
<PAGE>
FIRST ESSEX BANCORP, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
____________________________
1995 1994
____ ____
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Interest and dividend income:
Interest on mortgage $ 6,355 $ 4,572
Interest on other loans 3,091 893
Interest and dividends on investment securities 1,502 935
Interest on federal funds sold 45 34
Interest on mortgage-backed investments 3,587 2,838
________ ________
Total interest and dividend income 14,580 9,272
________ ________
Interest expense:
Interest on depositors' accounts 4,313 2,698
Interest on borrowed funds 4,396 1,689
________ ________
Total interest expense 8,709 4,387
________ ________
Net interest income: 5,871 4,885
Provision for possible loan losses 129 ---
________ ________
Net interest income after provision
for possible loan losses 5,742 4,885
Noninterest income:
Net gain on sales of mortgage loans 17 81
Loan fees 118 96
Other fee income 437 467
Other 11 6
________ ________
Total non-interest income 583 650
Noninterest expense:
Salaries and employee benefits 2,338 2,000
Building and equipment 673 663
Professional services 223 291
Data processing 266 229
Insurance 289 285
Expenses, gains and losses on
and write-downs of foreclosed property 233 597
Other 842 686
________ ________
Total noninterest expenses 4,864 4,751
________ ________
Income before provision (benefit) for income taxes 1,461 784
Provision (benefit) for income taxes 1 (124)
________ ________
Net income $1,460 $ 908
======== ========
Earnings per share $ .24 $ .15
======== ========
Dividends declared per share $ .08 $ .06
======== ========
Average common stock outstanding 6,069,134 6,038,535
========= =========
</TABLE>
<PAGE>
FIRST ESSEX BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
Year Ended December 31, 1994
And The Three Months Ended March 31, 1995
_________________________________________
<TABLE>
<CAPTION>
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 losses 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 --- --- 1,460 --- --- 1,460
Cash dividends declared --- --- (482) --- --- (482)
Change in valuation allowance
for unrealized losses of
investment securities
available-for-sale --- --- --- --- 596 596
____ ______ ______ ______ ______ ______
Balance at
March 31, 1995 $ 801 $58,192 $13,616 $(15,842) $ (436) $56,331
===== ======= ======= ======== ====== ======
</TABLE>
<PAGE>
FIRST ESSEX BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
____________________________
1995 1994
____ ____
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,460 $ 908
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible loan losses 129 ---
Provision for depreciation and amortization 311 284
Gain on sales of foreclosed property (44) (97)
Write-down of foreclosed property 115 276
Amortization of investment securities discounts and premiums, net 379 1,406
Deferred income taxes --- (124)
Proceeds from sales of mortgage loans 5,360 14,073
Mortgage loans originated for sale (3,896) (12,858)
Realized gains on mortgage loan sales, net (17) (81)
Decrease (increase) in accrued interest receivable (1,068) 98
Increase in other assets (197) (522)
Decrease in other liabilities (922) (2,864)
________ ________
Net cash provided by operating activities 1,610 499
Cash flows from investing activities:
Proceeds from maturities and principal payments of
available-for-sale securities 470 1,104
Proceeds from maturities and principal payments of held-to-maturity
securities 9,740 29,726
Purchases of investment securities held-to-maturity --- (37,511)
Purchases of Federal Home Loan Bank stock (1,274) ---
Loans originated, net of principal collected (26,187) 7,452
Proceeds from sales of foreclosed property 816 2,110
Purchases of bank premises and equipment (1,219) (215)
________ ________
Net cash (used in) provided by investing activities (17,654) 2,666
Cash flows from financing activities:
Net decrease in demand deposits, NOW accounts
and savings accounts (12,391) (4,287)
Net increase of term deposits 33,749 1,436
Net increase (decrease) in borrowed funds
with maturities of three months or less (53,437) 18,500
Proceeds from borrowed funds with maturities in excess of three months 104,000 40,000
Repayments of borrowed funds with maturities in excess of three months (58,037) (64,454)
Increase in mortgagors' escrow accounts 555 447
Dividends paid (482) (361)
________ ________
Net cash provided by (used in) financing activities 13,957 (8,719)
________ ________
Net decrease in cash and cash equivalents (2,087) (5,554)
Cash and cash equivalents at beginning of period 18,714 15,232
________ ________
Cash and cash equivalents at end of period $ 16,627 $ 9,678
======== ========
</TABLE>
<PAGE>
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>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FIRST ESSEX BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARCH 31, 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 March 31, 1995 was $1.5 million compared
to net income of $908,000 for the same period in 1994. The increased net
income over the comparative quarter in 1994 was due primarily to an increase in
net interest income of $986,000, partially offset by a provision for possible
loan losses, and increases in non interest expenses.
<PAGE>
The following table presents an analysis of average yields earned and rates
paid for the periods indicated:
<TABLE>
<CAPTION>
For The Three Months Ended March 31,
1995 1994
____________________________________ _____________________________________
Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
_______ ________ _______ _______ ________ _______
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets:
Short-term investment $ 3,078 $ 45 5.93% $ 4,054 $ 34 3.35%
Investment and mortgage-
backed securities 340,219 5,089 5.98 319,166 3,773 4.73
_______ _____ _______ _____
Total investments 343,297 5,134 5.98 323,220 3,807 4.71
_______ _____ _______ _____
Mortgage loans(1) 311,995 6,355 8.15 241,800 4,572 7.56
Consumer and commercial loans(1) 126,677 3,091 9.76 44,215 893 8.08
_______ _____ _______ _____
Total loans(1) 438,672 9,446 8.61 286,015 5,465 7.64
Total earning assets 781,969 14,580 7.46 609,235 9,272 6.09
Allowance for possible
loan losses (6,689) (7,387)
_______ _______
Total earning assets less
allowance for possible loan losses 775,280 601,848
Other assets 31,953 29,149
_______ _______
Total assets $807,233 $630,997
======= =======
Liabilities and Stockholders' Equity
Deposits:
NOW accounts $27,760 $ 78 1.12% $ 30,121 $ 89 1.18%
Money market accounts 87,614 453 2.07 112,437 583 2.07
Savings and notice accounts 53,039 175 1.32 60,374 197 1.31
Savings certificates 272,531 3,607 5.29 178,477 1,829 4.10
_______ ______ _______ ______
Total interest bearing deposits 440,944 4,313 3.91 381,409 2,698 2.83
Borrowed funds 279,657 4,396 6.29 174,149 1,689 3.88
_______ ______
Total interest bearing deposits and
borrowed funds 720,601 8,709 4.83 555,558 4,387 3.16
_______ ______ _______ ______
Demand deposit accounts 18,567 14,373
Other liabilities 12,577 9,871
_______ _______
Total liabilities
Stockholders' equity 55,488 51,195
_______ _______
Total liabilities and
stockholders' equity $807,233 $630,997
======= =======
Net interest income $ 5,871 $ 4,885
===== =====
Weighted average interest
rate spread 2.63% 2.93%
Net yield on average
earning assets(2) 3.00% 3.21%
(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>
Net Interest Income
___________________
Net interest income increased by $1.0 million to $5.9 million for the three
months ended March 31, 1995. This represents an increase of 20.2% from $4.9
million for the same period in 1994. The increases in net interest income are
due to 28.4% increase in average earning assets 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 $5.3 million (57.2%) to $14.6 million
for the three months ended March 31, 1995 from $9.3 million for the same period
in 1994. The increases are attributable to increased rates and volume of
earning assets for the three month period ended March 31, 1995, primarily from
loan growth.
Interest Expense
________________
Interest expense increased by $4.3 million (98.5%) to $8.7 million for the
three months ended March 31, 1995 when compared to $4.4 for the same period 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 reported at 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.
There was a provision for possible loan loss of $129,000 for the three months
ended March 31, 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 $5.3 million
at March 31, 1995 compared to $7.3 million at December 31, 1994 and $9.7
million at March 31, 1994. See also "Financial Condition - Non-Performing
Assets".
The Bank's total allowance for possible loan losses was $6.4 million or 123.7%
of non-accruing loans at March 31, 1995 compared to $7.3 million or 98.8% at
December 31, 1994 and $7.5 million or 77.0% at March 31, 1994.
Non-Interest Income
___________________
Non-interest income consists of net gains from the sales of loans, along with
fee and other non-interest income.
Non-interest income decreased by $67,000 (10.3%) to $583,000 for the three
months ended March 31, 1995, compared to $650,000 for the same period in 1994.
The decrease in non-interest income is due mainly to reduced gains on the
sale of loans.
<PAGE>
Non-Interest Expense
____________________
Non-interest expense increased by $113,000 (2.4%) to $4.9 million for the
three months ended March 31, 1995 compared to $4.8 million for the same period
in 1994. The increase for the quarter was due primarily to an increase of
$338,000 in salary and employee benefits offset by decreases in various
foreclosed property expenses.
Salaries and employee benefits increased by $338,000 (16.9%) to $2.3 million
for the three months ended March 31, 1995 compared to $2.0 million for the same
period in 1994, primarily due to cost associated with a 20% increase in
personnel to support business growth.
Building and equipment costs increased slightly to $673,000 for the three
months ended March 31, 1995, compared to $663,000 for the same period in 1994.
Foreclosed property expense decreased by $364,000 (61.0%) to $233,000 for the
three months ended March 31, 1995 compared to $597,000 for the comparable
period in 1994. The Company's continued success in selling foreclosed
property resulted in the lower level of foreclosed property ($2.6 million at
March 31, 1995 compared to $3.0 million at December 31, 1994 and $4.9 million
at March 31, 1994), resulted in lower costs associated with professional
services and lower operating expense related to the properties in foreclosure.
Other operating expenses increased by $129,000 (8.7%) to $1.6 million for the
three months ended March 31, 1995, compared to $1.5 million for the comparable
period 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 Companys'
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. No tax
benefits were recorded for the three months ended March 31, 1995, compared to
$124,000 for the same period in 1994.
<PAGE>
Financial Condition
___________________
Total assets amounted to $822.0 million at March 31, 1995 an increase of
$15.1 million or 1.9% from $806.9 million at December 31, 1994. This increase
is attributable to an increase of $25.7 million in loans net of reserves offset
by a decrease of $8.7 million in investments.
Loans
_____
Net loans increased $25.7 million from $419.6 million at December 31, 1994 to
$445.3 million at March 31, 1995, representing 54.2% 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>
MARCH 31, December 31,
1995 1994
____ ____
<S> <C> <C> <C> <C>
Mortgage Loans:
Residential $273,449 60.3% $264,848 61.6%
Commercial 28,262 6.2 25,786 6.0
Construction 13,039 2.9 15,527 3.6
_______ ____ _______ ____
Total mortgage loans 314,750 69.4 306,161 71.2
_______ ____ _______ ____
Commercial loans: $49,894 11.0 55,377 12.9
Consumer loans:
Home equity 12,558 2.8 12,943 3.0
Other secured 75,113 16.6 54,463 12.7
Unsecured 837 .2 867 0.2
_______ ____ _______ ____
Total consumer loans: 88,508 19.6 68,273 15.9
Total loans $453,152 100.0% $429,811 100.0%
======== ====== ======== ======
</TABLE>
Loan Origination
________________
Loan originations for the three months ended March 31, 1995 totaled $53.6
million compared to $27.1 million for the same period in 1994. The Bank's
residential loan originations during the period totalled $15.6 million
compared to $10.0 million for the same period 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
$21.2 million for the three months ended March 31, 1995 compared to $2.8
million for the same period in 1994.
<PAGE>
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 $7.8 million at March 31, 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 March 31,
1995, the Bank had restructured loans of $136,000.
Foreclosed property consists mainly of real estate collateral from loans which
were foreclosed.
The following table shows the composition of non-performing assets at March 31,
1995 and December 31, 1994.
<TABLE>
<CAPTION>
MARCH 31, December 31,
1995 1994
_________ ____________
(Dollars in thousands)
<S> <C> <C>
Non-accruing loans:
Real Estate $ 4,375 $ 6,548
Other 777 776
______ ______
Total non-accruing loans 5,152 7,324
Restructured loans 136 ---
Foreclosed property 2,555 3,038
______ ______
Total non-performing assets $ 7,843 $10,362
====== ======
Percentage of non-performing assets
to total assets .95% 1.28%
Percentage of allowance for possible
loan losses to non-accruing loans 123.7% 98.8%
</TABLE>
At March 31, 1995 the recorded investment in loans that are considered to be
impaired under SFAS No. 114 with required reserves totalled $365,000 with a
related allowance for possible credit losses of $129,000. The Company had an
additional $681,000 of impaired loans that did not require reserves. The
average recorded investment in impaired loans during the quarter ended
March 31, 1995 was approximately $900,000.
Interest income for the three months ended March 31, 1995 of approximately
$45,000 was recognized on impaired loans using the cash basis method of income
recognition.
<PAGE>
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 three months ended March 31, 1995.
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Balance at December 31, 1994 $7,237
Provision for possible loan losses 129
Charge-offs:
Mortgage 1,020
Construction 0
Commercial 96
Consumer 106
_____
Total charge-offs: 1,222
_____
Recoveries:
Mortgage 67
Construction 0
Commercial 139
Consumer 21
_____
Total recoveries 227
_____
Net charge-offs 995
_____
Balance at March 31, 1995 $6,371
=====
Ratio of net charge-offs to average loans outstanding .23%
See "Non-Performing Assets" for a discussion of the Company's impaired loans.
</TABLE>
Investments
___________
At March 31, 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 $337.5 million or 41.1% 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 35.2% of total interest
and dividend income for the three months ended March 31, 1995 compared to
41.1% for the comparable period in 1994.
To identify and control risks associated with the investment portfolio, the
Company has established policies and procedures, which include stop loss
limits and stress testing on a periodic basis, to control market risk on the
investment portfolio.
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 March 31, 1995 the Bank had total deposits of $478.2 million
representing a net increase of $21.3 million compared to total deposits of
$456.9 million at December 31, 1994. This increase is attributable to an
increase of $33.7 million in term deposits offset by a decrease of
$12.4 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>
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 $272.5 million at March 31, 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 March 31, 1995 the Bank had outstanding commitments to loan funds, under
mortgage, construction, commercial and home equity lines of credit amounting
to $38.9 million compared to $20.2 million at March 31, 1994. Management
believes the sources of liquidity previously discussed are sufficient to meet
its commitments.
Net cash provided by operating activities totalled $1.6 million for the three
months ended March 31, 1995 compared to $0.5 million for the same period in
1994.
Net cash used in investing activities totalled $17.7 million for the three
months ended March 31, 1995 compared to cash provided of $2.7 million for the
comparable period in 1994. The increase in net cash used by investing
activities was primarily due to an increase in cash used to originate loans.
This was offset by a reduction in cash used for investment security activities.
Net cash provided by financing activities totalled $14.0 million for the three
months ended March 31, 1995, compared to net cash used of $8.7 million for
the comparable period in 1994. The change reflects the decrease in the
repayment 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 March 31, 1995, the Bank met all
of the minimum regulatory requirements of the well capitalized category under
FDICIA. The Companys' 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 $ 56,767 $ 56,767 $ 56,767
General Valuation Allowance ---- ---- 5,268
_______ _______ _______
Regulatory Capital Measure $ 56,767 $ 56,767 $ 62,035
======= ======= =======
Total Assets $821,963 $821,963 $821,963
Adjusted Assets $822,399 $ --- $ ---
Risk-based Assets (unaudited) $ ---- $420,313 $420,313
Capital Ratio (unaudited) 6.90% 13.51% 14.76%
Regulatory minimum requirement 3.00% 3.00% 8.00%
</TABLE>
<PAGE>
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>
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: May 11 1995 /s/ David W. Dailey
____________________________
David W. Dailey
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 13,079
<INT-BEARING-DEPOSITS> 1,548
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,330
<INVESTMENTS-CARRYING> 300,177
<INVESTMENTS-MARKET> 329,035
<LOANS> 446,781
<ALLOWANCE> 6,371
<TOTAL-ASSETS> 821,963
<DEPOSITS> 478,236
<SHORT-TERM> 0
<LIABILITIES-OTHER> 14,922
<LONG-TERM> 0
<COMMON> 801
0
0
<OTHER-SE> 55,530
<TOTAL-LIABILITIES-AND-EQUITY> 821,963
<INTEREST-LOAN> 9,446
<INTEREST-INVEST> 5,134
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14,580
<INTEREST-DEPOSIT> 4,313
<INTEREST-EXPENSE> 8,709
<INTEREST-INCOME-NET> 5,871
<LOAN-LOSSES> 129
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,864
<INCOME-PRETAX> 1,461
<INCOME-PRE-EXTRAORDINARY> 1,460
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,460
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
<YIELD-ACTUAL> 3.00
<LOANS-NON> 5,152
<LOANS-PAST> 0
<LOANS-TROUBLED> 136
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,237
<CHARGE-OFFS> 1,222
<RECOVERIES> 227
<ALLOWANCE-CLOSE> 6,371
<ALLOWANCE-DOMESTIC> 6,371
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
