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 6/30/97
---------
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, 1997:
Title of Class Shares Outstanding
-------------- ------------------
Common Stock, $.10 par value 7,503,729
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
------------------------------------------------
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. This Report contains certain
"forward-looking statements" including statements concerning plans, objectives,
future events or performance, assumptions, and other statements which are other
than statements of historical fact. The Company wishes to caution readers that
the following important factors, among others, may have affected, and could in
the future affect, the Company's actual results and could cause the Company's
actual results for subsequent periods to differ materially from those expressed
in any forward-looking statement made by, or on behalf of, the Company herein:
(i) the effect of changes in laws and regulations, including federal and state
banking laws and regulations, with which the Company and its wholly owned
banking subsidiary, First Essex Bank, FSB, must comply, and the associated costs
of compliance with such laws and regulations, either currently or in the future
as applicable; (ii) the effect of changes in accounting policies and practices,
as may be adopted by the regulatory agencies as well as by the Financial
Accounting Standards Board, or of changes in the Company's organization,
compensation and benefit plans; (iii) the effect on the Company's competitive
position within its market area of the increasing consolidation within the
banking and financial services industries, including increased competition from
larger regional and out-of-state banking organizations as well as nonbank
providers of various financial services; (iv) the effect of unforeseen changes
in interest rates; and (v) the effect of changes in the business cycle and
downturns in the local, regional and national economies.
2
<PAGE>
FIRST ESSEX BANCORP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30,1997
and December 31, 1996 4
Consolidated Statements of Operations for the
three months ended June 30, 1997 and 1996 5
Consolidated Statements of Operations for the
six months ended June 30, 1997 and 1996 6
Consolidated Statements of Stockholders' Equity
for the year ended December 31, 1996
and the six months ended June 30, 1997 7
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 8
Note to the Consolidated Financial Statements 9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-20
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 6. Exhibits and Reports on Form 8-K 21-22
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
----------------------------
FIRST ESSEX BANCORP, INC.
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 36,320 $ 38,078
Investment securities available-for-sale 240,331 174,716
Investment securities held-to-maturity
(fair value $180,771,000 and $103,529,000) 180,712 104,465
Stock in Savings Bank Life Insurance Company 1,194 1,194
Stock in Federal Home Loan Bank of Boston 19,803 15,517
Mortgage loans held-for-sale 6,693 8,915
Loans receivable, less allowance for possible
loan losses of $10,315,000 and $10,538,000 702,580 685,206
Foreclosed property, net of valuation reserve
of $389,000 and $834,000 1,494 1,880
Bank premises and equipment 11,324 11,609
Accrued interest receivable 8,129 5,970
Goodwill 11,405 11,800
Other assets 25,430 7,825
---------- ----------
Total assets $1,245,415 $1,067,175
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Depositors' accounts $ 728,943 $ 690,953
Borrowed funds 409,524 274,958
Mortgagors' escrow accounts 1,053 1,116
Other liabilities 19,050 17,007
---------- ----------
Total liabilities 1,158,570 984,034
---------- ----------
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, 9,489,729 and
9,407,433 shares issued 949 941
Additional paid-in capital 75,014 74,408
Retained earnings 26,596 23,727
Treasury stock, at cost, 1,986,000 shares (15,842) (15,842)
Valuation allowance for unrealized gains (losses)
on investment securities available-for-sale 128 (93)
---------- ----------
Total stockholders' equity 86,845 83,141
---------- ----------
Total liabilities and stockholders' equity $1,245,415 $1,067,175
=========== ==========
</TABLE>
4
<PAGE>
FIRST ESSEX BANCORP, INC.
Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
-----------------------------------------------
(Dollars in thousands, except per share amount)
<S> <C> <C>
Interest and dividend income:
Interest on mortgage loans $9,810 $6,095
Interest on other loans 5,854 5,207
Interest and dividends on investment securities
available-for-sale 3,893 2,077
Interest and dividends on investment securities
held-to-maturity 3,094 2,131
Interest on short-term investments 114 70
--------- ---------
Total interest and dividend income 22,765 15,580
--------- ---------
Interest expense
Interest on depositors' accounts 7,658 5,373
Interest on borrowed funds 5,512 3,730
--------- ---------
Total interest expense 13,170 9,103
--------- ---------
Net interest income 9,595 6,477
Provision for possible loan losses 510 326
--------- ---------
Net interest income after provision
for possible loan losses 9,085 6,151
Non-interest income
Net gain on sales of mortgage loans and mortgage servicing
rights 556 453
Net gain (loss) on sale of investment securities (3) --
Loan fees 124 122
Other fee income 579 461
Other -- 12
--------- ---------
Total non-interest income 1,256 1,048
Non-interest expense
Salaries and employee benefits 2,832 2,470
Buildings and equipment 1,059 844
Professional services 390 426
Information processing 394 305
Insurance 63 34
Expenses, gains and losses on
and write-downs of, foreclosed property 157 116
Other 912 865
Amortization of goodwill 196 --
--------- ---------
Total non-interest expenses 6,003 5,060
--------- ---------
Income before provision for income taxes 4,338 2,139
Provision for income taxes 1,812 9
--------- ---------
Net income $2,526 $2,130
========= =========
Earnings per share $0.33 $0.35
========= =========
Dividends declared per share $0.12 $0.12
========= =========
Average common and equivalent shares outstanding 7,769,658 6,154,310
========= =========
</TABLE>
5
<PAGE>
FIRST ESSEX BANCORP, INC.
Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
-----------------------------------------------
(Dollars in thousands, except per share amount)
<S> <C> <C>
Interest and dividend income:
Interest on mortgage loans $19,338 $12,379
Interest on other loans 11,469 9,893
Interest and dividends on investment securities 7,276 3,662
available-for-sale
Interest and dividends on investment securities 5,489 4,410
held-to-maturity
Interest on federal funds sold 263 219
--------- ---------
Total interest and dividend income 43,835 30,563
--------- ---------
Interest expense
Interest on depositors' accounts 14,977 10,673
Interest on borrowed funds 10,106 7,302
--------- ---------
Total interest expense 25,083 17,975
--------- ---------
Net interest income 18,752 12,588
Provision for possible loan losses 1,020 815
--------- ---------
Net interest income after provision
for possible loan losses 17,732 11,773
Non-interest income
Net gain on sales of mortgage loans and mortgage servicing 918 930
rights
Net gain on sale of investment securities 49 --
Loan fees 304 283
Other fee income 1,188 911
Other -- 23
--------- ---------
Total non-interest income 2,459 2,147
Non-interest expense
Salaries and employee benefits 5,698 4,971
Buildings and equipment 2,135 1,759
Professional services 791 643
Information processing 766 620
Insurance 154 95
Expenses, gains and losses on
and write-downs of, foreclosed property 363 308
Other 1,865 1,621
Amortization of goodwill 395 --
--------- ---------
Total non-interest expenses 12,167 10,017
--------- ---------
Income before provision for income taxes 8,024 3,903
Provision for income taxes 3,351 19
--------- ---------
Net income $4,673 $3,884
========= =========
Earnings per share $0.61 $0.63
========= =========
Dividends declared per share $0.24 $0.24
========= =========
Average common and equivalent shares outstanding 7,737,953 6,158,390
========= =========
</TABLE>
6
<PAGE>
FIRST ESSEX BANCORP, INC.
Consolidated Statements of Stockholders' Equity
Year Ended December 31, 1996
And The Six Months Ended June 30, 1997
--------------------------------------
<TABLE>
<CAPTION>
Valuation Allowance
For Unrealized
Gains (Losses) On
Common Paid in Retained Treasury Investment Securities
Stock Capital Earnings Stock Available-For-Sale Total
------ ------- -------- -------- --------------------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $801 $58,208 $17,682 ($15,842) ($677) $60,172
Net income -- -- 9,113 -- -- 9,113
Cash dividends declared -- -- (3,068) -- -- (3,068)
Issuance of common stock in
conjunction with the
acquisition of
Finest Financial Corp. 136 15,871 -- -- -- 16,007
Stock options exercised 4 329 -- -- -- 333
Change in valuation
allowance for unrealized losses
on investment securities
available-for-sale -- -- -- -- 584 584
---- ------- -------- --------- ------ --------
Balance at December 31, 1996 941 74,408 23,727 (15,842) (93) 83,141
Net income -- -- 4,673 -- -- 4,673
Cash dividends declared -- -- (1,804) -- -- (1,804)
Stock options exercised 8 606 -- -- -- 614
Change in valuation allowance
for unrealized gains on
investment securities
available-for-sale -- -- -- -- 221 221
---- ------- -------- --------- ------ --------
Balance at June 30, 1997 $949 $75,014 $26,596 ($15,842) $128 $86,845
==== ======= ======== ========= ====== =======
</TABLE>
7
<PAGE>
FIRST ESSEX BANCORP, INC
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
---------- ---------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities $4,673 $3,884
Net income
Adjustments to reconcile net income
to net cash provided by operating activities 1,020 815
Provision for possible loan losses
Provision for depreciation and amortization 953 910
Gain on sales of foreclosed property (240) (49)
Write-down of foreclosed property 34 58
Amortization of goodwill 395 --
Amortization of investment securities
discounts and premiums, net 298 792
Deferred income taxes -- 19
Proceeds from sales of mortgage loans and mortgage servicing rights 35,981 54,038
Mortgage loans originated for sale (32,841) (56,089)
Realized gains on the sale of investment securities (49) --
Realized gains on the sale of mortgage loans
and mortgage servicing rights, net (918) (930)
Increase in accrued interest receivable (2,159) (123)
Increase in other assets (17,605) (135)
Increase in other liabilities 2,043 4,297
--------- --------
Net cash provided by (used in) operating activities (8,415) 7,487
Cash flows from investing activities
Proceeds from sales of available-for-sale securities 22,509 --
Proceeds from maturities and principal payments of
available-for-sale securities 19,352 18,714
Proceeds from maturities and principal payments
of held-to-maturity securities 9,535 43,718
Purchases of available-for-sale securities (107,252) (50,421)
Purchases of held-to-maturity securities (86,034) (25,865)
Purchases of Federal Home Loan Bank stock (4,286) --
Loans originated and purchased, net of principal collected (20,375) (27,644)
Proceeds from sales of foreclosed property 2,557 1,181
Purchases of bank premises and equipment (668) (244)
--------- --------
Net cash used in investing activities (164,662) (40,561)
Cash flows from financing activities
Net increase in demand deposits, NOW accounts and savings accounts 35,935 2,563
Net increase of term deposits 2,055 14,048
Net increase in borrowed funds with maturities of three months or less 85,328 (7,657)
Proceeds from borrowed funds with maturities in excess of three months 150,000 60,500
Repayments of borrowed funds with maturities in excess of three months (100,762) (41,717)
Increase (decrease) in mortgagors' escrow accounts (63) (118)
Dividends paid (1,788) (1,449)
Stock options exercised 614 169
--------- --------
Net cash provided by financing activities 171,319 26,339
--------- --------
Net decrease in cash and cash equivalents (1,758) (6,735)
Cash and cash equivalents at beginning of period 38,078 27,308
--------- --------
Cash and cash equivalents at end of period $36,320 $20,573
======== ========
Supplemental disclosure of cash flow information:
Interest paid during the year $24,002 $18,124
Income taxes paid during the year 2,768 --
Supplemental schedule of noncash financing and investing activities:
Real estate acquired through, or deeds in lieu of, foreclosure 1,965 946
</TABLE>
8
<PAGE>
FIRST ESSEX BANCORP, INC.
Notes 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 1996 annual report.
9
<PAGE>
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, 1997
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 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
- -------
Significant factors contributing to earnings for the second quarter and six
months ended June 30, 1997, compared to the same periods in 1996, include the
purchase of Finest Financial Corp. ("Finest") on December 30, 1996, the
integration of three branches from Finest's subsidiary, Pelham Bank and Trust
Company, and the opening of two new branches in the latter part of 1996.
Additionally, the Company became fully taxable in 1997 which significantly
increased tax expense for the quarter and six months ended June 30, 1997.
Net income for the three months ended June 30, 1997 was $2.5 million compared to
$2.1 million for same period in 1996. Net interest income totaled $9.6 million
for the quarter compared to $6.5 million for the same period in 1996. Higher net
interest income of $3.1 million and an increase in non-interest income of $208
thousand were offset by increases in the provision for loan losses, non-interest
expense and income tax expense of $184 thousand, $943 thousand and $1.8 million,
respectively.
Net income for the six months ended June 30, 1997 was $4.7 million compared to
$3.9 million for the same period in 1996. The increase in net income over the
comparative six months in 1996 was comprised of higher net interest income of
$6.2 million and higher non-interest income of $312 thousand offset by increases
in the provision for loan losses, non-interest expense and income tax expense of
$205 thousand, $2.1 million and $3.3 million, respectively.
10
<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 June 30,
1997 1996
------------------------------------- -------------------------------------
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 investments $15,152 $114 3.01% $5,095 $70 5.50%
Investment securities 425,615 6,987 6.57 278,183 4,208 6.05
Total loans(1) 713,786 15,664 8.78 516,581 11,302 8.75
----------- ------ --------- ------
Total earning assets 1,154,553 22,765 7.89 799,859 15,580 7.79
Allowance for possible loan losses (10,192) (6,738)
----------- ---------
Total earning assets less
allowance for possible loan losses 1,144,361 793,121
Other assets 57,503 32,215
----------- ---------
Total assets $1,201,864 $825,336
=========== =========
Liabilities and Stockholders' Equity
Deposits
NOW accounts $39,956 $129 1.29% $32,246 $98 1.22%
Money market accounts 73,902 432 2.34 73,317 401 2.19
Savings accounts 116,821 921 3.15 50,062 210 1.68
Time deposits 429,613 6,176 5.75 316,073 4,664 5.9
----------- ------ --------- ------
Total interest bearing deposits 660,292 7,658 4.64 471,698 5,373 4.56
Borrowed funds 378,508 5,512 5.82 249,514 3,730 5.98
----------- ------ --------- ------
Total interest bearing deposits and
borrowed funds 1,038,800 13,170 5.07 721,212 9,103 5.05
----------- ------ --------- ------
Demand deposits 63,684 30,610
Other liabilities 14,302 11,017
----------- ---------
Total liabilities 1,116,786 762,839
Stockholders' equity 85,078 62,497
----------- ---------
Total liabilities and
stockholders' equity $1,201,864 $825,336
=========== =========
Net interest income $9,595 $6,477
====== ======
Weighted average interest
rate spread 2.82% 2.74%
====== ======
Net yield on average
earning assets(2) 3.32% 3.24%
====== ======
Return on average assets 0.84% 1.03%
====== ======
Return on average equity 11.90% 13.63%
====== ======
</TABLE>
(1) Loans on a non-accrual status are included in the average balance.
(2) Net interest income before provision for possible loan losses divided by
average earning assets.
11
<PAGE>
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,
1997 1996
---------------------------------- ----------------------------------
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 investments $14,830 $263 3.55% $8,458 $219 5.18%
Investment securities 394,060 12,766 6.48 270,071 8,072 5.98
Total loans(1) 708,653 30,806 8.69 511,317 22,272 8.71
----------- ------- --------- -------
Total earning assets 1,117,543 43,835 7.84 789,846 30,563 7.74
Allowance for possible loan losses (10,046) (6,684)
----------- ---------
Total earning assets less allowance
for possible loan losses 1,107,497 783,162
Other assets 57,082 31,734
----------- ---------
Total assets $1,164,579 $814,896
=========== =========
Liabilities and Stockholders' Equity
Deposits
NOW accounts $40,785 $258 1.27% $31,790 $191 1.20%
Money market accounts 79,294 876 2.21 73,478 791 2.15
Savings accounts 103,227 1,547 3.00 49,665 413 1.66
Time deposits 429,294 12,296 5.73 312,093 9,278 5.95
----------- ------- --------- -------
Total interest bearing deposits 652,600 14,977 4.59 467,026 10,673 4.57
Borrowed funds 350,531 10,106 5.77 244,561 7,302 5.97
----------- ------- --------- -------
Total interest bearing deposits and
borrowed funds 1,003,131 25,083 5.00 711,587 17,975 5.05
----------- ------- --------- -------
Demand deposits 61,711 30,078
Other liabilities 15,503 11,450
----------- ---------
Total liabilities 1,080,345 753,115
Stockholders' equity 84,234 61,781
----------- ---------
Total liabilities and
stockholders' equity $1,164,579 $814,896
=========== =========
Net interest income $18,752 $12,588
======= =======
Weighted average interest
rate spread 2.84% 2.69%
====== ======
Net yield on average
earning assets(2) 3.36% 3.19%
====== ======
Return on average assets 0.80% 0.95%
====== ======
Return on average equity 11.05% 12.57%
====== ======
</TABLE>
(1) Loans on a non-accrual status are included in the average balance.
(2) Net interest income before provision for possible loan losses divided by
average earning assets.
12
<PAGE>
Net Interest Income
- -------------------
Net interest income increased by $3.1 million to $9.6 million for the three
months ended June 30, 1997, and by $6.2 million to $18.8 million for the six
months ended June 30, 1997. This represents an increase of 48.1% from $6.5
million and 49% from $12.6 million when compared to the same periods in 1996.
Much of the increase in net interest income is a result of the increase in the
size of the Company due to the purchase of Finest.
Interest and Dividend Income
- ----------------------------
Interest and dividend income increased by $7.2 million (46.1%) to $22.8 million,
and by $13.3 million (43.4%) to $43.8 million for the three and six month
periods ended June 30, 1997, respectively, from $15.6 million and $30.6 million
recorded in the same periods in 1996. The changes relate to volume increases in
earning assets primarily related to the acquisition of Finest and the Company's
decision to more fully utilize capital by enlarging its investment portfolio.
Interest Expense
- ----------------
Interest expense increased by $4.1 million (44.7%) to $13.2 million, and by $7.1
million (39.5%) to $25.1 million, for the three and six month periods ended June
30, 1997 when compared to the same periods in 1996. These increases were
primarily attributable to volume increases associated with the additional
deposits acquired in the Finest transaction, and additional borrowings to
augment the Company's asset growth.
Provision for Possible Loan Losses
- ----------------------------------
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. 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.
Losses on loans, including impaired loans, are charged against the allowance
when management believes the collectability of principal is doubtful.
The provisions for possible loan losses totaled $510 thousand and $1,020
thousand for the three and six months ended June 30, 1997, for which there was
no provision and a $536 thousand provision, respectively, related to impaired
loans as defined in SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" as amended by SFAS No. 118. The provision for possible loan losses totaled
$326 thousand and $815 thousand for the comparable three and six month periods
in 1996, of which $40 thousand and $346 thousand, respectively, related to
impaired loans. 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 and other markets, and the
economy in general. As a result of increased loans, there is an expectation that
the Bank will continue to find it necessary to make provisions for possible loan
losses in the future. See "Financial Condition - Non-Performing Assets."
Non-Interest Income
- -------------------
Non-interest income consists of net gains from the sales of mortgage loans and
mortgage loan servicing rights and gains on the sale of investment securities,
together with fee and other non-interest income.
Non-interest income increased by $208 thousand (19.8%) to $1.3 million and by
$312 thousand (14.5%) to $2.5 million for the three and six months ended June
30, 1997, respectively, compared to $1.0 million and $2.1 million for the same
periods in 1996. The increase in non-interest income for the three months ended
June 30, 1997 is primarily attributable to a net increase of $108 thousand in
fees collected on loans and deposit accounts and other income, together with an
increase of $103 thousand in the gain on sales of loans and mortgage servicing
rights offset by a $3 thousand loss on the sale of investment securities, when
compared to the same period in 1996. The increase in non-interest income for the
six months ended June 30, 1997 is primarily attributable to a net increase of
$275 thousand in fees collected on loans and deposit accounts and other income,
together with an increase of $49 thousand in the gains on sale of investment
securities, offset by a decrease of $12 thousand in the gain on sales of loans
and mortgage servicing rights when compared to the same period in 1996.
13
<PAGE>
Non-Interest Expense
- --------------------
Non-interest expense increased by $943 thousand (18.6%) to $6.0 million for the
three months ended June 30, 1997, and by $2.1 million (21.5%) to $12.2 million
for the six months ended June 30, 1997, compared to $5.1 million and $10.0
million for the same periods in 1996. The increase in non-interest expense is
primarily attributable to operations at the three branches acquired in the
Finest acquisition, and the opening of two new branches in the latter part of
1996. These expansion-related increases for the three and six month periods
ending June 30, 1997 included, respectively, $362 and $727 thousand in salaries
and employee benefits; $215 and $376 thousand in building and equipment costs;
$89 and $146 thousand for information processing costs; and $196 and $395
thousand of goodwill amortization related to the Finest acquisition. Other
increases in expenditures related to the overall growth of the Company amounted
to $81 and $506 thousand, respectively, for the three and six month periods
ending June 30, 1997.
Income Tax Expense
- ------------------
The provision for income taxes increased to $1.8 and $3.4 million for the three
and six month periods ended June 30, 1997 from $9 and $19 thousand for the three
and six month periods ended June 30, 1996. These increases reflect the Company's
return to full statutory tax rates due to the complete utilization of loss
carryovers.
14
<PAGE>
Financial Condition
-------------------
Total assets amounted to $1,245.4 million at June 30, 1997, an increase of
$178.2 million or 16.7% from $1,067.2 million at December 31, 1996.
Loans
- -----
At June 30, 1997, the loan portfolio, including mortgage loans held for sale,
and before consideration of the allowance for possible loan losses, was $719.6
million, representing 57.8% of total assets, compared to $704.7 million or 66.0%
of total assets at December 31, 1996.
The following table sets forth information concerning the Company's loan
portfolio at the dates indicated. The balances shown in the table are net of
unadvanced funds and unearned discounts and fees.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------------- ------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate:
Residential $296,296 41.2% $301,869 42.8%
Commercial 77,742 10.8 102,718 14.6
Construction 25,785 3.6 24,855 3.5
-------- ----- -------- -----
Total Real Estate Loans 399,823 55.6 429,442 60.9
-------- ----- -------- -----
Owner occupied Commercial Real Estate(1) 50,529 7.0 29,465 4.2
Commercial loans 69,273 9.6 63,695 9.1
Aircraft loans 38,009 5.3 33,267 4.7
Consumer loans
Home equity 13,482 1.9 12,088 1.7
Automobile 98,617 13.7 92,175 13.1
Other 49,855 6.9 44,527 6.3
-------- ----- -------- -----
Total consumer loans 161,954 22.5 148,790 21.1
Total loans $719,588 100.0% $704,659 100.0%
======== ====== ======== ======
</TABLE>
- --------------------------------------------------------------------------------
(1) During 1996, management began to report this category of loans separate
from its other commercial and commercial real estate loans. Management
believes this category of loans is distinguishable from its other
commercial lending products. In 1996 and 1997, the Company reclassified
certain loans to this category from other more historical classification
categories.
15
<PAGE>
Allowance for Possible Loan Losses
- ----------------------------------
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. 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.
Losses on loans, including impaired loans, are charged against the allowance
when management believes the collectability of principal is doubtful. (See
"Non-Performing Assets" for a discussion of the Company's impaired loans.)
The following table summarizes the activity in the allowance for possible loan
losses (including amounts established for impaired loans) for the six months
ended June 30, 1997.
- --------------------------------------------------------------------------------
(Dollars in thousands)
Balance at December 31, 1996 10,538
Provision for possible loan losses 1,020
Charge-offs
Mortgage 869
Owner occupied commercial real estate --
Construction --
Commercial 1
Consumer 805
--------
Total charge-offs 1,675
--------
Recoveries
Mortgage 317
Owner occupied commercial real estate --
Construction 5
Commercial 52
Consumer 58
--------
Total recoveries 432
--------
Net charge-offs 1,243
--------
Balance at June 30, 1997 10,315
========
Total loans at end of period $719,588
Average loans for the period 708,653
Allowance to loans ratio 1.43%
Net charge-offs to average loans ratio 0.18%
During 1996 and 1997, the Company reclassified certain loans from other more
historical classification categories. In making these reclassifications, it was
determined that no restatement of charge-offs and/or recoveries, if any, would
be material or meaningful.
- --------------------------------------------------------------------------------
16
<PAGE>
Non-Performing Assets
- ---------------------
Non-performing assets consist of non-accruing loans (including loans impaired
under SFAS No. 114), and foreclosed property. Non-performing assets totaled $7.1
million at June 30, 1997 and $6.6 million at December 31, 1996.
The Bank's policy is to discontinue the accrual of interest on all loans
(including loans impaired under SFAS No. 114), 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 (1) on which concessions have been made in light of
the debtor's financial difficulty with the objective of maximizing recovery and
(2) with respect to which the renegotiated payment terms continue to be met.
Interest income recognized on impaired loans (including restructured loans),
using the cash basis of income recognition, amounted to approximately $101 and
$148 thousand for the three and six months ended June 30, 1997, compared to $20
and $136 thousand for the same periods in 1996. The average recorded investment
of impaired loans for the three and six months ended June 30, 1997 was $2.8 and
$2.6 million, respectively, compared to $2.1 million for the same periods in
1996, and $1.9 million for the twelve month period ended December 31, 1996.
Foreclosed property consists mainly of real estate collateral from loans which
were foreclosed.
The following table indicates the recorded investment of non-performing assets
and the related valuation allowance for impaired loans.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------------------- --------------------------------
Impaired Loan Impaired Loan
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Non-accruing Loans
Impaired Loans
Requiring a valuation allowance $798 $491 $25 $25
Not requiring a valuation allowance 569 -- 286 --
------ ---- ------- ---
1,367 491 311 25
Restructured Loans 921 420 1,042 466
------ ---- ------- ---
Total impaired 2,288 $911 1,353 491
==== ===
Residential Mortgage 2,117 2,458
Other 1,121 928
------ ------
Total non-accruing 5,526 4,739
Foreclosed property, net 1,494 1,880
------
Total non-performing assets $7,020 $6,619
====== ======
Percentage of non-performing assets
to total assets 0.56% 0.62%
Percentage of allowance for possible
loan losses to non-accruing loans 186.7% 222.4%
</TABLE>
The valuation allowance for impaired loans is included in the allowance for
possible loan losses on the balance sheet.
- --------------------------------------------------------------------------------
17
<PAGE>
Investments
- -----------
At June 30, 1997, 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, totaled $442.0 million or 35.5% of total assets, compared to
$295.9 million or 27.7% of total assets at December 31, 1996. The investment
portfolio was increased to more fully utilize the capital of the Company, and
thereby produce a higher return. Interest and dividend income on the investment
portfolio generated 29.1% of total interest and dividend income for the six
months ended June 30, 1997 compared to 26.4% for the comparable period in 1996.
To identify and control market 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.
Deposits
- --------
Deposits are the primary source of funds for lending and investment activities.
Deposit flows vary significantly and are influenced by prevailing interest
rates, market conditions, economic conditions and competition. At June 30, 1997
the Bank had total deposits of $728.9 million representing a net increase of
$38.0 million compared to total deposits of $690.9 million at December 31, 1996.
This increase is attributable to an increase of $51.9 million in savings and
term deposits due primarily to promotional activities to increase savings
product volumes combined with a $7.2 million increase in demand and NOW
products. This was offset by a reduction of $21.1 million in 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.
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
increased from $275.0 million at December 31, 1996 to $409.5 million at June 30,
1997 to augment the asset growth of the Company.
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.
Net cash used in operating activities totaled $8.4 million for the six months
ended June 30, 1997 compared to $7.5 million that was provided by operating
activities for the same period in 1996. The change is primarily related to the
growth in other assets that was experienced during the first six months of 1997
compared to the prior period.
Net cash used for investing activities totaled $164.7 million for the six months
ended June 30, 1997 compared to cash used of $40.6 million for the comparable
period in 1996. The increase in investing activities primarily reflects the
increased level of purchases of investment securities during the first half of
1997 compared to a year ago.
Net cash provided by financing activities totaled $171.3 million for the six
months ended June 30, 1997, compared to net cash provided of $26.3 million for
the comparable period in 1996. The change reflects increases in borrowed funds
and the net growth of deposits when compared to the prior period.
Regulatory Capital Requirements
- -------------------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken,
18
<PAGE>
could have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of June 30, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
The most recent notification from the Office of Thrift Supervision ("OTS")
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table. As
of June 30, 1997, the OTS did not deem it necessary for an interest-rate risk
component to be deducted from capital in determining risk-based capital
requirements.
The Bank may not declare or pay cash dividends on its shares of common stock if
the effect thereof would cause stockholders' equity to be reduced below
applicable capital maintenance requirements or if such declaration and payment
would otherwise violate regulatory requirements.
The following table displays the Bank's capital calculations as defined under
prompt corrective action for the periods indicated:
<TABLE>
<CAPTION>
To Be Well
First Essex Bank, FSB For Capital Capitalized Under Prompt
Actual Actual Adequacy Purposes Corrective Action Provision:
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997 (unaudited)
Tangible Capital ( to Adjusted Assets) $66,972 5.44% $18,472 greater than or n/a
equal to 1.50%
Tier 1 (Core) Capital (to Adjusted Assets) 66,972 5.44 36,944 3.00 $61,573 greater than or
equal to 5.00%
Tier 1 (Core) (to Risk Weighted Assets) 66,972 9.28 28,879 4.00 43,318 6.00
Total Risk Based Capital
(to Risk Weighted Assets) 75,980 10.52 57,758 8.00 72,197 10.00
December 31, 1996
Tangible Capital (to Adjusted Assets) $62,216 5.91% $15,790 greater than or n/a
equal to 1.50%
Tier 1 (Core) Capital (to Adjusted Assets) 62,216 5.91% 31,396 3.00 $52,327 greater than or
equal to 5.00%
Tier 1 Capital (to Risk Weighted Assets) 62,216 9.67 25,736 4.00 38,604 6.00
Total Risk Based Capital
(to Risk Weighted Assets) 70,289 10.92 51,471 8.00 64,339 10.00
</TABLE>
19
<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 equipment and real estate. 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.
Recent Accounting Developments
- ------------------------------
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125").
SFAS 125 supersedes SFAS No. 122 and establishes, among other things, new
criteria for determining whether a transfer of financial assets in exchange for
cash or other consideration should be accounted for as a sale or as a pledge of
collateral in a secured borrowing. SFAS 125 also establishes new accounting
requirements for pledged collateral. SFAS 125 is effective for most transactions
occurring after December 31, 1996 with other provisions of the statement
deferred for one year. The Company has determined that the adoption of SFAS 125
will not have a material impact on its consolidated financial statements. In
February 1997, the FASB issued SFAS No. 128, "Earnings per Share", which
establishes new standards for computing earnings per share (EPS) and makes them
comparable to international earnings per share calculations and standards. This
statement is effective for the Company's 1997 year-end financial statements and,
as previously disclosed, is not expected to have a significant impact on
reported financial results.
In June 1997, the FASB issued SFAS No. 130 and SFAS No. 131, "Reporting
Comprehensive Income" and "Disclosures About Segments of an Enterprise and
Related Information", respectively. Both of these pronouncements are effective
for the Company's 1998 financial statements. SFAS No. 130 will require increased
disclosure regarding a.) unrealized holding gains/losses on securities
classified as available-for-sale; b.) foreign currency translation adjustments,
if any; and c.) minimum pension liabilities. SFAS No. 131 requires additional
disclosures regarding segments of an enterprise, if any, that are used by the
enterprise for making operating decisions and assessing performance. Management
is still evaluating the applicability of this statement to the Company.
20
<PAGE>
FIRST ESSEX BANCORP, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Registrant was held on May 1,
1997. All nominees of the Board of Directors of the registrant were
re-elected for a three year term. Other matters voted on at the annual
meeting included approval of the First Essex Bancorp, Inc. 1997 Stock
Incentive Plan. Votes were cast as follows:
1. Election of two Class I Directors
Nominee For Withheld
------- --- --------
Frank J. Leone, Jr. 5,908,887 505,107
Robert H. Pangione 5,898,087 515,907
In addition to the above-named individuals , the following Directors
continued in office: Thomas S. Barenboim, Augustine J. Fabiani, William L.
Lane, Walter W. Topham, Robert H. Watkinson and Leonard A. Wilson.
2. Approval of the First Essex Bancorp, Inc. 1997 Stock Incentive Plan
Broker
For Against Abstain Non-Vote
--- ------- ------- ---------
3,150,333 737,339 120,823 2,405,499
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter ended June
30, 1997.
(c) Exhibits:
(3) Articles of Incorporation and By-laws:
--------------------------------------
3.1 The Restated Certificate of Incorporation of the Company is
incorporated herein by reference to Exhibit 3.1 to Amendment No.
1 to the Company's Registration Statement on Form S-1,
Registration No. 33-10966, filed with the Securities and
Exchange commission on April 17, 1987 ("Amendment No. 1 to Form
S-1");
3.2 The Amended and Restated By-laws of the Company are incorporated
herein by reference to Exhibit 4.1 of the Company's current
report on Form 8-K filed on December 28, 1992.
(10) Material Contracts
------------------
*10.1 The First Essex Bancorp, Inc. 1987 Stock Option Plan
incorporated herein by reference to Appendix B to the prospectus
included in the Company's Registration Statement on Form S-8,
Registration No. 33-21292, filed on April 15, 1988;
10.2 The Shareholder Rights Agreement incorporated herein by
reference to the exhibit to the company's Current Report on Form
8-K filed on October 12, 1989, as amended by the Amendment to
the Shareholder Rights Plan, incorporated herein by reference to
Exhibit 28.2 to the company's Current Report on Form 8-K filed
on February 12, 1990;
*10.3 Amended and Restated Employment Agreement between First Essex
Bancorp, Inc. First Essex Bank, FSB and Leonard A. Wilson
incorporated herein by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
*10.4 Amended and Restated Employment Agreement between First Essex
Bancorp, Inc. First Essex Bank, FSB and David W. Dailey
incorporated herein by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
*10.5 Special Termination Agreement between First Essex Bancorp, Inc.,
First Essex Bank, FSB and Leonard A. Wilson incorporated herein
by reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993;
*10.6 Special Termination Agreement between First Essex Bancorp, Inc.,
First Essex Bank, FSB and David W. Dailey incorporated herein by
reference to Exhibit 10.6 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993;
*10.7 Executive Salary Continuation Agreement between First Essex
Bancorp, Inc., First Essex Bank, FSB and Leonard A. Wilson
incorporated herein by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988;
21
<PAGE>
*10.8 Form of Special Termination Agreement between First Essex
Bancorp, Inc., First Essex Bank, FSB and each of John M.
DiGaetano, David L. Savoie and William F. Burke (at one year
terms) and Wayne C. Golon (at a 2 year term) incorporated herein
by reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993;
*10.9 First Essex Bancorp, Inc. Senior Management Incentive
Compensation Plan incorporated herein by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994;
*10.10 Form of Employment Agreement and Form of Special Termination
Agreement between First Essex Bancorp, Inc., First Essex Bank,
FSB and Brian W. Thompson incorporated herein by reference to
Amendment No. 1 to Form S-4, Registration No. 333-12793, filed
on November 6, 1996;
*10.11 Common Stock Option Plan for Brian W. Thompson incorporated
herein by reference to Form S-8, Registration No. 333-22183,
filed on February 21, 1997;
*10.12 First Essex Bancorp, Inc. 1997 Stock Incentive Plan incorporated
herein by reference to Appendix A to the Company's Proxy
Statement for the 1997 annual meeting of shareholders.
(27) Financial Data Schedule
* Management contract or compensatory plan
22
<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: August 14, 1997 By /s/ Thomas P. Coursey
--------------------------------
Thomas P. Coursey
Senior Vice President
and Principal Accounting Officer
23
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 29,509
<INT-BEARING-DEPOSITS> 3,411
<FED-FUNDS-SOLD> 3,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 240,331
<INVESTMENTS-CARRYING> 201,709
<INVESTMENTS-MARKET> 201,768
<LOANS> 709,273
<ALLOWANCE> 10,315
<TOTAL-ASSETS> 1,245,415
<DEPOSITS> 728,943
<SHORT-TERM> 409,524
<LIABILITIES-OTHER> 20,103
<LONG-TERM> 0
0
0
<COMMON> 949
<OTHER-SE> 85,896
<TOTAL-LIABILITIES-AND-EQUITY> 1,245,415
<INTEREST-LOAN> 30,807
<INTEREST-INVEST> 12,765
<INTEREST-OTHER> 263
<INTEREST-TOTAL> 43,835
<INTEREST-DEPOSIT> 14,977
<INTEREST-EXPENSE> 10,106
<INTEREST-INCOME-NET> 18,752
<LOAN-LOSSES> 1,020
<SECURITIES-GAINS> 49
<EXPENSE-OTHER> 12,167
<INCOME-PRETAX> 8,024
<INCOME-PRE-EXTRAORDINARY> 8,024
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,673
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 3.36
<LOANS-NON> 7,020
<LOANS-PAST> 0
<LOANS-TROUBLED> 921
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,538
<CHARGE-OFFS> 1,676
<RECOVERIES> 433
<ALLOWANCE-CLOSE> 10,315
<ALLOWANCE-DOMESTIC> 10,315
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
