<PAGE>
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 3/31/99
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: (978) 681-7500
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, 1999:
TITLE OF CLASS SHARES OUTSTANDING
Common Stock, $.10 par value 7,619,134
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
First Essex Bancorp, Inc. (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
<TABLE>
<CAPTION>
Page
ITEM 1. Financial Statements (unaudited)
<S> <C>
Consolidated Balance Sheets as of March 31,1999
and December 31, 1998 4
Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 5
Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 1999 and 1998 6
Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 7
Notes to the Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosure
About Market Risk 21
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 23
ITEM 6. Exhibits and Reports on Form 8-K 23
</TABLE>
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FIRST ESSEX BANCORP, INC.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $49,165 $90,383
Investment securities available-for-sale 457,117 345,840
Stock in Savings Bank Life Insurance Company 1,194 1,194
Stock in Federal Home Loan Bank of Boston 19,985 19,985
Mortgage loans held-for-sale 2,838 2,566
Loans receivable, less allowance for loan losses of
$11,343,000 and $11,261,000 719,807 720,056
Foreclosed property 596 575
Bank premises and equipment 11,544 11,715
Accrued interest receivable 8,861 9,170
Goodwill and core deposit intangibles 23,731 24,394
Other assets 22,380 22,136
----------- ----------
Total assets $1,317,218 $1,248,014
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Depositors' accounts $933,993 $934,695
Borrowed funds 269,049 201,499
Mortgagors' escrow accounts 1,487 702
Other liabilities 15,260 14,036
----------- ----------
Total liabilities 1,219,789 1,150,932
----------- ----------
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, 9,715,634 and 9,708,135 shares issued 972 971
Additional paid-in-capital 77,484 77,383
Retained earnings 38,011 36,359
Treasury stock, at cost, 2,096,500 and 2,096,500 shares (18,335) (18,335)
Unrealized gains(losses) on securities available for sale, net (703) 704
---------- ----------
Total stockholders' equity 97,429 97,082
---------- ----------
Total liabilities and stockholders' equity $1,317,218 $1,248,014
----------- ----------
----------- ----------
</TABLE>
4
<PAGE>
FIRST ESSEX BANCORP, INC.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Interest and dividend income:
Interest on mortgage loans $8,084 $9,247
Interest on other loans 7,662 6,272
Interest and dividends on investment securities available-for-sale 6,685 3,988
Interest and dividends on investment securities held-to-maturity 0 3,409
Interest on short-term investments 243 174
Interest on other earning assets 263 260
---------- ----------
Total interest and dividend income 22,937 23,350
---------- ----------
Interest expense
Interest on depositors' accounts 8,715 8,072
Interest on borrowed funds 3,146 5,507
---------- ----------
Total interest expense 11,861 13,579
---------- ----------
Net interest income 11,076 9,771
Provision for loan losses 600 435
---------- ----------
Net interest income after provision
for loan losses 10,476 9,336
Noninterest income
Net gain on sales of mortgage loans and mortgage servicing rights 315 282
Net gain on sale of investment securities 0 17
Loan fees 176 123
Other fee income 914 568
---------- ----------
Total noninterest income 1,405 990
Noninterest expense
Salaries and employee benefits 3,345 2,852
Buildings and equipment 1,179 996
Professional services 297 198
Information processing 596 509
Insurance 74 63
Expenses, gains and losses on
and write-downs of, foreclosed property 192 141
Other 936 853
Amortization of intangibles 666 196
---------- ----------
Total noninterest expenses 7,285 5,808
---------- ----------
Income before provision for income taxes 4,596 4,518
Provision for income taxes 1,725 1,820
---------- ----------
Net income $2,871 $2,698
---------- ----------
---------- ----------
Earnings per share-Basic $0.38 $0.36
---------- ----------
---------- ----------
Earnings per share-Diluted $0.37 $0.34
---------- ----------
---------- ----------
Dividends declared per share $0.16 $0.14
---------- ----------
---------- ----------
Weighted average number of shares-basic 7,613,831 7,550,568
---------- ----------
---------- ----------
Weighted average number of shares-diluted 7,807,966 7,878,053
---------- ----------
---------- ----------
</TABLE>
5
<PAGE>
FIRST ESSEX BANCORP, INC.
Consolidated Statements of Stockholders' Equity
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Components of Stockholders' Equity
---------------------------------------------------------
Unrealized Gains
(Losses) on
Investment
Additional Securities
Comprehensive Common Paid In Retained Treasury Available-For-Sale
Income Stock Capital Earnings Stock Net Total
-------- -------- ------- ------- -------- ---------------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $952 $75,303 $29,685 $(15,842) $967 $91,065
Comprehensive income:
Net income $2,698 -- -- 2,698 -- -- 2,698
Other comprehensive income:
- Unrealized securities gains,
net of $31 of tax expense,
arising during the period 47
--------
Total other comprehensive income 47 47 47
--------
Total comprehensive income $2,745
--------
--------
Cash dividends declared -- -- (1,055) -- -- (1,055)
Treasury stock repurchases -- -- -- (2,492) -- (2,492)
Stock options exercised 11 858 -- -- -- 869
-------- ------- ------- -------- --------- --------
Balance at March 31, 1998 $963 $76,161 $31,328 $(18,334) $1,014 $91,132
-------- ------- ------- -------- --------- --------
-------- ------- ------- -------- --------- --------
-------- -------- ------- ------- -------- --------- --------
Balance at December 31, 1998 $971 $77,383 $36,359 $(18,335) $ 704 $97,082
Comprehensive income:
Net income $2,871 -- -- 2,871 -- -- 2,871
Other comprehensive income:
- Unrealized securities losses,
net of ($845) of tax benefit,
arising during the period (1,407)
--------
Total other comprehensive (1,407) (1,407)
income (1,407)
--------
Total comprehensive income $1,464
--------
--------
Cash dividends declared -- -- (1,219) -- -- (1,219)
Stock options exercised 1 101 ---- ---- ---- 102
-------- ------- ------- -------- --------- --------
Balance at March 31, 1999 $972 $77,484 $38,011 $(18,335) $(703) $97,429
-------- ------- ------- -------- --------- --------
-------- ------- ------- -------- --------- --------
</TABLE>
6
<PAGE>
FIRST ESSEX BANCORP, INC
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $2,871 $2,698
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 600 435
Provision for depreciation and amortization 515 489
Gain on sales of foreclosed property (12) (39)
Amortization of intangibles 666 196
Amortization of investment securities discounts and premiums, net 202 448
Proceeds from sales of mortgage loans and mortgage servicing rights 22,060 26,026
Mortgage loans originated for sale (22,017) (29,320)
Realized gains on the sale of investment securities -- (17)
Realized gains on the sale of mortgage loans and mortgage servicing rights, net (315) (282)
(Increase) decrease in accrued interest receivable 309 (220)
(Increase) decrease in other assets (244) 120
Increase in other liabilities 2,020 3,660
---------- --------
Net cash provided by operating activities 6,655 4,194
Cash flows from investing activities
Proceeds from sales of available-for-sale securities -- 1,217
Proceeds from calls, maturities and principal payments of available-for-sale securities 28,377 16,256
Proceeds from maturities and principal payments of held-to-maturity securities -- 21,586
Purchases of available-for-sale securities (142,062) (89,963)
Purchases of held-to-maturity securities -- (21,892)
Purchases of Federal Home Loan Bank stock -- (182)
Loans (originated and purchased), net of principal collected (1,085) 9,832
Proceeds from sales of foreclosed property 725 674
Purchases of bank premises and equipment (344) (8)
---------- --------
Net cash used in investing activities (114,389) (62,480)
Cash flows from financing activities
Net increase in demand deposits, NOW accounts and savings accounts 1,725 16,766
Net increase in term deposits (2,427) (872)
Net increase in borrowed funds with maturities of three months or less 24,698 969
Proceeds from borrowed funds with maturities in excess of three months 65,000 146,000
Repayments of borrowed funds with maturities in excess of three months (22,148) (71,736)
Increase in mortgagors' escrow accounts 785 989
Dividends paid (1,219) (1,055)
Stock options exercised 102 869
Stock repurchased -- (2,492)
--------- --------
Net cash provided by financing activities 66,516 89,438
--------- --------
Net decrease in cash and cash equivalents (41,218) 31,152
Cash and cash equivalents at beginning of period 90,383 22,542
---------- --------
Cash and cash equivalents at end of period $49,165 $53,694
---------- --------
---------- --------
Supplemental disclosure of cash flow information:
Interest paid during the year $11,666 $13,118
Income taxes paid during the year 654 560
Supplemental schedule of noncash financing and investing activities:
Real estate acquired through, or deeds in lieu of, foreclosure ---- 513
</TABLE>
7
<PAGE>
FIRST ESSEX BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements are unaudited and include the
accounts of 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 1998 Form 10-K.
Earnings Per Share
Basic EPS amounts have been computed by dividing reported earnings available to
common shareholders by the weighted average number of common and common
equivalent shares outstanding during the period. Dilutive EPS amounts have been
computed using the weighted average number of common and common equivalent
shares and the dilutive potential common shares (stock options outstanding and
exercisable) during the period. Included in diluted EPS are 194,135 and 327,485
dilutive potential shares for the quarters ended March 31, 1999 and 1998,
respectively.
2. BUSINESS SEGMENTS
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
operating segments of a business enterprise and descriptive information about
the operating segments in financial statements. Operating segments are
components of an enterprise which are evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision-maker is the Chief
Executive Officer and Chairman of the Board of the Company. The adoption of SFAS
No. 131 did not have a material effect on the Company's primary financial
statements, but did result in the disclosure of segment information contained
herein. The Company has identified its reportable operating business segment as
Community Banking, based on the products and services provided to its customers.
The Company's community banking business segment consists of commercial banking
and retail banking. The community banking segment is managed as a single
strategic unit and derives its revenues from a wide range of banking services,
including lending activities, and the acceptance of demand, savings and time
deposits.
Nonreportable operating segments of the Company's operations which do not have
similar characteristics to the community banking operations and do not meet the
quantitative thresholds requiring disclosure, are included in the other category
in the disclosure of business segments below. The nonreportable segment
represents the holding company financial information.
The accounting policies used in the disclosure of business segments are the same
as those described in the summary of significant accounting policies. The
consolidation adjustments reflect certain eliminations of intersegment revenue,
cash and investments in subsidiaries.
The following table provides a reconciliation of the community banking segment
information to the consolidated financials.
8
<PAGE>
FIRST ESSEX BANCORP, INC.
RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Consolidation
Community Adjustments
Banking Other and Eliminations Consolidated
------------ ---------- ----------------- ------------
<S> <C> <C> <C> <C>
March 31, 1999
Investment securities $478,296 $ -- $ -- $478,296
Net loans 722,645 -- -- 722,645
Total assets 1,315,439 48,878 (47,099) 1,317,218
Total interest income 22,935 4 (2) 22,937
Total interest expense 11,863 -- (2) 11,861
Net interest income 11,072 4 -- 11,076
Net income 2,869 2 -- 2,871
March 31, 1998
Investment securities 484,473 -- -- 484,473
Net loans 700,209 -- -- 700,209
Total assets 1,292,911 51,776 (51,385) 1,293,302
Total interest income 23,350 54 (54) 23,350
Total interest expense 13,633 -- (54) 13,579
Net interest income 9,717 54 -- 9,771
Net income 2,672 31 (5) 2,698
</TABLE>
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
March 31, 1999
GENERAL
First Essex Bancorp, Inc. 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 loan loss,
noninterest income, noninterest 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
Net income for the three months ended March 31, 1999 was $2.9 million compared
to $2.7 million for same period in 1998, or a 6.4% increase. Net interest income
totaled $11.1 million for the quarter compared to $9.8 million for the same
period in 1998. The increase in net interest income of $1.3 million combined
with an increase in noninterest income of $415 thousand offset by increases in
noninterest expense of $1.5 million and the provision for loan losses totaling
$165 thousand accounts for the $78 thousand increase in pretax income.
10
<PAGE>
ANALYSIS OF AVERAGE YIELDS EARNED AND RATES PAID
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,
1999 1998
------------------------------- -----------------------------------
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 $22,942 $243 4.24% $13,215 $174 5.27%
Investment Securities 431,362 6,685 6.20 453,963 7,397 6.52
Other Earning Assets 17,398 263 6.05 17,300 260 6.01
Total Loans (1) 732,024 15,746 8.60 719,211 15,519 8.63
--------- ------ --------- ------
Total Earning Assets 1,203,726 22,937 7.62 1,203,689 23,350 7.76
Allowance for Loan Losses (11,286) (10,583)
--------- ---------
Total Earning Assets Less Allowance
for Loan Losses 1,192,440 1,193,106
Other Assets 72,624 55,252
--------- ---------
Total Assets $1,265,064 $1,248,358
--------- ---------
--------- ---------
Liabilities and Stockholders' Equity
Deposits
NOW Accounts $50,165 $120 0.96% $42,960 $146 1.36%
Money Market Accounts 99,352 770 3.10 66,704 429 2.57
Savings Accounts 222,685 1,679 3.02 164,489 1,549 3.77
Time Deposits 463,596 6,146 5.30 414,108 5,948 5.75
--------- ------ --------- ------
Total Interest Bearing Deposits 835,798 8,715 4.17 688,261 8,072 4.69
Borrowed Funds 228,412 3,146 5.51 388,213 5,507 5.67
--------- ------ --------- ------
Total Interest Bearing Deposits and
Borrowed Funds 1,064,210 11,861 4.46 1,076,474 13,579 4.93
--------- ------ --------- ------
Demand Deposits 88,853 59,495
Other Liabilities 13,446 20,785
--------- ---------
Total Liabilities 1,166,509 1,156,754
Stockholders' Equity 98,555 91,604
--------- ---------
Total Liabilities and
Stockholders' Equity $1,265,064 $1,248,358
--------- ---------
--------- ---------
NET INTEREST INCOME $11,076 $9,771
WEIGHTED AVERAGE INTEREST ------ ------
------ ------
RATE SPREAD 3.16% 2.71%
---- ----
---- ----
Net yield on average
EARNING ASSETS (2) 3.68% 3.25%
---- ----
---- ----
RETURN ON AVERAGE ASSETS 0.91% 0.89%
---- ----
---- ----
Return on average equity 11.65% 11.76%
---- ----
---- ----
</TABLE>
(1) Loans on a non-accrual status are included in the average balance.
(2) Net interest income before provision for loan losses divided by average
earning assets.
11
<PAGE>
NET INTEREST INCOME
Net interest income increased by $1.3 million to $11.1 million for the three
months ended March 31, 1999. This represents an increase of 13.4% from $9.8
million when compared to the same period in 1998.
INTEREST AND DIVIDEND INCOME
Interest and dividend income decreased by $413 thousand (1.8%) to $22.9 million
for the three month period ended March 31, 1999, from $23.4 million in the same
period in 1998. The changes primarily relate to decreases in the average yield
on earning assets, partially offset by volume increases in both loans and
investment securities.
INTEREST EXPENSE
Interest expense decreased by $1.7 million (12.7%) to $11.9 million, for the
three period ended March 31, 1999 when compared to the same period in 1998. This
decrease is primarily attributable to a shift to lower cost core deposit funding
sources. The average balance of core deposits increased by $98.0 million, while
time deposits and borrowed funds decreased by $110.3 million, reducing the cost
of funds to 4.46% for the three months ended March 31, 1999, as compared to
5.05% for the same period of 1998.
PROVISION FOR LOAN LOSSES
Losses on loans are provided for under the accrual method of accounting.
Assessing the adequacy of the allowance for 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 loan losses totaled $600 thousand for the three month period
ended March 31, 1999. The provision for loan losses totaled $435 thousand for
the comparable three month period in 1998. Provisions result from management's
continuing internal review of the loan portfolio as well as its judgement 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 loan losses in the future. See "Financial Condition -
Non-Performing Assets."
NONINTEREST INCOME
Noninterest 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 noninterest income.
Noninterest income increased by $415 thousand (41.9%) to $1.4 million for the
three months ended March 31, 1999 compared to the $990 thousand for the same
period in 1998. The increase in noninterest income for the three months ended
March 31, 1999 is attributable to volume increases associated with branches
acquired at the close of the second quarter of 1998. Also contributing to the
increase was an increase of $53 thousand in fees collected on loans, a $33
thousand increase in the gain on sales of loans and mortgage servicing rights
and a $17 thousand reduction in the gain on the sale of investment securities,
when compared to the same period in 1998.
NONINTEREST EXPENSE
Noninterest expense increased to $7.3 million for the three months ended March
31, 1999, compared to $5.8 million the same period in 1998. Of this $1.5 million
increase (25.4%), approximately $470 thousand is related to the amortization of
intangible assets associated with the branches acquired at the close of the
second quarter of 1998. The remaining increase was spread throughout the
components of noninterest expense and primarily relate to volume increases
associated with those acquisitions.
12
<PAGE>
INCOME TAX EXPENSE
The provision for income taxes decreased to $1.7 million for the three month
period ended March 31, 1999 from $1.8 million for the three month period ended
March 31, 1998. The effective tax rate in 1999 is lower due to favorable tax
rates on certain investment income.
EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share", in 1997. This statement
requires the dual presentation of basic and diluted earnings per share (EPS) on
the face of the statement of operations together and a reconciliation of the
numerators and denominators of the basic and diluted EPS computations. Basic EPS
amounts have been computed by dividing reported earnings available to common
shareholders by the weighted average number of common and common equivalent
shares outstanding during the period. Dilutive EPS amounts have been computed
using the weighted average number of common and common equivalent shares and the
dilutive potential common shares (stock options outstanding and exercisable)
during the period. Included in diluted EPS are 194,135 and 327,485 dilutive
potential shares for the quarters ended March 31, 1999 and 1998, respectively.
FINANCIAL CONDITION
Total assets amounted to $1,317.2 million at March 31, 1999, an increase of
$69.2 million or 5.5% from $1,248.0 million at December 31, 1998.
LOANS
At March 31, 1999, the loan portfolio, including mortgage loans held for sale,
and before consideration of the allowance for loan losses, was $734.0 million,
representing 55.7% of total assets, compared to $733.9 million or 58.8% of total
assets at December 31, 1998.
The following table sets forth information concerning the Company's loan
Zportfolio at the dates indicated. The balances shown in the table are net of
unadvanced funds and unearned discounts and fees.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------------------- --------------------------
(DOLLARS IN THOUSANDS)
REAL ESTATE:
<S> <C> <C> <C> <C>
Residential $173,895 23.7 % $189,983 25.9%
Commercial 90,786 12.4 88,774 12.1
Construction 44,283 6.0 43,220 5.9
-------- ----- -------- -----
Total Real Estate Loans 308,964 42.1 321,977 43.9
-------- ----- -------- -----
Owner Occupied Commercial Real Estate 61,801 8.4 62,800 8.6
Commercial Loans 89,659 12.2 89,690 12.2
Aircraft Loans 71,032 9.7 59,657 8.1
Consumer Loans
Sec Mtg+Home Equity+Home Imprmt 56,070 7.6 59,003 8.1
Automobile 136,469 18.6 134,613 18.3
Other 9,993 1.4 6,143 0.8
-------- ----- -------- -----
Total Consumer Loans 202,532 27.6 199,759 27.2
Total Loans $733,988 100.0% $733,883 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
13
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level determined by management
to be adequate to provide for probable losses inherent in the loan portfolio
including commitments to extend credit. The allowance for loan losses is
maintained through the provision for loan losses, which is a charge to
operations. The potential for loss in the portfolio reflects the risks and
uncertainties inherent in the extension of credit.
The determination of the adequacy of the allowance of loan losses is based upon
management's assessment of risk elements in the portfolio, factors affecting
loan quality and assumptions about the economic environment in which the Company
operates. The methodology includes a formula allowance based on identification
and analysis of loss potential in various portfolio segments utilizing a credit
risk grading process and specific reviews and evaluations of significant
individual problem credits, a valuation allowance for impaired loans and an
unallocated allowance. The unallocated allowance, based in part on credit
policy, approximates 20% to 25% of the formula and valuation allowances. In
addition, it reflects management's review of overall portfolio quality and
analysis of current levels and trends in charge-off, delinquency and nonaccruing
loan data, forecasted economic conditions and the overall banking environment.
These reviews are of necessity dependent upon estimates, appraisals and
judgments, whic may change quickly because of changing economic conditions and
the Company's perception as to how these factors may affect the financial
condition of debtors. When an evaluation of these conditions signifies a change
in the level of risk, the Company adjusts the formula allowance. Periodic credit
reviews enable further adjustment to the allowance through the risk-rating of
loans and identification of loans requiring a valuation allowance. In, addition,
the formula model is designed to be self-correcting b taking into account recent
loss experience. The provision for loan losses is set based on the factors
discussed above. In addition, it is management's intent to maintain the
allowance at a level consistent with the Company's peers in the banking
industry.
14
<PAGE>
The following table summarizes the activity in the allowance for loan losses
(including amounts established for impaired loans) for the three months ended
March 31, 1999.
<TABLE>
(Dollars in thousands)
<S> <C>
Balance at December 31, 1998 11,261
Provision for possible loan losses 600
Charge-offs
Mortgage 28
Owner occupied commercial real estate --
Construction --
Commercial 19
Consumer 604
--------
Total charge-offs 651
--------
Recoveries
Mortgage 78
Owner occupied commercial real estate --
Construction 2
Commercial 6
Consumer 47
--------
Total recoveries 133
--------
Net charge-offs 518
--------
Balance at March 31, 1999 11,343
--------
--------
Total loans at end of period $733,988
Average loans for the period 719,211
Allowance to loans ratio 1.55%
Net charge-offs to average loans ratio (annualized) 0.29%
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets consist of nonaccruing loans (including loans impaired
under SFAS No. 114), and foreclosed property. Nonperforming assets totaled $5.2
million at March 31, 1999 and $6.1 million at December 31, 1998.
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 nonaccrual 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.
15
<PAGE>
Interest income recognized on impaired loans (including restructured loans),
using the cash basis of income recognition, amounted to approximately $55
thousand for the three months ended March 31, 1999, compared to $39 thousand for
the same period in 1998. The average recorded investment of impaired loans for
the three months ended March 31, 1999 was $2.2 million, compared to $2.8 million
for the same period in 1998, and $3.0 million for the twelve month period ended
December 31, 1998.
The following table indicates the recorded investment of nonperforming assets
and the related valuation allowance for impaired loans.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
Impaired Loan Impaired Loan
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
------ ------ ------ ------
<S> <C> <C> <C> <C>
Nonaccruing Loans
Impaired Loans
Requiring a valuation allowance $480 $392 $493 $393
Not requiring a valuation allowance 823 -- 1,619 --
------ ------ ------ ------
1,303 392 2,112 393
Restructured Loans 442 154 447 154
------ ------ ------ ------
Total impaired 1,745 $546 2,559 547
------ ------
------ ------
Residential Mortgage 1,861 1,526
Other 1,022 1,414
------ ------
Total nonaccruing 4,628 5,499
Foreclosed property, net 596 575
------ ------
Total nonperforming assets $5,224 $6,074
------ ------
------ ------
Percentage of nonperforming assets
to total assets 0.40% 0.49%
Percentage of allowance for
loan losses to nonaccruing loans 271.0% 204.8%
</TABLE>
The valuation allowance for impaired loans is included in the allowance for loan
losses on the balance sheet.
INVESTMENTS
At March 31, 1999, 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 $478.3 million or 36.3% of total assets, compared to
$367.0 million or 29.4% of total assets at December 31, 1998. Interest and
dividend income on the investment portfolio generated 30.2% of total interest
and dividend income for the three months ended March 31, 1999 compared to 32.4%
for the comparable period in 1998.
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.
16
<PAGE>
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 March 31, 1999
the Bank had total deposits of $934.0 million representing a net decrease of
$702 thousand compared to total deposits of $934.7 million at December 31, 1998.
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 products such
accounts as savings accounts.
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 $201.5 million at December 31, 1998 to $269.0 million at March
31, 1999 to augment the asset growth of the Company.
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, 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 March 31, 1998, 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 March 31, 1998, 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.
17
<PAGE>
The following table displays the Bank's capital calculations as defined under
prompt corrective action for the periods indicated:
<TABLE>
<CAPTION>
To Be Well
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>
March 31, 1999 (unaudited)
Tangible Capital ( to Adjusted Assets) $73,501 5.67% $19,442 >= 1.50% n/a
Tier 1 (Core) Capital (to Adjusted Assets) 73,501 5.67 38,884 3.00 $64,807 >= 5.00%
Tier 1 (Core) (to Risk Weighted Assets) 73,501 9.31 31,577 4.00 47,365 6.00
Total Risk Based Capital
(to Risk Weighted Assets) 83,392 10.56 63,153 8.00 78,941 10.00
December 31, 1998
Tangible Capital ( to Adjusted Assets) $71,154 5.79 $18,429 >= 1.50% n/a
Tier 1 (Core) Capital (to Adjusted Assets) 71,154 5.79 36,859 3.00 $61,428 >= 5.00%
Tier 1 Capital (to Risk Weighted Assets) 71,154 9.45 30,114 4.00 45,172 6.00
Total Risk Based Capital
(to Risk Weighted Assets) 80,459 10.69 60,229 8.00 75,286 10.00
</TABLE>
YEAR 2000
The Company is addressing the issues inherent in the impending change of
century, otherwise known as "Year 2000", or "Y2K". The following constitutes the
Company's Year 2000 Readiness disclosure under the Year 2000 Information and
Readiness Disclosure Act. The potential problem with Year 2000 concerns the
inability of information systems, primarily software programs, to properly
recognize and process date sensitive information for the year 2000 and beyond. A
bank-wide project team has been organized to address and resolve Y2K issues. In
addition, the Board has established a Year 2000 Compliance Oversight Committee
to oversee activities of management and others in dealing with Y2K issues.
A principal issue the Company faces is the Y2K readiness of its third party
vendor who supplies the Company's primary application systems which are the loan
systems, deposits systems and the general ledger application. This vendor has
developed plans to deal with the Y2K problem and the Company is closely
monitoring the remediation progress of this plan. The Company is also involved
in the testing of all applicable changes that have occurred in the vendor's
software, together with addressing other mission critical systems.
A. THE COMPANY'S STATE OF READINESS
In preparing for the change of century, the Company has reviewed and assessed
both information technology (IT) and non-IT systems. IT systems include all
significant operating systems (e.g., the deposit system, platform teller system,
financial reporting system, payroll system, loan systems, etc.). The non-IT
systems (otherwise known as "embedded technology") include items such as vault
doors, elevators and security systems. Monitoring the state of readiness is
accomplished by reviewing the various phases of the Company's project plan.
These phases are defined as follows:
18
<PAGE>
1. Awareness - defining the Y2K problem, informing employees and customers,
developing a strategy, project team and plan to resolve issues and risks
attendant to the problem.
2. Assessment - determining the size and complexity of the Y2K problem together
with the magnitude of the effort needed to correct the issues. It includes
establishing an inventory of IT and non-IT systems, identification of the
"mission critical" items, and a determination of the resources necessary to
address the mission critical items.
3. Analysis, renovation (or remediation) and implementation - analyzing and
replacing hardware and software (e.g., personal computers, e-mail, voice
response units, etc.), software reprogramming, third-party vendor
certifications, and other associated changes necessary to correct the items
determined to be mission critical.
4. Validation (or testing) and contingency planning - post-renovation
incremental testing of new, existing and renovated hardware and software,
together with testing the connectivity of new, existing and renovated systems
to each other. The major validation for the Company relates to the renovation
efforts of its third party provider of the Company's major application
systems. Contingency planning accounts for the possibility that, even with
renovation, Y2K issues may still arise
The following table reflects the Company's progress to date, and expected
completion date, with respect to these phases:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
COMPLETION COMPLETION/COMPLETED
% (*) DATE
----------- ---------------------
<S> <C> <C>
AWARENESS 100% August 1998
ASSESSMENT 100 August 1998
ANALYSIS, RENOVATION AND
IMPLEMENTATION 90 April 1999
VALIDATION AND CONTINGENCY
PLANNING 80 June 1999
</TABLE>
(*) Percentages are rounded to the nearest 10%.
B. COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The following table details the expenditures (period and capital) incurred to
date by the Company, together with the estimated expenditures that will be
incurred to bring the Y2K project to closure. Period expenditures have been or
will be expensed in the period incurred. Capital expenditures have been or will
be capitalized and amortized over the estimated useful life of the item. All
capital expenditures reflect hardware and software upgrades that were either
previously planned or would have occurred in the normal course, and not as a
direct result of Y2K remediation efforts.
<TABLE>
<CAPTION>
%
EXPENDITURES ADDITIONAL TOTAL COMPLETE
DESCRIPTION TO DATE EXPENDITURES EXPENDITURES (*)
------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Period expenditures: ($000's)
management and staff salaries and board fees
$130 $130 $260 50%
Y2K consulting fees 45 80 135 30
Third party vendor expense and system testing
40 20 60 70
Capital expenditures:
Replacement of noncompliant
IT and non-IT systems
180 370 550 30
(*) Percentages are rounded to the nearest 10%
</TABLE>
19
<PAGE>
C. THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES
The reasonably likely worst case risk related to Y2K for the Company would be
major and prolonged disruptions in electrical power and telephone
communications. Due to the branch network's dependence on computer and telephone
links for data retrieval and security mechanisms, it would be difficult to
operate in either or both of these situations. The Company has been and will
continue to interact with these suppliers, and review the results of their
testing, to confirm their readiness for the Year 2000. Another risk scenario for
the Company would be temporary business disruptions of its large commercial
borrowers due to their failure(s) to be prepared for Y2K. The financial impact
of this contingency on borrowers could cause income and cash flow shortfalls for
the Company. The Company has begun a process of surveying and evaluating its
commercial customers with respect to their readiness for the change of century
by means of a questionnaire. This process allows the Company to be more
proactive in planning for this contingency. If warranted, the Company's
Allowance for Loan Losses would be increased and an appropriate charge-off would
be recorded for the estimated impact of the customer's failure to be compliant.
New loans and loan renewals have clauses inserted in the loan documents to
address the borrowers' Y2K readiness. Because the more probable risk scenarios
of the Company would be intermittent, minor and short-term IT systems failures
that were not previously anticipated, the Company is addressing these risks by
means of formulating contingency plans.
D. THE COMPANY'S CONTINGENCY PLANS
The Company has developed contingency plans for its core business operations.
Core business operations are those processes that are required to maintain the
ongoing business of the Company. There have been 10 core operations identified.
Contingency plans for these 10 core business operations have been developed and
are 100% complete. These contingency plans will next be tested to validate the
feasibility of each plan by means of simulations and/or walk through scenarios.
The testing and validation of these plans will be completed by June 30, 1999,
which corresponds with the guideline date imposed by the Federal Financial
Institutions Examination Council (FFIEC) for all financial institutions.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". The
statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded on the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currentl in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998)
The Company has not yet quantified the impact of adopting SFAS No. 133 on the
financial statements, and has not determined the timing of or method of the
adoption of the statement. The adoption of SFAS No. 133 could have the effect of
increasing the volatility in reported earnings and accumulated other
comprehensive income.
On January 1, 1999, the Company adopted SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." The statement requires that
after the securitization of mortgage loans held for sale, a company engaged in
mortgage banking activities classify the resulting mortgage-backed securtities
or other retained interests based on its ability and intent to sell or hold
those investments. The adoption did not have a material impact on the Company's
financial condition or results of operations.
On January 1, 1999, the Company adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed of Obtained for
Internal use." SOP 98-1 requires computer software costs associated with
internal software to be expensed as incurred until certain capitalization
criteria are met. The adoption did not have a material impact on the Company's
financial statements.
20
<PAGE>
On January 1, 1999,the Company adopted SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This position statement requires all costs associated with
pre-opening, pre-operating and organization activities to be expensed as
incurred. The adoption did not have a material impact on the Company's financial
condition or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates/prices such as interest rates, foreign currency exchange
rates, commodity prices, and equity prices. The Company's primary market risk
exposure is interest rate risk. The ongoing monitoring and management of this
risk is an important component of the Company's asset/liability management
process which is governed by policies established by the Board of Directors that
are reviewed and approved annually. The Board of Directors delegates
responsibility for carrying out the asset/liability management policies to the
Asset/Liability Committee (ALCO). In this capacity, ALCO develops guidelines and
strategies impacting the Company's asset/liability related activities based upon
estimated market risk sensitivity, policy limits and overall market interest
rate levels/trends.
INTEREST RATE RISK
Interest rate risk represents the sensitivity of earnings to changes in market
interest rates. As interest rates change the interest income and expense streams
associated with the Company's financial instruments also changes thereby
impacting net interest income (NII), the primary component of the Company's
earnings. ALCO utilizes the results of a detailed and dynamic simulation model
to quantify the estimated exposure of NII to sustained interest rate changes.
While ALCO routinely monitors simulated NII sensitivity over a rolling two-year
horizon, it also utilizes additional tools to monitor potential longer-term
interest rate risk. There have been no material changes in the interest rate
risk reported at the conclusion of the Company's December 31, 1998 year end.
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 provided from operating activities totaled $6.7 million for the three
months ended March 31, 1999 compared to $4.2 million that was provided by
operating activities for the same period in 1998. The change is primarily
related to the growth in mortgage loans held for sale that was experienced
during the first three months of 1998 as compared to the current period.
Net cash used for investing activities totaled $114.4 million for the three
months ended March 31, 1999 compared to net cash used of $62.5 million for the
comparable period in 1998. The increase in net cash used by investing activities
during the first quarter of 1999 as compared to the same period of 1998 was
primarily attributable to increased purchases of investment securities.
Net cash provided by financing activities totaled $66.5 million for the three
months ended March 31, 1999, compared to net cash provided of $89.4 million for
the comparable period in 1998. The change primarily reflects the reduced level
of borrowed funds.
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.
21
<PAGE>
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.
22
<PAGE>
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 6, 1999 All
nominees of the Board of Directors of the registrant were re-elected for a
three-year term. Votes were cast as follows:
1. Election of Three Class III Directors
NOMINEE FOR WITHHELD
Thomas S. Barenboim 6,304,240 143,104
William L. Lane 6,312,763 134,581
Robert H. Watlinson 6,314,031 133,313
Item 6. Exhibits and Reports on Form 8-K
(A)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 the 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 is incorporated
herein by reference to Appendix B to the prospectus included in the
Company's Registration Statement on Form S-8, registration number
33-21292, filed on April 15, 1988;
10.2- The Shareholder Rights Agreement is 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- 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;
*10.4- Amended and Restated Employment Agreement dated as of October 9,
1997 between Leonard A. Wilson and First Essex Bancorp, Inc.,
incorporated herein by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
*10.5- Amended and Restated Employment Agreement dated as of October 9,
1997 between Leonard A. Wilson and First Essex Bank, FSB,
incorporated herein by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
*10.6- Amended and Restated Employment Agreement dated as of October 9,
1997 between Brian W. Thompson and First Essex Bancorp, Inc.,
incorporated herein by reference to Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
*10.7- Amended and Restated Employment Agreement dated as of October 9,
1997 between Brian W. Thompson and First Essex Bank, FSB,
incorporated herein by reference to Exhibit 10.9 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
*10.8- Special Termination Agreement dated January 1, 1994 and restated as
of October 9, 1997 between Leonard A. Wilson and First Essex
Bancorp, Inc. incorporated by reference to Exhibit 10.10 to the
Company's Quarterly report on Form 10-Q for the quarter ended
September 30, 1997.
*10.9- Special Termination Agreement dated January 1, 1994 and restated as
of October 9, 1997 between Brian W.Thompson and First Essex Bancorp,
Inc. incorporated by reference to Exhibit 10.12 to the Company's
Quarterly report on Form 10-Q for the quarter ended September 30,
1997.
23
<PAGE>
*10.10- Form of Special Termination Agreement between First Essex Bancorp,
Inc., First Essex Bank, FSB, and each of William F. Burke, John M.
DiGaetano, and Wayne C. Golon, incorporated herein by reference to
Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
*10.11- Common Stock Option Agreement with 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 Form S-8, Registration No. 333-35057, filed
on September 5, 1997.
*10.13- Deferred Compensation Plan for Directors of First Essex Bancorp,
Inc. and Its Subsidiaries incorporated by reference to Exhibit 10.13
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
*10.14- First Essex Bancorp, Inc. Senior Management Incentive Compensation
Plan incorporated by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
*10.15- Agreement between First Essex Bancorp, Inc., First Essex Bank, FSB
and David W. Dailey incorporated by reference to Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
*10.16- Agreement between First Essex Bank, FSB and David L. Savoie
incorporated by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
(27) Financial Data Schedule
* Management contract or compensatory plan.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by First Essex during the quarter
ended March 31, 1999.
24
<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 14, 1998 By /S/ DOUGLAS E. MOISAN
---------------------
Douglas E. Moisan
Senior Vice President
and Principal Accounting Officer
25
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 47,623
<INT-BEARING-DEPOSITS> 129
<FED-FUNDS-SOLD> 1,413
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 478,296
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 733,988
<ALLOWANCE> 11,343
<TOTAL-ASSETS> 1,317,218
<DEPOSITS> 933,993
<SHORT-TERM> 156,615
<LIABILITIES-OTHER> 16,747
<LONG-TERM> 112,434
0
0
<COMMON> 972
<OTHER-SE> 96,457
<TOTAL-LIABILITIES-AND-EQUITY> 1,317,218
<INTEREST-LOAN> 15,746
<INTEREST-INVEST> 6,685
<INTEREST-OTHER> 506
<INTEREST-TOTAL> 22,937
<INTEREST-DEPOSIT> 8,715
<INTEREST-EXPENSE> 3,146
<INTEREST-INCOME-NET> 11,076
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,285
<INCOME-PRETAX> 4,596
<INCOME-PRE-EXTRAORDINARY> 4,596
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 3.68
<LOANS-NON> 4,186
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 11,261
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<RECOVERIES> 133
<ALLOWANCE-CLOSE> 11,343
<ALLOWANCE-DOMESTIC> 11,343
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
