<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-10506
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Essex Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 54-1721085
--------------------- -----------------
(State of organization) (I.R.S. Employer
Identification No.)
Reflections II, Suite 200
200 Golden Oak Court
Virginia Beach, Virginia 23452
------------------------ -----
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (804) 486-8700
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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 .
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<PAGE>
Essex Bancorp, Inc.
Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1996
TABLE OF CONTENTS
Page
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets (unaudited)
as of March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1996 and 1995 5
Consolidated Statement of Shareholders' Equity
(unaudited) for the three months ended March 31, 1996 7
Consolidated Statements of Cash
Flows (unaudited) for the three months
ended March 31, 1996 and 1995 8
Notes to Consolidated Financial
Statements (unaudited) 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12
Part II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,901,960 $ 3,262,080
Interest-bearing deposits. . . . . . . . . . . . . . . . . . . 2,973,050 7,833,638
Federal funds sold and securities purchased under
agreements to resell. . . . . . . . . . . . . . . . . . . . . 10,092,000 4,913,000
-------------- --------------
Cash and cash equivalents . . . . . . . . . . . . . . . . 15,967,010 16,008,718
Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . 2,540,000 3,602,800
Securities available for sale - cost approximates market . . . 2,115,180 1,493,646
Securities held to maturity - market value of
$7,934,000 in 1996 and $7,840,000 in 1995 . . . . . . . . . . 8,017,677 7,998,631
Mortgage-backed securities available for sale - cost of
$3,076,000 in 1996 and $13,590,000 in 1995. . . . . . . . . . 3,115,913 13,744,471
Mortgage-backed securities held to maturity - market
value of $1,854,000 in 1996 and $1,806,000 in 1995. . . . . . 1,905,499 1,905,554
Loans, net of allowance for loan losses of $4,955,000
in 1996 and $5,251,000 in 1995. . . . . . . . . . . . . . . . 252,907,586 266,631,520
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . 6,357,802 3,263,060
Purchased mortgage servicing rights and excess
servicing fees receivable . . . . . . . . . . . . . . . . . . 1,552,669 1,634,307
Foreclosed properties, net . . . . . . . . . . . . . . . . . . 4,953,376 4,855,887
Accrued interest receivable. . . . . . . . . . . . . . . . . . 2,021,320 2,148,779
Excess of cost over net assets acquired, less
accumulated amortization of $2,846,573 in 1996
and $2,562,000 in 1995. . . . . . . . . . . . . . . . . . . . 8,375,258 8,577,073
Advances for taxes, insurance, and other . . . . . . . . . . . 359,900 669,557
Premises and equipment . . . . . . . . . . . . . . . . . . . . 3,383,457 4,121,922
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,994,858 2,068,489
-------------- --------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . $315,567,505 $338,724,414
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . $ 1,559,795 $ 1,495,976
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . 254,355,711 282,001,130
-------------- --------------
Total deposits. . . . . . . . . . . . . . . . . . . . . . 255,915,506 283,497,106
Federal Home Loan Bank advances. . . . . . . . . . . . . . . . 28,047,500 29,833,333
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . 120,203 120,203
Capitalized lease obligations. . . . . . . . . . . . . . . . . 415,803 424,956
Subordinated capital notes . . . . . . . . . . . . . . . . . . 629,458 627,858
Mortgages payable on foreclosed properties . . . . . . . . . . - 25,258
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . 7,325,109 1,566,048
-------------- --------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . 292,453,579 316,094,762
SHAREHOLDERS' EQUITY
Series B preferred stock, $.01 par value:
Authorized shares - 2,250,000
Issued and outstanding shares - 2,125,000 . . . . . . . . . . 21,250 21,250
Series C preferred stock, $.01 par value:
Authorized shares - 125,000
Issued and outstanding shares - 125,000 . . . . . . . . . . . 1,250 1,250
Common stock, $.01 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 1,050,547 in 1996
and 1,049,684 in 1995 . . . . . . . . . . . . . . . . . . . 10,505 10,497
Capital in excess of par . . . . . . . . . . . . . . . . . . . 23,654,052 23,652,135
Holding gain on securities available for sale. . . . . . . . . 40,217 154,174
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (613,348) (1,209,654)
-------------- --------------
Total Shareholders' Equity. . . . . . . . . . . . . . . . 23,113,926 22,629,652
-------------- --------------
Total Liabilities and Shareholders' Equity. . . . . . . . $315,567,505 $338,724,414
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees. . . . . . . . . . . . . . . . . . . . . $5,442,278 $ 4,749,606
Federal funds sold and securities purchased
under agreements to resell. . . . . . . . . . . . . . . . . . 91,926 56,294
Investment securities, including dividend income . . . . . . . 189,422 231,554
Mortgage-backed securities . . . . . . . . . . . . . . . . . . 249,819 339,118
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,557 35,781
---------- ----------
Total Interest Income . . . . . . . . . . . . . . . . . . 6,111,002 5,412,353
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,852,753 2,783,132
Federal Home Loan Bank advances. . . . . . . . . . . . . . . . 441,023 865,278
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . 2,847 55,437
Subordinated capital notes . . . . . . . . . . . . . . . . . . 18,384 17,890
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,962 29,842
---------- -----------
Total Interest Expense. . . . . . . . . . . . . . . . . . 4,343,969 3,751,579
---------- ----------
Net Interest Income . . . . . . . . . . . . . . . . . . . 1,767,033 1,660,774
PROVISION FOR LOAN LOSSES. . . . . . . . . . . . . . . . . . . . 401 1,594,696
---------- -----------
Net Interest Income After
Provision for Loan Losses . . . . . . . . . . . . . . . . 1,766,632 66,078
NONINTEREST INCOME
Loan servicing fees. . . . . . . . . . . . . . . . . . . . . . 412,740 481,409
Mortgage banking income, including
gain on sale of loans . . . . . . . . . . . . . . . . . . . . 120,110 57,669
Other service charges and fees . . . . . . . . . . . . . . . . 144,478 104,119
Net gain (loss) on sale of:
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 153,188 -
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588 116,462
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,064,655 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,823 33,042
---------- ----------
Total Noninterest Income. . . . . . . . . . . . . . . . . 2,007,582 792,701
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
NONINTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . . . . 1,387,654 1,107,414
Net occupancy and equipment. . . . . . . . . . . . . . . . . . 386,360 424,668
Deposit insurance premiums . . . . . . . . . . . . . . . . . . 219,503 166,922
Amortization of intangible assets. . . . . . . . . . . . . . . 428,619 199,247
Service bureau . . . . . . . . . . . . . . . . . . . . . . . . 159,398 109,146
Professional fees. . . . . . . . . . . . . . . . . . . . . . . 147,213 161,342
Foreclosed properties, net . . . . . . . . . . . . . . . . . . 5,017 156,342
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,144 429,670
----------- ------------
Total Noninterest Expense . . . . . . . . . . . . . . . . 3,177,908 2,754,751
----------- ------------
Income (Loss) Before Income Taxes and
Extraordinary Item . . . . . . . . . . . . . . . . . . . 596,306 (1,895,972)
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . - -
----------- ------------
Income (Loss) Before Extraordinary Item . . . . . . . . . 596,306 (1,895,972)
EXTRAORDINARY ITEM - FORGIVENESS OF
DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 261,683
----------- ------------
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . $ 596,306 $(1,634,289)
----------- ------------
----------- ------------
Earnings (loss) per common share:
Income (loss) before extraordinary item . . . . . . . . . . . $ .04 $ (1.81)
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . - 0.25
----------- ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ .04 $ (1.56)
----------- ------------
----------- ------------
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
For the three months ended March 31, 1996
<TABLE>
<CAPTION>
Series B Series C Holding Gain
Common Preferred Preferred Capital in on Securities
Stock, $.01 Stock, $.01 Stock, $.01 Excess Accumulated Available
Par Value Par Value Par Value of Par Deficit for Sale Total
--------- --------- --------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996.. . $10,497 $21,250 $1,250 $23,652,135 $(1,209,654) $ 154,174 $22,629,652
Common stock issued under
employee stock purchase
plan. . . . . . . . . . . . . 8 - - 1,917 - - 1,925
Net decrease in holding gain on
securities available for sale - - - - - (113,957) (113,957)
Net income . . . . . . . . . . - - - - 596,306 - 596,306
------- ------- ------ ----------- ----------- --------- -----------
Balance, March 31, 1996. . . . $10,505 $21,250 $1,250 $23,654,052 $ (613,348) $ 40,217 $23,113,926
------- ------- ------ ----------- ----------- --------- -----------
------- ------- ------ ----------- ----------- --------- -----------
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . $ 596,306 $(1,634,289)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Extraordinary item - forgiveness of debt . . . . . . . . . . - (261,683)
Provisions for:
Losses on loans, foreclosed properties and other. . . . . (33,546) 1,634,445
Depreciation and amortization of premises
and equipment . . . . . . . . . . . . . . . . . . . . . 135,798 128,040
Amortization (accretion) of:
Premiums and discounts on:
Loans. . . . . . . . . . . . . . . . . . . . . . . . . 47,931 10,119
Mortgage-backed securities held to maturity. . . . . . 55 2,295
Mortgage-backed securities available for sale. . . . . 2,348 -
Securities held to maturity. . . . . . . . . . . . . . 1,579 (4,675)
Purchased mortgage servicing rights and . . . . . . . .
excess servicing fees receivable . . . . . . . . . . . 144,046 183,732
Excess of costs over equity in net assets
acquired . . . . . . . . . . . . . . . . . . . . . . . 284,573 15,515
Other . . . . . . . . . . . . . . . . . . . . . . . . . 494 -
Premium on deposits . . . . . . . . . . . . . . . . . . (34,412) -
Mortgage banking activities:
Net increase in loans originated for resale . . . . . . . (2,986,660) (1,779,980)
Realized gains from sale of loans . . . . . . . . . . . . (108,082) (57,669)
Realized (gains) and losses from sales of:
Securities available for sale . . . . . . . . . . . . . . (153,188) -
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . (588) (116,462)
Premises and equipment. . . . . . . . . . . . . . . . . . (63,789) 17,087
Foreclosed properties . . . . . . . . . . . . . . . . . . 269 (679)
Deposits (Note 3) . . . . . . . . . . . . . . . . . . . . (1,064,655) -
Mutual fund dividends. . . . . . . . . . . . . . . . . . . . (21,534) (9,699)
Changes in operating assets and liabilities:
Accrued interest receivable . . . . . . . . . . . . . . . 232,911 (89,130)
Other assets. . . . . . . . . . . . . . . . . . . . . . . 309,568 527,074
Other liabilities . . . . . . . . . . . . . . . . . . . . 5,760,661 (158,295)
---------- ----------
Net cash provided by (used in) operating activities. . . . . . . $3,050,085 $(1,594,254)
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
INVESTING ACTIVITIES
Proceeds from sales of Federal Home Loan Bank stock. . . . . . 1,062,800 1,823,100
Purchase of securities held to maturity. . . . . . . . . . . . (1,020,625) -
Proceeds from maturities of securities held to maturity. . . . 1,000,000 -
Purchase of securities available for sale. . . . . . . . . . . (1,800,000) (2,350,000)
Proceeds from sales of securities available for sale . . . . . 1,200,000 2,550,000
Principal remittances on mortgage-backed securities
held to maturity . . . . . . . . . . . . . . . . . . . . . . - 502,941
Principal remittances on mortgage-backed securities
available for sale . . . . . . . . . . . . . . . . . . . . . 491,800 -
Proceeds from sales of mortgage-backed securities
available for sale . . . . . . . . . . . . . . . . . . . . . 10,068,189 -
Proceeds from sales of loans . . . . . . . . . . . . . . . . . 7,290,962 8,152,226
Net (increase) decrease in net loans . . . . . . . . . . . . . 6,231,163 (7,712,501)
Proceeds from sales of foreclosed properties . . . . . . . . . 204,410 1,090,344
Increase in foreclosed properties. . . . . . . . . . . . . . . (40,930) (167,719)
Increase in excess servicing fees receivable . . . . . . . . . (62,408) -
Purchase of premises and equipment . . . . . . . . . . . . . . (71,282) (737,461)
Proceeds from sales of premises and equipment. . . . . . . . . 654,980 -
----------- ----------
Net cash provided by investing activities. . . . . . . . . . . 25,209,059 3,150,930
FINANCING ACTIVITIES
Deposits sold in connection with branch sale (Note 3):
NOW and savings deposits . . . . . . . . . . . . . . . . . . (2,326,445) -
Certificates of deposit. . . . . . . . . . . . . . . . . . . (24,510,192) -
Net decrease in NOW and savings deposits . . . . . . . . . . . (603,650) (7,250,043)
Net increase (decrease) in certificates of deposit . . . . . . 957,754 12,346,889
Proceeds from Federal Home Loan Bank advances. . . . . . . . . - 12,500,000
Repayment of Federal Home Loan Bank advances . . . . . . . . . (1,785,833) (17,260,834)
Proceeds from issuance of notes payable. . . . . . . . . . . . - 3,269
Payments on credit facility. . . . . . . . . . . . . . . . . . - (894,377)
Payments on capital lease obligations. . . . . . . . . . . . . (9,153) (30,929)
Payments on mortgages payable on foreclosed
properties . . . . . . . . . . . . . . . . . . . . . . . . . (25,258) (164,742)
Common stock issued under Employee Stock
Purchase Plan. . . . . . . . . . . . . . . . . . . . . . . . 1,925 -
----------- ----------
Net cash used in financing activities. . . . . . . . . . . . . (28,300,852) (750,767)
----------- ----------
Increase (decrease) in cash and cash equivalents . . . . . . . (41,708) 805,909
Cash and cash equivalents at beginning of period . . . . . . . 16,008,718 6,906,159
----------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . $ 15,967,010 $ 7,712,068
----------- ----------
----------- ----------
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
---- ----
<S> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans to foreclosed properties . . . . . . . . . $ 221,291 $ 1,185,906
Transfer of servicing allowance. . . . . . . . . . . . . . . . 67,226 93,631
Transfer of remittances receivable on sold
mortgage-backed securities available for sale. . . . . . . . 105,452 -
Write-off of fixed assets in connection with
termination of capital lease . . . . . . . . . . . . . . . . - 50,393
Increase in mortgages payable on foreclosed properties . . . . - 39,332
Termination of capital lease obligation for fixed assets . . . - 61,469
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,737,444 $ 3,766,300
Net income taxes paid (received) . . . . . . . . . . . . . . - (6,252)
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
MARCH 31, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Essex Bancorp,
Inc. and subsidiaries ("EBI") have been prepared in accordance with generally
accepted accounting principles for condensed interim financial statements and,
therefore, do not include all information required by generally accepted
accounting principles for complete financial statements. The notes included
herein should be read in conjunction with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in this
report, and the notes to EBI's financial statements for the year ended December
31, 1995 included in the EBI 1995 Annual Report.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments (including normal recurring entries) necessary for a
fair presentation of EBI's financial condition and interim results of
operations. Certain 1995 amounts have been reclassified to conform to 1996
presentation.
NOTE 2 - EARNINGS PER SHARE
Earnings per share for the three months ended March 31, 1996 was computed based
upon income adjusted for preferred stock dividends, divided by 9,210,132, the
weighted average number of common and common equivalent shares outstanding.
Warrants and options issued are considered common stock equivalents using the
modified treasury stock method. Loss per share for the three months ended March
31, 1995 was computed by dividing the loss by 1,049,684, the weighted average
number of common shares outstanding.
NOTE 3 - SALE OF BANK BRANCH
Effective March 15, 1996, Essex Savings Bank, F.S.B. (the "Bank") sold the
deposits and related accrued interest of its Charlotte, North Carolina retail
bank branch, which totaled $28.1 million, along with loans and related accrued
interest totaling $64,000, premises and equipment totaling $586,000, and other
assets totaling $69,000. In connection with the sale of the Charlotte branch,
the Bank recognized a $1.1 million net gain on the sale of deposits and a
$64,000 gain on the sale of premises and equipment. The sale of the Charlotte
branch was undertaken to position the Bank's operations in the more
geographically concentrated and defined market areas of northeastern North
Carolina and eastern Virginia.
The sale of the Charlotte branch required cash of $26.3 million, which was
funded by the sale of fixed-rate first mortgage loans totaling $7.3 million and
mortgage-backed securities available for sale totaling $9.9 million, as well as
the utilization of a portion of the Bank's excess liquidity. The Bank
recognized a gain of $558 and $153,000 from the sale of loans and mortgage-
backed securities, respectively.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Total assets of EBI at March 31, 1996 were $315.6 million as compared to
$338.7 million at December 31, 1995, a decrease of approximately $23.1 million
or 6.8%. The decrease in assets was primarily attributable to the sale of $7.3
million in loans, $9.9 million in mortgage-backed securities, and $586,000 in
premises and equipment in connection with the sale of the Bank's Charlotte,
North Carolina retail bank branch, which is described in Note 3 of the Notes to
Consolidated Financial Statements included in this report. Cash and cash
equivalents also decreased as a result of the sale; however, the impact of this
decrease was offset by the receipt on March 29, 1996 of $5.2 million in pay-offs
on a mortgage loan portfolio subserviced by Essex Home Mortgage Servicing
Corporation ("Essex Home").
In addition to the decline in loans attributable to the Charlotte branch
sale, loans held for investment declined an additional $6.4 million primarily as
a result of prepayment activity prompted by the decline in interest rates.
However, the lower interest rates favorably impacted the amount of loan
originations during the first quarter of 1996. Loans held for sale totaled $6.4
million at March 31, 1996 as compared to $3.3 million at December 31, 1995, an
increase of approximately $3.1 million or 94.8%.
Federal Home Loan Bank ("FHLB") stock decreased $1.1 million as redemption
proceeds were used to repay FHLB advances that matured during the first quarter
of 1996.
EBI's nonperforming assets, net of specific reserves for
collateral-dependent real estate loans ("CDRELs") and foreclosed properties,
decreased from $11.3 million at December 31, 1995 to $10.5 million at March
31, 1996, and are summarized as follows (in thousands):
March 31, December 31,
1996 1995
---- ----
Nonaccrual loans:
CDRELs, net $ 2,712 $ 2,737
Other 2,522 3,344
Accruing loans 90 days or more past due 94 177
Troubled debt restructured loans 184 143
------ ------
Total nonperforming loans, net 5,512 6,401
Foreclosed properties, net 4,953 4,856
------ ------
Total nonperforming assets,
net of specific reserves $10,465 $11,257
------ ------
------ ------
Accruing loans in the 30-59 day and 60-89 day delinquency categories also
decreased, as shown below (in thousands):
Delinquency March 31, December 31,
Category 1996 1995
-------- ---- ----
30-59 days past due $ 935 $2,222
60-89 days past due 1,069 942
----- -----
$2,004 $3,164
----- -----
----- -----
The decrease in nonperforming assets was primarily attributable to the
decline in other nonaccrual loans. During the first quarter of 1996, the Bank
collected $435,000 on its nonaccruing commercial real estate loans to a single
borrower that were secured by nursing home facilities. An additional payment of
$125,000 was received on these loans during April 1996 as well. The remaining
decline in other nonaccrual loans, as well as the decrease in delinquent loans,
12
<PAGE>
was attributable to the continuing improvement in the first mortgage loan
portfolio acquired from Home Savings Bank, F.S.B. on September 15, 1995. At
December 31, 1995, nonaccruing loans in this acquired portfolio, excluding
CDRELs, totaled $1.2 million as compared to $950,000 at March 31, 1996.
Likewise in this same acquired portfolio, loans 30-59 days past due totaled
$977,000 and loans 60-89 days past due totaled $381,000 at December 31, 1995 as
compared to $143,000 and $173,000, respectively, at March 31, 1996.
While foreclosed properties increased slightly during the first quarter of
1996, a significant portion of a foreclosed property secured by farmland in
North Carolina was sold during April 1996, which will result in a $2.0 million
reduction in this property's carrying value during the second quarter of 1996.
The remainder of this property is under contract.
Deposits, the primary source of EBI's funds, totaled $255.9 million at
March 31, 1996 as compared to $283.5 million at December 31, 1995, a decrease of
$27.6 million or 9.7%. The decrease in deposits was attributable to the Bank's
sale of its Charlotte, North Carolina retail bank branch with deposits totaling
$27.9 million, which is described in Note 3 of the Notes to Consolidated
Financial Statements included in this report. FHLB advances decreased from
$29.8 million at December 31, 1995 to $28.0 million at March 31, 1996 as
proceeds from the sale of FHLB stock were used to repay FHLB advances that
matured during the first quarter of 1996. The $5.8 million increase in other
liabilities since December 31, 1995 was primarily attributable to $5.2 million
in loan pay-offs on a servicing portfolio.
Results of Operations
First Quarter of 1996 Compared to First Quarter of 1995
EBI's net income for the three months ended March 31, 1996 totaled
$596,000, compared to a net loss of $1.6 million for the three months ended
March 31, 1995. The annualized return on average assets was .71% for the first
quarter of 1996, compared to (2.19)% for the first quarter of 1995.
On September 15, 1995, EBI and the Bank merged with Home Bancorp, Inc.
("Home Bancorp") and its wholly-owned subsidiary Home Savings Bank, F.S.B.
("Home Savings"), a Norfolk, Virginia-based savings institution (the "Home
Acquisition"). The transaction was accounted for using the purchase method of
accounting. Therefore, results of operations for the three months ended March
31, 1995 have not been restated to reflect the Home Acquisition. However, EBI's
net income for the three months ended March 31, 1996 includes the impact of the
Home Acquisition.
During the first quarter of 1996, EBI's operating results benefited from
the $1.1 million gain on sale of deposits and $64,000 gain on sale of premises
and equipment recognized in connection with the Bank's sale of its Charlotte,
North Carolina retail bank branch. In addition, operating results were
favorably impacted by a $153,000 gain on sale of mortgage-backed securities
available for sale, which was undertaken to provide funds for the Charlotte
branch sale. Excluding the impact of this nonrecurring transaction, EBI
incurred a net loss of $686,000 during the first quarter of 1996, which was a
$1.2 million improvement over the loss from continuing operations during the
first quarter of 1995. The improvement in 1996 was the result of a $1.6 million
reduction in loan loss provisions, which was partially offset by a $423,000
increase in noninterest expense, primarily resulting from an increase in
operating expenses and the amortization of the excess of cost over net assets
acquired associated with the Home Acquisition.
13
<PAGE>
During the first quarter of 1995, EBI's operating results benefited from
the recognition of a $262,000 extraordinary gain from the forgiveness of debt.
Excluding this extraordinary item, EBI incurred a loss from continuing
operations of $1.9 million during the quarter ended March 31, 1995. EBI's
operating results were adversely impacted by loan loss provisions of $1.6
million and lower levels of mortgage banking income. In addition, EBI continued
to recognize operating losses because of, among other reasons, the Bank's
inability to increase assets due to regulatory growth restrictions in effect
prior to the Home Acquisition. However, EBI benefited during the first quarter
of 1995 from the recognition of a net gain totaling $116,000 related to the
disposition of loans.
Net Interest Income. The table below presents average balances, computed
on month-end balances, for interest-earning assets and interest-bearing
liabilities, as well as related weighted average yields earned and rates paid
for the three months ended March 31:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1). . . . . . . . . . . . $271,715 $5,442 8.01% $244,496 $4,750 7.77%
Investment securities. . . . . . 13,171 189 5.75 16,129 232 5.74
Mortgage-backed
securities . . . . . . . . . 13,726 250 (2) 7.38 17,963 339 7.55
Federal funds sold and . . . . .
securities purchased under
agreements to resell . . . . 6,986 92 5.26 3,928 56 5.73
Other. . . . . . . . . . . . . . 9,305 138 (3) 5.54 2,051 36 (3) 6.14
------- ------ ------- -----
Total interest-earning
assets. . . . . . . . . . . $314,903 6,111 (2)(3) 7.76 $284,567 5,413 (3) 7.60
------- -------
------- -------
Interest-bearing liabilities:
Deposits . . . . . . . . . . . . $276,046 3,853 5.58 $224,348 2,783 4.96
FHLB advances. . . . . . . . . . 29,473 441 5.99 58,121 865 5.96
Notes payable. . . . . . . . . . 120 3 9.47 2,376 56 9.33
Subordinated capital notes . . . 628 18 11.71 616 18 11.62
Other. . . . . . . . . . . . . . 421 29 (4) 18.29 509 30 (4) 17.49
------- ----- ------- -----
Total interest-bearing
liabilities . . . . . . . . $306,688 4,344 (4) 5.65 $285,970 3,752 (4) 5.24
------- ----- ------- -----
------- ----- ------- -----
Net interest earnings. . . . . . . $1,767 $1,661
----- -----
----- -----
Net interest spread (2),(3),(4). . 2.11% 2.36%
---- ----
---- ----
Net yield on interest-earning
assets (2),(3),(4) . . . . . . . 2.25% 2.34%
---- ----
---- ----
</TABLE>
(1) Nonaccrual loans are included in the average balance of loans.
(2) Calculation is based on historical cost balances of mortgage-backed
securities available for sale and does not give effect to changes in fair
value that are reflected as a component of shareholders' equity.
(3) Calculation in 1996 and 1995 includes the accretion of net deferred loan
fees and excludes $8,750 and $4,325, respectively, which consists primarily
of interest earned on custodial accounts maintained for servicing
investors.
(4) Calculation in 1996 and 1995 excludes $9,734 and $7,596, respectively,
which consists primarily of interest paid on escrow accounts.
14
<PAGE>
The table below sets forth certain information regarding changes in EBI's
interest income and interest expense between the periods indicated.
Increase (Decrease) From First Quarter of 1995
to First Quarter of 1996 Due to
----------------------------------------------
Volume (1) Rate (1) Net
------ ---- ---
(in thousands)
Interest income on:
Loans (2). . . . . . . . . . . . . . . $541 $ 151 $ 692
Investment securities. . . . . . . . . (43) - (43)
Mortgage-backed securities . . . . . . (82) (7) (89)
Federal funds sold and
securities purchased under
agreements to resell . . . . . . . . 41 (5) 36
Other interest-earning assets. . . . . 105 (3) 102
---- ----- -----
Total interest income (2). . . . . . 562 136 698
Interest expense on:
Deposits . . . . . . . . . . . . . . . 694 376 1,070
FHLB advances. . . . . . . . . . . . . (428) 4 (424)
Notes payable. . . . . . . . . . . . . (54) 1 (53)
Other interest-bearing liabilities . . (2) 1 (1)
---- ----- -----
Total interest expense . . . . . . . 210 382 592
---- ----- -----
Net interest income. . . . . . . . . $352 $(246) $ 106
---- ----- -----
---- ----- -----
(1) Changes attributable to the combined impact of volume and rate have
been allocated proportionately to changes due to volume and changes
due to rate.
(2) Interest income includes the amortization of premiums and the
accretion of net deferred loan fees.
Net interest income increased slightly from $1.7 million for the first
quarter of 1995 to $1.8 million for the first quarter of 1996. However, the
annualized net yield on interest-earning assets decreased from 2.34% for the
first quarter of 1995 to 2.25% for the first quarter of 1996 despite an increase
in the ratio of interest-earning assets to interest-bearing liabilities. The
improvement in this ratio is primarily attributable to the Home Acquisition.
However, even though the loan yield during the first quarter of 1996 was
higher than the yield during the first quarter of 1995, EBI's net yield on
interest-earning assets was more adversely impacted by significant balances
of deposits that had matured and repriced at higher market rates prior to the
decline in interest rates. However, the trend of declining interest rates
may favorably impact EBI's earnings due to the repricing of significant
deposits with shorter maturities as compared to the large amount of
interest-earning assets, predominantly loans, which have fixed interest rates
maturing over longer terms.
Provision for Loan Losses. Changes in the allowance for loan losses for
the three months ended March 31 are as follows (in thousands):
1996 1995
---- ----
Balance at beginning of period $5,251 $3,429
Provision for loan losses. . . 1 1,595
----- -----
5,252 5,024
Loans charged-off, net of recoveries (297) (322)
----- -----
Balance at end of period . . . $4,955 $4,702
----- -----
----- -----
Management reviews the adequacy of the allowance for loan losses on a
continual basis to ensure that amounts provided are reasonable. At December 31,
1995, the unallocated portion of the general loan loss allowance totaled
$791,000. As a result of loan sales and prepayment activity during the first
quarter of 1996, as well as the decline in nonperforming loans, the unallocated
portion of the general loan loss allowance approximated $875,000 at March 31,
1996.
15
<PAGE>
Therefore, management considered the loan loss allowance sufficiently adequate
to absorb losses and did not provide for additional losses during the first
quarter of 1996.
The provision for loan losses for the first quarter of 1995 was $1.6
million. Two of the significant CDRELs that contributed to the necessity for
the provision were (i) a commercial loan collateralized by a low-income
apartment complex located in Richmond, Virginia and (ii) a loan secured by a
real estate development located in the Outer Banks of North Carolina. The
additional specific provisions provided for these two CDRELs totaled
approximately $550,000 and $200,000, respectively. In addition, general and
specific provisions of $200,000 and $125,000, respectively, were provided for
certain balloon second mortgage loans subject to recourse against the Resolution
Trust Company ("RTC"). Moreover, the provision for loan losses for the first
quarter of 1995 included adjustments resulting from the Office of Thrift
Supervision's ("OTS") asset quality examination.
Noninterest Income. The significant components of noninterest income for
the three months ended March 31 are presented below:
Increase
1996 1995 (Decrease)
---- ---- ----------
Loan servicing fees. . . . . . . $ 412,740 $481,409 $ (68,669)
Mortgage banking income. . . . . 120,110 57,669 62,441
Other service charges and fees . 144,478 104,119 40,359
Net gain (loss) on sales of:
Securities. . . . . . . . . . . 153,188 - 153,188
Loans . . . . . . . . . . . . . 588 116,462 (115,874)
Deposits. . . . . . . . . . . . 1,064,655 - 1,064,655
Other. . . . . . . . . . . . . . 111,823 33,042 78,781
--------- ------- ---------
$2,007,582 $792,701 $1,214,881
--------- ------- ---------
--------- ------- ---------
Noninterest income for the first quarter of 1996 totaled $2.0 million, an
increase of 153.3% compared to $793,000 for the first quarter of 1995. The
increase resulted from the gains on sales of securities, loans, deposits, and
premises and equipment, which totaled $1.3 million, associated with the Bank's
sale of its Charlotte, North Carolina retail bank branch. Exclusive of these
gains, noninterest income declined $68,000 during the first quarter of 1996,
which resulted primarily from the $116,000 gain on sale of loans recognized
during the first quarter of 1995 required to ensure compliance with regulatory
growth restrictions in effect prior to the Home Acquisition, which was partially
offset by a $62,000 increase in mortgage banking income during the first quarter
of 1996. The level of mortgage banking activity at Essex First Mortgage
Corporation ("Essex First") increased during the first quarter of 1996 as a
result of the lower interest rate environment. By comparison, during the first
quarter of 1995 Essex First was adversely impacted by a lower volume of loan
refinancings, which was attributable to higher mortgage rates and a general
slowdown in refinancings.
16
<PAGE>
Noninterest Expense. The significant components of noninterest expense for
the three months ended March 31 are presented below:
Increase
1996 1995 (Decrease)
---- ---- ----------
Salaries and employee benefits . $1,387,654 $1,107,414 $280,240
Net occupancy and equipment. . . 386,360 424,668 (38,308)
Deposit insurance premiums . . . 219,503 166,922 52,581
Amortization of intangible assets 428,619 199,247 229,372
Service bureau . . . . . . . . . 159,398 109,146 50,252
Professional fees. . . . . . . . 147,213 161,342 (14,129)
Foreclosed properties, net . . . 5,017 156,342 (151,325)
Other. . . . . . . . . . . . . . 444,144 429,670 14,474
--------- --------- -------
$3,177,908 $2,754,751 $423,157
--------- --------- -------
--------- --------- -------
Noninterest expense as a percent of average assets was 3.8% in the first
quarter of 1996 compared to 3.7% in the first quarter of 1995. Noninterest
expense increased from $2.8 million in the first quarter of 1995 to $3.2 million
in the first quarter of 1996.
The largest portion of the increase in noninterest expense is accounted for
by a $280,000 increase in salaries and employee benefits. This increase
resulted primarily from the recognition of $234,000 in compensation expense
associated with certain of EBI's stock options. An additional $79,000 increase
was attributable to personnel costs associated with the five branches acquired
in connection with the Home Acquisition.
Another significant component of the increase in noninterest expense is
accounted for by a $229,000 increase in amortization of intangible assets. EBI
recognized goodwill of approximately $8.6 million in connection with the Home
Acquisition, which is being amortized on an accelerated basis over 15 years.
Amortization of this goodwill totaled $269,000 during the first quarter of 1996.
This increase was partially offset by a $40,000 decrease in the amortization of
servicing-related assets.
Net occupancy and equipment expense was $38,000 lower during the first
quarter of 1996 than the first quarter of 1995. While the Bank incurred $62,000
of additional occupancy expense during the first quarter of 1996 attributable to
the branches acquired in connection with the Home Acquisition, it was more than
offset by reductions resulting from the downsizing of EBI's leased corporate
facilities and the closure of Essex First's loan production offices in
Chesapeake and Manassas, Virginia.
The $53,000 increase in deposit insurance premiums in the first quarter of
1996 when compared to the first quarter of 1995 was attributable to higher
assessed deposit levels resulting from the Home Acquisition.
The $50,000 increase in service bureau expense in the first quarter of 1996
when compared to the first quarter of 1995 was primarily attributable to a
higher number of deposit accounts resulting from the Home Acquisition. Also,
higher service bureau charges were incurred as a result of an increase in the
number of mortgage loans serviced by Essex Home, which increased from
approximately 10,000 loans with an aggregate principal balance of $825.8 million
at December 31, 1994 to approximately 12,600 loans with an aggregate principal
balance of $1.1 billion at March 31, 1996.
17
<PAGE>
The $14,000 decrease in professional fees in the first quarter of 1996 when
compared to the first quarter of 1995 was primarily attributable to lower legal
and accounting fees, which were sufficient to offset the impact of $60,000 in
consulting fees during the first quarter of 1996 resulting from the Home
Acquisition.
Expenses associated with foreclosed properties for the first quarter of
1996 decreased $151,000 when compared to the first quarter of 1995, resulting
from a decrease of $80,000 in expenses associated with holding foreclosed
properties and a $71,000 reduction in the provision for losses on foreclosed
properties.
The significant components of other noninterest expense for the three
months ended March 31 are presented below:
Increase
1996 1995 (Decrease)
---- ---- ----------
Loan expense . . . . . . . . . . $ 60,265 $ 38,752 21,513
Telephone. . . . . . . . . . . . 59,455 62,732 (3,277)
Postage and courier. . . . . . . 55,072 48,901 6,171
Stationery and supplies. . . . . 33,624 44,854 (11,230)
Advertising and marketing. . . . 37,400 59,575 (22,175)
Corporate insurance. . . . . . . 48,177 39,884 8,293
Travel . . . . . . . . . . . . . 23,613 13,282 10,331
Provision for servicing losses . 6,000 9,000 (3,000)
Other. . . . . . . . . . . . . . 120,538 112,690 7,848
------- ------- -------
$444,144 $429,670 $ 14,474
------- ------- -------
------- ------- -------
Income Taxes. There was no income tax provision recognized for financial
reporting purposes during the quarters ended March 31, 1996 or 1995, because EBI
had significant net operating loss carryforwards, which approximated $19.9
million at December 31, 1995. Also, until consistent profitability is
demonstrated, deferred income tax assets related to EBI's net operating loss
carryforwards and temporary differences will not be recognized.
Liquidity
Liquidity refers to EBI's ability to generate sufficient cash to meet the
funding needs of current loan demand, savings deposit withdrawals, and to pay
operating expenses. EBI generally has no significant source of income other than
dividends from its subsidiaries. As a result of prior regulatory examinations,
EBI and the Bank had entered into Supervisory Agreements with the OTS which
precluded the Bank from making dividend payments to EBI. While these
Supervisory Agreements are no longer in effect as a result of the Home
Acquisition, EBI is still obligated to comply with the spirit of the Agreements.
Consequently, EBI's source of funds is currently limited to assessments to its
subsidiaries for certain operating expenses and tax payments, if any, by such
subsidiaries to EBI, and asset sales.
The Bank's liquidity management is both a daily and long-term function of
funds management. Liquidity is generally invested in short-term investments
such as federal funds sold, certificates of deposit, and in U.S. Treasury and
U.S. Government agency securities of maturities of five years or less. If the
Bank requires funds that cannot be generated internally (i.e., funds generated
through contractual maturities of loans), borrowings from the FHLB may provide
an additional source of funds. At March 31, 1996, the Bank had $28.0 million in
outstanding borrowings from the FHLB. The Bank has not relied upon brokered
deposits as a source of new liquidity, and does not anticipate a change in this
practice in the foreseeable future.
18
<PAGE>
The Bank anticipates that it will have sufficient funds available to meet
its current loan commitments. At March 31, 1996, the Bank had outstanding
commitments (including unused lines of credit) to originate and/or purchase
mortgage and non-mortgage loans of $6.1 million. Certificates of deposit which
are scheduled to mature within one year totaled $156.0 million at March 31,
1996, and borrowings from the FHLB that are scheduled to mature within the same
period amounted to $7.6 million. Essex First's commitments to originate
residential construction builder loans and construction/permanent loans totaled
$30.2 million and $3.9 million, respectively, as of March 31, 1996.
Asset and Liability Management
The primary objective of asset and liability management is to assure
adequate liquidity and maintenance of appropriate balances between
interest-sensitive earning assets and interest-bearing liabilities at the
Bank. Effective management of sources and uses of funds is recognized by the
Bank as a necessity in order to maximize profits while incurring a minimum
amount of risk.
The Bank utilizes interest rate sensitivity analyses, as developed by the
OTS, to measure the loss in net portfolio value ("NPV"), expressed as a
percentage of the Bank's market value of assets, assuming certain percentage
changes in interest rates. NPV is the market value of assets, less the market
value of liabilities, plus the net market value of off-balance sheet items.
Also, the Bank monitors its cumulative one-year interest rate sensitivity gap,
which is the measure by which the Bank's assets and liabilities are subject to
repricing in future time periods. Effective asset and liability management
seeks to ensure that net interest income is maximized while the impact of
changes in the level of market interest rates is minimized. An objective of the
Bank will continue to be the reduction of the sensitivity of its earnings to
interest rate fluctuations by diversifying the sources of funds, improving its
interest rate spread, improving the ratio of interest-earning assets to
interest-bearing liabilities, and achieving a better matching of the maturities
of interest rate sensitive assets and liabilities.
In August 1993, the OTS adopted a final rule incorporating an interest-rate
risk component into the risk-based capital regulation. Under the rule, an
institution with a greater than "normal" level of interest rate risk will be
subject to a deduction of its interest rate risk component from total capital
for purposes of calculating its risk-based capital requirement. As a result,
such an institution will be required to maintain additional capital in order to
comply with the risk-based capital requirement. An institution with greater
than "normal" interest rate risk is defined as an institution that would suffer
a loss of NPV exceeding 2.0% of the estimated discounted cash flow value of its
assets in the event of a 200 basis point increase or decrease (with certain
minor exceptions) in interest rates. The interest rate risk component will be
calculated, on a quarterly basis, as one-half of the difference between an
institution's measured interest rate risk and 2.0%, multiplied by the market
value of its assets. The rule provides that the OTS will calculate the interest
rate risk component quarterly for each institution. The rule also authorizes
the Director of the OTS, or his designee, to waive or defer an institution's
interest rate risk component on a case-by-case basis. The final rule was
effective January 1, 1994. However, the date that institutions are first
required to deduct the interest rate risk component has been postponed several
times and is currently delayed indefinitely until a final rule is published by
the OTS. The OTS calculated that there was not an interest rate risk component
for the Bank as of December 31, 1995. Moreover, the final regulations allow for
a nine-month lag in determining the amount of capital required to be deducted
from risk-based capital. Therefore, based on the nine-month lag provision, the
Bank may use the lowest interest rate risk component for any of the preceding
three quarters in determining the deduction, if any, from risk-based capital.
Because the Bank did not have an interest rate risk component at any quarter end
during 1995, there would not have been a deduction from the Bank's risk-based
capital at March 31, 1996, if such regulation had been effective as of such
date.
19
<PAGE>
Regulatory Matters
Federal Regulatory Capital Requirements. The Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA") requires that savings
institutions satisfy three separate requirements of specified capital as a
percent of the appropriate asset base: a tangible capital requirement equal to
1.5% of adjusted total assets, a core capital requirement equal to 3.0% of
adjusted total assets, and a risk-based capital requirement equal to 8% of
risk-weighted assets. At March 31, 1996, the Bank was in compliance with the
capital requirements established by FIRREA.
Section 38 of the Federal Deposit Insurance Act, as added by the FDIC
Improvement Act ("FDICIA"), requires each appropriate agency and the Federal
Deposit Insurance Corporation ("FDIC") to, among other things, take prompt
corrective action ("PCA") to resolve the problems of insured depository
institutions that fall below certain capital ratios. Federal regulations under
FDICIA classify savings institutions as "adequately capitalized" based on four
separate requirements of specified capital as a percent of the appropriate asset
base: tangible equity of 2.00%, Tier 1 core capital of 4.00%, Tier 1 risk-based
capital of 4.00%, and total risk-based capital of 8.00%. As of March 31, 1996,
the Bank was "adequately capitalized" for PCA purposes.
The OTS has proposed to modify the core capital requirement. Under the OTS
proposal, only savings institutions rated a composite 1 under the OTS CAMEL
rating system will be permitted to operate at or near the regulatory minimum
leverage ratio of 3%. For all other savings institutions, the minimum core
capital leverage ratio will be 3% plus at least an additional 100 to 200 basis
points. Furthermore, the OTS has issued a rule adding an interest rate risk
component to its risk-based capital requirement. See "Asset and Liability
Management" for a description of this rule.
Recent Regulatory Developments. Deposits of the Bank are currently insured
by the Savings Association Insurance Fund ("SAIF"). Both the SAIF and the Bank
Insurance Fund ("BIF"), the deposit insurance fund that covers most commercial
bank deposits, are statutorily required to be recapitalized to a ratio of 1.25%
of insured reserve deposits. While the BIF has reached the required reserve
ratio, the SAIF is not expected to be recapitalized until 2002 at the earliest.
The RTC Completion Act authorized $8 billion in funding for the SAIF. However,
such funds only become available to the SAIF if the FDIC determines that the
funds are needed to cover losses of the SAIF and several other stringent
criteria are met.
In late 1995, the FDIC approved a final rule regarding deposit insurance
premiums which, effective with respect to the semiannual premium assessment
beginning January 1, 1996, reduced deposit insurance premiums for BIF member
institutions to zero basis points (subject to an annual minimum of $2,000) for
institutions in the lowest risk category. Deposit insurance premiums for SAIF
members were maintained at their existing levels (23 basis points for
institutions in the lowest risk category). Accordingly, in the absence of
further legislative action, SAIF members such as the Bank will be competitively
disadvantaged as compared to commercial banks by the resulting premium
differential. It is anticipated that, under present conditions, it will be at
least several years before the SAIF reaches a reserve ratio of 1.25% of insured
deposits.
The U.S. House of Representatives and Senate have actively considered
legislation which would have eliminated the premium differential between
SAIF-insured institutions and BIF-insured institutions by recapitalizing the
SAIF's reserves to the required ratio. The proposed legislation would have
provided that all SAIF member institutions pay a special one-time assessment
to recapitalize the SAIF, which in the aggregate would have been sufficient
to bring the reserve ratio in the SAIF to 1.25% of insured deposits. Based
on the current level of reserves
20
<PAGE>
maintained by the SAIF, it was anticipated that the amount of the special
assessment required to recapitalize the SAIF would have been approximately 80 to
85 basis points of the SAIF-assessable deposits. It was anticipated that after
the recapitalization of the SAIF, premiums paid by SAIF-insured institutions
would be reduced to match those currently being assessed BIF-insured commercial
banks. The legislation also provided for the merger of the BIF and the SAIF,
with such merger being conditioned upon the prior elimination of the thrift
charter.
The legislation discussed above had been, for some time, included as part
of a fiscal 1996 federal budget bill, but was eliminated prior to the bill being
enacted on April 26, 1996. In light of the legislation's elimination and the
uncertainty of the legislative process generally, management cannot predict
whether legislation reducing SAIF premiums and/or imposing a special one-time
assessment will be adopted, or, if adopted, the amount of the assessment, if
any, that would be imposed on the Bank. If the legislation were to be enacted in
the future, which would assess a one-time special assessment of 85 basis points,
the Bank would (based upon the Bank's SAIF deposits as of March 31, 1995) pay
approximately $2.3 million, before related tax benefits, if any. In addition,
the enactment of such legislation may have the effect of immediately reducing
the capital of SAIF-member institutions by the amount of the special assessment.
The proposed legislation also provides that any savings association that would
become undercapitalized under the FDIC's PCA regulations as a result of the
special deposit premium assessment could be exempted from payment of the
assessment, provided that the institution would continue to be subject to the
payment of semiannual assessments under the current rate schedule following the
recapitalization of the SAIF.
Regulatory Compliance. On June 30, 1995, EBI and the Bank entered into a
definitive agreement to acquire Home Bancorp and its wholly-owned subsidiary,
Home Savings. The Home Acquisition was consummated on September 15, 1995, and
as a result of the transaction the OTS terminated supervisory agreements EBI and
the Bank had entered into with the OTS. However, the boards of directors of EBI
and the Bank have undertaken, as required by the OTS, to continue to implement
and adhere to the spirit of the provisions of the agreements. Such provisions
include restrictions on dividend payments and expense reimbursements, and among
other areas of compliance, restrictions on transactions with affiliates,
continued oversight of asset quality, and the submission of an updated business
plan for 1996, which was submitted to the OTS on January 22, 1996 and approved
on March 25, 1996.
In January 1996, the board of directors of EBI formed a special committee
of the board, the Strategic Evaluation Committee (the "Committee"). The purpose
of the Committee, among other objectives, is to review strategic alternatives to
enhance shareholder value. Although the Bank exceeded all regulatory capital
requirements at March 31, 1996, the operations of the Company after the Home
Acquisition are not profitable. Accordingly, the Committee is evaluating
profitability enhancements and possible corporate restructurings. In the first
quarter of 1996, the Bank sold its Charlotte, North Carolina branch including
$28.1 million of deposits and accrued interest payable and $709,000 of assets
(including premises and equipment, loans on deposits and accrued interest
receivable, and cash), which resulted in a pre-tax gain of $1.3 million. In
addition, on April 15, 1996, the Bank's management announced that an agreement
had been signed to sell its Wilmington, Greensboro, and Raleigh, North Carolina
retail bank branches to a state-chartered commercial bank in North Carolina.
These branches aggregate approximately $77 million in deposits. The sale is
anticipated to close in the third quarter of 1996 and is dependent upon
regulatory approval. While management is of the opinion that capital compliance
will be maintained throughout 1996, the OTS is presently conducting an
examination of the Bank. Adjustments, if any, resulting from the examination
could have an adverse impact on the Bank's regulatory capital. Moreover, until
the Company's recurring profitability is restored, management can not provide
assurances that compliance with all regulatory capital requirements can be
sustained beyond that horizon.
21
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Standards for Safety and Soundness. Effective August 9, 1995, the federal
banking regulatory agencies jointly implemented Interagency Guidelines
Establishing Standards for Safety and Soundness ("Guidelines") for all insured
depository institutions relating to internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, fees and benefits, and employment
contracts and other compensation arrangements of executive officers, employees,
directors and principal stockholders of insured depository institutions that
would prohibit compensation and benefits and arrangements that are excessive or
that could lead to a material financial loss for the institution. In addition,
the federal banking regulatory agencies are planning to adopt asset quality and
earnings standards. These proposed safety and soundness standards were issued
for public comment until August 24, 1995. After reviewing the comments, the
agencies intend to add the asset quality and earnings standards to the standards
already in the Guidelines. If an insured depository institution fails to meet
any of its prescribed standards as described above, it may be required to submit
to the appropriate federal banking agency a compliance plan specifying the steps
that will be taken to cure the deficiency and the time within which these steps
will be taken. If an institution fails to submit an acceptable plan or fails to
implement the plan, the appropriate federal banking agency will require the
institution or holding company to correct the deficiency and until corrected,
may impose restrictions on the institution or holding company, including any of
the restrictions applicable under the prompt corrective action provisions of
FDICIA. The Bank does not currently meet some of the proposed standards for
asset quality and earnings. Accordingly, the Bank may be required to file a
safety and soundness compliance plan.
22
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings -- Not Applicable
Item 2. Changes in Securities -- Not Applicable
Item 3. Defaults Upon Senior Securities -- Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On May 8, 1996, an annual meeting of stockholders of EBI was held for the
purpose of considering and voting upon (i) the election of two directors for a
term of three years, (ii) the approval of the First and Second Amendments to the
EBI Stock Option Plan, and (iii) the approval of the First Amendment to the EBI
Non-Employee Directors Stock Option Plan. At the meeting, (i) the election of
Mr. Roscoe D. Lacy, Jr. as a director was approved by a vote of 1,004,560 EBI
common shares voting in favor, 5,579 shares voting against and 16,400 shares
abstaining, (ii) the election of Mr. Robert G. Hecht as a director was approved
by a vote of 1,004,903 shares voting in favor, 5,236 shares voting against and
16,400 shares abstaining, (iii) the First and Second Amendments to the EBI Stock
Option Plan were approved by a vote of 646,122 shares voting in favor, 77,997
shares voting against and 302,420 shares abstaining, and (iv) the First
Amendment to the EBI Non-Employee Directors Stock Option Plan was approved by a
vote of 911,319 shares voting in favor, 83,075 shares voting against and 32,145
shares abstaining. No other business was conducted at the meeting.
Item 5. Other Information -- Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- The following exhibits are filed as part of this
Part II:
Exhibit No. Description
----------- -----------
10.1 Branch Purchase and Deposit Assumption Agreement
dated April 11, 1996 between Essex Savings Bank,
F.S.B. and Centura Bank
11 Statement re: computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K -- None
23
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SIGNATURE
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.
Essex Bancorp, Inc.
May 10, 1996 By: /s/ Gene D. Ross
------------ -----------------
(Date) Gene D. Ross
Chairman, President,
and Chief Executive
Officer
May 10, 1996 By: /s/ Mary-Jo Rawson
------------ ------------------
(Date) Mary-Jo Rawson
Chief Accounting Officer
24
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------
10.1 Branch Purchase and Deposit Assumption Agreement dated April
11, 1996 between Essex Savings Bank, F.S.B. and Centura Bank
11 Statement re: computation of earnings per share
27 Financial Data Schedule
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EXHIBIT 10.1
BRANCH PURCHASE AND DEPOSIT ASSUMPTION AGREEMENT
THIS BRANCH PURCHASE AND DEPOSIT ASSUMPTION AGREEMENT (the "Agreement") is
entered into as of the 11th day of April, 1996, between Essex Savings Bank,
F.S.B., a federally-chartered stock savings bank (the "Seller"), and Centura
Bank, a North Carolina bank (the "Purchaser").
WHEREAS, the Seller wishes to sell and the Purchaser wishes to purchase the
deposits and certain assets of the branch offices operated by the Seller in
Greensboro, Raleigh and Wilmington, North Carolina (the "Branches").
NOW, THEREFORE, in consideration of the foregoing, of the mutual
agreements, covenants, representations, warranties and conditions contained
herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Seller and the Purchaser agree
as follows:
ARTICLE 1.
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
1.01 Effective Date. Except as otherwise provided herein, the closing date
(hereinafter referred to as the "Effective Date") shall be: (i) the last
business day of the month next ending at least ten (10) calendar days following
the date on which all regulatory approvals for this transaction, required by law
and this Agreement, have been obtained and all waiting periods required by
statute have expired so that this sale may be legally consummated in accordance
with the terms of this Agreement; or (ii) such other date thereafter as may be
mutually agreed to by the parties, which agreement shall not be unreasonably
withheld.
1.02 Transfer of Assets and Consideration Therefor.
(a) Subject to the terms and conditions of this Agreement, the Seller will
sell, assign, transfer, convey and deliver to the Purchaser, and the Purchaser
will purchase from Seller, on the Effective Date:
(i) all of the Seller's right, title and interest in and to certain
deposit related loans of the Branches (the "Deposit Loans"),
consisting of loans secured by deposit instruments, including but
not limited to, savings accounts and certificates, on the books
of the Branches as of the close of business on the Effective
Date; and
(ii) all of the Seller's right, title and interest in and to the net
amount of proration items, as described in Section 1.09, paid by
the Seller on or
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prior to the Effective Date but relating to periods after the
Effective Date, and cash and cash equivalents on hand in the
Branches.
The purchase price for the Deposit Loans shall be equal to the unpaid principal
balance of the Deposit Loans, plus accrued and unpaid interest, as of the close
of business on the Effective Date. On the Effective Date, the purchase price
for the Deposit Loans shall be calculated based on the unpaid principal balance
of the Deposit Loans, plus accrued and unpaid interest, as of 12:01 a.m. of the
first day of the month in which the Effective Date occurs (the "Measurement
Date"). The purchase price for the Deposit Loans shall be paid by offsetting
the purchase price against the deposit liabilities assumed pursuant to Section
1.02(b).
(b) On the Effective Date, subject to the terms and conditions of this
Agreement, and in consideration for the aforesaid sale, assignment, transfer,
conveyance and delivery the Purchaser will assume and agree to pay, perform and
discharge all deposit liabilities of the Seller, including accrued interest, now
existing or hereafter arising and existing as of the close of business on the
Effective Date, attributed on the records of the Seller to the Branches (the
"Assumed Deposits").
1.03 Payment of Premium. On the Effective Date, subject to the terms and
conditions of this Agreement, the Purchaser also shall pay to the Seller a
premium (the "Premium") for the Assumed Deposits in the amount of one percent
(1%) of the aggregate balance of the Assumed Deposits.
1.04 Purchase of Loans. All Deposit Loans (and any notes, other evidences of
indebtedness or security instruments associated therewith) transferred to the
Purchaser on the Effective Date pursuant to Section 1.02 shall be transferred
without recourse except as provided in this Agreement and without any
representations or warranties as to the collectability of any such Deposit Loans
or the creditworthiness of any such obligors.
1.05 Obligations of the Seller on the Effective Date. On the Effective Date,
the Seller will:
(a) execute, acknowledge (if appropriate) and deliver to the Purchaser a
Bill of Sale in the form attached as Exhibit A hereto;
(b) deliver to the Purchaser cash or immediately available funds equal to
the Assumed Deposits, measured as of 12:01 a.m. on the Measurement Date, less
the sum of:
(i) the unpaid principal balance or par value, respectively, plus
accrued and unpaid interest, of the Deposit Loans to be purchased
by the Purchaser pursuant to Section 1.02(a)(i), measured as of
12:01 a.m. on the Measurement Date,
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(ii) to the extent not accounted for in the calculation of the Assumed
Deposits, all amounts owed by deposit customers as a result of
writing a check or similar instrument and creating an overdraft
on an account,
(iii) the net amount of proration items, as described in Section 1.09,
paid by the Seller on or prior to the Effective Date but relating
to periods after the Effective Date,
(iv) cash and cash equivalents on hand in the Branches, and
(v) the Premium, based on the amount of Assumed Deposits as of 12:01
a.m. on the Measurement Date.
(c) assign, transfer and deliver to the Purchaser such of the records
pertaining to the Assumed Deposits and the Deposit Loans and any other records
reasonably requested by the Purchaser as exist and are in the Seller's
possession or control, as detailed in Section 1.07(g).
The Purchaser agrees that it will preserve and safely keep, for as long as may
be required by applicable law, all of the signature cards, orders, contracts,
forms, taxpayer identification number certifications, and records hereinabove
referred to for the joint benefit of itself and the Seller, and that it will
permit the Seller and its representatives to inspect, and make extracts from or
copies of, any such records, at any reasonable time, and at the expense of the
Seller, as shall be reasonably necessary to the Seller for purposes of its
records. The Seller agrees that it will preserve and safely keep, for as long
as may be required by applicable law, all of the files,books of accounts and
records as exist and are in Seller's possession pertaining to the past history
of the accounts transferred hereunder, including deposit slips, cancelled checks
or withdrawal orders, for the joint benefit of itself and the Purchaser, and
that it will permit the Purchaser and its representatives to inspect, and make
extracts from or copies of, any such files,books of accounts or records, at any
reasonable time and at the expense of the Purchaser, as shall be reasonably
necessary to the Purchaser for purposes of its records.
1.06 Assumption Agreement. To evidence the assumption by the Purchaser of the
liabilities and obligations of the Seller assumed pursuant to this Agreement,
the Purchaser and the Seller will execute, acknowledge and deliver, on the
Effective Date, an assumption agreement in the form attached hereto as EXHIBIT
B. The Seller acknowledges that the Purchaser does not assume and shall have no
liability for any debts, liabilities or obligations of the Seller of any kind
whatsoever except as specifically set forth in this Agreement and the assumption
agreement.
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1.07 Certain Transitional Matters. From and after the Effective Date:
(a) On or before the Effective Date, the Seller and the Purchaser shall
cooperate and take all actions as are necessary to arrange for the direct
routing to the Purchaser through the check clearing system of the banking
industry, effective immediately following the Effective Date, all checks,
drafts and withdrawal orders on forms provided by the Seller and carrying its
imprint (including name and transit routing number) drawn against amounts
transferred to the Purchaser. Such items will be presented to the Seller's item
processor ("BISYS") with other items drawn on the Seller's transit routing
number. Upon presentation to BISYS the following process will be employed:
(i) A copy of the report noting all checks, drafts, withdrawal orders
and ACH items presented for payment will be sent via facsimile to
the Purchaser.
(ii) A copy of the report noting ACH and other credit items, with all
pertinent information, will be sent via facsimile to the
Purchaser.
(iii) Based on the total debits and total credits reported, the
Purchaser will take those steps necessary to make wire transfer
payment for the net amount due to the Seller at an account to be
provided by the Seller.
(iv) The items presented for payment and/or credit will be
consolidated into a cash letter. Said cash letter will be
available for pick up by the Purchaser at BISYS by 4 p.m. the day
following the day of presentment or at a mutually agreed upon
location and time.
All checks, drafts and withdrawal orders drawn against balances transferred will
be consolidated into a cash letter by BISYS for pick up by the Purchaser as
specified in Section 1.07(a)(iv) above.
Within ten days after the Effective Date, checks, drafts and
withdrawal orders with the Purchaser's transit routing number should be provided
to the holders of all transferred accounts with checks, drafts or withdrawal
orders carrying the Seller's transit routing number. After ninety (90) days, or
such other period as may be mutually agreed upon by the Seller and the
Purchaser, all checks, drafts, and withdrawal orders on forms provided by the
Seller and carrying its imprint will be returned to the payee unpaid and will
not be available for pick up by the Purchaser.
All items clearing through Automated Clearing House ("ACH") will be
processed and settled by Federal Reserve Bank ("FRB") through the Seller's
transit routing number. After presentment of the ACH item, all items settling
against accounts transferred to
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the Purchaser will be provided to the Purchaser on a daily ACH clearing report
to allow posting of the item to the transferred account. Immediately after the
effective date, the Purchaser shall use its reasonable best efforts to provide
notification of changes to the FRB to request the change of the transit routing
number to the Purchaser's number on all ACH items settling to a transferred
account. After ninety (90) days, or such other period as may be mutually agreed
upon by the Seller and the Purchaser, the ACH item will be returned to the
originator and the daily ACH report will not be available to the Purchaser.
The Purchaser agrees to pay the Seller for all checks, drafts and
withdrawal orders drawn against funds transferred to the Purchaser and ACH debit
items presented to the Seller drawn against transferred accounts less ACH credit
items payable to transferred accounts each day by wire transfer. If ACH credit
items exceed debit items, the Seller agrees to make payment to the Purchaser
each day via wire transfer.
(b) After the Effective Date, the Purchaser agrees to pay in accordance
with law, up to the collected amount on deposit to the extent of the amount
transferred to the Purchaser on the Effective Date (and any other funds
available by reason of any agreement between the depositor and the Purchaser),
all properly drawn and presented checks, drafts and withdrawal orders presented
to the Purchaser by mail, over its counters or through the check clearing system
of the banking industry, by depositors of the accounts assumed, whether drawn on
the checks, withdrawal or draft forms provided by the Seller, or by the
Purchaser.
(c) If any of such depositors, instead of accepting the obligation of the
Purchaser to pay the Assumed Deposits, shall demand payment from the Seller for
all or any part of the Assumed Deposits, the Seller shall not be liable or
responsible for making such payment. Instead, the Seller may, at its
discretion, assume custody of the check or other item presented for payment on
an account which has been transferred with the Branches, and shall immediately
forward such items to the Purchaser in the manner provided in subsection (a)
above. The Seller shall not, at any time, be liable or responsible for making
payment on such items by reason of its obtaining custody of them for transmittal
to the Purchaser.
(d) The Purchaser agrees, no later than noon of the second business day
after demand by the Seller, to pay the Seller an amount equivalent to the amount
of any uncollected item included in a depositor's balance as of the close of
business on the Effective Date which is returned on or within thirty (30) days
after the Effective Date as uncollected within the time contemplated by
applicable clearinghouse rules and applicable federal regulations and that is
not charged directly to the depositor's account with the Purchaser. Provided
the Purchaser has not honored checks written on uncollected funds, the extent to
which the Purchaser shall be required to make such payment for an item shall be
limited to the amount on deposit with the Purchaser at the time the Seller makes
the demand aforesaid. Uncollected funds will be defined by the Seller's
availability schedules pursuant to Regulation CC.
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(e) If the balance due on any Deposit Loan has been reduced by the Seller
as the result of a payment by check received on or prior to the Effective Date,
which item is returned within thirty (30) days after the Effective Date as
uncollected within the time contemplated by applicable clearinghouse rules, the
asset value represented by the Deposit Loan shall be correspondingly increased
and an amount in cash equal to such increase shall be paid by the Purchaser to
the Seller after the Effective Date upon demand.
(f) Not later than the last business day of the month following the month
in which the Effective Date occurs (the "Settlement Date"), the Seller and the
Purchaser shall reconcile the amount of cash or immediately available funds paid
by the Seller to the Purchaser on the Effective Date pursuant to Section 1.05(b)
by recalculating the amount payable pursuant to Section 1.05(b) by substituting
measurements of Deposit Loans and Assumed Deposits, plus accrued interest, as of
the close of business on the Effective Date for the measurements as of the
Measurement Date that were utilized on the Effective Date, and by making such
adjustments to the amounts of proration items utilized for the purposes of
Section 1.05(b)(iii) as shall be necessary to reflect bills and invoices
received after the Effective Date. On the Settlement Date, the Seller shall
make an additional payment to the Purchaser, or the Purchaser shall refund to
the Seller, as the case may be, in cash or immediately available funds, the
amount necessary (i) to adjust the amount originally paid by the Seller on the
Effective Date to the amount that would have been paid if measurements as of the
close of business on the Effective Date had been utilized on the Effective Date,
(ii) to reflect such adjustment to the proration items, and (iii) to pay to the
Purchaser any payments on any of the Deposit Loans received by the Seller after
the Effective Date.
(g) The Seller will provide the following records pertaining to the
Assumed Deposits as are contained in the BISYS system at no charge to the
Purchaser:
- At least thirty (30) days prior to the Effective Date, a printed
copy of all information contained in the customer information
file (customer name, tax I.D., address(es), account
relationships, etc.) and all customer financial data reasonably
required by the Purchaser and an unlabeled, standard display
format (EBCIDIC) and a comma delineated or other word processing
format, fixed record length, machine readable tape copy with
blocks not exceeding 5,000 bytes.
- On or immediately preceding the business day next following the
Effective Date, a printed copy of information contained in the
customer information file (customer name, tax I.D., address(es),
account relationships, etc.) and all customer financial data
reasonably required by the Purchaser as of the close of business
on the Effective Date and an unlabeled, standard display format
(EBCIDIC), fixed record length, machine readable tape copy with
blocks not exceeding 5,000 bytes.
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The Seller will also provide reasonable assistance to the Purchaser
prior to and for a period of forty-five (45) days after the Effective Date in
the deconversion of the deposit records relating to the Branches from the BISYS
system presently used by the Seller, and will assist the Purchaser, at
Purchaser's request and expense, in extending the contract of the Seller with
BISYS for the Purchaser's account and in providing any special deconversion
assistance to the Purchaser; provided that unless the Purchaser has requested
such an extension, any termination or similar fee and all reasonable expenses
incurred by the Seller associated with such deconversion shall be borne by the
Seller. In the event such an extension is requested, all expenses incurred must
be approved by the Purchaser and billed directly to the Purchaser by BISYS.
(h) On or before the Effective Date, the Seller will cancel all automatic
teller machine (ATM) cards issued by it to customers of the Branches. At least
thirty (30) days prior to the Effective Date, the Seller will furnish to the
Purchaser a printed copy of the Seller's complete ATM cardholder information,
including PIN numbers (to the extent such information is available to the
Seller).
(i) The Seller will return to the Federal Reserve Bank all incoming wires
received after the Effective Date relating to accounts assumed by the Purchaser.
(j) The Seller will render a final statement as of the Effective Date to
each depositor of an account assumed under this Agreement.
1.08 Indemnification.
(a) The Seller shall indemnify, hold harmless and defend the Purchaser
from and against all claims, losses, liabilities, demands and obligations,
including reasonable legal fees and expenses, real estate, sales and use, social
security and unemployment taxes, all accounts payable and operating expenses
including salaries and utility charges, which the Purchaser may receive, suffer
or incur relating to matters that arise from ownership and operation of the
Branches on or before the Effective Date. The Seller agrees further to defend,
indemnify and hold harmless the Purchaser against all claims, losses,
liabilities (including reasonable legal fees) and obligations resulting from any
material breach of this Agreement, or from any breach of any representation or
warranty made by the Seller in the Agreement or in any certificate delivered to
the Purchaser hereunder. The Purchaser will give the Seller written notice of a
threatened or pending claim within thirty (30) calendar days (except in the case
where the Purchaser's first notice is its receipt of the complaint, in which
case such time for giving Notice shall be fifteen (15) calendar days) of its
learning about such claim, together with a statement of facts known to it
regarding such claim. The Seller will then have forty-five (45) calendar days
from the date it received such notice to investigate the claim and determine
whether it will elect to assume the defense of the matter involving such claim.
If it does so elect, the Seller will be given the Purchaser's full cooperation
and assistance in maintaining
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said defense. The Seller shall not be liable for any amounts in settlement of a
claim or action as described above if such settlement is effected without the
Seller's written consent, which consent shall not be unreasonably withheld. It
is understood that the obligations of the Seller under this paragraph shall
survive the Effective Date.
(b) The Purchaser shall indemnify, hold harmless and defend the Seller
from and against all claims, losses, liabilities, demands and obligations,
including reasonable legal fees and expenses, sales and use, social security and
unemployment taxes, all accounts payable and operating expenses including
salaries and utility charges, which the Seller may receive, suffer or incur
relating to matters that arise from the Assumed Deposits or the Deposit Loans
after the Effective Date. The Purchaser agrees further to defend, indemnify,
and hold harmless the Seller from and against all claims, losses, liabilities
(including reasonable legal fees) and obligations resulting from any material
breach of this Agreement, or from any breach of any representation or warranty
made by the Purchaser in this Agreement or in any certificate delivered to the
Seller hereunder. The Seller will give the Purchaser written notice of a claim
within thirty (30) calendar days (except in the case where the Seller's first
notice is its receipt of a complaint, in which such time for giving notice shall
be fifteen (15) calendar days) of its learning about such claim, together with a
statement of facts known to it regarding such claim. The Purchaser will then
have forty-five (45) calendar days from the date it receives such notice to
investigate the claim to determine whether it will elect to assume the defense
of the matter involving such claim. If it does so elect, the Purchaser will be
given the Seller's full cooperation and assistance in maintaining such defense.
The Purchaser shall not be liable for any amounts in settlement of a claim or
action as described above if such settlement is effected without the Purchaser's
written consent, which consent shall not be unreasonably withheld. It is
understood that the obligations of the Purchaser under this paragraph shall
survive the Effective Date.
1.09 Prorata Adjustment of Expenses. All deposit insurance premiums and
similar expenses relating to the Assumed Deposits shall be prorated between the
parties as of the close of business on the Effective Date.
1.10 Essex Property. The Seller shall be entitled to retain all of the
furniture, fixtures and equipment used in the operation of the Branches,
including but not limited to (a) all signage displaying the "Essex" name and/or
trademarks or service marks utilized by the Seller in the conduct of its
business, and (b) all software and dedicated lines associated with Seller's
internal data processing and internal communications systems.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Purchaser as follows:
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2.01 Corporate Organization and Powers. The Seller is a federally chartered
capital stock savings bank duly organized, validly existing and in good standing
under the laws of the United States of America and the rules and regulations of
the Office of Thrift Supervision ("OTS"). The Seller has the corporate power
and authority to own its properties, to effect this transaction and carry on its
business as presently conducted. The Seller's deposits are, subject only to
monetary limits established by law and regulation, insured by the Savings
Association Insurance Fund ("SAIF").
2.02 No Violation. Neither the execution and delivery of this Agreement, nor
the consummation of this sale or the Seller's performance hereunder, will
violate or conflict with: (i) the Charter or Bylaws of the Seller; (ii) any
provision of any agreement or any other restriction of any kind to which the
Seller is a party or by which the Seller is bound; or (iii) any statute, law,
decree, regulation or order of any governmental authority, once the governmental
consents referred to in this Agreement are obtained; or will result in a default
under, or cause the acceleration of the maturity of, any obligation or loan to
which the Seller is a party.
2.03 Corporate Authority. The execution and delivery of this Agreement, the
consummation of this sale and the Seller's performance hereunder, have been duly
authorized by the Board of Directors of the Seller. No further corporate
authorization on the part of the Seller is necessary to consummate the
transaction.
2.04 No Litigation. There is no action, suit, proceeding, inquiry or
investigation, at law or in equity, or before any court, public board or body
pending, or to the knowledge of the Seller threatened, against the Seller,
wherein an unfavorable decision, ruling or finding would materially and
adversely affect the Branches, the assets or liabilities being transferred or
assumed pursuant to this Agreement, the transactions contemplated by this
Agreement, or adversely affect the validity or enforceability of this Agreement
or any document necessary to consummate the transactions contemplated herein or
any approval, consent or permission required to be obtained by the Seller
hereunder.
2.05 Deposit Loans. The outstanding principal and interest balances of each
Deposit Loan does not exceed the balance of the deposit account with which it is
associated.
2.06 Compliance with Laws. The Seller's operation of the Branches is in
compliance in all material respects with all applicable laws, statutes and
governmental regulations that relate to the Seller or its operation of the
Branches.
2.07 Employment Contracts. The Seller has no employment contracts with any
employees who are employed by Seller in connection with the Branches. Except as
provided in Section 5.04 below, no liability or obligation to any of Seller's
employees will be transferred to the Purchaser pursuant to this Agreement or the
transactions contemplated hereunder.
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<PAGE>
2.08 Finders or Brokers. The Seller has not in any manner whatsoever paid or
agreed to pay any fee or commission to any agent, broker, finder or other person
for or on account of services rendered as a broker or finder in connection with
this Agreement or the transactions covered and contemplated hereby. All
negotiations relating to this Agreement have been conducted by the Seller
directly and without the intervention of any person in such manner as to give
rise to any valid claim against any party hereto for any brokerage commission or
finder's fee or other like payment.
2.09 Limitation of Warranties. Except as may be expressly represented or
warranted in this Agreement by the Seller, the Seller makes no representations
or warranties whatsoever with regard to any assets being transferred to the
Purchaser, or liability or obligation being assumed by the Purchaser.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Seller the following:
3.01 Corporate Organization. The Purchaser is a financial institution duly
organized, validly existing and in good standing under the laws of the
jurisdiction under which it was established. The Purchaser has the corporate
power and authority to own or lease its properties, to effect the transactions
contemplated hereby and to carry on its business as presently being conducted.
The Purchaser's deposits are insured, subject only to monetary limits
established by law or regulation, by the Bank Insurance Fund.
3.02 No Violation. Neither the execution and delivery of this Agreement, nor
the consummation of this sale or the Purchaser's performance hereunder, will
violate or conflict with: (i) the Articles of Incorporation or the Bylaws of the
Purchaser; (ii) any provision of any agreement or any other restriction of any
kind to which the Purchaser is a party to or by which the Purchaser is bound; or
(iii) any statute, law, decree, regulation or order of any governmental
authority, once the governmental consents referred to in this Agreement are
obtained, or will result in a default under, or cause the acceleration of the
maturity of, any obligation or loan to which the Purchaser is a party.
3.03 Corporate Authority. The execution and delivery of this Agreement, and
the consummation of this sale and the Purchaser's performance hereunder, have
been duly authorized by the Purchaser. No further corporate authorization on
the part of the Purchaser is necessary to consummate this transaction.
3.04 No Litigation. There is no action, suit, proceeding, inquiry or
investigation, at law or in equity, or before any court, public board or body
pending, or to the knowledge of the Purchaser threatened, against the Purchaser,
wherein an unfavorable decision, ruling or
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<PAGE>
finding would materially and adversely affect the Branches, the assets or
liabilities being transferred or assumed pursuant to this Agreement, the
transactions contemplated by this Agreement, or adversely affect the validity or
enforceability of this Agreement or any document necessary to consummate the
transactions contemplated herein or any approval, consent or permission required
to be obtained by the Purchaser hereunder.
3.05 Finders or Brokers. The Purchaser has not in any manner whatsoever paid
or agreed to pay any fee or commission to any agent, broker, finder or other
person for or on account of services rendered as a broker or finder in
connection with this Agreement or the transactions covered and contemplated
hereby. All negotiations relating to this Agreement have been conducted by the
Purchaser directly and without the intervention of any person in such manner as
to give rise to any valid claim against any party hereto for any brokerage
commission or finder's fee or other like payment.
ARTICLE 4.
CONDUCT OF BUSINESS PENDING THE EFFECTIVE DATE
Pending the Effective Date, and except as otherwise consented to by the
Purchaser or provided for by this Agreement, the Seller will carry on its
business at the Branches and maintain its deposit rates at the Branches in a
manner consistent with its past practice. The Seller further agrees to use
reasonable efforts to preserve for the Purchaser the goodwill of its customers
and others having relations with the business normally conducted at the
Branches, and to cooperate with and assist the Purchaser in assuring the orderly
transition of such business from the Seller to the Purchaser. Nothing in this
paragraph shall be construed as requiring the Seller to engage in any activities
or efforts outside of the ordinary course of business as presently conducted.
ARTICLE 5.
OBLIGATIONS OF THE PARTIES PRIOR TO AND AFTER EFFECTIVE DATE
5.01 Full Access. The Seller shall afford to the officers, employees and
authorized representatives of the Purchaser access to the properties, books and
records pertaining to the Branches, upon reasonable notice by the Purchaser to
the Seller and at reasonable times, in order that the Purchaser may have full
opportunity to make such investigations as it shall desire, of the affairs of
the Seller relating to the Branches. The officers of the Seller will furnish
the Purchaser with such additional financial and operating data and other
information as to its business at the Branches as the Purchaser shall from time
to time reasonably request and as shall be available, including, without
limitation, information required for inclusion in all governmental
applications necessary to effect the transactions contemplated by this
Agreement. Nothing in this Section 5.01 shall be deemed to require the Seller
to breach any obligation of confidentiality.
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<PAGE>
5.02 Regulatory Applications. Each party shall prepare and file, with the
cooperation of the other, as soon as practicable, but no event later than 30
days following the date of this Agreement, such applications, as required by
law, to the appropriate Federal and/or State regulatory authorities for approval
for the Seller and the Purchaser, respectively, to effect the transactions
contemplated by this Agreement, and the parties hereto shall, if required by
applicable statute or regulation, publish appropriate notice of the sale. The
parties agree to use their good faith reasonable efforts to obtain such
approval in a diligent manner and on a priority basis. Each party shall pay its
own regulatory application fees, publication costs, if any, and legal expenses.
5.03 Further Assurances. Both parties hereby agree to execute and deliver such
instruments and take such other actions as the other party may reasonably
require in order to carry out the intent of this Agreement, and the Seller
agrees to give such bills of sale, acknowledgments and other instruments of
conveyance and transfer as, in the reasonable judgment of the Purchaser, shall
be necessary and appropriate to vest in the Purchaser legal and equitable title
to the assets of the Seller being sold hereunder, free and clear of all liens
and encumbrances. The Seller also agrees to provide the Purchaser with all
information necessary to enable the Purchaser to comply with all tax reporting
obligations for 1996 related to the Assumed Deposits (including Individual
Retirement Accounts) and Deposit Loans.
5.04 Retention of Employees. The Purchaser agrees that it will offer
employment to any or all employees of the Seller at the Branches who are still
so employed by the Seller as of the close of business on the Effective Date, on
terms and conditions comparable to those provided either by the Seller to such
employees or by the Purchaser to similar employees. Each employee will have the
right to carry over to its employment by the Purchaser all accrued but unused
vacation time and sick leave. A schedule of each employee's accrued but unused
vacation time and sick leave as of March 31, 1996 is attached as EXHIBIT C.
Each employee has the option of accepting the offer of employment by the
Purchaser, and the Seller will use reasonable efforts to encourage the employees
to accept the Purchaser's offer. Employment by the Purchaser will commence as of
the close of business on the Effective Date, and the Seller will terminate the
employment of each employee (and their participation in employee benefit plans
of the Seller) as of the close of business on the Effective Date. The Purchaser
agrees that if any employee accepting employment with the Purchaser is
discharged by the Purchaser within three (3) months of the Effective Date, such
employee will receive severance benefits in accordance with the terms and
conditions applicable to the Purchaser's own employees in like circumstances.
5.05 Confidentiality. From and after the Effective Date, the Seller will keep
confidential and will not furnish to any other person the names of the deposit
and other customers of the Branches other than as may be required under
applicable law or in connection with the defense of any claim. Further, for a
period of twelve months following the Effective Date, the Seller will not
specifically target and solicit customers whose accounts have been assumed by
the
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<PAGE>
Purchaser. This restriction shall not apply to solicitations conducted in the
ordinary course of business by the Seller's mortgage origination affiliate.
5.06 Best Efforts. The Purchaser and the Seller each agree to use their
reasonable best efforts to ensure the occurrence of the Effective Date not later
than July 31, 1996.
5.07 SAIF Assessment. The Seller and the Purchaser acknowledge that the United
States Congress is presently considering a number of measures designed to
recapitalize the SAIF, including the imposition of a one-time special assessment
on institutions the deposits of which are insured by the SAIF (a "Special
Assessment"). The Seller agrees that it will remain liable for, and will
indemnify the Purchaser for the payment of, any Special Assessment or portion
of any Special Assessment that is based upon the deposits of the Branches at any
time prior to or as of the Effective Date, regardless of the date when such
Special Assessment is imposed. However, the Seller shall not be liable for the
amount of any Special Assessment to the extent that it is based upon deposit
balances in excess of the Assumed Deposits.
ARTICLE 6.
CONDITIONS TO PURCHASER'S OBLIGATIONS
Each and every obligation of the Purchaser under the Agreement to be performed
on or before the Effective Date shall be subject to the satisfaction, on or
before the Effective Date, of the following conditions:
(a) The representations and warranties made by the Seller in this
Agreement shall be true in all material respects at and as of the Effective Date
as though such representations and warranties were made at and as of such time,
except for any changes permitted by the terms hereof or consented to by the
Purchaser.
(b) The Seller shall have performed and complied in all material respects
with all obligations and agreements required by this Agreement to be performed
or complied with by it prior to or on the Effective Date.
(c) From the date of this Agreement through the close of business on the
Effective Date, there shall have been no material adverse change, not cured, in
the business or material conditions (financial or otherwise) affecting the
Branches or the assets to be acquired by the Purchaser, except for any changes
permitted or contemplated by the terms hereof, or consented to by the Purchaser.
(d) As of the close of business on the Effective Date, no action, suit or
proceeding shall be pending or threatened: (i) against the Seller which might
materially and adversely affect the business of the Branches or the other assets
to be acquired by the Purchaser; or (ii) against either party pertaining to this
transaction.
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<PAGE>
(e) The Seller shall have made delivery to the Purchaser of the items
described in Sections 1.05(a) and 1.05(c).
(f) The Seller shall have delivered to the Purchaser all appropriate tax
affidavits, IRS "B" and "C" notices regarding taxpayer identification numbers
and withholding, and schedules listing the deposit customers of the Branches and
the Deposit Loans, each as of the Measurement Date or such later date on or
prior to the Effective Date as is practicable under the circumstances.
(g) The Purchaser shall have received from the appropriate regulatory
authorities unconditional approval to effect the transactions contemplated by
this Agreement.
ARTICLE 7.
CONDITIONS TO THE SELLER'S OBLIGATIONS
Each and every obligation of the Seller under this Agreement to be performed on
or before the Effective Date shall be subject to the satisfaction, on or before
the Effective Date, of the following conditions:
(a) The representations and warranties made by the Purchaser in this
Agreement shall be true in all material respects at and as of the Effective Date
as though such representations and warranties were made at and as of such time,
except for any changes permitted by the terms hereof or consented to by the
Seller.
(b) The Purchaser shall have performed and complied in all material
respects with all obligations and agreements required by this Agreement to be
performed or complied with by it prior to or on the Effective Date.
(c) The Seller shall have received from the appropriate regulatory
authorities unconditional approval to effect the transactions contemplated by
this Agreement.
ARTICLE 8.
CONDITIONS TO THE SELLER'S AND THE PURCHASER'S OBLIGATIONS
Each and every obligation of the parties under this Agreement to be performed on
or before the Effective Date shall be subject to the satisfaction, on or before
the Effective Date, of the following conditions: approval by the appropriate
regulatory authorities shall have been obtained; the consent of the appropriate
regulatory authorities to the assumption by the Purchaser of the Assumed
Deposits shall have been obtained; and termination of branch operations
conducted by the Seller at the Branches' locations and the Seller's consummation
of this sale shall not have been objected to by the appropriate regulatory
authority.
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<PAGE>
ARTICLE 9.
TERMINATION
9.01 Methods of Termination. This Agreement may be terminated at any time, but
not later than the Effective Date:
(a) By mutual agreement of the Purchaser and the Seller; or
(b) By the Purchaser if any of the conditions provided for in Article 6 of
this Agreement shall not have been met or waived in writing by the Purchaser at
the earlier of the time established for the Effective Date or September 30,
1996; or
(c) By the Seller if any of the conditions provided for in Article 7 of
this Agreement shall not have been met or waived in writing by the Seller at
the earlier of the time established for the Effective Date or September 30,
1996; or
(d) By either party if any of the conditions provided for in Article 8
shall not have been met at the earlier of the time established for the Effective
Date or September 30, 1996.
9.02 Procedure Upon Termination. In the event of termination pursuant to
Section 9.01 hereof, written notice thereof shall be given to the other party,
and this Agreement shall terminate immediately upon receipt of such notice,
unless an extension is consented to by the party or parties having the right to
terminate. If this Agreement is terminated as provided herein:
(a) Each party will redeliver all documents, work papers and other
materials of the other party relating to this transaction, whether so obtained
before or after the execution hereof, to the party furnishing the same; and
(b) All information received by either party hereto with respect to the
business of the other party (other than information which is a matter of public
knowledge or which has heretofore been or is hereafter published in any
publication for public distribution or filed as public information with any
governmental authority) shall not at any time be used for business advantage by
such party or disclosed by such party to third persons to the detriment of the
party furnishing such information or if otherwise prohibited by state or federal
law.
(c) Nothing contained in this Article shall be deemed to excuse either
party for a breach of any of its obligations or agreements undertaken or made in
this Agreement.
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<PAGE>
9.03 Payment of Expenses. If this Agreement is terminated as provided herein:
(a) then if this Agreement has been terminated because of the Purchaser's
failure to perform and comply in all material respects with its obligations
under this Agreement, then the Purchaser shall be liable for the reasonable
expenses of the Seller incurred in connection with the transactions contemplated
by this Agreement.
(b) then if this Agreement has been terminated because of the Seller's
failure to perform and comply in all material respects with its obligations
under this Agreement, then the Seller shall be liable for the reasonable
expenses of the Purchaser incurred in connection with the transactions
contemplated by this Agreement.
ARTICLE 10.
MISCELLANEOUS PROVISIONS
10.01 Amendment and Modification. The parties hereto, by mutual consent of
their respective duly authorized officers, may amend, modify and supplement
this Agreement in such manner as may be agreed upon by them in writing.
10.02 Assignment. This Agreement and all of the provisions hereof shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned, prior to
the Effective Date, by either of the parties hereto without the prior written
consent of the other.
10.03 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.04 Headings. The headings of the Sections and Articles of this Agreement
are inserted for convenience only and shall not constitute a part hereof.
10.05 Survival of Representations and Warranties. The respective
representations and warranties of the parties hereto contained herein shall
survive for a period of eighteen (18) months after the Effective Date, unless
stated otherwise herein.
10.06 Payment of Expenses. Each party herein shall pay for its own expenses
incurred in connection with the transactions contemplated by this Agreement
except as stated otherwise herein. Except as otherwise provided herein, any
expenses, fees and costs necessary for any approvals of the appropriate Federal
and/or State regulatory authorities or for any notice to depositors of the
assumption of deposit liabilities provided for in this Agreement shall be paid
by the parties responsible for obtaining such approval or giving such notices.
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<PAGE>
10.07 Governing Law. This Agreement shall be deemed to have been made and
executed in the State of North Carolina, and shall be governed by the laws of
the State of North Carolina.
10.08 Customer Notices. The Seller shall permit the Purchaser access to names
and addresses of depositors, including Individual Retirement Account ("IRA")
customers, of the Branches at least 30 days prior to the Effective Date for
purposes of preparing for publication and direct mailings. In addition, the
Seller will give all legally required notices to its customers at the Branches.
With respect to the transfer of any IRA accounts at the Branches, the Seller
shall comply with all laws and regulations relating to the prior notification of
the transfer of IRA accounts.
10.09 Addresses for Notice, etc. All notices, requests, demands and other
communications provided for hereunder and under the related documents shall be
in writing (including telegraphic and facsimile communications) and mailed (by
registered or certified mail) or telegraphed or delivered in person or by
facsimile to the applicable party at the addresses indicated below.
If to the Seller: Mr. Gene D. Ross
Chief Executive Officer
Essex Savings Bank, F.S.B.
200 Golden Oak Court
Suite 200
Virginia Beach, VA 23452
With a copy to: James J. Wheaton, Esq.
Willcox & Savage, P.C.
1800 NationsBank Center
Norfolk, VA 23510
If to the Purchaser: Mr. Frank Pattillo
Senior Executive Vice President and
Chief Financial Officer
Centura Banks, Inc.
134 North Church Street
Rocky Mount, NC 27804
With a copy to: John B. Fleming, Jr.
Assistant General Counsel
Centura Bank
P.O. Box 1220
Rocky Mount, NC 27802
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<PAGE>
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the terms
of this Section.
10.10 No Third Party Beneficiaries. It is the intention of the parties that
nothing in this Agreement shall be deemed to create any right with respect to
any person or entity not a party to this Agreement.
10.11 Confidentiality. The Seller and the Purchaser agree that they will not,
without the consent of the other, issue any press releases or make any public
disclosure regarding the transactions contemplated by this Agreement, except as
otherwise required by law. The Seller and the Purchaser agree that the terms of
this Agreement are confidential, and shall not be disclosed to any other party,
except as otherwise required by law or with the consent of the other. The
Seller and the Purchaser acknowledge that it is contemplated that the Purchaser
will issue a press release, subject to the Seller's review and consent, in
connection with the execution of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and their corporate seals to be
affixed as of the date first written above.
ESSEX SAVINGS BANK, F.S.B.
By: /S/ GENE D. ROSS
-----------------------
Gene D. Ross
Chief Executive Officer
CENTURA BANK, a North Carolina bank
By: /S/ MICHAEL R. HILTON
----------------------
Michael R. Hilton
Controller
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<PAGE>
EXHIBIT 11
Statement Re: Computation of Per Share Earnings
Essex Bancorp, Inc.
Three Months Ended March 31, 1996
(In thousands, except per share amounts)
Income before extraordinary item $ 596
Net effect of the assumed exercise of stock options and warrants-
based on the modified treasury stock method-and dividends in
arrears on preferred stock and proforma debt reduction (245)
-----
$ 351
-----
-----
PRIMARY
Average shares oustanding 1,050
Net effect of the assumed exercise of stock options and warrants-
based on the modified treasury stock method-using average market
price 8,160
-----
9,210
-----
-----
Income per share before extraordinary item $ .04
-----
-----
Fully diluted loss per share is not presented because the average market price
for the three months ended March 31, 1996 was higher than the ending market
price on March 31, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT MARCH 31, 1996 AND
DECEMBER 31, 1995; CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND SIX MONTHS ENDED MARCH 31, 1996 AND 1995 AND IS QUALIFIFED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q QUARTER ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996<F1>
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2902
<INT-BEARING-DEPOSITS> 2973
<FED-FUNDS-SOLD> 10092
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5231
<INVESTMENTS-CARRYING> 9923
<INVESTMENTS-MARKET> 9788
<LOANS> 259265
<ALLOWANCE> 4955
<TOTAL-ASSETS> 315568
<DEPOSITS> 255916
<SHORT-TERM> 29213
<LIABILITIES-OTHER> 7325
<LONG-TERM> 0
0
15000
<COMMON> 11
<OTHER-SE> 8103
<TOTAL-LIABILITIES-AND-EQUITY> 315568
<INTEREST-LOAN> 5442
<INTEREST-INVEST> 439
<INTEREST-OTHER> 230
<INTEREST-TOTAL> 6111
<INTEREST-DEPOSIT> 3853
<INTEREST-EXPENSE> 4344
<INTEREST-INCOME-NET> 1767
<LOAN-LOSSES> 1
<SECURITIES-GAINS> 153
<EXPENSE-OTHER> 3178
<INCOME-PRETAX> 596
<INCOME-PRE-EXTRAORDINARY> 596
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 596
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<YIELD-ACTUAL> 2.25
<LOANS-NON> 5234
<LOANS-PAST> 94
<LOANS-TROUBLED> 184
<LOANS-PROBLEM> 1679
<ALLOWANCE-OPEN> 5251
<CHARGE-OFFS> 305
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 4955
<ALLOWANCE-DOMESTIC> 4080
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 875
<FN>
<F1>IN THOUSANDS, EXCEPT FOR PER SHARE DATA.
</FN>
</TABLE>
