U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(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, 2000
-----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to_____________
Commission file number 1-10506
----------------------------------------
Essex Bancorp, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 54-1721085
---------- ------------
(State or other jurisdiction of) (I.R.S. Employer
incorporation or organization Identification No.)
Interstate Corporate Center
Building 9, Suite 200
Norfolk, Virginia 23502
----------------- -------
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number, including area code (757) 893-1300
--------------
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,060,642 shares of Common
Stock, par value $.01 per share, as of May 10, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X .
---- ---
<PAGE>
Essex Bancorp, Inc.
Quarterly Report on Form 10-QSB for the
Quarter Ended March 31, 2000
Table of Contents
-----------------
Page
Part I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets (unaudited)
as of March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2000
and 1999 4
Consolidated Statement of Shareholders' Equity
(unaudited) for the three months ended
March 31, 2000 5
Consolidated Statements of Cash
Flows (unaudited) for the three months
ended March 31, 2000 and 1999 6
Notes to Consolidated Financial
Statements (unaudited) 7
Item 2.Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Item 3.Quantitative and Qualitative Disclosures About
Market Risk 12
Part II OTHER INFORMATION
Item 1.Legal Proceedings 13
Item 2.Changes in Securities 13
Item 3.Defaults Upon Senior Securities 13
Item 4.Submission of Matters to a Vote
of Security Holders 13
Item 5.Other Information 13
Item 6.Exhibits and Reports on Form 8-K 13
2
<PAGE>
<TABLE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash............................................................... $ 6,224,747 $ 6,902,398
Interest-bearing deposits.......................................... 9,586,407 9,820,129
Federal funds sold and securities purchased under
agreements to resell............................................. 1,077,120 2,228,596
------------- -------------
Cash and cash equivalents..................................... 16,888,274 18,951,123
Federal Home Loan Bank stock....................................... 2,730,000 2,230,000
Securities available for sale - cost approximates market........... 19,600 19,331
Securities held for investment - market value of
$2,722,000 in 2000 and $2,713,000 in 1999........................ 2,750,116 2,750,116
Mortgage-backed securities held for investment - market
value of $478,000 in 2000 and $479,000
in 1999.......................................................... 479,830 479,861
Loans, net of allowance for loan losses of $1,697,000
in 2000 and $1,697,000 in 1999................................... 251,952,368 238,881,926
Loans held for sale................................................ 1,247,538 916,753
Mortgage servicing rights.......................................... 1,840,190 1,985,462
Foreclosed properties, net......................................... 589,323 445,577
Accrued interest receivable........................................ 1,754,813 1,544,665
Advances for taxes, insurance, and other........................... 717,626 981,365
Premises and equipment............................................. 3,683,729 3,399,745
Other assets....................................................... 3,943,440 5,152,986
------------- -------------
Total Assets.............................................. $ 288,596,847 $ 277,738,910
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing........................................... $ 15,925,474 $ 19,630,014
Interest-bearing.............................................. 196,418,601 192,579,360
------------- -------------
Total deposits............................................ 212,344,075 212,209,374
Federal Home Loan Bank advances.................................... 54,450,000 44,600,000
Capitalized lease obligations...................................... 170,224 191,613
Other liabilities.................................................. 3,458,109 2,742,741
------------- -------------
Total Liabilities......................................... 270,422,408 259,743,728
SHAREHOLDERS' EQUITY
Series B preferred stock, $6.67 stated value:
Authorized shares - 2,250,000
Issued and outstanding shares - 2,125,000........................ 14,173,750 14,173,750
Series C preferred stock, $6.67 stated value:
Authorized shares - 125,000
Issued and outstanding shares - 125,000.......................... 833,750 833,750
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 1,060,642........................ 10,606 10,606
Additional paid-in capital......................................... 8,687,761 8,687,770
Accumulated deficit................................................ (5,531,428) (5,710,694)
------------ ------------
Total Shareholders' Equity................................ 18,174,439 17,995,182
------------ ------------
Total Liabilities and Shareholders' Equity................ $288,596,847 $277,738,910
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees................................................ $4,870,972 $3,805,119
Federal funds sold and securities purchased
under agreements to resell......................................... 16,771 16,627
Investment securities, including dividend income..................... 83,801 59,255
Mortgage-backed securities........................................... 8,075 17,847
Other................................................................ 127,582 103,790
---------- ----------
Total Interest Income....................................... 5,107,201 4,002,638
---------- ----------
INTEREST EXPENSE
Deposits ............................................................ 2,529,352 2,262,009
Federal Home Loan Bank advances...................................... 760,314 289,756
Other................................................................ 8,410 11,950
---------- ----------
Total Interest Expense...................................... 3,298,076 2,563,715
---------- ----------
Net Interest Income......................................... 1,809,125 1,438,923
PROVISION FOR LOAN LOSSES................................................ 100,000 -
---------- ----------
Net Interest Income After
Provision for Loan Losses................................... 1,709,125 1,438,923
NONINTEREST INCOME
Loan servicing fees.................................................. 436,918 364,342
Mortgage banking income, including
gain on sale of loans.............................................. 32,567 158,650
Other service charges and fees....................................... 167,705 159,041
Other................................................................ 91,953 101,690
---------- ----------
Total Noninterest Income.................................... 729,143 783,723
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits....................................... 1,132,723 997,196
Net occupancy and equipment.......................................... 224,610 233,389
Deposit insurance premiums........................................... 25,757 138,756
Amortization of intangible assets.................................... 149,075 148,575
Service bureau....................................................... 159,364 145,906
Professional fees.................................................... 48,598 67,283
Foreclosed properties, net........................................... 10,509 24,477
Other................................................................ 384,328 463,584
---------- ----------
Total Noninterest Expense................................... 2,134,964 2,219,166
---------- ----------
Income Before Income Taxes.................................. 303,304 3,480
PROVISION FOR (BENEFIT FROM) income taxes................................ 124,038 (26,196)
---------- ----------
Net Income.................................................. $ 179,266 $ 29,676
========== ==========
Loss available to common shareholders (Note 2)....................... $ (340,041) $ (444,512)
========== =========
Basic and diluted loss per common share (Note 2)..................... $ (.32) $ (.42)
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
For the three months ended March 31, 2000
<CAPTION>
Series B Series C
Common Preferred Preferred Additional
Stock, $.01 Stock, $6.67 Stock, $6.67 Paid-in Accumulated
Par Value Stated Value Stated Value Capital Deficit Total
--------- ------------ ------------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000................ $10,606 $14,173,750 $833,750 $8,687,770 $(5,710,694) $17,995,182
Fractional share pay-outs under
the Employee Stock Purchase
Plan................................... - - - (9) - (9)
Comprehensive net income.................. - - - - 179,266 179,266
------- ----------- -------- ---------- ----------- -----------
Balance at March 31, 2000................. $10,606 $14,173,750 $833,750 $8,687,761 $(5,531,428) $18,174,439
======= =========== ======== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................... $ 179,266 $ 29,676
Adjustments to reconcile net income to cash
provided by operating activities:
Provisions for losses on loans, foreclosed properties and other. 122,600 25,681
Depreciation and amortization of premises and equipment......... 86,755 97,457
Amortization of:
Premiums and discounts on loans and securities................ 18,779 54,528
Mortgage servicing rights..................................... 133,556 133,059
Excess of costs over equity in net assets acquired............ 15,519 15,515
Mortgage banking activities:
Net (increase) decrease in loans originated for resale........ (302,870) 625,670
Realized gains from sale of loans............................. (27,915) (141,410)
Realized losses and (gains) from sales of foreclosed properties.. 2,122 (16,688)
Changes in operating assets and liabilities:
Accrued interest receivable................................... (210,148) 8,022
Advances for taxes, insurance and other....................... 248,739 646,645
Other assets.................................................. 1,194,027 (1,189,333)
Other liabilities............................................. 717,332 109,998
------------- ------------
Net cash provided by operating activities............................ 2,177,762 398,820
INVESTING ACTIVITIES
Purchase of Federal Home Loan Bank stock............................. (500,000) (111,500)
Purchase of securities available for sale............................ (269) (214)
Principal remittances on mortgage-backed securities.................. - 407,354
Purchases of loans and participations................................ (15,753,304) (5,592,191)
Net decrease in net loans............................................ 2,518,259 2,912,053
Proceeds from sales of foreclosed properties......................... 6,945 197,116
Increase in foreclosed properties.................................... (114,558) (1,195)
Decrease (increase) in mortgage servicing rights..................... 11,716 (684,573)
Purchase of premises and equipment................................... (370,739) (72,876)
------------- ------------
Net cash used in investing activities................................ (14,201,950) (2,946,026)
FINANCING ACTIVITIES
Net (decrease) increase in NOW and savings deposits.................. (2,805,986) 1,312,120
Net increase in certificates of deposit.............................. 2,940,687 2,731,204
Proceeds from Federal Home Loan Bank advances........................ 12,000,000 -
Repayment of Federal Home Loan Bank advances......................... (2,150,000) (6,358,333)
Payments on capital lease obligations................................ (21,389) (17,850)
Other................................................................ (1,973) (2)
------------- ------------
Net cash provided by (used in) financing activities.................. 9,961,339 (2,332,861)
------------- ------------
Decrease in cash and cash equivalents................................ (2,062,849) (4,880,067)
Cash and cash equivalents at beginning of period..................... 18,951,123 17,944,680
------------- ------------
Cash and cash equivalents at end of period........................... $ 16,888,274 $ 13,064,613
== ========== ============
NONCASH INVESTING AND FINANCING ACTIVITIES
Transfer from loans to foreclosed properties......................... $ 45,855 $ 70,617
SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for:
Interest......................................................... $ 3,071,067 $ 2,555,305
Income taxes..................................................... $ - $ 3,000
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2000
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 notes to EBI's financial
statements for the year ended December 31, 1999 included in the EBI 1999 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. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the financial
statements and that affect the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - EARNINGS PER SHARE
EBI calculates its basic and diluted earnings per share ("EPS") in accordance
with Statement of Financial Accounting Standards No. 128 - Earnings Per Share.
Accordingly, the components of EBI's EPS calculations for the three months ended
March 31 are as follows:
2000 1999
---- ----
Net income $ 179,266 $ 29,676
Accumulated undeclared preferred stock dividends (519,307) (474,188)
-------- --------
Net loss available to common shareholders $(340,041) $(444,512)
======== ========
Weighted average common shares outstanding 1,060,642 1,060,642
========= =========
EBI's common stock equivalents are antidilutive with respect to loss available
to common shareholders for all periods presented; therefore, basic and diluted
EPS are the same.
[intentionally blank]
7
<PAGE>
<TABLE>
NOTE 3 - SEGMENT INFORMATION
The following segment information for EBI for the three months ended March 31,
2000 and 1999 is presented on the same basis and for the same segments as those
presented in EBI's 1999 Annual Report.
<CAPTION>
Retail Mortgage
Community Mortgage Loan Corporate/
Banking Banking Servicing Eliminations Total
------- ------- --------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
2000 Segment Information
Customer revenues $ 638 $ 1,260 $ 640 $ - $ 2,538
Affiliate revenues 3 65 121 (189) -
Depreciation and amortization 32 14 22 19 87
Pre-tax income (loss) (91) 895 76 (577) 303
Total assets 223,289 61,726 7,995 (4,413) 288,597
1999 Segment Information
Customer revenues $ 995 $ 661 $ 542 $ 25 $ 2,223
Affiliate revenues - 142 119 (261) -
Depreciation and amortization 27 22 19 29 97
Pre-tax income (loss) 200 346 50 (592) 4
Total assets 201,911 24,661 7,591 (5,317) 228,846
</TABLE>
Customer revenues consist of (i) net interest income, which represents the
difference between interest earned on loans and investments and interest paid on
deposits and other borrowings and (ii) noninterest income, which consists
primarily of mortgage loan servicing fees, mortgage banking income (primarily
gains on the sale of loans), and service charges and fees (primarily on deposits
and the loan servicing portfolio). Revenues and pre-tax income for the mortgage
banking segment are presented before cost of funds allocation.
[intentionally blank]
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
- -------------------
Total assets of Essex Bancorp, Inc. ("EBI") at March 31, 2000 were
$288.6 million as compared to $277.7 million at December 31, 1999, an increase
of approximately $10.9 million or 3.9%. The increase in total assets resulted
primarily from increases of (i) $13.3 million in loans held for investment and
corresponding accrued interest receivable, which was attributable to net
participation purchases of $8.6 million of builder construction loans and
participation purchases of $8.2 million of loans secured by residential lots,
(ii) $500,000 in Federal Home Loan Bank ("FHLB") stock resulting from the impact
of the increase in FHLB advances on Essex Savings Bank, F.S.B.'s (the "Bank")
minimum FHLB stock requirement and (iii) $284,000 in premises and equipment
resulting from capital expenditures for the new retail banking branch located in
Ashland, Virginia. These increases were partially offset by decreases of $2.1
million in cash and cash equivalents resulting from a decrease in liquidity and
$1.2 million in other assets resulting from the surrender of life insurance
policies on former executive officers, funds from which were used to partially
fund higher-yielding, adjustable-rate assets.
Deposits, the primary source of EBI's funds, totaled $212.3 million at
March 31, 2000 as compared to $212.2 million at December 31, 1999. A $3.8
million increase in interest-bearing deposits occurred primarily in certificates
of deposit at EBI's Suffolk, Virginia and Emporia, Virginia retail banking
branches. This increase was substantially offset by a $3.7 million decline in
noninterest-bearing deposits resulting from fluctuations in loan servicing
escrow accounts maintained by Essex Home Mortgage Servicing Corporation
("EHMSC") at the Bank. Because of the minimal growth in total deposits, EBI
utilized FHLB advances, which increased $9.9 million, to partially fund asset
growth during the first quarter of 2000.
Results of Operations
- ---------------------
First Quarter of 2000 Compared to First Quarter of 1999
EBI's net income for the three months ended March 31, 2000 totaled
$179,000, compared to net income of $30,000 for the three months ended March 31,
1999. EBI's earnings improvement during the first quarter of 2000 over the
comparable period in 1999 reflected (i) a $370,000 increase in net interest
income, resulting from an increase in average interest-earning assets, coupled
with an increase in the net yield on interest-earning assets, (ii) a $73,000
increase in loan servicing fees resulting from an increase in EHMSC's mortgage
loan servicing portfolio since the end of the first quarter of 1999 and (iii) an
$84,000 decrease in noninterest expenses partially attributable to a lower
deposit insurance assessment rate. The benefits of these improvements were
offset in part by (i) a $100,000 increase in the provision for loan losses based
on management's assessment of the allowance for loan losses in relation to
growth in the loan portfolio, (ii) a $127,000 decline in mortgage banking income
resulting from a slowdown in loan originations in conjunction with rising
interest rates since the first quarter of 1999 and (iii) a $150,000 increase in
the provision for income taxes.
9
<PAGE>
<TABLE>
Net Interest Income. The table below presents average 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:
<CAPTION>
2000 1999
-------------------------------- --------------------------------
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)...................... $246,540 $4,871 7.90% $196,873 $3,805 7.73%
Investment securities.......... 5,384 84 6.23 4,328 59 5.48
Mortgage-backed
securities................. 480 8 6.73 1,263 18 5.65
Federal funds sold and
securities purchased under
agreements to resell......... 1,203 17 5.58 1,442 17 4.61
Other.......................... 9,096 127 5.61 8,929 104 4.65
-------- ------ -------- ------
Total interest-earning
assets (1)................ $262,703 5,107 7.78 $212,835 4,003 7.52
======== ------ ======== ------
Interest-bearing liabilities:
Deposits....................... $193,276 2,529 5.26 $174,423 2,262 5.26
FHLB advances.................. 52,121 760 5.87 21,157 290 5.55
Other.......................... 182 9 18.62 259 12 18.67
-------- ------ -------- ------
Total interest-bearing
liabilities............... $245,579 3,298 5.45 $195,839 2,564 5.31
======== ------ ======== ------
Net interest earnings............. $1,809 $1,439
====== ======
Net interest spread (1)........... 2.33% 2.21%
==== ====
Net interest margin (1)........... 2.75% 2.70%
==== ====
(1) Nonaccrual loans are included in the average balance of loans. Yield
calculation includes the accretion of net deferred loan fees.
The table below sets forth certain information regarding changes in
EBI's interest income and interest expense between the periods indicated.
<CAPTION>
Increase (Decrease) From First Quarter of 1999
to First Quarter of 2000 Due to
----------------------------------------------
Volume (1) Rate (1) Net
------ ---- ---
(in thousands)
Interest income on:
Loans (2)................................ $ 980 $ 86 $1,066
Investment securities.................... 16 9 25
Mortgage-backed securities............... (13) 3 (10)
Federal funds sold and
securities purchased under
agreements to resell.................. (3) 3 -
Other interest-earning assets............ 2 21 23
----- ---- -------
Total interest income (2)............. 982 122 1,104
----- ---- -------
Interest expense on:
Deposits................................. 265 2 267
FHLB advances............................ 453 17 470
Other interest-bearing liabilities....... (3) - (3)
----- ---- -------
Total interest expense................ 715 19 734
----- ---- -------
Net interest income................... $ 267 $103 $ 370
===== ==== ======
</TABLE>
(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.
10
<PAGE>
Net interest income increased from $1.4 million for the first quarter
of 1999 to $1.8 million for the first quarter of 2000, which reflected the
favorable impact of a 25.2% increase in average loans, coupled with a 17 basis
point increase in the average yield on loans. The increasing interest rate
environment since the first quarter of 1999 has resulted in a slowdown in
refinancings, which has stabilized prepayments in the loan portfolio, and EBI
has been diversifying its loan portfolio by investing in higher-yielding,
adjustable-rate products, including construction loans to residential builders
and participations in such loans. However, net interest margin compression is
expected to occur in the current environment of rising interest rates because of
the repricing of deposits at higher interest rates, coupled with the impact of
competition for deposits as a funding source for growth.
Provision for Loan Losses. Changes in the allowance for loan losses for
the three months ended March 31 are as follows (in thousands):
2000 1999
---- ----
Balance at beginning of period................... $1,697 $1,845
Provision for loan losses........................ 100 -
------ ------
1,797 1,845
Loans charged-off, net of recoveries............. (100) (43)
------ ------
Balance at end of period......................... $1,697 $1,802
====== ======
Management reviews the adequacy of the allowance for loan losses on a
continual basis to ensure that amounts provided are reasonable. At March 31,
2000, nonperforming assets of $1.8 million as a percentage of total assets was
.64% as compared to nonperforming assets of $1.3 million as a percentage of
total assets of .48% at December 31, 1999. The increase in the balance of
nonperforming assets and the overall growth of the loan portfolio was the basis
for management's determination to add to the allowance for loan losses during
the first quarter of 2000.
Noninterest Income. Noninterest income for the first quarter of 2000
totaled $729,000, a $55,000 or 7.0% decrease from $784,000 for the first quarter
of 1999. This decrease was primarily attributable to a $127,000 decline in
mortgage banking income resulting from a slowdown in loan originations in
conjunction with rising interest rates since the first quarter of 1999. This
decrease was partially offset by a $73,000 increase in loan servicing fees
resulting from a 19.3% increase in EHMSC's mortgage loan servicing portfolio
since the end of the first quarter of 1999. EBI intends to pursue opportunities
to increase its loan servicing revenues in order to mitigate the impact of the
decline in mortgage banking income.
Noninterest Expense. Noninterest expense for the first quarter of 2000
totaled $2.135 million, an $84,000 or 3.8% decrease from $2.219 million for the
first quarter of 1999. This decrease was primarily attributable to decreases of
(i) $113,000 in deposit insurance premiums resulting from a lower deposit
insurance assessment rate and (ii) $79,000 in other noninterest expense
resulting from lower telecommunications expense in the first quarter of 2000 and
a loss incurred in connection with a branch robbery in the first quarter of
1999. These decreases in noninterest expense were partially offset by a $136,000
increase in salaries and employee benefits because of a slight increase in the
number of full-time equivalent employees coupled with the impact of low
unemployment levels on average salaries required to attract and retain qualified
employees. In addition, the decline in loan origination volume in 2000 resulted
in a lower deferral of fixed loan origination costs, such as personnel costs for
loan processors, underwriters and closers.
11
<PAGE>
Income Taxes. EBI recognized a $124,000 provision for income taxes
during the first quarter of 2000 representing 41% of pre-tax income. EBI had
previously recognized income tax benefits arising from net tax operating loss
carryforwards expected to be realized for the year 2000.
Liquidity
- ---------
The Office of Thrift Supervision ("OTS") has established minimum
liquidity requirements for savings associations. These regulations provide, in
part, that members of the FHLB system maintain daily average balances of liquid
assets equal to a certain percentage of net withdrawable deposits plus current
borrowings. Current regulations require a liquidity level of at least 4%. The
Bank has consistently exceeded such regulatory liquidity requirement and, at
March 31, 2000, had a liquidity ratio of 9.02%.
Regulatory Matters
- ------------------
Regulatory Capital. The Bank is required pursuant to the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and OTS
regulations promulgated thereunder to satisfy three separate requirements of
specified capital as a percent of the appropriate asset base. At March 31, 2000,
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 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 based on four separate requirements of specified capital as
a percent of the appropriate asset base. As of March 31, 2000, the Bank was
"well capitalized" for PCA purposes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk exposures that
affect the quantitative or qualitative disclosures presented as of December 31,
1999 in the EBI 1999 Annual Report.
[intentionally blank]
12
<PAGE>
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 -- Not Applicable
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
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K - None
[intentionally blank]
13
<PAGE>
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, 2000 By: /s/ Gene D. Ross
------------ ----------------
(Date) Gene D. Ross
Chairman, President,
and Chief Executive
Officer
May 10, 2000 By: /s/ Mary-Jo Rawson
------------ ------------------
(Date) Mary-Jo Rawson
Chief Accounting Officer
14
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