UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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OR
TRANSITION REPORT UNDER 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 0-29770
WEST ESSEX BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
UNITED STATES 22-3597632
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
417 Bloomfield Avenue, Caldwell, New Jersey 07006
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 973-226-7911
------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
4,890,733 shares of common stock, par value $0.01 par share, were outstanding as
of April 25, 2003.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
WEST ESSEX BANCORP, INC.
FORM 10-QSB
For the Quarter Ended March 31, 2003
INDEX
Page
Number
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PART I FINANCIAL INFORMATION
Financial Statements 1
Item 1.
Consolidated Statements of Financial Condition at
March 31, 2003 and December 31, 2002 (Unaudited) 2
Consolidated Statements of Income for the
Three Months Ended March 31, 2003 and 2002 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2003 and 2002 (Unaudited) 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis or Plan
of Operation 7 - 11
Item 3. Controls and Procedures 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12 - 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
CERTIFICATIONS 15 - 16
WEST ESSEX BANCORP, INC.
PART I. FINANCIAL INFORMATION
March 31, 2003
---------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Certain information and footnote disclosures required under accounting
principles generally accepted in the United States of America have been
condensed or omitted from the following consolidated financial statements
pursuant to the rules and regulations of the Securities and Exchange Commission.
West Essex Bancorp, Inc. (the "Registrant" or the "Company") believes that the
disclosures presented are adequate to assure that the information presented is
not misleading in any material respect. It is suggested that the following
consolidated financial statements be read in conjunction with the year-end
consolidated financial statements and notes thereto included in the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 2002.
The results of operations for the three month period ended March 31, 2003, are
not necessarily indicative of the results to be expected for the entire fiscal
year.
1.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
March 31, December 31,
2003 2002
----------------- ----------------
Assets (Unaudited)
------
Cash and amounts due from depository institutions $ 2,252,444 $ 2,288,983
Federal funds sold 12,500,000 21,000,000
Interest-bearing deposits in other banks 17,003,849 3,517,536
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Total cash and cash equivalents 31,756,293 26,806,519
Investment securities held to maturity 46,731,338 28,168,892
Mortgage-backed securities held to maturity 163,164,030 182,028,706
Loans receivable 126,537,540 138,459,442
Real estate owned 209,000 209,000
Premises and equipment 2,343,629 2,387,148
Federal Home Loan Bank of New York stock 3,693,700 4,227,600
Accrued interest receivable 1,600,594 1,667,866
Excess of cost over assets acquired 2,716,853 2,865,045
Other assets 5,670,742 5,804,044
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Total assets $ 384,423,719 $ 392,624,262
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits $ 256,761,388 $ 255,092,594
Borrowed money 73,873,244 84,281,526
Advance payments by borrowers for taxes and insurance 638,989 652,023
Other liabilities 1,253,918 1,143,503
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Total liabilities 332,527,539 341,169,646
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Stockholders' Equity
--------------------
Preferred stock (par value $.01), 1,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock (par value $.01), 9,000,000 shares authorized;
shares issued 5,246,461; shares outstanding 4,890,733 52,465 52,465
Additional paid-in capital 18,379,004 18,247,695
Retained earnings - substantially restricted 38,675,276 38,436,469
Common stock acquired by Employee Stock Ownership
Plan ("ESOP") (699,960) (736,799)
Unearned Incentive Plan stock (228,097) (262,706)
Treasury stock, at cost; 355,728 shares (4,282,508) (4,282,508)
------------- -------------
Total stockholders' equity 51,896,180 51,454,616
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Total liabilities and stockholders' equity $ 384,423,719 $ 392,624,262
============= =============
See notes to consolidated financial statements.
2.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------
Three Months Ended March 31,
-----------------------------
2003 2002
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(Unaudited)
Interest income:
Loans $2,211,341 $2,887,668
Mortgage-backed securities 2,095,978 2,173,898
Investment securities 317,598 465,965
Other interest-earning assets 132,854 80,932
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Total interest income 4,757,771 5,608,463
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Interest expense:
Deposits 1,409,837 1,793,938
Borrowed money 924,083 967,841
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Total interest expense 2,333,920 2,761,779
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Net interest income 2,423,851 2,846,684
Provision for loan losses -- --
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Net interest income after provision for loan losses 2,423,851 2,846,684
---------- ----------
Non-interest income:
Fees and service charges 84,248 82,247
Other 77,357 82,258
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Total non-interest income 161,605 164,505
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Non-interest expenses:
Salaries and employee benefits 1,020,232 1,004,773
Net occupancy expense of premises 141,722 93,833
Equipment 153,294 170,170
Loss on real estate owned -- 1,287
Amortization of intangibles 148,192 148,192
Merger related expenses 25,703 --
Miscellaneous 321,666 360,262
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Total non-interest expenses 1,810,809 1,778,517
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Income before income taxes 774,647 1,232,672
Income taxes 287,613 428,229
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Net income $ 487,034 $ 804,443
========== ==========
Net income per common share:
Basic $ 0.10 $ 0.17
Diluted $ 0.10 $ 0.17
========== ==========
Weighted average number of common shares outstanding:
Basic 4,769,075 4,749,825
Diluted 4,894,985 4,874,223
========== ==========
See notes to consolidated financial statements
3.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended March 31,
-------------------------------
2003 2002
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(Unaudited)
Cash flows from operating activities:
Net income $ 487,034 $ 804,443
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 54,989 63,322
Net accretion of premiums, discounts and deferred loan fees 91,215 (31,316)
Amortization of intangibles 148,192 148,192
Decrease (increase) in accrued interest receivable 67,272 (151,189)
Decrease (increase) in other assets 133,302 (451,359)
(Decrease) in interest payable (62,905) (116,075)
Increase in other liabilities 118,521 5,616
Amortization of Incentive Plan costs 34,609 31,671
ESOP shares committed to be released 168,148 86,903
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Net cash provided by operating activities 1,240,377 390,208
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Cash flows from investing activities:
Proceeds from maturities of term deposits -- 200,000
Proceeds from maturities and calls of investment securities held to maturity 11,441,348 2,000,000
Purchases of investment securities held to maturity (30,000,000) --
Principal repayments on mortgage-backed securities held to maturity 18,840,403 10,929,406
Purchases of mortgage-backed securities held to maturity -- (26,955,294)
Purchases of loans receivable -- (4,541)
Net decrease in loans receivable 11,851,166 4,201,984
Additions to premises and equipment (11,470) (19,845)
Redemption of Federal Home Loan Bank of New York stock 533,900 12,800
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Net cash provided by (used in) investing activities 12,655,347 (9,635,490)
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Cash flows from financing activities:
Net increase in deposits 1,723,593 2,685,544
Net (decrease) in short-term borrowed money (10,000,000) --
Repayment of long-term borrowed money (408,282) (384,963)
Net (decrease) in advance payments by borrowers for taxes
and insurance (13,034) (2,046)
Purchases of treasury stock -- (469,400)
Cash dividends paid (248,227) (248,961)
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Net cash (used in) provided by financing activities (8,945,950) 1,580,174
------------ ------------
Net increase (decrease) in cash and cash equivalents 4,949,774 (7,665,108)
Cash and cash equivalents - beginning 26,806,519 17,289,946
------------ ------------
Cash and cash equivalents - ending $ 31,756,293 $ 9,624,838
============ ============
Supplemental disclosure of cash flow information: Cash paid during the year for:
Income taxes $ -- $ --
============ ============
Interest $ 2,396,825 $ 2,877,854
============ ============
Issuance of treasury stock to fund Supplemental Employee
Retirement Plan $ -- $ 43,359
============ ============
See notes to consolidated financial statements
4.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. PRINCIPLES OF CONSOLIDATION
--------------------------------
The consolidated financial statements include the accounts of West Essex
Bancorp, Inc. (the "Company"), the Company's wholly owned subsidiary, West Essex
Bank (the "Bank") and the Bank's wholly owned subsidiary, West Essex Insurance
Agency, Inc. The Company's business is conducted principally through the Bank.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
2. BASIS OF PRESENTATION
--------------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and regulations S-X and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, and cash flows in conformity with
accounting principles generally accepted in the United States of America.
However, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the consolidated
financial statements have been included. The results of operations for the three
months ended March 31, 2003, are not necessarily indicative of the results which
may be expected for the entire fiscal year.
3. NET INCOME PER COMMON SHARE
-------------------------------
Basic net income per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding, adjusted for the
unallocated portion of shares held by the ESOP in accordance with the American
Institute of Certified Public Accountants' Statement of Position 93-6. Diluted
net income per share is calculated by adjusting the weighted average number of
shares of common stock outstanding to include the effect of outstanding stock
options and compensation grants, if dilutive, using the treasury stock method.
4. COMPREHENSIVE INCOME
-------------------------
At March 31, 2003, and during the quarters ended March 31, 2003 and 2002, the
Company had no items of other comprehensive income.
5. MERGER AGREEMENT
---------------------
On September 11, 2002, the Company, the Bank and West Essex Bancorp, M.H.C., the
mutual holding company which owns the majority of the outstanding capital stock
of the Company, entered into a merger agreement with Kearny Financial Corp.
(Kearny Financial), the parent corporation of Kearny Federal Savings Bank, and
Kearny MHC, the parent company of Kearny Financial. At the date of the merger,
the Company's common stock held by public stockholders other than West Essex
Bancorp, M.H.C. will be purchased for $35.10 per share, in cash. The transaction
is subject to several conditions including the receipt of shareholder and
regulatory approvals.
5.
WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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5. MERGER AGREEMENT (Cont'd.)
--------------------------------
In the event the Company enters into a merger, acquisition, consolidated or
other form of business combination agreement with another entity, the Company
will be required to pay Kearny Financial the amount of $4.0 million in cash upon
written demand by Kearny Financial. Merger related charges, which include but
are not limited to professional fees for investment banking, legal and
accounting, are expected to be approximately $1.3 million.
Prior to or upon the effective date of the merger, the Company's ESOP, Incentive
Stock Plan, and Stock Option Plan will be terminated on such terms as contained
in the merger agreement. Upon termination, all participant accounts will be
considered fully vested and nonforfeitable and all remaining plan assets will be
allocated to the participants.
Certain executive officers of the Bank have employment agreements or change of
control agreements that will become effective on the date of the merger.
Payments required under these agreements will be liabilities of Kearny
Financial.
6.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21F of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company intends such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Reform Act of 1995, and is including this statement
for purposes of these safe harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identified by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project," or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on the operations of the Company and its subsidiaries
include, but are not limited to, changes in interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal polices of the
U.S. Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principles and guidelines. These risks
and uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements. Further information
concerning the Company and its business, including additional factors that could
materially affect the Company's financial results, is included in the Company's
filings with the Securities and Exchange Commission (the "SEC").
The Company does not undertake - and specifically disclaims any obligation
- to publicly release the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Management's Discussion and Analysis or Plan of Operation
General
The Company is the federally chartered stock holding company for the Bank,
a federally chartered stock savings bank. The Company, the Bank and West Essex
Bancorp, M.H.C., a mutual holding company and majority owner of the Company, are
regulated by the Office of Thrift Supervision (the "OTS"). The Company's and the
Bank's results of operations are dependent primarily on net interest income,
which is the difference between the income earned on interest-earning assets,
primarily the loan and investment portfolios, and the cost of funds, consisting
of interest paid on deposits and borrowings. Results of operations are also
affected by the provision for loan losses and non-interest expense. Non-interest
expense principally consists of salaries and employee benefits, office occupancy
and equipment expense, amortization of intangibles, advertising, federal deposit
insurance premiums, expenses of real estate owned and other expenses. Results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in interest rates, government policies and
actions of regulatory authorities.
7.
Comparison of Financial Condition at March 31, 2003 and December 31, 2002
Total assets were $384.4 million at March 31, 2003, compared to $392.6
million at December 31, 2002, a decrease of $8.2 million, or 2.1%.
Cash and cash equivalents, primarily federal funds sold and
interest-bearing deposits in other banks, increased $5.0 million to $31.8
million at March 31, 2003 from $26.8 million at December 31, 2002. Cash and cash
equivalents represented 8.3% of total assets at March 31, 2003, up from 6.8% of
total assets at December 31, 2002.
In the aggregate, mortgage-backed securities and investment securities, all
of which are held to maturity, totalled $209.9 million at March 31, 2003, a
decrease of $303,000, or 0.1%, from $210.2 million at December 31, 2002.
Mortgage-backed securities decreased $18.9 million due to repayments exceeding
purchases. Investment securities increased $18.6 million due primarily to
purchases of lower yielding securities exceeding calls of several higher
yielding securities in advance of scheduled maturities.
Loans receivable decreased by $12.0 million, or 8.6%, to $126.5 million at
March 31, 2003 from $138.5 million at December 31, 2002, due to loan repayments
exceeding originations.
Deposits totalled $256.8 million at March 31, 2003, an increase of $1.7
million, or 0.7%, from the $255.1 million balance at December 31, 2002.
Borrowed money decreased $10.4 million to $73.9 million at March 31, 2003,
as compared to $84.3 million at December 31, 2002. During the quarter ended
March 31, 2003, long-term debt of $408,000 was repaid and short-term debt was
reduced by $10.0 million.
Stockholders' equity increased $442,000, or 0.9%, to $51.9 million,
primarily due to the retention of net income.
Comparison of Operating Results for the Three Months Ended March 31, 2003 and
2002
Net Income. Net income decreased $317,000, or 39.4%, to $487,000 for the
three months ended March 31, 2003, compared with $804,000 for the same 2002
period. The decrease in net income during the 2003 period resulted primarily
from a decrease in net interest income and an increase in non-interest expense,
partially offset by a decrease in income taxes.
Interest Income. Total interest income decreased $851,000 or 15.2% to $4.8
million for the three months ended March 31, 2003 from $5.6 million for the same
2002 period. The decrease was the result of a decrease in the average yield on
interest earning assets to 5.16% during the three months ended March 31, 2003,
from 6.28% during the same 2002 period, partially offset by an increase of $11.5
million or 3.2% in average interest-earning assets between the periods.
Interest income on loans decreased by $677,000 or 23.4% to $2.2 million
during the three months ended March 31, 2003, when compared with $2.9 million
for the same 2003 period. The decrease during the 2003 period resulted from a
decrease of $30.4 million, or 18.4%, in the average balance of loans
outstanding, along with a 43 basis point decrease to 6.57% in the yield earned
on the loan portfolio. The decreased average balance is due to repayments
exceeding originations. The decreased yield is the result of lower rates
obtained on originations, as well as downward interest rate adjustments on many
of the Bank's adjustable-rate mortgage loans.
8.
Comparison of Operating Results for the Three Months Ended March 31, 2003 and
2002 (Cont'd.)
Interest on mortgage-backed securities, all of which are held-to-maturity,
decreased $78,000 to $2.1 million during the three months ended March 31, 2003,
when compared to $2.2 million for the same 2002 period. During the 2003 period,
average mortgage-backed securities increased $27.9 million or 19.2%, to $173.2
million, while the average yield thereon decreased 114 basis points to 4.84%.
The increased average balance is the result of purchases exceeding repayments of
mortgage-backed securities. The decrease in yield is the result of lower
interest rates obtained on securities purchased since March 31, 2002, and
downward rate adjustments on adjustable rate issues held.
Interest earned on investment securities, all of which are
held-to-maturity, decreased by $148,000, or 31.8%, to $318,000 during the three
months ended March 31, 2003, when compared to $466,000 during the same 2002
period, primarily due to a decrease of $981,000, or 3.0%, in the average balance
of such assets, along with a 169 basis point decrease to 4.01% in the yield
earned. The decline in both average balance and yield is the result of calls of
higher yielding investment securities and the lower interest rates available on
purchased securities.
Interest on other interest-earning assets increased $52,000, or 64.2%, to
$133,000 during the three months ended March 31, 2003, as compared to $81,000
for the same 2002 period. The increase was due to an increase of $15.0 million,
or 104.5%, in the average balance of such assets, partially offset by a 44 basis
point decline in yield to 1.81%. The increase in average balance was the result
of the usage of proceeds of called investment securities. The decrease in yield
is reflective of the general decrease in short-term market interest rates.
Interest Expense. Interest expense on deposits decreased $384,000, or
21.4%, to $1.4 million during the three months ended March 31, 2003, when
compared to $1.8 million during the same 2002 period. Such decrease was
primarily attributable to a decrease of 83 basis points, to 2.38%, in the cost
of interest-bearing deposits, partially offset by a $13.6 million, or 6.1%,
increase in the average balance thereof. The average cost of certificates of
deposit was 2.92% for the three months ended March 31, 2003, as compared to
4.05% for the same 2002 period. The average cost of non-certificate deposits
decreased to 1.55% for the three months ended March 31, 2003, as compared to
1.71% for the same prior year period.
Interest expense on borrowed money decreased by $44,000, or 4.5%, to
$924,000 during the three months ended March 31, 2003, when compared with
$968,000 during the same 2002 period. Such decrease was primarily attributable
to a $2.5 million, or 3.2%, decrease in the average balance of borrowings
outstanding from the FHLB, along with a decrease of 7 basis points, to 4.98%, in
the average cost of such borrowings.
Net Interest Income. Net interest income decreased $423,000, or 14.9%, to
$2.4 million during the three months ended March 31, 2003, when compared with
$2.8 million for the same 2002 period. Such decrease was due to a decrease in
total interest income of $851,000, partially offset by a decrease in total
interest expense of $428,000. The Bank's net interest rate spread decreased to
2.16% in 2003 from 2.60% in 2002. The decrease in the interest rate spread
resulted from a 112 basis point decrease in the yield on average
interest-earning assets, partially offset by a 68 basis point decrease in the
cost of average interest-bearing liabilities.
9.
Comparison of Operating Results for the Three Months Ended March 31, 2003 and
2002 (Cont'd.)
Provision for Loan Losses. During the three months ended March 31, 2003 and
2002, the Bank did not record a provision for loan losses. There were no loan
charge-offs or recoveries in either period. The allowance for loan losses is
based on management's evaluation of the risk inherent in its loan portfolio and
gives due consideration to the changes in general market conditions and in the
nature and volume of the Bank's loan activity. The Bank intends to continue to
provide for loan losses based on its periodic review of the loan portfolio and
general market conditions. At March 31, 2003 and 2002, loans delinquent ninety
days or more totalled $731,000 and $1.5 million, respectively, representing
0.57% and 0.94%, respectively, of total loans. At March 31, 2003, the allowance
for loan losses stood at $1.36 million, representing 1.07% of total loans and
186.5% of loans delinquent ninety days or more. At December 31, 2002, the
allowance for loan losses stood at $1.36 million, representing 0.97% of total
loans and 161.9% of loans delinquent ninety days or more. At March 31, 2002, the
allowance for loan losses stood at $1.36 million, representing 0.83% of total
loans and 88.3% of loans delinquent ninety days or more. The Bank monitors its
loan portfolio on a continuing basis and intends to continue to provide for loan
losses based on its ongoing review of the loan portfolio and general market
conditions.
Non-Interest Income. Non-interest income decreased $3,000, or 1.8%, to
$162,000 during the three months ended March 31, 2003, from $165,000 during the
same 2002 period.
Non-Interest Expenses. Non-interest expenses increased by $32,000, or 1.8%,
to $1.81 million during the three months ended March 31, 2003, when compared
with $1.78 million during the same 2002 period. Salaries and employee benefits,
the largest component of non-interest expenses, increased $15,000, or 1.5%, to
$1.02 million during the three months ended March 31, 2003, from $1.00 million
during the prior year quarter. The increase in this category is due to the
increased cost of stock-based compensation plans, such as the ESOP, which are
based on the average price of the Company's common stock partially offset by
reduced staffing levels and the absence of the management supplemental
retirement plan, which was accelerated and paid out in full during the fourth
quarter 2002. The average price of the Company's common stock was $35.01 for the
quarter ended March 31, 2003, as compared to $18.28 for the comparable prior
year quarter.
Merger related expenses totalled $26,000 during the three months ended
March 31, 2003. There were no such expenses in the prior year quarter. These
expenses are related to the proposed acquisition of the Company by Kearny
Financial Corp. All other elements of non-interest expense, which includes
occupancy and equipment expenses, loss on real estate owned, amortization of
intangibles, and other expenses, totalled $765,000 and $774,000 during the three
months ended March 31, 2003 and 2002, respectively.
Income Taxes. Income tax expense totalled $288,000, or 37.1% of income
before income taxes, during the three months ended March 31, 2003, as compared
to $428,000, or 34.7% of income before income taxes, during the comparable 2002
period. The increased effective income tax rate is the result of legislation
enacted by the State of New Jersey in July 2002 to increase the tax rate to
which the Bank is subject from 3% to 9%.
10.
Liquidity and Capital Resources
The Company's and Bank's primary sources of funds on a long-term and
short-term basis are deposits, principal and interest payments on loans,
mortgage-backed and investment securities and FHLB borrowings. The Bank uses the
funds generated to support its lending and investment activities as well as any
other demands for liquidity such as deposit outflows. While maturities and
scheduled amortization of loans are predictable sources of funds, deposit flows,
mortgage prepayments and the exercise of call features on debt securities are
greatly influenced by general interest rates, economic conditions and
competition. OTS regulations require the Bank to maintain sufficient liquidity
to ensure its safe and sound operation.
The Company's most liquid assets are cash and cash equivalents. The levels
of these assets are dependent on operating, financing, lending and investing
activities during any given period. At March 31, 2003, cash and cash equivalents
totalled $31.8 million, or 8.3% of total assets.
The Company, through its Bank subsidiary, has other sources of liquidity if
a need for additional funds arises, including FHLB borrowings. At March 31,
2003, the Bank had $73.9 million in borrowings outstanding from the FHLB.
Depending on market conditions, the pricing of deposit products and FHLB
borrowings, the Bank may continue to rely on FHLB borrowings to fund asset
growth.
At March 31, 2003, the Bank had commitments to originate and purchase loans
and fund unused outstanding lines of credit and undisbursed proceeds of
construction mortgages totalling $17.0 million and commitments to purchase
securities totaling $5.0 million. The Bank anticipates that it will have
sufficient funds available to meet its current commitments. Certificate
accounts, including Individual Retirement Account accounts, which are scheduled
to mature in less than one year from March 31, 2003, totalled $112.8 million.
The Bank expects that substantially all of the maturing certificate accounts
will be retained by the Bank.
At March 31, 2003, the Company had total equity, determined in accordance
with generally accepted accounting principles, of $51.9 million, or 13.5% of
total assets. At March 31, 2003, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $47.7 million, or 12.5% of total
adjusted assets, which is above the required level of $5.7 million, or 1.5%;
core capital of $47.7 million, or 12.5% of total adjusted assets, which is above
the required level of $15.2 million, or 4.0%; and risk-based capital of $49.0
million, or 38.1% of risk-weighted assets, which is above the required level of
$10.3 million, or 8.0%. An institution with a ratio of tangible capital to
adjusted total assets of greater than or equal to 5.0% is considered to be
"well-capitalized" pursuant to OTS regulations.
ITEM 3: CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company
maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission.
Based upon their evaluation of those controls and procedures performed
within 90 days of the filing date of this report, the chief executive
officer and the principal financial officer of the Company concluded
that the Company's disclosure controls and procedures were adequate.
(b) Changes in internal controls. The Company made no significant changes
in its internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation of
those controls by the chief executive officer and principal financial
officer.
11.
WEST ESSEX BANCORP, INC.
PART II . OTHER INFORMATION
March 31, 2003
ITEM 1. Legal Proceedings
-----------------
Neither the Company nor the Bank is involved in any pending legal
proceedings other than routine legal proceedings occurring in the
ordinary course of business, including a recent lawsuit filed by a
former employee related to a claim filed by that employee under the
Workers' Compensation Law of the State of New Jersey. Such routine
legal proceedings in the aggregate, are believed by management to be
immaterial to the financial condition and results of operations of the
Company.
ITEM 2. Changes in Securities
---------------------
None.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On February 13, 2003, the Company held a special meeting of
stockholders to vote on the proposal to approve and adopt the
Agreement and Plan of Merger, dated September 11, 2002, by and between
West Essex Bancorp, Inc., West Essex Bank, West Essex Bancorp, M.H.C.
and Kearny Financial Corp., Kearny Federal Savings Bank and Kearny
MHC.
The result of the vote taken at the meeting, excluding shares held by
West Essex Bancorp, M.H.C, was as follows:
Percent of Publicly
Number Traded Shares
----------- -------------------
For: 1,538,383 78.8
Against: 2,202 0.1
Abstain: 159 0.0
Non-Vote: 412,338 21.1
12.
WEST ESSEX BANCORP, INC.
PART II . OTHER INFORMATION
March 31, 2003
ITEM 4. Submission of Matters to a Vote of Security Holders (Cont'd.)
--------------------------------------------------------------
The result of the vote, including shares held by West Essex Bancorp,
M.H.C., taken at the meeting was as follows:
Percent of
Number Outstanding Shares
----------- ------------------
For: 4,476,034 91.5
Against: 2,202 0.0
Abstain: 159 0.0
Non-Vote: 412,338 8.4
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
3.1 Charter of West Essex Bancorp, Inc. *
3.2 Bylaws of West Essex Bancorp, Inc. *
4.0 Form of Common Stock Certificate *
11.0 Statement regarding computation of per share earnings
99.0 Certifications pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Incorporated herein by reference into this document from the
Exhibits to Form S-1 Registration Statement and any amendments
thereto, Registration No. 333-56729.
(b) Reports on Form 8-K:
On February 18, 2003, the Company filed a current report on Form
8-K to announce that, at a special meeting, the Company's
stockholders approved the pending merger with Kearny Financial
Corp. In addition, the Company announced earnings for the year
ended December 31, 2002. A copy of the press release announcing
the merger approval and annual earnings, dated February 14, 2003,
was included as an exhibit to the Form 8-K.
13.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WEST ESSEX BANCORP, INC.
Date: May 15, 2003 By /s/ Leopold W. Montanaro
---------------- ---------------------------------
Leopold W. Montanaro
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2003 By: /s/ Michael T. Sferrazza
---------------- ---------------------------------
Michael T. Sferrazza
Vice President and Controller
(Principal Financial and
Accounting Officer)
14.
CERTIFICATIONS
--------------
I, Leopold W. Montanaro, certify, that:
1. I have reviewed this quarterly report on Form 10-QSB of West Essex
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
the internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
the internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Leopold W. Montanaro
-----------------------------------------
Leopold W. Montanaro
President and Chief Executive Officer
(principal executive officer)
15.
I, Michael T. Sferrazza, certify, that:
1. I have reviewed this quarterly report on Form 10-QSB of West Essex
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
the internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
the internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Michael T. Sferrazza
---------------------------------
Michael T. Sferrazza
Vice President and Controller
(principal financial officer)
16.