FIRST ESSEX BANCORP INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended 06/30/02

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-16143

FIRST ESSEX BANCORP, INC.
(Exact name of registrant as specified in its charter)

Delaware		04-943217
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

71 Main Street, Andover, MA		01810
(Address of principal executive offices)		(Zip Code)


Registrant’s telephone number, including area code: (978) 681-7500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

The number of shares outstanding of each of the registrant’s classes of common stock as of June 30, 2002:

Title of Class		Shares Outstanding

Common Stock, $.10 par value		7,648,026

CAUTIONARY STATEMENT FOR PURPOSES OF THE

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

First Essex Bancorp, Inc. (the Company) desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This Report contains certain “forward-looking statements” including statements concerning plans, objectives, future events or performance, assumptions, and other statements which are other than statements of historical fact. The Company wishes to caution readers that the following important factors, among others, may have affected, and could in the future affect, the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company herein: (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which the Company and its wholly owned banking subsidiary, First Essex Bank, must comply, and the associated costs of compliance with such laws and regulations, either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Company’s organization, compensation and benefit plans; (iii) the effect on the Company’s competitive position within its market area of the increasing consolidation within the banking and financial services industries, including increased competition from larger regional and out-of-state banking organizations as well as nonbank providers of various financial services; (iv) the effect of unforeseen changes in interest rates; and (v) the effect of changes in the business cycle and downturns in the local, regional and national economies. The Company disclaims any intent or obligation to update forward-looking statements whether in response to new information, further events or otherwise.

FIRST ESSEX BANCORP, INC.

INDEX

PART I - FINANCIAL INFORMATION


ITEM 1.		Financial Statements

		Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001

		Consolidated Statements of Operations for the three months ended June 30, 2002 and 2001

		Consolidated Statements of Operations for the six months ended June 30, 2002 and 2001

		Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2002 and 2001

		Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001

		Notes to the Consolidated Financial Statements

ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 3.		Quantitative and Qualitative Disclosure About Market Risk


PART II - OTHER INFORMATION

ITEM 4.		Submission of Matters to a Vote of Security Holders

ITEM 5.		Other Information

ITEM 6.		Exhibits and Reports on Form 8-K

ITEM 1. FINANCIAL STATEMENTS

FIRST ESSEX BANCORP, INC.

Consolidated Balance Sheets

	June 30, 2002			December 31, 2001
	(Unaudited)
	(Dollars in thousands)
ASSETS
Cash and cash equivalents	$	127,338		$	54,237
Investment securities available-for-sale	364,718			400,551
Stock in Savings Bank Life Insurance Company	1,194			1,194
Stock in Federal Home Loan Bank of Boston	12,771			12,771
Mortgage loans held-for-sale	3,081			4,202
Loans receivable, less allowance for loan losses of $13,715 and $12,758	1,095,772			1,036,145
Foreclosed property	630			417
Bank premises and equipment	9,264			9,621
Accrued interest receivable	7,898			7,912
Goodwill	11,518			11,633
Core deposit intangible	4,339			5,062
Other assets	59,288			48,574

	$	1,697,811		$	1,592,319

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits	$	1,312,048		$	1,217,163
Borrowed funds	204,990			206,275
Mortgagors’ escrow accounts	808			544
Other liabilities	20,319			18,864
Total liabilities	1,538,165			1,442,846

Company-obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company	24,344			24,279

STOCKHOLDERS’ EQUITY
Serial preferred stock: $.10 par value per share; 5,000,000 shares authorized, no shares issued or outstanding
Common stock, $.10 par value per share; 25,000,000 shares authorized, 10,077,326 and 9,963,044 shares issued	1,008			996
Additional paid-in capital	82,338			81,035
Retained earnings	70,252			63,782
Treasury stock, at cost, 2,429,300 shares	(23,535		)	(23,535		)
Accumulated other comprehensive income	5,239			2,916
Total stockholders’ equity	135,302			125,194

	$	1,697,811		$	1,592,319

FIRST ESSEX BANCORP, INC.

Consolidated Statement of Operations

(Unaudited)

	Three Months Ended June 30,
	2002		2001
	(Dollars in thousands, except per share amounts)

Interest and dividend income:
Loans	$	20,515	$	22,008
Investment securities available-for-sale	5,638		6,792
Short-term investments	328		199
Other earning assets	266		266
Total interest and dividend income	26,747		29,265

Interest expense:
Deposits	8,073		11,647
Borrowed funds	2,391		3,231
Total interest expense	10,464		14,878

Net interest income	16,283		14,387
Provision for loan losses	2,612		1,125

Net interest income after provision for loan losses	13,671		13,262

Non-interest income:
Net gain on sales of mortgage loans and mortgage servicing rights	324		362
Loan fees	224		243
Other income	2,491		1,672
Total non-interest income	3,039		2,277

Non-interest expense:
Salaries and employee benefits	4,342		4,189
Buildings and equipment	1,268		1,225
Professional services	336		316
Information processing	786		731
Foreclosed expenses	110		108
Amortization of goodwill	57		253
Amortization of core deposit intangible	362		380
Other	1,262		1,261
Total non-interest expenses	8,523		8,463

Minority interest	514		281

Income before provision for income taxes	7,673		6,795

Provision for income taxes	2,545		2,529

Net income	$	5,128	$	4,266

Earnings per share - Basic	$	0.67	$	0.58
Earnings per share - Diluted	$	0.64	$	0.56
Dividends declared per share	$	0.22	$	0.20

Weighted average number of shares - basic	7,625,220		7,349,281
Weighted average number of shares - diluted	7,974,615		7,679,575

FIRST ESSEX BANCORP, INC.

Consolidated Statement of Operations

(Unaudited)

	Six Months Ended June 30,
	2002		2001
	(Dollars in thousands, except per share amounts)

Interest and dividend income:
Loans	$	40,502	$	43,899
Investment securities available-for-sale	11,719		14,204
Short-term investments	497		395
Other earning assets	533		532
Total interest and dividend income	53,251		59,030

Interest expense:
Deposits	16,436		23,698
Borrowed funds	4,753		6,964
Total interest expense	21,189		30,662

Net interest income	32,062		28,368
Provision for loan losses	4,424		2,250

Net interest income after provision for loan losses	27,638		26,118

Non-interest income:
Net gain on sales of mortgage loans and mortgage servicing rights	734		641
Loan fees	490		424
Other income	4,316		3,221
Total non-interest income	5,540		4,286

Non-interest expense:
Salaries and employee benefits	8,874		8,295
Buildings and equipment	2,497		2,483
Professional services	654		707
Information processing	1,530		1,455
Foreclosed expenses	197		156
Amortization of goodwill	115		507
Amortization of core deposit intangible	723		762
Other	2,506		2,362
Total non-interest expenses	17,096		16,727

Minority interest	1,027		561

Income before provision for income taxes	15,055		13,116

Provision for income taxes	5,229		4,909

Net income	$	9,826	$	8,207

Earnings per share - basic	$	1.29	$	1.12
Earnings per share - diluted	$	1.24	$	1.07
Dividends declared per share	$	0.44	$	0.40

Weighted average number of shares - basic	7,597,646		7,343,640
Weighted average number of shares - diluted	7,927,454		7,652,714

FIRST ESSEX BANCORP, INC.

Consolidated Statements of Stockholders’ Equity

For the Six Months Ended June 30, 2002 and 2001

			Components of Stockholders’ Equity
	Comprehensive Income		Common Stock		Additional Paid in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income			Total
	(Dollars in thousands)

Balance at December 31, 2001			$	996	$	81,035	$	63,782		$	(23,535	)	$	2,916		$	125,194
Comprehensive income:
Net income	$	9,826					9,826									9,826
Other comprehensive income:
- Unrealized securities gains, net of of tax expense, arising during the period	2,323
- Reclassification adjustment for security losses included in net income, net of tax expense	—
Total other comprehensive income	2,323												2,323			2,323
Total Comprehensive income	$	12,149
Cash dividends declared							(3,356		)							(3,356		)
Stock options exercised			12		1,303											1,315
Balance at June 30, 2002 (unaudited)			$	1,008	$	82,338	$	70,252		$	(23,535	)	$	5,239		$	135,302

Balance at December 31, 2000			$	976	$	78,094	$	53,027		$	(23,535	)	$	(2,830	)	$	105,732
Comprehensive income:
Net income	$	8,207					8,207									8,207
Other comprehensive income:
- Unrealized securities gains, net of of tax expense, arising during the period	4,391
- Reclassification adjustment for security losses included in net income, net of tax expense	—
Total other comprehensive income	4,391												4,391			4,391
Total Comprehensive income	$	12,598
Cash dividends declared							(2,939		)							(2,939		)
Stock options exercised			2		229											231
Balance at June 30, 2001 (unaudited)			$	978	$	78,323	$	58,295		$	(23,535	)	$	1,561		$	115,622

FIRST ESSEX BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2002			2001
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	9,826		$	8,207
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	4,424			2,250
Depreciation and amortization	1,039			961
Gain on sales of foreclosed property	(23		)	(47		)
Amortization of investment securities discounts and premiums, net	437			187
Amortization of goodwill	115			507
Amortization of core deposit intangible	723			762
Proceeds from sales of mortgage loans and mortgage servicing rights	46,036			40,632
Mortgage loans originated for sale	(43,551		)	(43,687		)
Realized gains on the sale of mortgage loans	(734		)	(641		)
Decrease in accrued interest receivable	14			929
Increase in other assets	(10,714		)	(5,593		)
(Decrease) increase in other liabilities	(66		)	5,623

Net cash provided by operating activities	7,526			10,090

Cash flows from investing activities:
Proceeds from maturities and principal payments of available-for-sale securities	48,962			61,615
Purchases of available-for-sale securities	(9,748		)	(25,169		)
Loans originated and purchased, net of principal collected	(66,378		)	(73,575		)
Proceeds from sales of foreclosed property	1,507			1,079
Purchases of bank premises and equipment	(617		)	(419		)

Net cash used in investing activities	(26,274		)	(36,469		)

Cash flows from financing activities:
Net increase in demand deposits, NOW, money market, and savings accounts	96,251			48,998
Net (decrease) increase of term deposits	(1,366		)	14,616
Net decrease in borrowed funds with maturities of three months or less	(1,249		)	(26,551		)
Proceeds from borrowed funds with maturities in excess of three months	—			87,000
Repayments of borrowed funds with maturities in excess of three months	(36		)	(90,185		)
Increase in mortgagors’ escrow accounts	264			198
Dividends paid	(3,330		)	(2,936		)
Stock options exercised	1,315			231
Net cash provided by financing activities	91,849			31,371
Net increase in cash and cash equivalents	73,101			4,992
Cash and cash equivalents at beginning of period	54,237			28,840

Cash and cash equivalents at end of period	$	127,338		$	33,832

Supplemental disclosure of cash flow information:
Interest paid during the period	$	21,168		$	30,753
Income taxes paid during the period	6,436			5,560
Supplemental schedule of noncash financing and investing activities:
Property acquired through, or deeds in lieu of, foreclosure	1,697			1,129

FIRST ESSEX BANCORP, INC.

Notes to Consolidated Financial Statements

June 30, 2002

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of the Company and its subsidiaries, First Essex Bank, First Essex Capital Trust I and First Essex Capital Statutory Trust II. These financial statements reflect, in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position and the results of its operations and cash flows for the periods presented. All significant intercompany balances have been eliminated in consolidation. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2001 Form 10-K. The interim results reported herein are not necessarily indicative of the results for the entire year.

Earnings Per Share

Included in diluted EPS are 349,393 and 330,294 dilutive potential shares for the quarters ended June 30, 2002 and 2001, respectively. Excluded from diluted earnings per share were options to purchase 123,800 and 147,700 shares at June 30, 2002 and 2001, respectively. These shares were excluded as the exercise price was greater than the average market price of the common shares during the respective periods.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FIRST ESSEX BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

June 30, 2002

General

First Essex Bancorp, Inc. is a Delaware corporation whose primary activity is to act as the parent holding company for First Essex Bank (the “Bank”).

On March 30, 2001, the Bank completed its conversion to a Massachusetts state-chartered savings bank. This conversion will provide the Bank more flexibility to continue its emphasis on higher yielding commercial and consumer lending.

The Company’s net earnings depend to a large extent upon its net interest income, which is the difference between interest and dividend income earned on its loans and investments and interest expense paid on its deposits and borrowed funds. The Company’s net earnings also depend upon its provision for loan loss, noninterest income, noninterest expense and income tax expense. Interest and dividend income and interest expense are significantly affected by general economic conditions. These economic conditions, together with conditions in the local real estate markets, affect the levels of non-performing assets and provisions for loan losses.

Results of Operations

Net income for the three months ended June 30, 2002 was $5.1 million compared to $4.3 million for same period in 2001, or a 20.2% increase. Net interest income totaled $16.3 million for the quarter compared to $14.4 million for the same period in 2001. The increase in net interest income of $1.9 million, combined with an increase in noninterest income of $762 thousand, offset by increases in the provision for loan losses of $1.5 million and noninterest expenses, including minority interest, of $293 thousand, accounts for the $878 thousand increase in pretax income.

Net income for the six months ended June 30, 2002 was $9.8 million compared to $8.2 million for same period in 2001, or a 19.7% increase. Net interest income totaled $32.1 million for the period compared to $28.4 million for the same period in 2001. The increase in net interest income of $3.7 million, combined with an increase in noninterest income of $1.3 million, offset by increases in the provision for loan losses of $2.2 million and noninterest expenses, including minority interest of $835 thousand, accounts for the $1.9 million increase in pretax income.

Analysis of Average Yields Earned and Rates Paid

The following table presents an analysis of average yields earned and rates paid for the periods indicated:

	For the Three Months Ended June 30,
	2002							2001
	Average Balance			Interest Earned/ Paid		Average Yield/ Rate		Average Balance			Interest Earned/ Paid		Average Yield/ Rate
	(Dollars in thousands)

Assets
Earning assets
Short-term investments	$	81,191		$	328	1.62	%	$	17,019		$	199	4.69	%
Investment securities	385,583			5,638		5.86		430,828			6,792		6.32
Total loans (1)	1,095,494			20,515		7.51		1,022,399			22,008		8.63
Other earning assets	17,758			266		6.01		17,639			266		6.05
Total earning assets	1,580,026			26,747		6.79		1,487,885			29,265		7.89
Allowance for loan losses	(13,940		)					(13,372		)
Total earning assets less allowance for loan losses	1,566,086							1,474,513
Other assets	98,818							86,283
Total assets	$	1,664,904						$	1,560,796

Liabilities and Stockholders’ Equity
Deposits
NOW accounts	$	80,998		$	201	1.00	%	$	70,613		$	208	1.18	%
Money market accounts	143,164			773		2.17		79,917			524		2.63
Savings accounts	340,864			1,554		1.83		314,266			2,410		3.08
Time deposits	587,601			5,545		3.79		587,859			8,505		5.80
Total interest bearing deposits	1,152,627			8,073		2.81		1,052,655			11,647		4.44
Borrowed funds	204,065			2,391		4.70		250,712			3,231		5.17
Total interest bearing deposits and borrowed funds	1,356,692			10,464		3.09		1,303,367			14,878		4.58
Demand deposits	133,920							120,244
Other liabilities	19,181							12,440
Total liabilities	1,509,793							1,436,051
Trust preferred securities	24,334							9,699
Stockholders’ equity	130,777							115,046
Total liabilities, trust preferred securities and stockholders’ equity	$	1,664,904						$	1,560,796

Net interest income				$	16,283						$	14,387

Weighted average interest rate spread						3.70	%						3.31	%
Net yield on average earning assets (2)						4.12	%						3.87	%

Return on average assets						1.23	%						1.09	%
Return on average equity						15.68	%						14.83	%

(1) Loans on a non-accrual status are included in the average balance.

(2) Net interest income before provision for loan losses divided by average earning assets.

Analysis of Average Yields Earned and Rates Paid

The following table presents an analysis of average yields earned and rates paid for the periods indicated:

	For the Six Months Ended June 30,
	2002								2001
	Average Balance				Interest Earned/ Paid		Average Yield/ Rate		Average Balance				Interest Earned/ Paid		Average Yield/ Rate
	(Dollars in thousands)

Assets
Earning assets
Short-term investments	$	66,625		$		497	1.50	%		$	16,289		$	395	4.89	%
Investment securities	398,277			11,719			5.93			437,155			14,204		6.55
Total loans (1)	1,073,374			40,502			7.61			1,003,580			43,899		8.82
Other earning assets	17,743			533			6.06			17,625			532		6.09
Total earning assets	1,556,019			53,251			6.90			1,474,649			59,030		8.07
Allowance for loan losses	(13,489		)							(13,150		)
Total earning assets less allowance for loan losses	1,542,530									1,461,499
Other assets	95,352									85,858
Total assets	$	1,637,882								$	1,547,357

Liabilities and Stockholders’ Equity
Deposits
NOW accounts	$	79,274		$		380	0.97	%		$	68,742		$	431	1.26	%
Money market accounts	121,295			1,254			2.08			84,251			1,241		2.97
Savings accounts	343,636			3,186			1.87			303,448			5,038		3.35
Time deposits	587,206			11,616			3.99			583,090			16,988		5.88
Total interest bearing deposits	1,131,411			16,436			2.93			1,039,531			23,698		4.60
Borrowed funds	203,971			4,753			4.70			257,912			6,964		5.45
Total interest bearing deposits and borrowed funds	1,335,382			21,189			3.20			1,297,443			30,662		4.77
Demand deposits	130,149									116,995
Other liabilities	18,693									11,159
Total liabilities	1,484,224									1,425,597
Trust preferred securities	24,317									9,695
Stockholders’ equity	129,341									112,065
Total liabilities, trust preferred securities and stockholders’ equity	$	1,637,882								$	1,547,357
				$		32,062							$	28,368
Net interest income

Weighted average interest rate spread							3.70	%							3.31	%
Net yield on average earning assets (2)							4.12	%							3.85	%

Return on average assets							1.20	%							1.06	%
Return on average equity							15.19	%							14.65	%

(1) Loans on a non-accrual status are included in the average balance.

(2) Net interest income before provision for loan losses divided by average earning assets.

Net Interest Income

Net interest income increased by $1.9 million or 13.2% to $16.3 million for the three months ended June 30, 2002 and by $3.7 million or 13.0% to $32.1 million for the six months ended June 30, 2002 when compared to the same periods of 2001.

Interest and Dividend Income

Interest and dividend income decreased by $2.5 million or 8.6% to $26.7 million for the three month period ended June 30, 2002, from $29.3 million in the same period in 2001. Interest and dividend income also decreased by $5.8 million or 9.8% to $53.3 million for the six months ended June 30, 2002 as compared to the same period of 2001. The average balance of loans increased $73.1 million and $69.8 million for the three and six months ended June 30, 2002, as compared to the same periods of 2001. In addition to the average volume increases in loans there were increases of $18.9 million and $11.5 million in the average balance of investments. The yield on average earning assets decreased to 6.79% and 6.90% for the three and six months ended June 30, 2002, when compared to 7.89% and 8.07% for the same period in 2001.

Interest Expense

Interest expense decreased by $4.4 million or 29.7% and $9.5 million or 30.9% to $10.5 million and $21.2 million for the three and six months ended June 30, 2002 when compared to the same periods in 2001. This decrease is primarily attributable to decreases in the average cost of funds to 3.09% from 4.58% for the three months ended June 30, 2002, and to 3.20% from 4.77% for the six months ended June 30, 2002 as compared to the same periods of 2001. Offsetting the decrease in the average cost of funds were increases of $53.3 million and $37.9 million in the average balance of interest-bearing liabilities for the three and six months ending June 30, 2002, respectively, when compared to the same periods of 2001.

Provision for Loan Losses

Losses on loans are provided for under the accrual method of accounting. Assessing the adequacy of the allowance for loan losses involves substantial uncertainties and is based upon management’s evaluation of the amount required to meet estimated losses inherent in the loan portfolio after weighing various factors. Among the factors management may consider are the quality of specific loans, risk characteristics of the loan portfolio generally, the level of non–accruing loans, economic conditions and their effect on borrowers, trends in delinquencies and charge–offs and collateral values of the underlying security. Ultimate losses may vary significantly from the current estimates. Losses on loans, including impaired loans, are charged against the allowance when management believes the collectability of principal is doubtful.

The provisions for loan losses totaled $2.6 million and $4.4 million for the three and six month periods ended June 30, 2002, respectively, as compared to $1.1 million and $2.3 million for the same periods of 2001. Provisions result from management’s continuing internal review of the loan portfolio as well as its judgement as to the adequacy of the reserves in light of the condition of the regional real estate and other markets, and the economy in general. As a result of increased loan balances, there is an expectation that the Bank will continue to find it necessary to make provisions for loan losses in the future. See “Financial Condition – Non–Performing Assets.”

Noninterest Income

Noninterest income consists of net gains from the sales of mortgage loans and mortgage loan servicing rights and gains on the sale of investment securities, together with fee and other noninterest income.

Noninterest income increased by $762 thousand or 33.5% and $1.3 million or 29.3% to $3.0 million and $5.5 million for the three and six months ended June 30, 2002, respectively, as compared to $2.3 million and $4.3 million for the same periods in 2001. This increase is primarily attributable to $600 thousand of income due to the settlement of an outstanding state income tax issue and increases in deposit and other fee income.

Noninterest Expense

Noninterest expense increased $60 thousand or .7% and $369 thousand or 2.2% to $8.5 million and $17.1 million for the three and six months ended June 30, 2002, respectively, as compared to $8.5 million and $16.7 million for the same periods in 2001. These increases are primarily attributable to increased salary and benefit costs of $153 thousand and $579 thousand for the three and six months ended June 30, 2002, respectively. Offsetting the increase for the six month period was a decrease of $392 thousand in the amortization of goodwill resulting from the implementation of FASB 142. The remaining increase was spread throughout other components of noninterest expense, partially offset by reductions in costs associated with foreclosed properties.

Minority interest expense increased $233 thousand and $466 thousand for the three and six months ended June 30, 2002, respectively as compared to the same periods of 2001. This increase is a result of the issuance of $15 million of Trust Preferred Securities in the third quarter of 2001.

Income Taxes

The effective income tax rate decreased to 33.17% and 34.73% for the three and six month periods ended June 30, 2002 compared to 37.22% and 37.43% for the same periods of 2001. This decrease is primarily the result of the purchase of $10 million of bank-owned life insurance during the first quarter of 2002 and a $240 thousand settlement of an outstanding state income tax issue during the second quarter of 2002.

Financial Condition

Total assets amounted to $1,697.8 million at June 30, 2002, an increase of $105.5 million or 6.6% from $1,592.3 million at December 31, 2001. This change is primarily attributable to increases in cash and cash equivalents of $73.1 million, loans receivable of $59.6 million and the purchase of $10 million of bank-owned life insurance.

Loans

At June 30, 2002, the loan portfolio, including mortgage loans held for sale, and before consideration of the allowance for loan losses, was $1,113 million, representing 65.5% of total assets, compared to $1,053 million or 66.1% of total assets at December 31, 2001.

The following table sets forth information concerning the Company’s loan portfolio at the dates indicated. The balances shown in the table are net of unadvanced funds and unearned discounts and fees.

	June 30, 2002				December 31, 2001
	(Dollars in thousands)

Real Estate:
Residential	$	70,658	6.4	%	$	86,205	8.2	%
Commercial	182,298		16.4		161,870		15.4
Construction	83,258		7.5		70,800		6.7
Total Real Estate Loans	336,214		30.3		318,875		30.3

Owner occupied Commercial Real Estate	74,048		6.7		74,825		7.1

Commercial loans	115,089		10.3		120,101		11.4

Aircraft loans	204,508		18.4		196,496		18.7

Consumer loans

Home Equity, Home Improvement & Second Mortgage	46,872		4.2		48,475		4.6
Automobile	332,208		29.8		290,829		27.6
Other	3,629		0.3		3,504		0.3
Total consumer loans	382,709		34.3		342,808		32.5

Total loans	$	1,112,568	100.0	%	$	1,053,105	100.0	%

Allowance for Loan Losses

The allowance for loan losses is maintained at a level determined by management to be adequate to provide for probable losses inherent in the loan portfolio. The allowance for loan losses is maintained through the provision for loan losses, which is a charge to operations. The potential for loss in the portfolio reflects the risks and uncertainties inherent in the extension of credit.

The determination of the adequacy of the allowance for loan losses is based upon management’s assessment of risk elements in the portfolio, factors affecting loan quality and assumptions about the economic environment in which the Company operates. The process includes identification and analysis of loss potential in various portfolio segments utilizing a credit risk grading process and specific reviews and evaluations of significant individual problem credits. In addition, management reviews overall portfolio quality through an analysis of current levels and trends in charge-off, delinquency and nonaccruing loan data, collateral values, economic conditions and their effect on borrowers, and the overall-banking environment. These reviews are of necessity dependent upon estimates, appraisals and judgements, which may change quickly because of changing economic conditions and the Company’s perception as to how these factors may affect the financial condition of debtors.

The methodology for assessing the appropriateness of the allowance consists of a review of the following key elements:

• a formula allowance for the various loan portfolio classifications,

• a valuation allowance for loans identified as impaired, and

• a nonspecific allowance.

The formula allowance is a percentage-based reflection of historical loss experience and assigns required allowance allocations by loan classification based on an estimated percentage of all outstanding loan balances. The formula allowance employs a risk-rating model that grades loans based on general characteristics of credit quality and relative risk. As credit quality becomes more suspect, so-called “watch list” loans, the risk rating and allocation percentage increase. The sum of these allocations comprise the Company’s “formula” or “general” allowance.

The Company also has “valuation” allowances for impaired loans. Loans are evaluated for impairment by measuring the net present value of the expected future cash flows using the loan’s original effective interest rate, or looking at the fair value of the collateral if the loan is collateral dependent. When the difference between the net present value of a loan (of fair value of the collateral if the loan is collateral dependent) is lower than the recorded investment of the loan, the difference is reflected with a resulting “valuation” allowance.

In addition to the formula and valuation components, there is a nonspecific allowance component that takes into consideration the imprecise nature of the loan loss estimation process and various other factors as discussed below. Based on the Company’s credit policy, this component consists of an amount that is approximately 20% to 30% of the total of the formula and valuation allowances in recognition of the inherent subjectivity and imprecise nature of the loan loss estimation process. This component’s adequacy is also based upon management’s evaluation of various factors, the effects of which are not directly measured in determining the formula and valuation allowances. The evaluation of the inherent loss resulting from these factors involves a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The factors evaluated in connection with the nonspecific allowance include the following:

• then-existing general economic and business conditions affecting the Company’s key lending areas,

• credit quality trends, including trends in nonperforming loans expected to result from existing conditions,

• collateral values,

• loan volumes and concentrations,

• seasoning of the loan portfolio,

• specific industry conditions within portfolio segments,

• recent loss experience in particular segments of the portfolio,

• duration of the current business cycle,

• bank regulatory examination results, and

• findings of our internal credit reviewers.

When an evaluation of these conditions signifies a change in the level of risk, the Company adjusts the formula allowance. Periodic credit reviews enable further adjustment to the allowance through the risk rating of loans and identification of loans requiring a valuation allowance. In addition, the formula model is designed to be self-correcting by taking into account recent loss experience.

The following table summarizes the activity in the allowance for loan losses (including amounts established for impaired loans) for the three and six months ended June 30, 2002:

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
	(Dollars in Thousands)
Balance at beginning of period	$	13,623		$	13,215		$	12,758		$	12,716

Provision for loan losses	2,612			1,125			4,424			2,250

Charge-offs	(2,682		)	(790		)	(3,920		)	(1,535		)
Recoveries	162			127			453			246

Net charge-offs	(2,520		)	(663		)	(3,467		)	(1,289		)

Balance at end of period	$	13,715		$	13,677		$	13,715		$	13,677

Total loans at end of period*	$	1,112,568		$	1,045,206		$	1,112,568		$	1,045,206
Average loans for the period*	1,095,494			1,022,399			1,073,374			1,003,580
Allowance to loans ratio	1.23		%	1.31		%	1.23		%	1.31		%
Net charge-offs to average loans ratio (annualized)	0.92		%	0.26		%	0.65		%	0.26		%

* Includes loans held for sale.

Nonperforming Assets

Nonperforming assets consist of nonaccruing loans (including loans impaired under SFAS No. 114) and foreclosed property. Nonperforming assets totaled $3.3 million at June 30, 2002 and $4.6 million at December 31, 2001.

The Bank’s policy is to discontinue the accrual of interest on all loans (including loans impaired under SFAS No. 114), for which payment of interest or principal is 90 days or more past due or for such other loans as considered necessary by management if collection of interest and principal is doubtful. When a loan is placed on nonaccrual status, all previously accrued but uncollected interest is reversed against the current period interest income.

The following table indicates the recorded investment of nonperforming assets and the related valuation allowance for impaired loans:

	June 30, 2002					December 31, 2001
	Recorded Investment			Impaired Loan Valuation Allowance		Recorded Investment			Impaired Loan Valuation Allowance
	(Dollars in Thousands)
Non-accruing Loans Impaired Loans
Requiring a valuation allowance	$	107		$	107	$	948		$	181
Not requiring a valuation allowance	1,000			—		—			—
	1,107			107		948			181

Restructured Loans	—			—		—			—

Total impaired	1,107			$	107	948			$	181

Residential Mortgage	15					111
Other	1,587					3,133

Total non-accruing	2,709					4,192

Foreclosed property, net	630					417

Total non-performing assets	$	3,339				$	4,609

Percentage of non-performing assets to total assets	0.20		%			0.29		%
Percentage of allowance for loan losses to non-accruing loans	506.3		%			304.3		%

The valuation allowance for impaired loans is included in the allowance for loan losses on the balance sheet.

Investments

At June 30, 2002, the investment portfolio, consisting of short-term investments, investment securities, mortgage-backed securities, Federal Home Loan Bank (“FHLB”) stock and stock in the Savings Bank Life Insurance Company of Massachusetts, totaled $459.3 million or 27.1% of total assets, compared to $427.0 million or 26.8% of total assets at December 31, 2001. Interest and dividend income on the investment portfolio generated 22.3% and 22.9% of total interest and dividend income for the three and six months ended June 30, 2002 compared to 23.9% and 24.7% for the same periods in 2001.

To identify and control market risks associated with the investment portfolio, the Company has established policies and procedures, which include stop loss limits and stress testing on a periodic basis.

Deposits

Deposits are the primary source of funds for lending and investment activities. Deposit flows vary significantly and are influenced by prevailing interest rates, market conditions, economic conditions and competition. At June 30, 2002 the Bank had total deposits of $1,312.0 million representing a net increase of $94.9 million or 7.8% compared to total deposits of $1,217.2 million at December 31, 2001. This change is due to increases in money market accounts of $78.5 million, demand deposits of $21.0 million and NOW accounts of $3.4 million, partially offset by decreases in savings accounts of $6.6 million and time deposits of $1.4 million.

While deposit flows are by nature unpredictable, the Bank attempts to manage its deposits through selective pricing. Due to the uncertainty of market conditions, it is not possible for the Bank to predict how aggressively it will compete for deposits in future quarters or the likely effect of any such decision on deposit levels, interest expense and net interest income. Strategies are currently in place to aggressively market more stable deposit sources in products such accounts as savings accounts.

Borrowed Funds

The Bank is a member of the FHLB and is entitled to borrow from the FHLB by pledging certain assets. The Bank also utilizes short term repurchase agreements with maturities of less than three months, as an additional source of funds. Repurchase agreements are secured by U.S. government and agency securities. Borrowed funds are an alternative source of funds compared to deposits and totaled $205.0 at June 30, 2002 versus $206.3 at December 31, 2001.

Regulatory Capital Requirements

The Bank is subject to regulatory capital requirements administered by the Federal Deposit Insurance Corporation (“FDIC”). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, regulatory actions that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the FDIC about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of June 30, 2002, that the Bank meets all capital adequacy requirements to which it is subject.

The most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. Actual capital amounts and ratios are also presented.

The Bank may not declare or pay cash dividends on its shares of common stock if the effect thereof would cause stockholders’ equity to be reduced below applicable capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements.

The following table displays the Bank’s capital calculations as defined under prompt corrective action for the periods indicated:

	First Essex Bank				For Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provision:
	Actual Amount		Actual Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
June 30, 2002 (unaudited)

Tier 1 (Core) Capital (to Adjusted Assets)	$	125,273	7.61	%	$	65,816	4.00	%	$	82,269	>5.00	%

Tier 1 (Core) (to Risk Weighted Assets)	125,273		9.55		52,469		4.00		78,704		6.00

Total Risk Based Capital (to Risk Weighted Assets)	138,988		10.60		104,938		8.00		131,173		10.00

December 31, 2001

Tier 1 (Core) Capital (to Adjusted Assets)	$	114,647	7.22	%	$	63,486	4.00	%	$	79,358	>5.00	%

Tier 1 (Core) Capital (to Risk Weighted Assets)	114,647		9.56		47,958		4.00		71,937		6.00

Total Risk Based Capital (to Risk Weighted Assets)	127,405		10.63		95,916		8.00		119,895		10.00

Recent Accounting Developments

In July 2001, the FASB issued SFAS No. 141, “Business Combinations”. SFAS No. 141 eliminates the pooling of interests method of accounting for business combinations and requires that the purchase method of accounting be used for all business combinations. Goodwill and certain intangible assets will remain on the balance sheet and not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. This statement is effective for business combinations initiated after July 1, 2001.

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill and intangible assets with indefinite lives as defined, including goodwill recorded in past business combinations, will cease upon adoption of this statement. The Company implemented SFAS No. 142 on January 1, 2002.

On October 17, 2001, the FASB issued Action Alert No. 01-37. This Action Alert reports the conclusion reached by the FASB regarding the application of SFAS No. 141 and SFAS No. 142 with respect to the accounting for goodwill in bank branch acquisitions. The conclusion set forth in the Action Alert states that paragraph 5 of SFAS No. 72, “Accounting for Certain Acquisitions of Banking or Thrift Institutions”, “applies to all acquisitions of financial institutions (or branches thereof) whether “troubled” or not, in which the fair value of the liabilities assumed exceeds the fair value of tangible and intangible assets acquired.”

The Company is assessing the impact of the adoption of SFAS No. 141 and SFAS No. 142 in view of the Action Alert. Based upon the conclusion set forth in the Action Alert, the Company currently anticipates that it will be required to continue to amortize goodwill totaling approximately $3.8 million which is attributable to the Company’s 1998 acquisition of five bank branches, unless the FASB issues further guidance with respect to accounting for bank branch acquisitions. Upon adoption of this Statement, the Company ceased amortizing approximately $7.9 million of goodwill, which will reduce annual amortization by approximately $785 thousand.

The Action Alert also states that the FASB will reconsider its new guidance during future deliberations. The conclusion reached by the FASB regarding the need to continue amortization of an unidentifiable intangible asset, therefore, may be overturned at a later date. The Company, however, can give no assurance that the FASB will vary from its current position.

The Company evaluated its recorded goodwill under Statement 142 as of January 1, 2002, and concluded that there was no impairment as of that date. Under Statement 142, goodwill and identifiable intangible assets with indefinite lives will no longer be amortized, but will be reviewed at least annually for impairment. Identifiable intangible assets with discrete useful lives will be amortized over their useful lives.

The amortization and changes in the carrying amount of goodwill are as follows:

Balance as of December 31, 2001	$	11,663
Amortization	(115		)

Balance as of June 30, 2002	$	11,548

Balance as of December 31, 2000	$	12,669
Amortization	(507		)

Balance as of June 30, 2001	$	12,162

The net income and earnings per share would have been as follows if there had been no amortization in 2001.

	Six Months Ended June 30,
	2002		2001
Reported net income	$	9,826	$	8,207
Add back : Goodwill amortization	—		393

Adjusted net income	$	9,826	$	8,600

Basic earning per share
Reported net income	$	1.29	$	1.12
Goodwill amortization	—		0.01

Adjusted net income	$	1.29	$	1.13

Diluted earning per share
Reported net income	$	1.24	$	1.07
Goodwill amortization	—		0.01

Adjusted net income	$	1.24	$	1.08

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company’s primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability management process which is governed by policies established by the Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to the Asset/Liability Committee (ALCO). In this capacity, ALCO develops guidelines and strategies impacting the Company’s asset/liability related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends.

Interest Rate Risk

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change the interest income and expense streams associated with the Company’s financial instruments also change thereby impacting net interest income (NII), the primary component of the Company’s earnings. ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While ALCO routinely monitors simulated NII sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk. There have been no material changes in the interest rate risk reported at the conclusion of the Company’s December 31, 2001 year end.

Liquidity and Capital Resources

The Bank’s principal sources of liquidity are customer deposits, borrowings from the FHLB, scheduled amortization and prepayments of loan principal, cash flow from operations, maturities of various investments and loan sales.

Management believes it is prudent to maintain an investment portfolio that not only provides a source of income, but also provides a potential source of liquidity to meet lending demand and deposit flows. The Bank adjusts the level of its liquid assets and the mix of its loans and investments based upon management’s judgment as to the quality of specific investment opportunities and the relative attractiveness of their maturities and yields.

Net cash provided from operating activities totaled $7.5 million for the six months ended June 30, 2002 compared to $10.1 million that was provided by operating activities for the same period in 2001. The decrease in cash provided is primarily related to increases in cash used to purchase bank owned life insurance policies and to reduce tax liabilities, partially offset by increases in cash provided by mortgage banking activities and the provision for loan losses.

Net cash used for investing activities totaled $26.3 million for the six months ended June 30, 2002 compared to net cash used of $36.5 million for the comparable period in 2001. The decrease in net cash used is primarily attributable to a decrease in loan originations and investment securities purchases, partially offset by a decrease in maturities and principal payments on investment securities.

Net cash provided by financing activities totaled $91.8 million for the six months ended June 30, 2002, compared to net cash provided of $31.4 million for the comparable period in 2001. The increase primarily reflects a net increase in deposits and a reduction in borrowings.

Impact of Inflation

The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles which require measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

An important concept in understanding the effect of inflation on financial institutions is the distinction between monetary and non-monetary items. In a stable environment, monetary items are those assets and liabilities that are or will be converted into a fixed amount of dollars regardless of changes in prices. Examples of monetary items include cash, investment securities, loans, deposits and borrowings. Non-monetary items are those assets and liabilities that gain or lose general purchasing power as a result of the relationships between specific prices for the items and price change levels. Examples of non-monetary items include equipment and real estate. Additionally, interest rates do not necessarily move in the same direction, or in the same magnitude, as the prices of goods and services as measured by the consumer price index.

PART II - OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Shareholders of the registrant was held on May 2, 2002. All nominees of the Board of Directors were re-elected for a three-year term and the 2002 Stock Incentive Plan was approved. Votes were cast as follows:

1. Election of Three Class III Directors:

Nominee	For	Abstain

Thomas S. Barenboim	6,508,550	43,643
William L. Lane	6,508,595	43,598
Robert H. Watkinson	6,509,752	42,441

2. Approval of the 2002 Stock Incentive Plan:

For	Against	Abstain

5,350,021	1,156,912	45,260

Item 5. Other Information

Certification Under Sarbanes-Oxley Act

Our chief executive officer and chief financial officer have furnished to the SEC the certification with respect to this Report that is required by Section 906 of the Sarbanes-Oxley Act of 2002.

Item 6. Exhibits and Reports on Form 8-K

(3) Articles of Incorporation and By-laws:

3.1. The Restated Certificate of Incorporation of the Company is incorporated herein by reference to Exhibit 3.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, Registration No. 33-10966, filed with the Securities and Exchange Commission on April 17, 1987 (“Amendment No. 1 to the Form S-1”).

3.2. The Amended and Restated By-laws of the Company are incorporated herein by referencing to Exhibit 4.1 of the

Company’s current report on Form 8-K filed on December 28, 1992.

(10) Material Contracts:

10.1 – The First Essex Bancorp, Inc. 1987 Stock Option Plan is incorporated herein by reference to Appendix B to the

prospectus included in the Company’s Registration Statement on Form S-8, registration number 33-21292, filed on April 15, 1988.

10.2 - The First Essex Bancorp, Inc. Rights Agreement is incorporated herein by reference to Exhibit 1 to the Company’s Report on Form 8-A filed on October 12, 1999.

*10.3 - (a) Amended and Restated Executive Salary Continuation Agreement dated as of January 1, 1991 between First Essex Bancorp, Inc., First Essex Bank, FSB and Leonard A. Wilson, incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1991.

(b)Amendment to Executive Salary Continuation Agreement dated as of January 1, 2000 between First Essex

Bancorp, Inc., First Essex Bank, FSB and Leonard A. Wilson, incorporated by reference to Exhibit 10.3 to the

Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

*10.4- (a) Amended and Restated Employment Agreement dated as of October 9, 1997 between Leonard A. Wilson and First Essex Bancorp, Inc., incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.

(b) Letter Agreement between First Essex Bancorp, Inc., First Essex Bank, FSB and Leonard A. Wilson dated as of December 16, 1999, amending Special Termination Agreement and Employment Agreements, incorporated by

reference to Exhibit 10.4(b) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

*10.5- (a) Amended and Restated Employment Agreement dated as of October 9, 1997 between Leonard A. Wilson and First Essex Bank, FSB, incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.

*10.6- Amended and Restated Employment Agreement dated as of December 16, 1999 between Brian W. Thompson and First Essex Bancorp, Inc., incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

*10.7- Amended and Restated Employment Agreement dated as of December 16, 1999 between Brian W. Thompson and First Essex Bank FSB, incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

*10.8- (a) Special Termination Agreement dated January 1, 1994 and restated as of October 9, 1997 between Leonard A. Wilson and First Essex Bancorp, Inc. incorporated by reference to Exhibit 10.10 to the Company’s

Quarterly report on Form 10-Q for the quarter ended September 30, 1997.

(b) Letter Agreement between First Essex Bancorp, Inc., First Essex Bank FSB and Leonard A. Wilson dated as of December 16, 1999, amending Special Termination Agreement and Employment Agreements (see Exhibit 10.4(b)).

*10.9- (a) Special Termination Agreement dated January 1, 1994 and restated as of October 9, 1997 between Brian W. Thompson and First Essex Bancorp, Inc. incorporated by reference to Exhibit 10.12 to the Company’s Quarterly report on Form 10-Q for the quarter ended September 30, 1997.

(b) Letter Agreement between First Essex Bancorp, Inc., First Essex Bank, FSB and Brian W. Thompson, dated as of December 16, 1999, amending Special Termination Agreement, incorporated by reference to Exhibit 10.9(b) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

*10.10- (a) Form of Special Termination Agreement between First Essex Bancorp, Inc., First Essex Bank, FSB and each of William F. Burke, John M. DiGaetano, and Wayne C. Golon, incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.

(b) Letter Agreement between First Essex Bancorp, Inc., First Essex Bank, FSB and William F. Burke, dated as of December 16, 1999, amending Special Termination Agreement, incorporated by reference to Exhibit 10.10(b) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

DiGaetano and Wayne C. Golon, dated as of December 16, 1999, amending Special Termination Agreements,

incorporated, by reference to Exhibit 10.10(c) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

*10.11- Common Stock Option Agreement with Brian W. Thompson incorporated herein by reference to Form S-8, Registration No. 333-22183, filed on February 21, 1997.

*10.12- First Essex Bancorp, Inc. 1997 Stock Incentive Plan incorporated herein by reference to Form S-8, Registration No. 333-35057, filed on September 5, 1997.

*10.13- Deferred Compensation Plan for Directors of First Essex Bancorp, Inc. and its Subsidiaries incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998.

*10.14- First Essex Bancorp, Inc. Senior Management Incentive Compensation Plan incorporated by reference to Exhibit 10.14 to the Company’s Annual Report of Form 10-K for the year ended December 31, 1998.

*10.16- Agreement between First Essex Bank, FSB and David L. Savoie, incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998.

*10.17- Executive Salary Continuation Agreement dated as of January 1, 2000 between First Essex Bancorp, Inc., First Essex Bank, FSB and Brian W. Thompson, incorporated herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

*10.18- Form of Benefit Enhancement Plan Agreement dated as of January 1, 2000 between First Essex Bancorp, Inc., First Essex Bank, FSB and each of William F. Burke, John M. DiGaetano, and Wayne C. Golon, incorporated herein by Reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

**10.19-(a) Services Agreement dated as of October 1, 1993 between the First Essex Bank, FSB and BISYS, Inc.;

(b) Addendum to Services Agreement dated as of October 1, 1993, amending Services Agreement.

**10.20-(a) Data Processing Services Agreement dated as of August 26, 1996 between First Essex Bank, FSB and Bankline New England, Inc.

(b) Addendum to Data Processing Services Agreement dated as of November 1, 2000 between First Essex Bank, FSB and SLMsoft.com, Inc., formerly known as Bankline New England, Inc., amending Data Processing Services Agreement.

10.21- (a) Lease Agreement dated as of February 24, 1995 between First Essex Bank, FSB and Cross Point Limited Partnership.

(b) First Amendment to Lease Agreement dated as of December 15, 1999, amending the Lease Agreement.

* Management contract or compensatory plan.

** Certain portions of this Exhibit have been omitted pursuant to a request for confidential treatment filed with the

Securities and Exchange Commission.

(b) Reports on Form 8-K.

The Registrant filed a current report on Form 8-K on June 13, 2002, reporting a change in the Registrant’s certifying accountant.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST ESSEX BANCORP, INC.
	(Registrant)

Date: August 13, 2002	By	/s/ William F. Burke
	William F. Burke
	Executive Vice President
	and Chief Financial Officer