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 9/30/02

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		04-2943217
(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 September 30, 2002:

Title of Class		Shares Outstanding

Common Stock, $.10 par value		7,654,426

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 September 30, 2002 and December 31, 2001

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

		Consolidated Statements of Operations for the nine months ended September 30, 2002 and 2001

		Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2002 and 2001

		Consolidated Statements of Cash Flows for the nine months ended September 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

	ITEM 4.	Controls and Procedures

PART II - OTHER INFORMATION

	ITEM 5.	Other Information

	ITEM 6.	Exhibits and Reports on Form 8-K

ITEM 1. FINANCIAL STATEMENTS

FIRST ESSEX BANCORP, INC.
Consolidated Balance Sheets

	September 30, 2002			December 31, 2001
	(Unaudited)
	(Dollars in thousands)
ASSETS
Cash and cash equivalents	$	211,584		$	54,237
Investment securities available-for-sale	337,353			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	6,081			4,202
Loans receivable, less allowance for loan losses of $14,474 and $12,758	1,104,664			1,036,145
Foreclosed property	1,070			417
Bank premises and equipment	8,935			9,621
Accrued interest receivable	7,097			7,912
Goodwill	11,461			11,633
Core deposit intangible	4,000			5,062
Other assets	59,695			48,574

	$	1,765,905		$	1,592,319

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	1,369,304		$	1,217,163
Borrowed funds	210,006			206,275
Mortgagors’ escrow accounts	1,316			544
Other liabilities	21,298			18,864
Total liabilities	1,601,924			1,442,846

Company-obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company	24,376			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, 10,083,726 and 9,963,044 shares issued	1,008			996
Additional paid - in capital	82,421			81,035
Retained earnings	74,049			63,782
Treasury stock, at cost, 2,429,300 shares	(23,535		)	(23,535		)
Accumulated other comprehensive income	5,662			2,916
Total stock holders’ equity	139,605			125,194

	$	1,765,905		$	1,592,319

FIRST ESSEX BANCORP, INC.
Consolidated Statements of Operations
(Unaudited)

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

Interest and dividend income:
Loans	$	20,677		$	21,673
Investment securities available-for-sale	5,330			6,488
Short-term investments	526			379
Other earning assets	267			265
Total interest and dividend income	26,800			28,805

Interest expense:
Deposits	7,785			11,072
Borrowed funds	2,413			3,021
Total interest expense	10,198			14,093

Net interest income	16,602			14,712
Provision for loan losses	1,812			1,125

Net interest income after provision for loan losses	14,790			13,587

Non-interest income:
Net gain on sales of loans and servicing rights	379			394
Loan fees	244			230
Other income	1,926			1,670
Total non-interest income	2,549			2,294

Non-interest expense:
Salaries and employee benefits	4,736			4,231
Buildings and equipment	1,154			1,118
Professional services	345			313
Information processing	747			728
Foreclosed (income) expenses, net	(270		)	178
Amortization of goodwill	57			254
Amortization of core deposit intangible	339			362
Other	1,104			1,120
Total non-interest expenses	8,212			8,304

Minority interest	512			468

Income before provision for income taxes	8,615			7,109

Provision for income taxes	3,134			2,674
Net income	$	5,481		$	4,435

Earnings per share - Basic	$	0.72		$	0.60
Earnings per share - Diluted	$	0.69		$	0.57
Dividends declared per share	$	0.22		$	0.20

Weighted average number of shares - basic	7,652,171			7,450,903
Weighted average number of shares - diluted	7,996,706			7,812,368

FIRST ESSEX BANCORP, INC.

Consolidated Statements of Operations
(Unaudited)

	Nine Months Ended September 30,
	2002			2001
	(Dollars in thousands, except per share amounts)

Interest and dividend income:
Loans	$	61,179		$	65,572
Investment securities available-for-sale	17,049			20,692
Short-term investments	1,023			774
Other earning assets	800			797
Total interest and dividend income	80,051			87,835

Interest expense:
Deposits	24,221			34,770
Borrowed funds	7,166			9,985
Total interest expense	31,387			44,755

Net interest income	48,664			43,080
Provision for loan losses	6,236			3,375

Net interest income after provision for loan losses	42,428			39,705

Non-interest income:
Net gain on sales of loans and servicing rights	1,113			1,035
Loan fees	734			654
Other income	6,242			4,891
Total non-interest income	8,089			6,580

Non-interest expense:
Salaries and employee benefits	13,610			12,526
Buildings and equipment	3,651			3,601
Professional services	999			1,020
Information processing	2,277			2,183
Foreclosed (income) expenses, net	(73		)	334
Amortization of goodwill	172			760
Amortization of core deposit intangible	1,062			1,123
Other	3,610			3,484
Total non-interest expenses	25,308			25,031

Minority interest	1,539			1,029

Income before provision for income taxes	23,670			20,225

Provision for income taxes	8,363			7,583
Net income	$	15,307		$	12,642

Earnings per share - basic	$	2.01		$	1.71
Earnings per share - diluted	$	1.93		$	1.64
Dividends declared per share	$	0.66		$	0.60

Weighted average number of shares - basic	7,616,020			7,379,656
Weighted average number of shares - diluted	7,950,414			7,705,932

FIRST ESSEX BANCORP, INC.

Consolidated Statements of Stockholders’ Equity
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)

			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	$	15,307					15,307									15,307
Other comprehensive income:
- Unrealized securities gains, net of of tax expense, arising during the period	2,746
- Reclassification adjustment for security gains/(losses) included in net income, net of tax	—
Total other comprehensive income	2,746												2,746			2,746
Total Comprehensive income	$	18,053
Cash dividends declared							(5,040		)							(5,040		)
Stock options exercised			12		1,386											1,398
Balance at September 30, 2002			$	1,008	$	82,421	$	74,049		$	(23,535	)	$	5,662		$	139,605

Balance at December 31, 2000			$	976	$	78,094	$	53,027		$	(23,535	)	$	(2,830	)	$	105,732
Comprehensive income:
Net income	$	12,642					12,642									12,642
Other comprehensive income:
- Unrealized securities gains, net of of tax expense, arising during the period	7,925
- Reclassification adjustment for security gains/(losses) included in net income, net of tax	—
Total other comprehensive income	7,925												7,925			7,925
Total Comprehensive income	$	20,567
Cash dividends declared							(4,438		)							(4,438		)
Stock options exercised			16		2,003											2,019
Balance at September 30, 2001			$	992	$	80,097	$	61,231		$	(23,535	)	$	5,095		$	123,880

FIRST ESSEX BANCORP, INC.

Consolidated Statements of Cash Flows
(Unaudited)

	Nine Months Ended September 30,
	2002			2001
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	15,307		$	12,642
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	6,236			3,375
Depreciation and amortization	1,565			1,821
Loss (gain) on sales of foreclosed property	56			(51		)
Write-down of foreclosed property	—			20
Amortization of investment securities discounts and premiums, net	661			—
Amortization of goodwill	172			760
Amortization of core deposit intangible	1,062			1,123
Proceeds from sales of mortgage loans and mortgage servicing rights	68,143			66,336
Mortgage loans originated for sale	(67,839		)	(68,983		)
Realized gains on the sale of mortgage loans and mortgage servicing rights, net	(1,113		)	(1,035		)
Decrease in accrued interest receivable	815			2,373
Increase in other assets	(11,121		)	(6,085		)
Increase in other liabilities	619			4,203

Net cash provided by operating activities	14,563			16,499

Cash flows from investing activities:
Proceeds from maturities and principal payments of available-for-sale securities	76,819			94,400
Purchases of available-for-sale securities	(9,748		)	(25,169		)
Loans originated and purchased, net of principal collected	(79,001		)	(59,250		)
Proceeds from sales of foreclosed property	2,467			1,617
Purchases of bank premises and equipment	(782		)	(779		)

Net cash (used) in provided by investing activities	(10,245		)	10,819

Cash flows from financing activities:
Net increase in demand deposits, NOW accounts and savings accounts	143,411			74,925
Net increase of term deposits	8,730			26,544
Net increase (decrease) in borrowed funds with maturities of three months or less	3,785			(28,888		)
Proceeds from borrowed funds with maturities in excess of three months	—			87,000
Repayments of borrowed funds with maturities in excess of three months	(54		)	(90,946		)
Proceeds from the issuance of Company-obligated trust preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company	—			14,520
Increase in mortgagors’ escrow accounts	772			985
Dividends paid	(5,013		)	(4,407		)
Stock options exercised	1,398			2,019
Net cash provided by financing activities	153,029			81,752
Net increase in cash and cash equivalents	157,347			109,070
Cash and cash equivalents at beginning of period	54,237			28,840

Cash and cash equivalents at end of period	$	211,584		$	137,910

Supplemental disclosure of cash flow information:
Interest paid during the year	$	31,391		$	44,853
Income taxes paid during the year	9,336			9,136
Supplemental schedule of noncash financing and investing activities:
Property acquired through, or deeds in lieu of, foreclosure	3,176			3,593

FIRST ESSEX BANCORP, INC.

Notes to Consolidated Financial Statements
September 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 344,535 and 361,465 dilutive potential shares for the quarters ended September 30, 2002 and 2001, respectively. Excluded from diluted earnings per share were options to purchase 123,800 shares at September 30, 2002, as the exercise price was greater than the average market price of the common shares.

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

FIRST ESSEX BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS
September 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 losses, 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 September 30, 2002 was $5.5 million compared to $4.4 million for same period in 2001, or a 23.6% increase. Net interest income totaled $16.6 million for the quarter compared to $14.7 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 $255 thousand, and a decrease in noninterest expenses, including minority interest, of $48 thousand, offset by an increase in the provision for loan losses of $687 thousand accounts for the $1.5 million increase in pretax income.

Net income for the nine months ended September 30, 2002 was $15.3 million compared to $12.6 million for same period in 2001, or a 21.1% increase. Net interest income totaled $48.7 million for the period compared to $43.1 million for the same period in 2001. The increase in net interest income of $5.6 million, combined with an increase in noninterest income of $1.5 million, offset by increases in the provision for loan losses of $2.9 million and noninterest expenses, including minority interest, of $787 thousand, accounts for the $3.4 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 September 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	$		133,914		$	526	1.56	%	$	58,272		$	379	2.58	%
Investment securities	369,630				5,330		5.72		415,048			6,488		6.20
Total loans(1)	1,117,015				20,677		7.34		1,029,630			21,673		8.35
Other earning assets	17,787				267		5.96		17,667			265		5.95
Total earning assets	1,638,346				26,800		6.49		1,520,617			28,805		7.52
Allowance for loan losses	(14,014			)					(13,651		)
Total earning assets less allowance for loan losses	1,624,332								1,506,966
Other assets	101,222								79,104
Total assets	$	1,725,554							$	1,586,070

Liabilities and Stockholders’ Equity
Deposits
NOW accounts	$	91,375			$	203	0.88	%	$	70,534		$	197	1.11	%
Money market accounts	172,705				926		2.13		79,732			474		2.36
Savings accounts	335,968				1,355		1.60		328,220			2,290		2.77
Time deposits	594,443				5,301		3.54		594,782			8,111		5.41
Total interest bearing deposits	1,194,491				7,785		2.59		1,073,268			11,072		4.09
Borrowed funds	209,559				2,413		4.57		236,122			3,021		5.08
Total interest bearing deposits and borrowed funds	1,404,050				10,198		2.88		1,309,390			14,093		4.27
Demand deposits	139,867								124,651
Other liabilities	19,161								13,375
Total liabilities	1,563,078								1,447,416
Trust preferred securities	24,364								19,508
Stockholders’ equity	138,112								119,146
Total liabilities, trust preferred securities and stockholders’ equity	$	1,725,554							$	1,586,070

Net interest income					$	16,602						$	14,712

Weighted average interest rate spread							3.61	%						3.25	%
Net yield on average earning assets(2)							4.05	%						3.87	%

Return on average assets							1.27	%						1.12	%
Return on average equity							15.87	%						14.89	%

(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 Nine Months Ended September 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	$		89,301		$	1,023	1.53	%	$	30,437		$	774	3.40	%
Investment securities	388,623				17,049		5.87		429,705			20,692		6.44
Total loans(1)	1,088,081				61,179		7.52		1,012,359			65,572		8.66
Other earning assets	17,758				800		6.02		17,639			797		6.04
Total earning assets	1,583,763				80,051		6.76		1,490,140			87,835		7.88
Allowance for loan losses	(13,666			)					(13,319		)
Total earning assets less allowance for loan losses	1,570,097								1,476,821
Other assets	97,330								83,582
Total assets	$	1,667,427							$	1,560,403

Liabilities and Stockholders’ Equity
Deposits
NOW accounts	$	83,352			$	583	0.94	%	$	69,346		$	628	1.21	%
Money market accounts	138,620				2,180		2.10		82,728			1,715		2.77
Savings accounts	341,052				4,541		1.78		311,796			7,328		3.14
Time deposits	589,645				16,917		3.84		587,030			25,099		5.72
Total interest bearing deposits	1,152,669				24,221		2.81		1,050,900			34,770		4.42
Borrowed funds	205,854				7,166		4.65		250,569			9,985		5.33
Total interest bearing deposits and borrowed funds	1,358,523				31,387		3.09		1,301,469			44,755		4.60
Demand deposits	133,424								119,575
Other liabilities	18,382								11,906
Total liabilities	1,510,329								1,432,950
Trust preferred securities	24,333								13,002
Stockholders’ equity	132,765								114,451
Total liabilities, trust preferred securities and stockholders’ equity	$	1,667,427							$	1,560,403

Net interest income					$	48,664						$	43,080

Weighted average interest rate spread							3.67	%						3.28	%
Net yield on average earning assets(2)							4.10	%						3.85	%

Return on average assets							1.22	%						1.08	%
Return on average equity							15.37	%						14.73	%

(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 12.8% to $16.6 million for the three months ended September 30, 2002 and by $5.6 million or 13.0% to $48.7 million for the nine months ended September 30, 2002 as compared to the same periods of 2001.

Interest and Dividend Income

Interest and dividend income decreased by $2.0 million or 7.0% to $26.8 million for the three month period ended September 30, 2002, from $28.8 million in the same period in 2001. Interest and dividend income also decreased by $7.8 million or 8.9% to $80.1 million for the nine months ended September 30, 2002 as compared to the same period of 2001. The average balance of earning assets increased $117.7 million and $93.6 million for the three and nine months ended September 30, 2002, respectively, compared to the same periods of 2001. The yield on average earning assets decreased to 6.49% and 6.76% for the three and nine months ended September 30, 2002, respectively, as compared to 7.52% and 7.88% for the same periods of 2001. The declines in yields are primarily due to declining interest rates on loans and investment securities which have resulted from lower interest rates in the economy, in general.

Interest Expense

Interest expense decreased by $3.9 million or 27.6% to $10.2 million and $13.4 million or 29.9% to $31.4 million for the three and nine months ended September 30, 2002, respectively, when compared to the same periods in 2001. The average balance of interest-bearing deposits and borrowed funds increased by $94.7 million and $57.1 million for the three and nine months ended September 30, 2002, respectively when compared to the same periods in 2001. The average cost of funds decreased to 2.88% and 3.09% for the three and nine months ended September 30, 2002, respectively, as compared to 4.27% and 4.60% for the same periods in 2001. The decreases in the cost of funds have also resulted from lower interest rates in the economy, in general.

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 $1.8 million and $6.2 million for the three and nine month periods ended September 30, 2002, respectively, as compared to $1.1 million and $3.4 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 loans, there is an expectation that the Bank will continue to find it necessary to make provisions for loan losses in the future.

Noninterest Income

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

Noninterest income increased by $255 thousand or 11.1% and $1.5 million or 22.9% to $2.5 million and $8.1 million for the three and nine months ended September 30, 2002, respectively, as compared to $2.3 million and $6.6 million for the same periods in 2001. The increase during the third quarter is primarily due to increased deposit fees and income recognized from additional bank owned life insurance purchased during the first quarter 2002. The year to date increase is also attributable to approximately $600 thousand of income recorded in the second quarter relating to the settlement of an outstanding state income tax issue.

Noninterest Expense

Noninterest expense decreased $92 thousand or 1.1% to $8.2 million for the three months ended September 30, 2002, as compared to $8.3 million for the same period in 2001. The decrease for the third quarter is primarily due to a $440 thousand gain recognized on the sale of OREO and a $197 thousand reduction in the amortization of goodwill due to the early adoption of SFAS No. 142. Noninterest expense increased $277 thousand or 1.1% to $25.3 million for the nine months ended September 30, 2002, as compared to $25.0 million for the same period in 2001. This increase is primarily the result of higher salary and benefit costs of $1.1 million for 2002, offset by the gain on sale of OREO and the reduction in the amortization of goodwill.

Minority interest expense increased $44 thousand or 9.4% and $510 thousand or 49.6% for the three and nine months ended September 30, 2002, respectively as compared to the same periods of 2001. This increase is a result of the issuance of an additional $15 million of Trust Preferred Securities in the third quarter of 2001.

Income Taxes

The effective income tax rate decreased to 36.4% and 35.3% for the three and nine month periods ended September 30, 2002 compared to 37.6% and 37.5% 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 $240 thousand resulting from the settlement of an outstanding state income tax issue during the second quarter of 2002.

Financial Condition

Total assets amounted to $1,765.9 million at September 30, 2002, an increase of $173.6 million or 10.9% from $1,592.3 million at December 31, 2001.

Loans

At September 30, 2002, the loan portfolio, including mortgage loans held for sale, and before consideration of the allowance for loan losses, was $1,125.2 million, representing 63.7% of total assets, compared to $1,053.1 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.

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

Real Estate:
Residential	$	69,534	6.2	%	$	86,205	8.2	%
Commercial	184,098		16.4		161,870		15.4
Construction	79,177		7.0		70,800		6.7
Total Real Estate Loans	332,809		29.6		318,875		30.3

Owner occupied Commercial Real Estate	75,817		6.7		74,825		7.1

Commercial loans	109,856		9.8		120,101		11.4

Aircraft loans	212,682		18.9		196,496		18.7

Consumer loans
Home Equity, Home Improvement & Second Mortgage	44,997		4.0		48,475		4.6
Automobile	345,655		30.7		290,829		27.6
Other	3,403		0.3		3,504		0.3
Total consumer loans	394,055		35.0		342,808		32.5

Total loans	$	1,125,219	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 (or 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 nine months ended September 30, 2002 and 2001:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2002			2001			2002			2001
	(Dollars in Thousands)
Balance at beginning of period	$	13,715		$	13,677		$	12,758		$	12,716

Provision for loan losses	1,812			1,125			6,236			3,375

Charge-offs	(1,234		)	(2,238		)	(5,154		)	(3,774		)
Recoveries	181			76			634			323

Net charge-offs	(1,053		)	(2,162		)	(4,520		)	(3,451		)

Balance at end of period	$	14,474		$	12,640		$	14,474		$	12,640

Total loans at end of period*	$	1,125,219		$	1,026,241		$	1,125,219		$	1,026,241
Average loans for the period*	1,117,015			1,029,631			1,088,081			1,012,359
Allowance to loans ratio	1.29		%	1.23		%	1.29		%	1.23		%
Net charge-offs to average loans ratio (annualized)	0.38		%	0.84		%	0.55		%	0.45		%

* 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 $3.9 million at September 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:

	September 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	$	105		$	105	$	948		$	181
Not requiring a valuation allowance	1,194			—		—			—
	1,299			105		948			181

Restructured Loans	—			—		—			—

Total impaired	1,299			$	105	948			$	181

Residential Mortgage	15					111
Other	1,563					3,133

Total non-accruing	2,877					4,192

Foreclosed property, net	1,070					417

Total non-performing assets	$	3,947				$	4,609

Percentage of non-performing assets to total assets	0.22		%			0.29		%
Percentage of allowance for loan losses to non-accruing loans	503.1		%			304.3		%

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

Investments

At September 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 $503.5 million or 28.5% 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 21.9% and 22.6% of total interest and dividend income for the three and nine months ended September 30, 2002 compared to 23.8% and 24.4% for the same periods in 2001. The decreases are due to lower interest rates in the economy, in general.

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 September 30, 2002 the Bank had total deposits of $1,369.3 million representing a net increase of $152.1 million or 12.5% compared to total deposits of $1,217.2 million at December 31, 2001.

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 as savings accounts.

Borrowed Funds

The Bank is a member of the FHLB and is entitled to borrow from the FHLB by pledging certain assets. The Bank also utilizes short term repurchase agreements with maturities less than three months, as an additional source of funds. Repurchase agreements are secured by U.S. government and agency securities. Borrowings are an alternative source of funds compared to deposits and increased from $206.3 million at December 31, 2001 to $210.0 million at September 30, 2002.

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 September 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)
September 30, 2002 (unaudited)

Tier 1 (Core) Capital (to Adjusted Assets)	$	131,466	7.72	%	68,101		4.00	%	$	85,127	>	5.00	%

Tier 1 (Core) (to Risk Weighted Assets)	131,466		9.49		55,420		4.00		83,129			6.00

Total Risk Based Capital (to Risk Weighted Assets)	145,940		10.53		110,839		8.00		138,549			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 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. 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. 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. Identifiable intangible assets with discrete useful lives will be amortized over their useful lives. The Company implemented SFAS No. 142 on January 1, 2002.

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 Company evaluated its recorded goodwill under Statement 142 as of January 1, 2002, and concluded that there was no impairment as of that date.

On October 1, 2002 the Financial Accounting Standards Board released Statement of Financial Accounting Standard (“SFAS”) No. 147, entitled “Acquisitions of Certain Financial Institutions.” SFAS 147 permits financial institutions to reclassify the intangible asset associated with bank branch acquisitions to goodwill, if the acquisition is deemed to be a business combination. The Company will adopt SFAS 147 in the fourth quarter of 2002, and, since the acquisition was deemed to be a business combination, the Company will restate 2002 reported earnings to reflect the non-amortization of goodwill. As a result of this change, for the first nine months ended September 30, 2002, diluted earnings per share restated will be $1.94, as compared to $1.93 previously reported, and restated net income will be $15.4 million, as compared to $15.3 million as previously reported. The Company’s goodwill will be periodically reviewed for impairment, as required by the new standard.

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

Balance as of December 31, 2001	$	11,633
Amortization	(172		)

Balance as of September 30, 2002	$	11,461

Balance as of December 31, 2000	$	12,669
Amortization	(760		)

Balance as of September 30, 2001	$	11,909

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

	Nine Months Ended September 30,
	2002		2001
Reported net income	$	15,307	$	12,642
Add back : Goodwill amortization	—		589

Adjusted net income	$	15,307	$	13,231

Basic earning per share
Reported net income	$	2.01	$	1.71
Goodwill amortization	—		0.08

Adjusted net income	$	2.01	$	1.79

Diluted earning per share
Reported net income	$	1.93	$	1.64
Goodwill amortization	—		0.08

Adjusted net income	$	1.93	$	1.72

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.

Management believes the Company has adequate sources of liquidity to fund current and future operations.

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.

Item 4. Controls and Procedures

As required by new rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, within the 90-day period prior to the filing of this report and under the supervision and with the participation of management, including the Chief Executive Officers and the Chief Financial Officer of the Bank, First Essex Bancorp, Inc. (the “Company”) has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based upon such evaluation, the Chief Executive Officers and Chief Financial Officer have concluded that such disclosure controls and procedures are effective in ensuring that material information relating to the Company is made known to the certifying officers by others within the Company during the period covered by this report. There were no significant changes in the Company’s internal controls for financial reporting or in other factors that could significantly affect such internal controls subsequent to the date of such evaluation. In connection with the new rules, the Company currently is in the process of further reviewing and documenting its disclosure controls and procedures, and its internal accounting controls, and may from time to time make changes as deemed necessary.

PART II - OTHER INFORMATION

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.

(c) Form of Letter Agreement between First Essex Bancorp, Inc., First Essex Bank, FSB and each of John M. 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., incorporated herein by Reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(b) Addendum to Services Agreement dated as of October 1, 1993, amending Services Agreement, incorporated herein by Reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(c) Second Addendum to Services Agreement dated as of April 1, 1998, amending Services Agreement, incorporated herein by Reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

**10.20-(a) Data Processing Services Agreement dated as of August 26, 1996 between First Essex Bank, FSB and Bankline New England, Inc., incorporated herein by Reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(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, incorporated herein by Reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

10.21- (a) Lease Agreement dated as of February 24, 1995 between First Essex Bank, FSB and Cross Point Limited Partnership, incorporated herein by Reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(b) First Amendment to Lease Agreement dated as of December 15, 1999, amending the Lease Agreement, incorporated herein by Reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

* 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.

No reports on Form 8-K were filed by the Registrant during the quarter ended September 30, 2002.

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: November 6, 2002		By	/s/ William F. Burke
			William F. Burke
			Executive Vice President and Chief Financial Officer

CERTIFICATIONS

I, Leonard A. Wilson, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of First Essex Bancorp, Inc.;

(2) Based upon 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 presented in the 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 and 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 we have:

(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including it 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 the registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies in the design or operation of 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 weakness in internal controls;

(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 internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

November 6, 2002


/s/ Leonard A. Wilson
Leonard A. Wilson
Chairman of the Board and Chief Executive Officer

I, William F. Burke, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of First Essex Bancorp, Inc.;

(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;

(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

November 6, 2002


/s/ William F. Burke
William F. Burke
Executive Vice President and Chief Financial Officer

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