<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
--------- ---------
Commission file number 0-21175
Emerald Isle Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-3300934
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
730 Hancock Street
Quincy, Massachusetts, 02170
(Address of principal executive offices)
(617) 479-5001
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: September 30, 1997,
Common Stock- (Par Value $1.00) 2,249,786 shares outstanding.
<PAGE>
EMERALD ISLE BANCORP, INC.
INDEX
Page Number
Cover Page 1
Index 2
PART I - FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996 3
Consolidated Statements of Income for the three and nine 4
months ended September 30, 1997 and 1996
Consolidated Statements of Changes in Stockholders' for Equity
for the nine months ended September 30,1997 and 1996 5
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2.Management's Discussion and Analysis of Financial Condition and 9-18
Results of Operations
PART II-OTHER INFORMATION
Item 1.Legal Proceedings 19
Item 6.Exhibits and Reports on Form 8-K 19
<PAGE>
EMERALD ISLE BANCORP, INC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
(UNAUDITED)
ASSETS:
Cash and due from banks................................................ $ 5,166,201 $ 5,521,299
Short term investments................................................. 2,950,000 11,679,798
Securities held to maturity............................................ 72,974,247 83,512,156
Securities available for sale.......................................... 33,949,191 30,761,290
Federal Home Loan Bank stock........................................... 2,458,800 2,670,700
Loans net of allowance for loan losses of $3,047,490 and $2,623,406,
respectively......................................................... 311,136,914 263,208,189
Banking premises & equipment, net...................................... 9,790,788 7,711,423
Accrued interest receivable............................................ 2,361,824 2,501,071
Other assets........................................................... 2,715,169 2,072,839
------------------ -----------------
Total assets............................................................... $ 443,503,134 $ 409,638,765
------------------ -----------------
------------------ -----------------
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits:
Now & demand deposits.................................................. $ 34,787,123 $ 31,190,026
Money market accounts.................................................. 38,096,052 37,811,552
Other deposits......................................................... 51,062,114 47,771,658
Term certificates accounts............................................. 240,811,489 220,316,691
------------------ -----------------
Total deposits........................................................... 364,756,778 337,089,927
------------------ -----------------
Federal Home Loan Bank advances.......................................... 45,668,000 41,668,000
Mortgagors' escrow payments.............................................. 1,422,646 1,371,878
Income taxes payable..................................................... 110,639 643,901
Other liabilities........................................................ 554,036 928,672
------------------ -----------------
Total liabilities.......................................................... 412,512,099 381,702,378
------------------ -----------------
STOCKHOLDERS' EQUITY:
Serial preferred stock, $1.00 par value 5,000,000 shares authorized; none
issued................................................................. -- --
Common stock, $1.00 par value, 10,000,000 shares authorized 2,249,786 and
2,210,888 shares issued and outstanding................................ 2,249,786 2,210,888
Additional paid-in-capital............................................... 12,111,505 11,586,709
Retained earnings........................................................ 16,632,137 14,329,844
Net unrealized loss on securities available, net of tax effects.......... (2,393) (191,054)
------------------ -----------------
Total stockholders' equity................................................. 30,991,035 27,936,387
------------------ -----------------
Total Liabilities and Stockholders' Equity................................. $ 443,503,134 $ 409,638,765
------------------ -----------------
------------------ -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EMERALD ISLE BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
<CAPTION>
UNAUDITED
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans............... $ 6,524,000 $ 5,358,907 $ 18,768,724 $ 15,104,965
Income and dividends on
investment securities......... 1,652,239 2,008,073 5,231,087 5,872,444
Interest on short--term
investments................... 167,496 90,980 309,422 145,753
------------------ ------------------ ------------------ ------------------
Total interest and dividend
income...................... 8,343,735 7,457,960 24,309,233 21,123,162
Interest expense:
Interest on deposits............ 4,197,039 3,677,926 12,122,136 10,441,825
Interest on borrowed funds...... 468,611 708,146 1,460,058 1,884,497
------------------ ------------------ ------------------ ------------------
Total interest expense........ 4,665,650 4,386,072 13,582,194 12,326,322
------------------ ------------------ ------------------ ------------------
Net interest income............... 3,678,085 3,071,888 10,727,039 8,796,840
Provision for possible loan
losses.......................... -- 50,000 200,000 1,136,333
------------------ ------------------ ------------------ ------------------
Net interest income after
provision for loan losses....... 3,678,085 3,021,888 10,527,039 7,660,507
------------------ ------------------ ------------------ ------------------
Other income:
Customer service fees........... 242,131 134,117 586,796 443,631
Gains (losses) on sales of
securities, net............... (137,587) (20,156) (161,962) 33,124
Miscellaneous................... 48,154 13,513 48,759 35,650
------------------ ------------------ ------------------ ------------------
Total other income............ 152,698 127,474 473,593 512,405
------------------ ------------------ ------------------ ------------------
Operating expenses:
Salaries and employee
benefits...................... 1,230,164 1,080,875 3,484,309 3,087,744
Occupancy and equipment......... 513,496 336,431 1,301,089 984,634
Data processing................. 74,305 51,396 245,336 171,113
Other general and administrative
expenses...................... 567,551 488,513 1,739,693 1,406,032
------------------ ------------------ ------------------ ------------------
Total operating expenses...... 2,385,516 1,957,215 6,770,427 5,649,523
------------------ ------------------ ------------------ ------------------
Income before income taxes........ 1,445,267 1,192,147 4,230,205 2,523,389
Provision for income taxes........ 522,259 464,937 1,453,990 974,122
------------------ ------------------ ------------------ ------------------
Net income...................... $ 923,008 $ 727,210 $ 2,776,215 $ 1,549,267
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
Earnings per share
Primary......................... 0.40 0.34 1.21 0.76
Fully diluted................... 0.40 0.34 1.21 0.76
Weighted average shares
outstanding
</TABLE>
<PAGE>
EMERALD ISLE BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- --------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
UNAUDITED
<S> <C> <C> <C> <C>
Primary......................... 2,308,102 2,113,410(1) 2,297,759 2,036,515(1)
Fully diluted................... 2,308,102 2,113,410(1) 2,297,759 2,036,515(1)
</TABLE>
- ------------------------
(1) Prior years figures have been adjusted to reflect stock dividend.
See accompanying notes to consolidated financial statements.
<PAGE>
EMERALD ISLE BANCORP, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSS ON
ADDITIONAL SECURITIES
COMMON PAID-IN RETAINED AVAILABLE FOR
STOCK CAPITAL EARNINGS SALE TOTAL
------------ ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996.......... $ 2,210,888 $ 11,586,709 $ 14,329,844 $ (191,054) 27,936,387
Net income............................ 2,776,215 2,776,215
Issuance of additional stock.......... 38,898 524,796 563,694
Change in net unrealized loss on
securities available for sale, after
tax effects......................... 188,661 188,661
Cash dividend paid.................... (473,922) (473,922)
------------ ------------- ------------- -------------- -------------
Balance at September 30, 1997......... $ 2,249,786 $ 12,111,505 $ 16,632,137 $ (2,393) $ 30,991,035
------------ ------------- ------------- -------------- -------------
------------ ------------- ------------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN(LOSS) ON
ADDITIONAL SECURITIES
COMMON PAID-IN RETAINED AVAILABLE FOR
STOCK CAPITAL EARNINGS SALE TOTAL
------------ ------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... $ 1,915,539 $ 8,441,862 $ 12,406,361 $ 60,854 22,824,616
Net income......................... 1,549,267 1,549,267
Issuance of additional stock....... 291,421 3,099,460 3,390,881
Change in net unrealized gain(loss)
on securities available for sale,
after tax effects................ (631,454) (631,454)
Cash dividend paid................. (333,730) (333,730)
------------ ------------- ------------- ---------------- -------------
Balance at September 30, 1996...... $ 2,206,960 $ 11,541,322 $ 13,621,898 $ (570,600) $ 26,799,580
------------ ------------- ------------- ---------------- -------------
------------ ------------- ------------- ---------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EMERALD ISLE BANCORP, INC
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income................................................................ $ 2,776,215 1,549,267
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation............................................................ 656,831 491,289
Accretion of investments, net of amortization........................... (202,610) 292,207
Loan loss provision..................................................... 200,000 1,136,333
(Gain)loss on sales of loans, real estate owned, securities, and joint
venture interest, net................................................. 154,336 (33,276)
Deferred loan fees...................................................... (260,798) 74,920
Proceeds from loans sold................................................ 16,692,752 8,844,519
Loans originated for sale............................................... (16,673,127) (8,837,218)
Decrease in accrued income taxes, and other liabilities................. (907,898) (1,227,322)
(Increase) decrease in accrued interest receivable...................... 139,247 (347,105)
(Increase) decrease in other assets..................................... (809,353) 843,240
------------------ ------------------
Total adjustments....................................................... (1,010,620) 1,237,587
------------------ ------------------
Net cash provided by operating activities................................. 1,765,595 2,786,854
------------------ ------------------
Cash flows from investing activities:
Loans purchased......................................................... (35,950,566) (5,036,754)
Loan originations, net of amortization and payoffs...................... (12,082,361) (35,845,081)
Proceeds of sales of other real estate owned............................ 153,002 494,163
Short-term investments, net............................................. 8,729,798 (767,673)
Purchases of securities held to maturity................................ (1,267,990) (21,961,856)
Proceeds from maturities of securities held to maturity................. 11,550,746 11,017,656
Purchase of securities available for sale............................... (46,709,480) (10,503,518)
Proceeds from sales of securities available for sale.................... 44,384,963 17,628,984
Purchases of bank premises and equipment................................ (2,736,196) (2,033,762)
------------------ ------------------
Net cash used by investing activities..................................... (33,928,084) (47,007,841)
------------------ ------------------
Cash flows from financing activities:
Increase in deposits, net............................................... 27,666,851 39,075,141
Increase in FHLB advances, net.......................................... 4,000,000 2,700,000
Increase in mortgagors' escrow payments................................. 50,768 362,890
Proceeds from issuance of common stock.................................. 563,694 3,390,881
Cash dividends paid..................................................... (473,922) (333,730)
------------------ ------------------
Net cash provided by financing activities................................. 31,807,391 45,195,182
------------------ ------------------
Net change in cash and cash equivalents................................... (355,098) 974,195
Cash and cash equivalents at beginning of period.......................... 5,521,299 3,213,259
------------------ ------------------
Cash and cash equivalents end of period................................... $ 5,166,201 $ 4,187,454
------------------ ------------------
------------------ ------------------
Supplemental disclosures of cash flow information:
Interest paid........................................................... $ 13,817,932 $ 12,283,716
Income taxes paid....................................................... 1,912,000 431,000
Transfers of loans to other real estate owned........................... 165,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EMERALD ISLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements of Emerald Isle Bancorp, Inc.
and its subsidiary The Hibernia Savings Bank and it's subsidiaries (Kildare
Corporation, Limerick Securities Corporation and Meath Corporation)
presented herein should be read in conjunction with the consolidated
financial statements of Emerald Isle Bancorp, Inc. for the year ended
December 31, 1996.
Consolidated financial information as of September 30, 1997 and the
results of operations and the changes in stockholders' equity and cash
flows for the nine months ended September 30, 1997 and 1996 are
unaudited, and in the opinion of management reflect all adjustments
(consisting solely of normal recurring accruals) necessary for a fair
presentation of such information. Interim results are not necessarily
indicative of results to be expected for the entire year.
2) COMMITMENTS
At September 30, 1997 the Company had outstanding commitments to
originate loans amounting to approximately $24,841,000 which are not
reflected in the consolidated balance sheet.
7
<PAGE>
EMERALD ISLE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
3) EARNINGS PER SHARE
Earnings per share (EPS) is computed based on the weighted average
number of common shares and common stock equivalents outstanding
during the year using the treasury stock method. The EPS computations
for the quarter ended September 30, 1997 are based on 2,308,102
common shares outstanding, and for the quarter ended September 30,
1996 are based on 1,941,498 common equivalent shares outstanding.
The Financial Accounting Standards Board has issued Statement No. 128
which will be effective in the Company's fourth quarter. Under this
Statement, EPS will be reported using basic EPS and diluted EPS. Upon
adoption, the Company's reported EPS will be restated for all prior
periods presented. Management does not anticipate that Statement No.
128 will materially change EPS as currently reported.
4) ACQUISITION AGREEMENT
On October 22, 1997, the Emerald Isle Bancorp entered into a definitive
agreement with Eastern Bank Corporation ("Eastern") pursuant to which
Eastern will acquire Emerald Isle and its subsidiary, Hibernia Savings
Bank. Under the terms of the agreement, Eastern will pay $33 cash per
share of common stock of Emerald Isle. As part of the acquisition
agreement, Emerald Isle granted Eastern an option to purchase 19.9% of the
outstanding shares of Emerald Isle under certain circumstances. The
proposed transaction has been approved by the directors of both Eastern and
Emerald Isle and is subject to approval by Emerald Isle's shareholders and
various federal and state regulatory agencies. The acquisition is expected
to be consummated in early 1998.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
-------
Consolidated net income for the nine months ended September 30, 1997 was
$2,776,215, an increase of $1,226,948, or 79.2% compared to net income of
$1,549,267. Consolidated net income for the three months ended September
30, 1997 was $923,008, an increase of $195,798, or 26.9% compared to net
income of $727,210. Per share consolidated earnings were $1.21 and 40
cents for the nine and three months ended September 30, 1997, respectively,
compared to 76 cents and 34 cents for the comparable periods in 1996.
The Company's total assets increased 8.3% to $443,503,134 at September
30, 1997 from $409,638,765 at December 31, 1996. Asset growth was
primarily attributable to growth in loans which increased $47,928,725,
or 18.2% from $263,208,189 at December 31, 1996 to $311,136,914 at
September 30, 1997. During the third quarter of 1997, the Company
purchased approximately $28,600,000 of automobile loans from a
financial institution. The asset growth was primarily funded by
deposit growth of $27,666,851, or 8.2%. In particular, term
certificates of deposit increased $20,494,798, or 9.3%
9
<PAGE>
Investments
-----------
Short-term investments and investment securities totaled $112,332,238
at September 30, 1997 a decrease of $16,291,706, or 12.7% from
$128,623,944 at December 31, 1996. The decrease occurred primarily
in U.S. Government and federal agency obligation which declined
approximately $32,288,000. Funds from maturities and sales of U.S.
Government and federal agency obligations and mortgage-backed
securities were reinvested in loans and higher-yielding corporate
bonds which totaled approximately $18,813,000 at September 30, 1997
(the Company did not own any corporate bonds as of December 31, 1996).
Short-term investments and investment securities totaled 25.3 % of
total assets at September 30, 1997 compared to 31.4% of total assets
at December 31, 1996.
Loans
-----
Loans represent 70.2% of total assets at September 30, 1997 compared
to 64.3% of total assets at December 31, 1996. Residential real
estate and commercial real estate loans increased $12,730,369 and
$6,476,687, respectively. Consumer loans increased $29,680,835 as a
result of a purchase of approximately $28,600,000 of automobile loans
from a financial institution. Non-performing loans totaled $731,819,
or 0.17% of total assets at September 30, 1997 as compared to
$1,058,195 or 0.26% of total assets at December 31, 1996. The
allowance for loan losses totaled $3,047,490 at September 30, 1997 as
compared to $2,623,406 at December 31, 1996 which represented 416.4%
and 308.3% of non-performing loans, respectively.
10
<PAGE>
Deposits
--------
Deposits at September 30, 1997 totaled $364,756,778 as compared to
$337,089,927 at December 31, 1996 an increase of $27,666,851, or 8.2%. The
deposit growth was a result of our branch expansion efforts which included
opening two branches in May and November of 1996 and one branch during the
third quarter of 1997.
Stockholders' Equity
--------------------
Stockholders' Equity increased to $30,991,035 at September 30, 1997 from
$27,936,387 at December 31, 1996. The Company's capital to assets ratio
was 7.0% at September 30, 1997 compared to 6.8% at December 31, 1996. As
of September 30, 1997, the Company exceeded all of its regulatory capital
requirements. At September 30, 1997, the Company's tier 1 capital to
risk-weighted assets was 10.1% and the Company's tier1 plus tier 2 capital
to risk-weighted capital was 11.1 %.
Book value at September 30, 1997 was $13.78 per share, compared with
$12.64 per share at December 31, 1996.
Interest and Dividend Income
----------------------------
Interest and dividend income increased form the third quarter of 1997
to $8,343,735 from $7,457,960, 11.9%. Average earning assets increased
approximately $35,750,000 or 9.5% to $412,130,000 for the quarter
ended September 30, 1997 from $376,380,000 for the quarter ended
September 30, 1996. The yield on earning assets for the third quarter
of 1997 was 8.12% compared to 7.94% for the same quarter of 1996.
Loans accounted for most of the increase in interest and dividend
income as a result of a 20.2% increase in the average balance from
$240,443,000 for the third quarter of 1996 to $288,895,000 for the
current quarter. The yield on
11
<PAGE>
loans increased to 9.03% from 8.92%. Interest and dividends on
investment securities decreased $355,834, primarily a result of a
16.6% decline in the average balance from $132,986,000 to
$110,956,000. The yield on investments declined slightly from 6.04%
to 5.96%. Interest on short-term investments increased $76,516 as a
result of a 316.2% increase in the average balance to $12,279,000 for
the third quarter of 1997 from $2,951,000 for the same quarter in
1996.
Interest and dividend income for the nine months ended September 30,
1997 totaled $24,309,233, representing an increase of $3,186,071 or
15.1% when compared to $21,123,162 for the nine months ended September
30, 1996. Average earning assets increased approximately $48,986,000
or 13.8% to $403,381,000 for the nine months ended September 30, 1997
from $354,395,000 for the same period in 1996. The yield on earning
assets for the nine months ended September 30, 1997 was 8.06% compared
to 7.96% for the same period of 1996. Loans accounted for most of the
increase in interest and dividend income as a result of a 25.3%
increase in the average balance from $224,810,000 for the nine months
ended September 30, 1996 to $281,664,000 for the nine months ended
September 30, 1997. The yield on loans decreased from 8.96% to 8.88%.
Interest and dividends on investment securities decreased $641,357,
primarily a result of a 10.3% decline in the average balance from
$127,217,000 to $114,064,000. The yield on investments for the nine
months ended September 30, 1997 was 6.11% compared to 6.15% for the
same period in 1996. Interest on short-term investments increased
$163,669 as a result of a 223.1% increase in the average balance of
short-term investments from $2,368,000 to $7,653,000 for the
comparable nine months periods.
12
<PAGE>
Interest Expense
----------------
Total interest expense for the three months ended September 30, 1997
was $4,665,650 representing an increase of $279,578 or 6.4% over the
same period in 1996. The increase was principally due to an increase
of approximately $26,576,000 or 7.6% in average interest bearing
liabilities. The average cost of funds for the third quarter of 1997
was 4.95% compared to 5.01 for the third quarter of 1996. The
increase in average interest bearing liabilities consisted of a
$45,166,000 increase in average deposits offset by an $18,590,000
decrease in average borrowings. The cost of deposits remained
relatively unchanged at 4.85% for the three months ended September
30,1997 compared to 4.89% for the same period in 1996, while the cost
of borrowings increased 35 basis points to 6.08%.
Total interest expense for the nine months ended September 30, 1997
was $13,582,194 representing an increase of $1,255,872 or 10.2% over
the same period in 1996. The increase was due to an increase of
approximately $39,715,000 or 12.0% in average interest bearing
liabilities. The average cost of funds for the nine months ended
September 30, 1997 was 4.89% compared to 4.97% for the third quarter
of 1996. The increase in average interest bearing liabilities
consisted of a $50,896,000 increase in average deposits offset by an
$11,181,000 decrease in average borrowings. The cost of deposits was
4.79% for the nine months ended September 30,1997 compared to 4.86%
for the same period in 1996, while the cost of borrowings increased 23
basis points to 5.97%.
13
<PAGE>
Provision for Loan Losses
-------------------------
The Company's allowance for loan losses is reviewed monthly for adequacy
and is established and maintained through the provision for possible loan
losses. Provisions and charges to the allowance for loan losses are based
on management's assessment of many factors including the
risk and characteristics of the Company's loan portfolio, collateral
and trends on delinquencies and charge-offs. Management believes it
uses the best information available to determine the adequacy of the
allowance for loan losses, although actual losses may differ from
current estimates and future adjustments may be required as a result
of changes in economic conditions.
The provision for loan losses totaled $200,000 for the nine months
ended September 30, 1997 compared to $1,136,333 for the same period in
1996. There was no provision recorded for the three months ended
September 30, 1997 compared to $50,000 for the same period in 1996.
In 1996, the Company recorded a loan loss provision of $1,000,000
associated with a commercial loan to Bennett Funding Group. During
the third quarter of 1997, the Company received a payment of $724,055
from the Trustee in Bankruptcy for the Bennett Funding Group which was
recorded as a recovery to the allowance for loan losses.
Other Income
------------
Other income increased 19.8% to $152,698 in the third quarter of 1997
compared to the third quarter of 1996. Other income for the third
quarter of 1997 included service charges of $242,131, losses on sales
of securities of $137,587 and miscellaneous income of $48,154 compared
to service charges of $134,117, losses on sales of securities of
$20,156 and
14
<PAGE>
miscellaneous income of $13,513 for the third quarter of 1996. The
increase of $108,014 in service fee income was attributable to the growth
in deposits as well as prepayment penalties paid by two commercial
borrowers totaling approximately $75,000.
Other income decreased 7.6% to $473,593 when comparing the nine months
ended September 30, 1997 to September 30, 1996. Other income for 1997
included service charges of $586,796, losses on the sales of
securities of $161,962 and miscellaneous income of $48,759
compared to service charges of $443,631, gains on sales of securities
of $33,124 and miscellaneous income of $35,650 for the nine months
ended September 30, 1996. The increase in service fee income of
$143,165, or 32.3% is principally a result of the growth in deposits.
Operating Expenses
------------------
Operating expenses totaled $2,385,516 for the third quarter ended
September 30, 1997 compared to $1,957,215 for the same period in 1996,
an increase of $428,301 or 21.9%. Salaries and benefit costs
increased $149,289 principally due to staff increases necessitated by
two new full-service branches which opened in November, 1996 and July,
1997. In addition, customer-service and lending personnel have been
added to accommodate the on-going expansion of the Company. Occupancy
and equipment costs increased $177,065 as a result of the new
branches.
For the nine months ended September 30, 1997, operating expenses
totaled $2,385,516 and increased $1,120,904 or 19.8% when compared to
the same period in 1996. Salaries and benefit costs increased
$396,565 principally due to staff increases necessitated by three new
full-service branches which opened in May and November, 1996 and July,
1997. In
15
<PAGE>
addition, occupancy and equipment costs increased $316,455 as a result of
the new branches. Other general and administrative expenses increased
$333,661. In March, 1997, the Company expensed approximately $147,000 of
costs pertaining to a location management was previously considering for a
future branch site.
Income Tax
----------
Income tax expense increased to $522,259 for the quarter ended
September 30, 1997 compared to $464,937 for the quarter ended
September 30, 1996. The effective income tax rates were 36.1% and
39.0% for the quarters ended September 30, 1997 and 1996,
respectively.
Income tax expense increased to $1,453,990 for the nine months ended
September 30, 1997 compared to $974,122 for the same period in 1996.
The effective income tax rates were 34.4% and 38.6% for the nine
months ended September 30, 1997 and 1996, respectively.
Liquidity and Capital Resources
-------------------------------
The Company attempts to maximize interest-earning assets while
maintaining sufficient funds on hand to meet loan commitments, cash
disbursements and possible deposit outflows. The Company's principal
source of funds are customer deposits, borrowings, amortization and
payoff of existing loan principal, sales of loans and loan
participations and sales and maturities of investment securities.
While loan payments and maturing investment securities are a
relatively stable source of funds, deposit flows are greatly
influenced by general interest rates, economic conditions and
competitive factors. Borrowings may also be used to offset reductions
in other sources of funds such as deposits. The Bank may borrow up to
30% of its total assets but not more than 20 times its capital
16
<PAGE>
stock holdings in the FHLB for any sound business purpose for which the
Bank has legal authority. Borrowings authorized totaled $49,176,000 at
September 30, 1997.
At September 30, 1997, the Company had commitments to originate
residential and commercial real estate loans and outstanding lines of
credit totaling approximately $32,023,000. Management believes that
adequate liquidity is available to fund loan commitments utilizing
deposits, loan repayments, maturities of investment securities and
FHLB borrowings.
The Company's total stockholders' equity was $30,991,035 at September
30, 1997, compared with $27,936,387 at December 31, 1996. The
Company's regulators have classified and defined capital into the
following components: (1) Tier I capital, which includes tangible
stockholders' equity for common stock and certain perpetual preferred
stock, and (2) Tier II capital, which includes a portion of the
allowance for possible loan losses, certain qualifying long-term debt
and preferred stock which does not qualify for Tier I capital. In
addition, they have implemented risk-based capital guidelines that
require a bank to maintain certain minimum capital as a percent of
such bank's assets and certain off-balance sheet items adjusted for
pre-defined credit risk factors (risk-adjusted assets). As of
September 30, 1997 the Bank's Tier I and Tier II capital ratios were
10.07% and 11.07%, respectively. In addition to the risk-based
guidelines discussed above, the Bank's regulators require that the
Bank maintain a minimum leverage (Tier I capital as a percent of
tangible assets) of 4%. As of September 30, 1997 the Bank had a
leverage capital ratio of 7.21 %.
17
<PAGE>
Asset/Liability Management
--------------------------
The Company's Asset/Liability Committee ("ALCO"), under the authority of
the Board of Directors, has established guidelines within which management
operates to meet prudent levels of liquidity and interest rate risk. The
ALCO consists of members of the senior management. Meetings are held on a
monthly basis and topics of discussion include, but are not limited to,
levels and direction of interest rates, deposit flows, loan
demand, investment portfolio and borrowed funds positions, interest
rate sensitivity or "gap" position and other variables which impact
the Company's interest rate sensitivity position.
The overall interest rate sensitivity of the Bank is dependent upon
the Company's ability to reprice its interest rate sensitive assets
and liabilities. The ability to successfully manage the repricing of
assets and liabilities significantly reduces the interest rate risk in
any interest rate environment. As of September 30, 1997 the Company
is liability sensitive for the twelve months and one to two year time
horizons, asset sensitive in the two to three and three to five year
time horizons, liability sensitive in the five to ten year horizon and
asset sensitive thereafter. The Bank's management monitors and
manages interest rate risk as an integral part of its overall business
strategy.
18
<PAGE>
PART II - OTHER INFORMATION
For the quarter ended September 30, 1997, Items 2, 3, 4 and 5 of Part II
are either inapplicable or would elicit a response of "None" and therefore no
reference thereto has been made herein.
Item 1. Legal Proceedings
From time to time the Company and its subsidiaries may be parties to legal
proceedings incident to their business. At September 30, 1997, there were no
legal proceedings to which the Company or any of its subsidiaries was a party or
to which any of their properties were subject, which, in the opinion of
management, were expected to result in a material loss.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit Description
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Securities and Exchange
Commission on October 30, 1997 reporting the definitive agreement entered into
for the proposed acquisition of Emerald Isle Bancorp by Eastern Bank
Corporation.
19
<PAGE>
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.
Emerald Isle Bancorp, Inc.
Date: November 12, 1997 By: /s/ Gerard F. Linskey
---------------------
Gerard F. Linskey,
Treasurer
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10Q
FILED AS SEPTEMBER 30, 1997.
</LEGEND>
<CIK> 0001018380
<NAME> EMERALD ISLE BANCORP, INC.
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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