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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NUMBER: 000-22201
EMERALD FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
OHIO 34-1842953
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14092 PEARL ROAD
STRONGSVILLE, OHIO 44136
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 238-7311
CAPITAL STOCK, WITHOUT PAR VALUE
--------------------------------
Title of Class
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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Capital Stock, No Par Value 5,061,600 *
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(Class) (Outstanding at April 30, 1997)
* Retroactively adjusted for two-for-one stock split effective May 15, 1997
for shareholders of record on May 1, 1997
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EMERALD FINANCIAL CORP.
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION PAGE
Item I. Financial Statements:
Consolidated Statements of Financial
Condition as of March 31, 1997, and
December 31, 1996............................................. 2
Consolidated Statements of Income for
the Three Month Periods Ended March
31, 1997 and 1996............................................. 3
Consolidated Statements of Cash Flows
for the Three Month Periods Ended March
31, 1997 and 1996............................................. 4
Notes to Consolidated Financial Statements.................... 5
Selected Financial Information.......................................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 9
Tables........................................................18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..............................21
SIGNATURES......................................................................22
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EMERALD FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
1997 1996
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(In thousands, except per share data)
ASSETS:
CASH AND CASH EQUIVALENTS
Cash and deposits with banks $ 3,242 $ 3,146
Interest bearing deposits with banks 14,579 4,406
INVESTMENT SECURITIES
Held-to-maturity (fair values of $28,828 and $47,496 at
March 31, 1997 and December 31, 1996, respectively) 28,888 47,684
Available for sale (at fair value) 24,640 21,996
MORTGAGE-BACKED SECURITIES
Held-to-maturity (fair values of $32,077 and $33,104 at
March 31, 1997 and December 31, 1996, respectively) 31,174 32,536
Available for sale (at fair value) 28,358 19,644
LOANS-NET
(Including allowance for loan losses of $1,500 and $1,423 at
March 31, 1997 and December 31, 1996, respectively) 444,514 425,060
Loans held for sale -- 795
Accrued interest receivable 3,496 3,238
Federal Home Loan Bank stock-at cost 2,880 2,831
Premises and equipment-net 3,809 3,939
Prepaid expenses and other assets 3,054 2,215
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TOTAL ASSETS $ 588,634 $ 567,490
==================================================================================================
LIABILITIES:
Deposits $ 511,619 $ 493,471
Federal Home Loan Bank advances 27,868 25,234
Deferred federal income tax 1,594 1,584
Advance payments by borrowers 731 1,502
Accrued interest payable 773 586
Accounts payable and other 1,875 1,955
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TOTAL LIABILITIES 544,460 524,332
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized,
5,061,600 shares issued and outstanding * 9,831 9,831
Fair value adjustment, net of tax effect (212) (95)
Retained earnings 34,555 33,422
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TOTAL SHAREHOLDERS' EQUITY 44,174 43,158
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 588,634 $ 567,490
==================================================================================================
Shareholders' Equity per share * $ 8.73 $ 8.53
Tangible Equity per share * $ 8.62 $ 8.39
<FN>
* Retroactively adjusted for two-for-one stock split effective May 15, 1997.
See notes to consolidated financial statements
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EMERALD FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED MARCH 31,
1997 1996
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(Dollars In thousands, except per share data)
INTEREST INCOME
Loans $ 8,764 $ 7,297
Investment securities 858 1,097
Mortgage-backed securities 1,064 893
Other 181 160
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10,867 9,447
INTEREST EXPENSE
Deposits 6,357 5,567
Advances from the Federal Home Loan Bank 370 195
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6,727 5,762
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NET INTEREST INCOME 4,140 3,685
Provision for loan losses 78 5
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,062 3,680
NON-INTEREST INCOME
Gain on sale of assets 48 235
Loan service fees 166 124
Other 211 158
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425 517
NON-INTEREST EXPENSE
Salaries and employee benefits 1,061 943
Net occupancy and equipment 381 362
Franchise tax 147 140
Federal deposit insurance 76 242
Amortization of goodwill 31 33
Other 590 649
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Non-interest expense 2,286 2,369
INCOME BEFORE FEDERAL INCOME TAXES 2,201 1,828
Provision for federal income taxes 764 640
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NET INCOME $ 1,437 $ 1,188
=========================================================================
Earnings per common share* $ 0.28 $ 0.23
Weighted average number of common
shares outstanding* 5,061,600 5,061,600
<FN>
* Retroactively adjusted for two-for-one stock split effective May 15, 1997.
See notes to consolidated financial statements
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EMERALD FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
1997 1996
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,437 $ 1,188
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for loan losses 78 5
Gain from sale of assets (48) (235)
Accretion of discounts and other deferred yield items (477) (596)
Depreciation and amortization 191 198
Effect of change in accrued interest
receivable and payable (71) 137
Federal Home Loan Bank stock dividends (49) (42)
Deferred federal income taxes 10 (99)
Net change in other assets and liabilities (890) 1,689
Net decrease in loans held for sale 835 5,477
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,016 7,722
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (14,624) (32,038)
Purchases of:
Mortgage-backed securities and loans (13,433) (3,161)
Investment securities (4,384) (9,439)
Premises and equipment (29) (343)
Proceeds from:
Mortgage-backed security principal repayments 1,579 3,595
Sales of available for sale mortgage-backed securities -- 2,973
Investment securities maturities and principal repayments 20,438 18,331
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NET CASH USED IN INVESTING ACTIVITIES (10,453) (20,082)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 18,148 11,162
Payments on advances from the Federal Home Loan Bank (7,366) (470)
Proceeds from advances from the Federal Home Loan Bank 10,000 --
Net decrease in escrows (772) (656)
Payment of dividends on common stock (304) (278)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 19,706 9,758
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NET CHANGE IN CASH AND CASH EQUIVALENTS 10,269 (2,602)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF THE PERIOD 7,552 15,509
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CASH AND CASH EQUIVALENTS, AT END OF THE PERIOD $ 17,821 $ 12,907
==========================================================================================
See notes to consolidated financial statements
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EMERALD FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
--------------------
Emerald Financial Corp. (Emerald or Company) is a unitary
thrift holding company formed in 1996 which became the parent company of The
Strongsville Savings Bank (Strongsville or Bank) on March 6, 1997, through a
tax-free exchange of shares of Strongsville for shares of Emerald. The Company's
primary holding is The Strongsville Savings Bank. The Bank conducts its
principal activities from its Community Financial Centers located in
southwestern Cuyahoga, Lorain and Medina counties. The Bank's principal
activities include residential lending and retail banking.
2. BASIS OF PRESENTATION
---------------------
The consolidated financial statements of the Company include
the accounts of Emerald and the accounts of its wholly owned subsidiary, The
Strongsville Savings Bank. All significant inter-company transactions have been
eliminated. In the opinion of management, the accompanying unaudited financial
statements include all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for a fair presentation of (a)
the results of operations for the three month periods ended March 31, 1997 and
1996; (b) the financial condition at March 31, 1997, and December 31, 1996; and
(c) the statements of cash flows for the three month periods ended March 31,
1997 and 1996. The results of operations for the three month period ended March
31, 1997 are not necessarily indicative of the results that may be expected for
a full year.
Certain prior period data has been reclassified to conform to
current year presentation.
3. STATEMENTS OF CASH FLOWS
------------------------
For purposes of the Statements of Cash Flows, Emerald
considers all cash and deposits with banks with maturities of less than three
months to be cash equivalents.
No income tax payments were made during the three month
periods ended March 31, 1997 or 1996. Interest paid totaled $6,540,000 and
$5,698,000 for the three month periods ended March 31, 1997 and 1996,
respectively. There were transfers from loans to real estate owned of $535,000
with no loans made to finance the sale of real estate owned during the three
month period ended March 31, 1997. There were no transfers from loans to real
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estate owned nor were any loans made to finance the sale of real estate owned
during the first quarter of 1996.
4. PRIMARY EARNINGS PER SHARE
Primary earnings per share are calculated using the weighted average
number of shares of capital stock outstanding for the period. The impact of
stock options was not dilutive in any period. The weighted average number of
shares of capital stock outstanding has been retroactively adjusted to reflect
the two-for-one stock split effective May 15, 1997 for shareholders of record on
May 1, 1997.
5. NEW ACCOUNTING STANDARDS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities, was effective January 1, 1997. SFAS 125 amends portions of SFAS
115, Accounting for Certain Investments in Debt and Equity Securities, amends
and extends to all servicing assets and liabilities the accounting standards for
mortgage servicing rights provided by SFAS No. 65, and supersedes SFAS No. 122.
SFAS No. 125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings based
on a financial-components approach. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. The adoption of this statement did not have a material impact
on the Company's consolidated financial statements. SFAS No. 127 defers the
effective date of certain provisions of SFAS No. 125 until January 1, 1998, and
is not expected to have a material impact on the Company's consolidated
financial statements.
In February 1997 the FASB issued STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128, Earnings Per Share. SFAS No. 128 establishes
standards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock. SFAS No. 128 simplifies the standards
for computing EPS previously found in Accounting Principles Board Opinion No.
15, Earnings Per Share, and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures.
SFAS 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. The Company's pro forma basic and
diluted earnings per share would both have been 28(cent) for the quarter ended
March 31, 1997 and 23(cent) for the quarter ended March 31,1996.
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In February 1997 the FASB also issued STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 129, Disclosures of Information about Capital
Structure. This statement establishes standards for disclosing information about
an entity's capital structure. It supersedes specific disclosure requirements of
APB Opinions No. 10, Omnibus Opinion-1966, and No. 15, Earning Per Share, and
FASB Statement No. 47, Disclosure of Long-Term Obligations, and consolidates
them in this statement for ease of retrieval and for greater visibility to
nonpublic entities. SFAS No. 129 is effective for financial statements for
periods ending after December 15, 1997. It contains no changes in disclosure
requirements for entities that were previously subject to the requirements of
Opinions 10 and 15 and Statement 47 and, therefore, is not expected to have a
significant impact on the financial condition or results of operations of the
Company.
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SELECTED FINANCIAL INFORMATION
THREE MONTHS ENDED MARCH 31,
1997 1996
- -----------------------------------------------------------------------------------------------
Unaudited
(Dollars in thousands, except per-share data)
ANNUALIZED RETURNS AND OPERATING RATIOS
Earnings per share * $ 0.28 $ 0.23
Return on Average Assets 1.00% 0.96%
Return on Average Equity 13.13% 11.41%
Noninterest expense to
average assets 1.58% 1.89%
Efficiency ratio 49.92% 58.89%
OTHER SELECTED FINANCIAL RATIOS
Interest rate spread 2.60% 2.68%
Net yield on interest-earning assets 2.95% 3.07%
Yield on average interest-earning assets 7.75% 7.86%
Cost of average interest-bearing liabilities 5.15% 5.18%
Non-performing loans to total loans 0.33% 0.67%
Non-performing assets to total assets 0.34% 0.49%
Net recoveries (charge-offs) to average loans 0.00% 0.02%
Capital ratios:
Tangible capital ratio 7.25% 8.12%
Core capital ratio 7.25% 8.12%
Risk-based capital ratio 12.38% 13.47%
Dividends per share * $0.06 $0.055
Annualized asset growth 14.92% 10.19%
Average total assets $571,953 $493,603
Average loans, net (includes held for sale) 431,952 343,739
Average interest-earning assets 561,253 480,411
Average deposits 497,044 431,488
Average advances from the FHLB 25,841 13,114
Average shareholders' equity 43,754 41,657
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<FN>
* Per share information has been retroactively adjusted for the effect of the
two-for-one stock split effective May 15, 1997 to shareholders of record on
May 1, 1997.
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Part I, Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
Emerald Financial Corp. (Emerald or Company), a unitary thrift holding
company, became the holding company of The Strongsville Savings Bank
(Strongsville or Bank) in a tax-free exchange of shares of the Bank for shares
of Emerald on March 6, 1997. As a result, Emerald owns and operates the Bank.
All references to the Company or Emerald, unless otherwise indicated, refer to
the Bank and its subsidiary on a consolidated basis. Strongsville was founded in
1961 as an Ohio-chartered, federally insured savings association whose business
activities are concentrated in the greater Cleveland, Ohio area. The Company
conducts its business through its home office in Strongsville and its thirteen
additional full-service Community Financial Centers located in Cuyahoga, Lorain
and Medina counties.
The Company's principal business has historically been attracting
deposits from the general public and making loans secured by first mortgage
liens on residential and other real estate. The Bank and the banking industry in
general are significantly affected by prevailing economic conditions, the
general level and trend of interest rates as well as by government policies and
regulations concerning, among other things, fiscal affairs, housing and
financial institutions.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
The Company's total assets at March 31, 1997, were $588.6 million,
representing an increase of $21.1 million, or 14.9%, annualized, for the three
month period and of $84.0 million, or 16.6% for the twelve month period ended
March 31, 1997. The increase in assets was primarily concentrated in the
mortgage loan portfolio. Emerald's loan portfolio increased $18.7 million during
the quarter and $80.8 million during the twelve months ended March 31, 1997. The
increases in loans were funded by increases in deposits and decreases in
investment securities and other liquid assets.
The Company's deposits were $511.6 million at March 31, 1997,
representing an increase of $18.1 million, or 14.7%, annualized, during the
three month period and of $67.9 million, or 15.3% during the twelve month period
ended March 31, 1997.
Net interest income was $4.1 million for the quarter ended March 31,
1997, an increase of $0.4 million over the first quarter of 1996. The increase
in
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interest-earning assets, offset by a reduction in interest rate spread, caused
the improvement. Average interest-earning assets increased $80.9 million from
$480.4 million for the first quarter of 1996 to $561.3 million for the first
quarter of 1997. The Bank's interest rate spread decreased 8 basis points from
2.68% during the first quarter of 1996 to 2.60% during the first quarter of
1997.
Net income for the first quarter of 1997, at $1.4 million, was $0.2
million more than the $1.2 million for the same period in 1996. The increase was
primarily due to the increase in net interest income.
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Table 1 presents information regarding the average balances of
interest-earning assets and interest-bearing liabilities, the total dollar
amount of interest income from interest-earning assets and their average yields
and the total dollar amount of interest expense on interest-bearing liabilities
and their average rates. Table 1 also presents net interest income,
interest-rate spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities. Interest-rate
spread represents the difference between the weighted average yield on
interest-earning assets and the weighted average cost of interest-bearing
liabilities. Net interest margin represents net interest income as a percent of
average interest-earning assets. Average balance calculations were based on
daily and monthly balances. Assets available for sale are included in the major
asset category as if they were held-to-maturity.
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TABLE 1
AVERAGE BALANCE TABLE
FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996
AVERAGE BALANCE INTEREST YIELD/RATE AVERAGE BALANCE INTEREST YIELD/ RATE
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
INTEREST-EARNING ASSETS
Loans, net (1) $ 431,952 $ 8,764 8.12$ 343,739 $ 7,297 8.49%
Investment securities 56,161 858 6.11% 73,865 1,097 5.94%
Mortgage-backed securities 57,563 1,064 7.40% 50,836 893 7.03%
Other interest-earning assets 15,577 181 4.65% 11,971 160 5.35%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 561,253 10,867 7.75% 480,411 9,447 7.86%
Noninterest-earning assets 10,700 13,192
====================================================================================================================================
TOTAL ASSETS $ 571,953 $ 493,603
====================================================================================================================================
INTEREST-BEARING LIABILITIES
Deposits (2) $ 497,044 $ 6,357 5.12$ 431,488 $ 5,567 5.16%
Advances from FHLB 25,841 370 5.73% 13,114 195 5.95%
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Total interest-bearing liabilities 522,885 6,727 5.15% 444,602 5,762 5.18%
Noninterest-bearing liabilities 5,314 7,344
Shareholders' equity 43,754 41,657
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 571,953 $ 493,603
===================================================================================================================================
Net interest income $ 4,140 $ 3,685
Interest-rate spread 2.60% 2.68%
Net interest margin 2.95% 3.07%
Ratio of average interest-earning assets to average interest-bearing liabilities 107.34% 108.05%
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<FN>
(1) Average balances include non-accrual loans. Interest income includes
deferred loan fee amortization of $381,000 and $418,000 for the three
months ended March 31, 1997 and 1996, respectively.
(2) Deposits include noninterest-bearing demand accounts which were $9,880,000
and $10,013,000 at March 31, 1997 and 1996, respectively.
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Table 2 presents certain information regarding changes in interest income and
interest expense of the Company for the three month periods ended March 31, 1997
and 1996. The table shows the changes in interest income and interest expense by
major category attributable to changes in the average balance (volume) and the
changes in interest rates. The net change not attributable to either rate or
volume is allocated on a prorata basis to the change in rate or volume. Assets
available for sale are included in the major asset category as if they were
held-to-maturity.
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE TABLE
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN DUE TO CHANGES IN
VOLUME RATE TOTAL VOLUME RATE TOTAL
- -------------------------------------------------------------------------------------------------------------------------
(In thousands)
INTEREST INCOME ON INTEREST-EARNING ASSETS
Loans, net $ 1,768 $ (301) $ 1,467 $ 1,215 $ (146) $ 1,069
Investment securities (272) 33 (239) (72) 40 (32)
Mortgage-backed securities 122 49 171 239 3 242
Other 37 (16) 21 4 18 22
- -------------------------------------------------------------------------------------------------------------------------
Total 1,655 (235) 1,420 1,386 (85) 1,301
- -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Deposits 833 (43) 790 811 399 1,210
Advances from FHLB 208 (33) 175 (24) (25) (49)
- -------------------------------------------------------------------------------------------------------------------------
Total 1,041 (76) 965 787 374 1,161
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME $ 614 $ (159) $ 455 $ 599 $ (459) $ 140
- -------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income is the primary component of net income and is
determined by the characteristics of interest-earning assets and
interest-bearing liabilities, including the spread, or the difference between
the yields earned and the rates paid on those assets and liabilities. Net
interest income is the difference between interest income and interest expense.
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------------
(Dollars in thousands)
Net interest income:
Current period $ 4,140
Prior period 3,685
-----------------------------------------------------
Dollar change from prior period $ 455
-----------------------------------------------------
Percent change from prior period 12.34%
=====================================================
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Interest income
- ---------------
Interest income for the three months ended March 31, 1997, was $10.9
million, compared to $9.4 million for the first quarter of 1996, an increase of
$1.5 million or 15.04%. This increase was primarily due to the increase in
average interest-earning assets as demonstrated on Table 2. Average
interest-earning assets increased to $561.3 million for the first quarter of
1997 from $480.4 million for the first quarter of 1996. The effect of the
increase in interest-earning assets was offset somewhat by the 11 basis point
decline in the average yield on interest-earning assets to 7.75% for the first
quarter of 1997 from 7.86% for the like period in 1996.
Interest expense
- ----------------
Interest expense increased during the quarter ended March 31, 1997,
compared to the same period in 1996 primarily due to an increase in
interest-bearing liabilities of $78.3 million, or 17.61%, offset by a decrease
in the average cost of interest-bearing liabilities. Average interest-bearing
liabilities were $522.9 million and $444.6 million for the first quarter of 1997
and 1996, respectively. The average cost of interest-bearing liabilities
decreased 3 basis points to 5.15% for the first quarter of 1997 from 5.18% for
the same period in 1996.
Provision for loan losses
- -------------------------
The provision for loan losses for the three months ended March 31,
1997, was $78,000 compared to $5,000 for the same period in 1996. The provisions
for both periods were commensurate with management's estimate of the credit risk
in the loan portfolio. Economic conditions in the Bank's market area were
stable.
Further discussion and other information relating to loan losses and
nonperforming assets are included in the section titled "Asset Quality."
NONINTEREST INCOME
- --------------------------------------------------------------------------------
Three months ended March 31, 1997
----------------------------------------
(Dollars in thousands)
Noninterest income:
Current period $ 425
Prior period 517
----------------------------------------
Dollar change from prior period ( $ 92 )
----------------------------------------
Percent change from prior period (17.81%)
========================================
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Noninterest income consists primarily of fees earned for servicing
loans and providing services for customers and gains on loan sales. The decline
in noninterest income is primarily due to a decline in gains on sales of assets
offset by increases in fee income.
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Three months ended March 31, 1997
-------------------------------------
(Dollars in thousands)
Noninterest expense:
Current period $ 2,286
Prior period 2,369
-------------------------------------
Dollar change from prior period ( $ 83)
-------------------------------------
Percent change from prior period ( 3.54%)
=====================================
The decrease in noninterest expense is primarily due to the reduction
in the federal deposit insurance premium from 23(cent) per $100 of deposits
during the first quarter of 1996 to 6.5(cent) per $100 of deposits in 1997. The
decrease in federal deposit insurance premium expense was offset by an increase
in the cost of human resources and occupancy due to continued growth during the
twelve months ended March 31, 1997, including the addition of two offices.
Management is pleased with the efficiency ratio of 49.92%, which has improved
from the 58.89% a year ago.
FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
The Bank provided $764,000 for federal income tax during the first
quarter of 1997 and $640,000 during the like period in 1996. Net income before
the provision for federal income taxes increased for the compared periods
resulting in a corresponding increase in the provision for federal income taxes.
- --------------------------------------------------------------------------------
FINANCIAL RESOURCES AND LIQUIDITY
- --------------------------------------------------------------------------------
The Company's primary sources of funds are deposits, principal and
interest payments on loans, maturities of investment securities, proceeds from
the sale of loans, FHLB advances and funds generated through earnings. The
primary uses for such funds are to originate loans, maintain liquidity
requirements and manage interest rate risk.
For an analysis of Emerald's cash flows, refer to the Consolidated
Statements of Cash Flows on page 3. Management believes the Company has adequate
resources to meet its normal funding requirements.
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The Bank is required to maintain an average daily balance of liquid
assets equal to 5% of the sum of its average daily balance of net withdrawable
accounts and borrowed funds due in one year or less. The Bank's March 1997
monthly average of eligible liquid assets was 11.73%.
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Shareholders' equity was $44.2 million at March 31, 1997, an increase
of $1,016,000, or 9.42%, annualized, during the first quarter of 1997. This
increase was primarily the result of net income offset by dividends paid.
Emerald paid dividends in the first quarter of 1997 of 6(cent) per share, an
increase of 9.09% over the 5.5(cent) per share dividend paid in the first
quarter of 1996.
The Company's return on average assets was 1.00% and return on average
equity was 13.13% for the first quarter of 1997.
At March 31, 1997, the Bank was in excess of all capital requirements
specified by federal regulations as shown by the following table.
TANGIBLE CAPITAL CORE CAPITAL RISK-BASED CAPITAL
------------------------------------------------------------
(Dollars in thousands)
Capital amount -- Actual $ 42,615 $ 42,615 $ 44,115
Capital amount -- Required 8,822 17,645 28,502
------------------------------------------------------------
Amount in excess of requirement $33,793 $24,970 $15,613
============================================================
Capital ratio -- Actual 7.25% 7.25% 12.38%
Capital ratio -- Required 1.50% 3.00% 8.00%
------------------------------------------------------------
Amount in excess of requirement 5.75% 4.25% 4.38%
============================================================
Strongsville Savings' capital levels at March 31, 1997, qualify it as a
"well-capitalized" institution, the highest of five tiers under applicable
federal definitions.
QUALIFIED THRIFT LENDER TEST
- --------------------------------------------------------------------------------
Savings associations insured by the Savings Association Insurance Fund
of the Federal Deposit Insurance Corporation (FDIC) are required to maintain 65%
of total portfolio assets in Qualified Thrift Investments. As of March 31, 1997,
the Bank had 85.78% of total assets invested in Qualified Thrift Investments.
15
17
ASSET QUALITY
- --------------------------------------------------------------------------------
Table 3 sets forth information regarding non-performing assets at March
31, 1997, December 31, 1996, and March 31, 1996.
- --------------------------------------------------------------------------------
Table 3
NON-PERFORMING ASSETS ANALYSIS
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
- --------------------------------------------------------------------------------
(Dollars In thousands)
NON-ACCRUING LOANS
1-4 family - permanent $ 407 $ 600 $ 52
1-4 family - construction -- -- --
Multi-family and Commercial
real estate -- -- --
Land and development -- -- --
Commercial non-real estate -- -- 70
Consumer and other 14 5 13
- --------------------------------------------------------------------------
Total 421 605 135
LOANS DELINQUENT 90 DAYS OR MORE
AND STILL ACCRUING
1-4 family - permanent 442 682 1,436
1-4 family - construction 591 412 493
Multi-family and Commercial
real estate -- -- 375
Land and development -- -- 11
Commercial non-real estate -- -- --
Consumer and other -- -- --
- --------------------------------------------------------------------------
Total 1,033 1,094 2,315
Total non-performing loans 1,454 1,699 2,450
Real estate owned 535 -- --
- --------------------------------------------------------------------------
Total non-performing assets $1,989 $1,699 $2,450
==========================================================================
Allowances for loan losses $1,500 $1,423 $1,146
==========================================================================
Non-performing loans to total loans-net 0.33% 0.40% 0.67%
Non-performing assets to total assets 0.34% 0.30% 0.49%
Allowance for loan losses to ending
loan balance (before allowance) 0.34% 0.33% 0.32%
Allowance for loan losses to
non-performing loans 103.15% 83.76% 46.78%
- --------------------------------------------------------------------------
16
18
Table 4 presents information concerning activity in the allowance for
loan losses during the quarters ended March 31, 1997 and 1996.
- --------------------------------------------------------------------------------
Table 4
ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
FOR THE THREE MONTHS ENDED
MARCH 31,
1997 1996
- --------------------------------------------------------------------------------
(Dollars in thousands)
Allowance at the beginning of the period $1,423 $1,168
Provision charged to expense 78 5
Charge-offs:
- ------------
1-4 family - permanent -- --
1-4 family - construction -- --
Multi-family and Commercial
real estate -- --
Land and development -- --
Commercial non-real estate -- --
Consumer and other 5 27
- ----------------------------------------------------------------------------
5 27
Recoveries
- ----------
1-4 family - permanent -- --
1-4 family - construction -- --
Multi-family and Commercial
real estate -- --
Land and development -- --
Commercial non-real estate -- --
Consumer and other 4 --
- ----------------------------------------------------------------------------
4 --
- ----------------------------------------------------------------------------
Net recoveries (charge-offs) (1) (27)
- ----------------------------------------------------------------------------
Allowance at the end of the period $1,500 $1,146
============================================================================
Net charge-offs during the period to
average loans outstanding during
the period (Anned) 0.00% 0.03%
- ----------------------------------------------------------------------------
The amount of the allowance for loan losses is based on management's
analysis of risks inherent in the various segments of the loan portfolio,
management's assessment of known or potential problem credits which have come to
management's attention during the ongoing analysis of credit quality, historical
loss experience, current economic conditions, and other factors. Loan loss
estimates are reviewed periodically, and adjustments, if any, are reported in
earnings in the period in which they become known.
17
19
TABLE A
Table A sets forth the composition of the Bank's loan portfolio at
March 31, 1997, December 31, 1996, and March 31, 1996.
- --------------------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- --------------------------------------------------------------------------------------------------------------------------
REAL ESTATE MORTGAGE LOANS: (Dollars In thousands)
Permanent first mortgage loans:
1-4 family $309,317 69.59% $301,284 70.88% $251,519 69.16%
Multi-family 1,020 0.23% 1,049 0.25% 1,136 0.31%
Commercial real estate 53,073 11.94% 46,883 11.03% 43,683 12.02%
Land 136 0.03% 195 0.05% 308 0.08%
Construction first mortgage loans:
Residential development 58,377 13.12% 54,670 12.85% 48,899 13.45%
1-4 family 38,956 8.76% 37,049 8.72% 29,228 8.04%
Multi-family 80 0.02% 240 0.06% 2,660 0.73%
Commercial real estate 1,869 0.43% 2,376 0.56% 4,133 1.14%
- -------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 462,828 104.12% 443,746 104.40% 381,566 104.93%
OTHER LOANS
Commercial 4,611 1.04% 4,250 1.00% 3,827 1.05%
Consumer 9,968 2.24% 9,118 2.14% 8,199 2.25%
- -------------------------------------------------------------------------------------------------------------------------
Total other loans 14,579 3.28% 13,368 3.14% 12,026 3.30%
- -------------------------------------------------------------------------------------------------------------------------
Total loans 477,407 107.40% 457,114 107.54% 393,592 108.23%
Less:
Loans in process 27,573 6.20% 26,676 6.28% 24,958 6.86%
Allowance for loan losses 1,500 0.34% 1,423 0.33% 1,146 0.32%
Deferred yield items 3,820 0.86% 3,955 0.93% 3,812 1.05%
- -------------------------------------------------------------------------------------------------------------------------
32,893 7.40% 32,054 7.54% 29,916 8.23%
- -------------------------------------------------------------------------------------------------------------------------
Total loans held for investment-Net $444,514 100.00% $425,060 100.00% $363,676 100.00%
=========================================================================================================================
Real estate loans held for sale $ -- $ 795 $ --
=========================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------
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20
TABLE B
Table B sets forth the activities in the Bank's loan portfolio for the
three month periods ended March 31, 1997, and 1996.
- -----------------------------------------------------------------------------
ACTIVITY IN THE LOAN PORTFOLIO
FOR THE QUARTER ENDED
MARCH 31,
1997 1996
- -----------------------------------------------------------------------------
(In thousands)
PERMANENT MORTGAGE LOAN ORIGINATIONS
1-4 family $19,263 $40,168
Multi-family -- --
Commercial real estate 1,460 2,300
Land 80 --
- ---------------------------------------------------------------------
20,803 42,468
CONSTRUCTION FIRST MORTGAGE LOAN ORIGINATIONS
Residential development 11,494 10,081
1-4 family 8,258 8,974
Multi-family -- --
Commercial real estate 908 --
- ---------------------------------------------------------------------
20,660 19,055
NONMORTGAGE LOANS
Commercial 465 595
Consumer 5,562 386
- ---------------------------------------------------------------------
6,027 981
- ---------------------------------------------------------------------
TOTAL LOAN ORIGINATIONS 47,490 62,504
PURCHASED LOANS
Commercial real estate 4,422 --
- ---------------------------------------------------------------------
TOTAL NEW LOANS 51,912 62,504
LESS
Principal repayments 25,391 25,490
Loan sales 7,033 8,066
- ---------------------------------------------------------------------
32,424 33,556
- ---------------------------------------------------------------------
NET INCREASE IN LOANS $19,488 $28,948
=====================================================================
- ---------------------------------------------------------------------
19
21
TABLE C
Table C sets forth the composition of the Bank's deposits by interest
rate category at March 31, 1997, December 31, 1996, and March 31, 1996.
- --------------------------------------------------------------------------------
DEPOSIT COMPOSITION
--------------------------------------------------------------------------------------
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996
WTD AVG WTD AVG WTD AVG
COST AMOUNT PERCENT COST AMOUNT PERCENT COST AMOUNT PERCENT
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
PASSBOOK ACCOUNTS 2.90 $46,360 9.06% 2.90 $46,034 9.33% 2.86 $46,851 10.56%
NOW ACCOUNTS 1.99% 30,866 6.03% 2.02% 29,661 6.01% 2.02% 27,069 6.10%
MONEY MARKET DEPOSIT ACCOUNTS 2.53% 17,481 3.42% 2.53% 17,882 3.62% 2.53% 21,437 4.83%
COMMERCIAL ACCOUNTS 0.00% 9,880 1.93% 0.00% 11,535 2.34% 0.00% 10,013 2.26%
- -------------------------------------------------------------------------------------------------------------------------
2.29% 104,587 20.44% 2.27% 105,112 21.30% 2.30% 105,370 23.75%
CERTIFICATES OF DEPOSIT:
4.50% and less 2.52% 1,494 0.29% 2.54% 1,849 0.37% 3.01% 3,515 0.79%
4.51% to 5.50% 5.31% 101,594 19.87% 5.34% 116,857 23.68% 5.29% 110,472 24.90%
5.51% to 6.50% 6.02% 227,578 44.48% 6.03% 187,013 37.90% 6.01% 122,210 27.54%
6.51% to 7.50% 7.32% 67,653 13.22% 7.33% 73,823 14.96% 7.26% 91,451 20.61%
7.51% and greater 8.86% 8,713 1.70% 8.86% 8,817 1.79% 8.90% 10,707 2.41%
- -------------------------------------------------------------------------------------------------------------------------
6.11% 407,032 79.56% 6.11% 388,359 78.70% 6.17% 338,355 76.25%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 5.33% $511,619 100.00% 5.29% $493,471 100.00% 5.25% $443,725 100.00%
=========================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------
TABLE D
Table D sets forth the remaining terms to maturity for the certificates
of deposit at March 31, 1997.
CERTIFICATES OF DEPOSIT MATURING/REPRICING DURING:
(In Thousands)
The year ending March 31, 1998 $ 265,597
The year ending March 31, 1999 55,501
The year ending March 31, 2000 35,405
The year ending March 31, 2001 10,534
The year ending March 31, 2002 6,470
After April 1, 2002 33,525
=============================================================
$ 407,032
=============================================================
20
22
PART II
ITEM 4 Submission of Matters to a Vote of Security Holders
----------------------------------------------------
There were no items submitted to a vote by security holders during the
quarter.
ITEM 5 Exhibits and Reports on Form 8-K
--------------------------------
(a) Not applicable
(b) No reports on Form 8-K were filed during the quarter.
21
23
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 FINANCIAL CORP.
------------------------
(Registrant)
Date May 14, 1997 /s/ THOMAS P. PERCIAK .
------------ --------------------------------
Thomas P. Perciak,
President & Chief Executive Officer
Date May 14, 1997 /s/ JOHN F. ZIEGLER .
------------ -----------------------------------
John F. Ziegler,
Executive Vice President &
Chief Financial Officer
22