-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C6/p/TifOf7Tw6LdIErrNKI9L95ZD1I9W9IyrVX+qZB0RCaB/FDdz5cNHGmsk4Ai Wvt/LnX4iZdcfop7z0fm5A== 0000912057-96-016882.txt : 19960812 0000912057-96-016882.hdr.sgml : 19960812 ACCESSION NUMBER: 0000912057-96-016882 CONFORMED SUBMISSION TYPE: 8-A12G PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960809 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMERALD ISLE BANCORP INC CENTRAL INDEX KEY: 0001018380 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043300934 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-A12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-21175 FILM NUMBER: 96607191 BUSINESS ADDRESS: STREET 1: 730 HANCOCK ST CITY: QUINCY STATE: MA ZIP: 02170 BUSINESS PHONE: 6174795001 MAIL ADDRESS: STREET 1: 730 HANCOCK ST CITY: QUINCY STATE: MA ZIP: 02170 8-A12G 1 8-A12G UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-A FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 EMERALD ISLE BANCORP, INC. (Exact Name of registrant as specified in its charter) MASSACHUSETTS 04-3300934 (State of incorporation or organization) (I.R.S. Employer Identification No.) 730 HANCOCK STREET QUINCY, MASSACHUSETTS 02170 (617) 479-5001 (Address of principal executive offices) Securities to be registered pursuant to 12(b) of the Act: Title of each class to Name of each exchange on which be so registered each class is to be registered NONE - ------------------------------ --------------------------------- - ------------------------------ --------------------------------- - ------------------------------ --------------------------------- If this Form relates to the registration of a class of debt securities and is effective upon filing pursuant to General Instruction A(c)(1), please check the following box. [ ] If this Form relates to the registration of a class of debt securities and is to become effective simultaneously with the effectiveness of a concurrent registration statement under the Securities Act of 1933 pursuant to General Instruction A(c)(2), please check the following box. [ ] Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK, $1.00 PAR VALUE PER SHARE (Title of Class) ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED. Pursuant to a Plan of Reorganization and Acquisition dated as of February 15, 1996 (the "Plan of Reorganization") between The Hibernia Savings Bank, a Massachusetts savings bank in stock form of ownership (the "Bank"), and Emerald Isle Bancorp, Inc., a newly-formed Massachusetts corporation organized at the direction of the Bank (the "Company"), the Company will acquire all of the outstanding common stock of the Bank, par value $1.00 per share, other than shares held by stockholders exercising dissenters' appraisal rights, if any, in a share-for-share exchange for the common stock, par value $1.00 per share, of the Company. The Bank will thereby become a wholly owned subsidiary of the Company and the Bank's stockholders will become, subject to their dissenters' appraisal rights, stockholders of the Company. Under the Articles of Organization of the Company (the "Articles"), the Company is authorized to to issue up to 10,000,000 shares of Common Stock, par value $1.00 per share, and up to 5,000,000 shares of preferred stock, par value $1.00 per share. STOCK. The Board of Directors of the Company is authorized to issue shares of stock in series and classes and to fix the voting powers, designations, preferences, or other rights of the shares of each such series and class and the qualifications limitations, and restrictions thereon. The issuance of preferred stock by the Company is subject to the approval of a majority vote of the Board Directors of the Company. Preferred stock issued by the Company may rank prior to the Common Stock as to dividend rights, liquidation preferences, or both, may have full or limited voting rights (including multiple voting rights and voting as a class), and may be convertible into shares of Common Stock. VOTING RIGHTS. Stockholders are entitled to one vote per share on all matters, and a proportionate vote for a fractional share, subject to the rights of the holders of shares of preferred stock, if and when issued. The Articles do not provide for cumulative voting in connection with the election of Directors, and therefore holders of a majority of the Common Stock will be able to elect all of the Directors standing for election in each year. The Company may not, directly or indirectly, vote any share of its own stock. PREEMPTIVE RIGHTS. Holders of Common Stock have no preemptive rights as to the purchase of any shares issued in the future. Therefore, the Board of Directors may sell shares of capital stock without first offering them to the stockholders of the Company. ACCESSABILITY. Under Massachusetts law, Common Stock is non-assessable. DIVIDEND RIGHTS. The Company may pay dividends if, as, and when declared by the Board of Directors. The Company's stockholders are entitled to receive and share equally in such dividends as may be declared by the Board of Directors out of funds legally available therefor. Directors who vote to authorize a dividend payment or repurchase or redemption, which is made when the corporation is insolvent, renders the corporation insolvent, or is in violation of the corporation's articles of organization, may be jointly and severally liable for such improper dividend. Stockholders to whom a corporation makes any such distribution (except a distribution of stock of the corporation), if the corporation is, or thereby rendered, insolvent, are liable to the corporation for the amount of distribution made, or for the amount of such distribution which exceeds that which could have been made without rendering the corporation insolvent, but in either event only to the extent of the amount paid or distributed to them. It is the policy of the Federal Reserve Board that bank holding companies pay cash dividends on common stock only out of the past year's net income, and only if prospective earnings retention is consistent with the organization's expected future needs. The policy further provides that a bank holding company should not maintain a level of cash dividends that undermines the bank holding company's ability to serve as a source of strength to its banks. The Federal Reserve Board also requires by regulation that a holding company seeking to purchase or redeem any of its equity securities provide prior notice to the appropriate regional Federal Reserve Bank, which may disapprove of such proposed purchase or redemption, if the gross consideration for such purchase or redemption, when aggregated with the net consideration paid by the holding company for all such purchases or redemptions during the preceding twelve months, exceeds 10% of the holding company's net worth, except that such prior notice requirements do not apply to any holding company that is "well capitalized" in accordance with Federal Reserve Board regulations, has received a composite "1" or "2" rating in its most recent examination and is not subject to any unresolved regulatory issues. Any issuance of preferred stock with a preference over Common Stock as to dividends may affect the dividend rights of Common Stock holders. DIRECTORS NUMBER AND STAGGERED TERMS. The By-laws of the Company (the "By-laws") provide that the Board of Directors of the Company may fix the number and classification of Directors, unless at the time there is an Interested Stockholder (as defined in the By-laws) in which case a two-thirds vote of the Continuing Directors (as defined in the By-laws) is also required. The Board of Directors of the Company will initially be composed of seven Directors. The Articles provide for three classes of Directors with one class elected each year for three year staggered terms, so that ordinarily no more than approximately one-third of the Directors will stand for election in any one year, and that there will be no cumulative voting in the election of Directors. The term "Interested Stockholder" is defined in the By-laws to mean any person (other than the Company or any officer or director thereof, any employee benefit plan of the Company, or any subsidiary of the Company) who or which is the beneficial owner 10% or more of the outstanding voting stock of the Company, is an affiliate of the Company and at any time within the two-year period immediately prior to the date in question was the beneficial owner of 10% or more of the outstanding voting stock of the Company, and certain assignees of such Interested Stockholder. The term "Continuing Director" is defined in the By-laws to mean Directors who are not affiliates or associates of any Interested Stockholder and who were Directors prior to the time that any Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is not an affiliate or associate of the Interested Stockholder and is approved to succeed a Continuing Director by a two-thirds vote of the Continuing Directors then on the Board of Directors. REMOVAL. The Articles provide that any Director may be removed with or without cause by a vote of two-thirds of the Directors then in office, unless a the time of such action there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors shall also be required. VACANCIES. The By-laws provide that any vacancy occurring on the Board of Directors of the Company as a result of resignation, removal or death may be filled by vote of a majority of the remaining Directors, unless at the time of the action there is an Interested Stockholder, in which case such vacancy may only be filled by a vote of two-thirds of the Continuing Directors then in office. A Director elected to fill such a vacancy shall be elected to serve for a term of office continuing until the next election of Directors by the stockholders. Any directorship to be filled by reason of an increase in the authorized number of Directors may be filled by the Board of Directors for a term of office continuing until the next election of Directors by the stockholders. If at the time of such action, there is an Interested Stockholder, a vote of two-thirds of the Continuing Directors is required instead. MEETINGS OF STOCKHOLDERS. The By-laws provide that the annual meeting of stockholders will be held on the third Monday in April in each year. The By-laws set forth certain advance notice and informational requirements and time limitations on any Director nomination or any new business that a stockholder wishes to propose for consideration at an annual meeting of stockholders. Any such nomination or new business, to be timely, must be delivered to, or mailed and received at the principal executive offices of the Company not less than 120 days nor more than 150 days prior to the scheduled annual meeting. The Board of Directors may reject a stockholder's nomination or proposal if it is not timely or does not contain sufficient information, or, if the Board of Directors does not make this determination, the presiding officer may do so. If there is an Interested Stockholder, the nomination or proposal requires the concurrence of a majority of the Continuing Directors. The By-laws provide that special meetings of stockholders may be called by the Chairman of the Board, if one is elected, the Vice-Chairman, if one is elected, or by the Board of Directors, unless there is an Interested Stockholder, in which case any such call shall also require the affirmative vote of two-thirds of the Continuing Directors then in office, unless otherwise provided in the Articles or By-laws, and shall be called by the Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application of one or more stockholders who hold at least forty percent in interest of the capital stock entitled to vote thereat. The By-laws also provide that only those matters set forth in the call of the special meeting may considered or acted upon at such special meeting. STOCKHOLDER VOTE REQUIRED TO APPROVE CERTAIN TRANSACTIONS. Massachusetts law provides that certain agreements of merger, or the sale, lease or exchange of all or substantially all of the assets of a Massachusetts corporation must be approved by the vote of holders of two-thirds of the shares of each class of stock and entitled to vote thereon or, if the articles of organization so provide, the vote of a lesser proportion, but not less than a majority. Massachusetts law provides that no vote of the stockholders of a Massachusetts corporation is required, unless its articles of organization otherwise provide, to approve a merger if (i) the agreement of merger does not amend in any respect the corporation's articles of organization, (ii) the number of shares of the surviving corporation's stock to be issued in the merger does not exceed 15% of the shares of the same class outstanding prior to the effective date of the merger, and (iii) the issuance of authorized but unissued stock pursuant to a merger by vote of the directors has been authorized by the by-laws or a vote of the stockholders. A Massachusetts corporation owning at least 90% of the outstanding shares of each class of stock of another corporation may merge such corporation into itself without a vote of the stockholders. The Articles provide that a two-thirds vote of the stockholders is required to authorize (i) a sale, lease, or other disposition of all or substantially all of the property or assets of the Company, (ii) a merger or consolidation of the Company with or into any other corporation, or (iii) any reclassification of or recapitalization involving the Company's Common Stock. AMENDMENT OF ARTICLES. The Articles provide that any amendment, addition, alteration, change or repeal of the Articles regarding an increase or reduction of the capital stock or of any authorized class thereof, certain changes with respect to the number and par value of any authorized shares or class thereof, or a change of the corporate name may be made if first approved by the affirmative vote of two-thirds of the Board of Directors of the Company (unless at the time of such action there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors shall also be required), and thereafter approved by the affirmative vote of a majority of the stockholders. The Articles provide that no other amendment, addition, alteration, change or repeal of the Articles shall be made unless first approved by the affirmative vote of two-thirds of the Board of the Directors of the Company, and thereafter approved by the affirmative vote of at least two-thirds of the stockholders. If at any time within the sixty day period immediately preceding the meeting at which the stockholder vote is to be taken there is an Interested Stockholder, such provision may only be amended, altered, changed or repealed if such action shall have been approved by not less than two-thirds of the Continuing Directors. AMENDMENT OF BY-LAWS. The Articles provide that the Board of Directors may make, repeal, alter, amend and rescind the By-laws of the Company by the affirmative vote of at least two-thirds of the Directors, unless at the time of such action there is an Interested Stockholder, in which case the affirmative vote of at least two-thirds of the Continuing Directors is also required. The Articles also provide that the By-laws may be made, repealed, altered, amended, or rescinded by the stockholders of the Company by the vote of at least two- thirds of the outstanding shares, considered for this purpose as one class, cast at a meeting of the stockholders called for that purpose, provided that notice of such proposed adoption, repeal, alteration, amendment or recission is included in the notice of such meeting. ANTI-TAKEOVER PROVISIONS. Certain provisions of the Articles and By-laws may be deemed to have an "anti-takeover" effect. For example: (i) the Board of Directors' authority to set the designations, powers, preferences and relative rights of the authorized but unissued shares of preferred stock could be used in the event of an attempt by an unsolicited third party to gain control of the Company to impede such attempt to acquire control; (ii) the three-year staggered terms for Directors, the Board of Directors' authority to fix the number of Directors who may serve from time to time, and the notice and informational requirements pertaining to the nomination by stockholders of candidates for election to the Board of Directors all may make it more difficult to change a majority of the Board of Directors; (iii) the requirements that special meetings of shareholders may be called only by the Chairman of the Board, Vice Chairman, the Board of Directors or upon application of shareholders holding at least forty percent of the capital stock, and that shareholder proposals must satisfy certain notice and informational requirements to be considered at an annual meeting may make it more difficult for shareholders to take action independent of the of Directors; and (iv) the requirement that action to amend the Articles must generally be preceded by the approval of the Board of Directors of such proposed amendment may limit the ability to effect such amendments without the support of the Board of Directors. In addition to the various provisions of the Articles and By-laws, certain of the Massachusetts General Laws may also have the effect of preventing future acquisitions of the Company. Chapters 110D and 110F of the Massachusetts General Laws, cover "control share acquisitions" and certain combinations with interested stockholders, respectively. Chapter 110D provides that any person who makes a bona-fide offer to acquire, or acquires shares of stock of a corporation in an amount equal to or greater than one-fifth, one-third, or a majority of the voting stock of the corporation must obtain the approval of a majority of shares of all stockholders except the acquiror and the officers and inside directors of the corporation in order to vote the shares that the acquiror acquires in crossing the thresholds. A Massachusetts corporation is permitted to opt out of Chapter 110D. The Articles of the Company contain a provision opting out of chapter 110D. As a result of the Company's decision to opt out of the statute, the voting restrictions of Chapter 110D are not currently applicable to the Company's stockholders. The Board of Directors may amend the Articles at any time in the future to subject the Company to this statute prospectively. Chapter 110F provides that a Massachusetts corporation with more than 200 stockholders may not engage in a "business" combination with an "interested" stockholder" for a period of three years after the date of the transaction in which the person becomes and interested stockholder, unless (i) the interested stockholder obtains the approval of the Board of Directors prior to becoming an interested stockholder, (ii) the interested stockholder acquires 90% of the outstanding voting stock of the corporation (excluding shares held by certain affiliates of the corporation) at the time it becomes an interested stockholder, or (iii) the business combination is approved by both the Board of Directors and the holders of 66 2/3% of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder). An "interested stockholder" is a person who, together with affiliates and associates, owns (or, in certain cases, at any time within the prior three years did own) 5% or more of the outstanding voting stock of the corporation. A "business combination" includes a merger, certain stock or asset sales, and certain other specified transactions resulting in a financial benefit to the interested stockholder. A Massachusetts corporation is permitted to opt out of Chapter 110F. The Articles contain a provision opting out of Chapter 110F. As a result of the Company's decision to opt out of the statute, the provisions of Chapter 110F are not currently applicable to the Company's stockholders. The Board of Directors of the Company may amend the Articles at any time to subject the Company to Chapter 110F prospectively. ITEM 2. EXHIBITS. The following exhibits are filed as a part of this Registration Statement: Number Description - ------ ----------- 99.1 Articles of Organization of the Registrant 99.2 Bylaws of the Registrant 99.3 Annual Report on F.D.I.C. Form F-2 of The Hibernia Savings Bank (the "Bank") for the fiscal year ended December 31, 1995 99.4 Notice and Proxy Statement dated March 15, 1996 for the Annual Meeting of Shareholders of the Bank 99.5 Quarterly Report on F.D.I.C. Form F-4 of the Bank for the fiscal quarter ended March 31, 1996 99.6 1995 Annual Report to the Bank's Stockholders SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this registration statement to be signed on behalf by the undersigned, thereunto duly authorized. EMERALD ISLE BANCORP, INC. Date: August 9, 1996 By: /s/ Mark A. Osborne ----- ------------------------------------ Mark A. Osborne, President EX-99.1 2 EXHIBIT 99.1 Exhibit 99.1 THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF ORGANIZATION (General Laws, Chapter 156B) ARTICLE I The exact name of the corporation is: Emerald Isle Bancorp, Inc. ARTICLE II The purpose of the corporation is to engage in the following business activities: To acquire, invest in or hold stock in any subsidiary permitted under the Bank Holding Company Act of 1956 or Chapter 167A of the Massachusetts General Laws, as such statutes may be amended from time to time, and to engage in any other permissible activity or enterprise under said statutes or other applicable law. To engage generally in any business activity which may be lawfully carried on by a corporation organized under Chapter 156B of the Massachusetts General Laws. NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON ONE SIDE ONLY OF SEPARATE 8 1/2 x 11 SHEETS OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH ARTICLE REQUIRING EACH ADDITION IS CLEARLY INDICATED. ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue. - -------------------------------------------------------------------------------- WITHOUT PAR VALUE WITH PAR VALUE - -------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------- Common: Common: 10,000,000 $1.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Preferred: Preferred: 5,000,000 $1.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class. See Continuation Sheet IV Attached. ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: See Continuation Sheet V Attached. ARTICLE VI **Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: See Continuation Sheet VI attached. **IF THERE ARE NO PROVISIONS STATE "NONE." NOTE: THE PRECEDING SIX (6) ARTICLES ARE CONSIDERED TO BE PERMANENT AND MAY ONLY BE CHANGED BY FILING APPROPRIATE ARTICLES OF AMENDMENT. CONTINUATION SHEET IV CAPITAL STOCK The aggregate number of shares of all classes of capital stock which the Corporation has authority to issue is 15,000,000, of which 10,000,000 are to be shares of common stock, of $1.00 par value per share, and of which 5,000,000 are to be shares of serial preferred stock, of $1.00 par value per share. The shares may be issued by the Corporation from time to time as approved by the Board of Directors of the Corporation without the approval of the stockholders except as otherwise provided in this Article IV or the rules of a national securities exchange if applicable. The consideration for the issuance of the shares shall be paid to or received by the Corporation in full before their issuance and shall not be less than the par value per share. The consideration for the issuance of the shares shall be cash, services rendered, personal property (tangible or intangible), real property, leases of real property or any other consideration deemed appropriate by the Board of Directors. In the absence of actual fraud in the transaction, the judgment of the Board of Directors as to the value of such consideration shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, the part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. A description of the different classes and series (if any) of the Corporation's capital stock, and a statement of the relative powers, designations, preferences and rights of the shares of each class and series (if any) of capital stock, and the qualifications, limitations or restrictions thereof, are as follows: A. COMMON STOCK. Except as provided in these Articles (or in any certificate of establishment of series of preferred stock), the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share. There shall be no cumulative voting rights in the election of Directors. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and sinking fund or retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock, and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends, but only when and as declared by the Board of Directors of the Corporation. In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class having preference over the common stock in any such event the full preferential amounts to which they are respectively entitled, the holders of the common stock and of any class or series of stock entitled to participate therewith, in whole or in part, as to distribution of assets shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation to receive the remaining assets of the Corporation available for distribution, in cash or in kind, in proportion to their holdings. Each share of common stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of common stock of the Corporation. B. SERIAL PREFERRED STOCK. Subject to any limitations prescribed by law or these Articles, the Board of Directors of the Corporation is authorized, by vote from time to time taken, to provide for the issuance of serial preferred stock in one or more series and to fix and state the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series, and the qualifications, limitations or restrictions thereof, including, but not limited, to determination of any of the following: 1. the distinctive serial designation and the number of shares constituting such series; 2. the dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; 3. the voting powers, full or limited, if any, of the shares of such series; 4. whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions upon which such shares may be redeemed; 5. the amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; 6. whether the shares of such series shall be entitled to the benefits of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such fund; 7. whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; 8. the subscription or purchase price and form of consideration for which the shares shall be issued; and 9. whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. Any establishment of a series of preferred stock by the Board of Directors shall become effective when the Corporation files with the Secretary of State of the Commonwealth of Massachusetts a certificate of establishment of series of preferred stock, signed under the penalties of perjury by the President or any Vice President and by the Clerk, Assistant Clerk, Secretary or Assistant Secretary of the Corporation, setting forth a copy of the vote of the Board of Directors establishing and designating the series and fixing and determining the relative rights and preferences thereof, the date of adoption of such vote and a certification that such vote was duly adopted by the Board of Directors of the Corporation. Each share of each series of serial preferred stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of the Corporation of the same series. 3 CONTINUATION SHEET V ARTICLE V(A) REGULATION OF CONTROL SHARE ACQUISITIONS Pursuant to M.G.L. c. 110D, Section 2(d), the Corporation hereby elects not to be governed by the provisions of Chapter 110D. ARTICLE V(B) BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS Pursuant M.G.L. c. 110F, Section 2(a), the Corporation hereby elects not to be governed by the provisions of Chapter 110F. ARTICLE V(C) STOCKHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS The affirmative vote of at least two-thirds of the total votes eligible to be cast by stockholders, at a meeting expressly called for such purpose, (and, if any class or series of shares is entitled to vote thereof separately, the affirmative vote of the holders of at least two-thirds of the outstanding shares) shall be required in order to authorize any (i) sale, lease, exchange or other disposition, including without limitation, a mortgage, or any other security device, of all or substantially all of the property or assets, including goodwill, of the Corporation, (including without limitation, any voting securities of a subsidiary), (ii) merger or consolidation of the Corporation with or into any other corporation or (iii) any reclassification of the common stock of the Corporation, or any recapitalization involving the common stock of the Corporation. 4 CONTINUATION SHEET VI ARTICLE VI(A) PRE-EMPTIVE RIGHTS No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any pre-emptive right to purchase or subscribe for any unissued stock of any class or series, or any unissued bonds, charters of indebtedness, debentures or other securities convertible into or exchangeable for stock of any class or series or carrying any right to purchase stock of any class or series. Any such unissued stock, bonds, charters of indebtedness, debentures or other securities convertible into or exchangeable for stock or carrying any right to purchase stock may be issued pursuant to a vote of the Board of Directors of the Corporation to such persons, firms, corporations or associations, whether or not holders thereof, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. ARTICLE VI(B) REPURCHASE OF SHARES The Corporation may, from time to time, pursuant to authorization by the Board of Directors of the Corporation and without action by the stockholders, purchase or otherwise acquire shares of any class, bonds, debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or other securities of the Corporation in such manner, upon such terms, and in such amounts as the Board of Directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition in question or as are imposed by applicable law. ARTICLE VI(C) DIRECTORS The number of Directors of the Corporation shall be such number, not less than three as shall be provided from time to time, provided that no decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. The Board of Directors of the Corporation shall be divided into three classes of Directors as nearly equal in number as possible, with one class to be elected annually. The initial Directors of the Corporation shall hold office as follows: the first class of Directors shall hold office initially for a term expiring at the annual meeting of 5 stockholders to be held in 1997, the second class of Directors shall hold office initially for a term expiring at the annual meeting of stockholders to be held in 1998, and the third class of Directors shall hold office initially for a term expiring at the annual meeting of stockholders to be held in 1999, with the members of each class to hold office until their respective successors are duly elected and qualified. At each annual meeting of stockholders of the Corporation, the successors to the class of Directors whose term expires at the meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their respective successors are elected and qualified. Should the number of Directors of the Corporation be increased, the additional directorships shall be allocated among classes as appropriate so that the number of Directors in each class is as nearly equal as possible. ARTICLE VI(D) REMOVAL OF DIRECTORS Any Director may be removed with or without cause by a vote of two-thirds of the Directors then in office, unless at the time of such action there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors shall also be required. ARTICLE VI(E) LIMITATION OF LIABILITY OF DIRECTORS No Director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director notwithstanding any provision of law imposing such liability; provided, however, that this Article VI(E) shall not eliminate or limit any liability of a Director (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or emissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Sections 61 or 62 of Chapter 156B of the Massachusetts General Laws or (iv) with respect to any transaction from which the Director derived an improper personal benefit. No amendment or repeal of this Article VI(E) shall adversely affect the rights and protection afforded to a Director of this Corporation under this Article VI(E) for acts or omissions occurring prior to such amendment or repeal. If the Massachusetts Business Corporation Law is hereafter amended to further eliminate or limit the personal liability of Directors or to authorize corporate action to further eliminate or limit such liability, then the liability of the Directors of this Corporation shall be eliminated or limited to the fullest extent permitted by Massachusetts Business Corporation Laws as so amended. 6 ARTICLE VI(F) ACTING AS PARTNER The Corporation may be a partner in any business enterprise which it would have power to conduct by itself. ARTICLE VI(G) AMENDMENT OF BY-LAWS In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, repeal, alter, amend and rescind the by-laws of the Corporation by the affirmative vote of not less than two-thirds of the Directors then in office, unless at the time of such action, there is an Interested Stockholder, in which case the affirmative vote of not less than two-thirds of the Continuing Directors shall also be required. Notwithstanding any other provision of these Articles or the by-laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law), the by-laws shall not be made, repealed, altered, amended, or rescinded by the stockholders of the Corporation except by the vote of the holders of not less than two-thirds of the outstanding shares of capital stock of the Corporation (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed adoption, repeal, alteration, amendment or rescission is included in the notice of such meeting). ARTICLE VI(H) AMENDMENT OF ARTICLES OF ORGANIZATION Any amendment, addition, alteration, change or repeal of these Articles of Organization regarding, (i) an increase or reduction of the capital stock or of any authorized class, (ii) a change of the par value of any authorized shares or class thereof, (iii) a change of the authorized shares with par value or any class thereof into any number of shares without par value, or the exchange thereof pro rata for any number of shares without par value, (iv) a change of the authorized shares without par value or any class thereof into a greater or lesser number of shares without par value, or the exchange thereof pro rata for a greater or lesser number of shares without par value, (v) a change of the authorized shares with par value or any class thereof into a greater or lesser number of shares with par value, or the exchange thereof pro rata for a greater or lesser number of shares with par value, (vi) a change of the authorized shares without par value or any class thereof into any number of shares with par value, or the exchange thereof pro rata for any number of shares with par value or, (vii) a change of the corporate name may be made if first approved by the affirmative vote of two-thirds of the Board of Directors of the Corporation then in office (unless at the time of such 7 action there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors shall also be required) and thereafter approved by the affirmative vote of a majority of the stockholders. No other amendment, addition, alteration, change or repeal of these Articles of Organization shall be made unless first approved by the affirmative vote of two-thirds of the Board of Directors of the Corporation then in office, and thereafter approved by the affirmative vote of not less than two-thirds of the total votes eligible to be cast at a duly constituted meeting of stockholders. Notwithstanding the foregoing, if at any time within the sixty day period immediately preceding the meeting at which the stockholder vote is to be taken there is an Interested Stockholder, such provision may only be amended, altered, changed or repealed if such action shall have been approved by not less than two-thirds of the Continuing Directors then in office. Unless otherwise provided by law, any amendment, addition, alteration, change or repeal so acted upon shall be effective on the date it is filed with the Secretary of State of the Commonwealth of Massachusetts or on such other date as specified in such amendment, addition, alteration, change or repeal or as in the Secretary of State may specify. As used in these Articles, the phrase "Interested Stockholder" shall have the meaning as set forth in the by-laws of the Corporation. 8 ARTICLE VII The effective date of organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a LATER effective date is desired, specify such date which shall not be more than thirty days after the date of filing. ARTICLE VIII THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE ARTICLES OF ORGANIZATION. a. The street address (post office boxes are not acceptable) of the principal office of the corporation IN MASSACHUSETTS is: 730 Hancock Street, Quincy, Massachusetts 02170 b. The name, residence address and post office address of each Director and officer of the corporation is as follows: NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS President: Mark A. Osborne 100 Brigantine Circle 100 Brigantine Circle Norwell, MA 02061 Norwell, MA 02061 Treasurer: Gerard F. Linskey 1299 South River Street 1299 South River Street Marshfield, MA 02050 Marshfield, MA 02050 Clerk: Douglas C. Purdy 115 Branch Street 115 Branch Street Scituate, MA 02066 Scituate, MA 02066
Directors: See Continuation Sheet VIII Attached. CONTINUATION SHEET VIII DIRECTORS NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS Richard P. Quincy 41 Countryside Lane 41 Countryside Lane Milton, MA 02186 Milton, MA 02186 Douglas C. Purdy 115 Branch Street 115 Branch Street Scituate, MA 02066 Scituate, MA 02066 Peter L. Maguire 405 North Street 405 North Street Duxbury, MA 02332 Duxbury, MA 02332 John V. Murphy 651 Main Street 651 Main Street Hingham, MA 02043 Hingham, MA 02043 Thomas P. Moore, Jr. 68 Abbot Road 68 Abbot Road Wellesley, MA 02181 Wellesley, MA 02181 Michael T. Putziger 30 King Street 30 King Street Cohasset, MA 02025 Cohasset, MA 02025 Mark A. Osborne 100 Brigantine Circle 100 Brigantine Circle Norwell, MA 02061 Norwell, MA 02061
c. The fiscal year (i.e., tax year) of the corporation shall end on the last day of the month of: October d. The name and business address of the resident agent, if any, of the corporation is: ARTICLE IX By-laws of the corporation have been duly adopted and the president, treasurer, clerk and Directors whose names are set forth above, have been duly elected. IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I/we, whose signature(s) appear below as incorporator(s) and whose name(s) and business or residential address(es) ARE CLEARLY TYPED OR PRINTED beneath each signature do hereby associate with the intention of forming this corporation under the provisions of General Laws, Chapter 156B and do hereby sign these Articles of Organization as incorporator(s) this 9th day of January, 1996. /s/ Mark A. Osborne - ----------------------------------- Mark A. Osborne The Hibernia Savings Bank - ----------------------------------- 730 Hancock Street - ----------------------------------- Quincy, MA 02170 - ----------------------------------- NOTE: IF AN EXISTING CORPORATION IS ACTING AS INCORPORATOR, TYPE IN THE EXACT NAME OF THE CORPORATION, THE STATE OR OTHER JURISDICTION WHERE IT WAS INCORPORATED, THE NAME OF THE PERSON SIGNING ON BEHALF OF SAID CORPORATION AND THE TITLE HE/SHE HOLDS OR OTHER AUTHORITY BY WHICH SUCH ACTION IS TAKEN. THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- I hereby certify that, upon examination of these Articles of Organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations have been complied with, and I hereby approve said articles; and the filing fee in the amount of $15,000.00 having been paid, said articles are deemed to have been filed with me this 10th day of January 1996. EFFECTIVE DATE: ---------------------------------------------------------------- /s/ William Francis Galvin WILLIAM FRANCIS GALVIN SECRETARY OF THE COMMONWEALTH FILING FEE: One tenth of one percent of the total authorized capital stock, but not less than $200.00. For the purpose of filing, shares of stock with a par value less than $1.00, or no par stock, shall be deemed to have a par value of $1.00 per share. TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: Anne H. Stossel - ----------------------------------- Roche, Carens & DeGiacomo A Professional Corporation - ----------------------------------- One Post Office Square - ----------------------------------- Boston, MA 02109 Telephone: (617) 451-9300 -------------------------- EX-99.2 3 EXHIBIT 99.2 Exhibit 99.2 BY-LAWS OF EMERALD ISLE BANCORP, INC. ARTICLE I ARTICLES OF ORGANIZATION The name of this Corporation is Emerald Isle Bancorp, Inc. The purposes of the Corporation shall be as set forth in the Articles of Organization. These by-laws, the powers of the Corporation and its Directors and stockholders, and all matters concerning the conduct and regulation of the business of the Corporation, shall be subject to such provisions in regard thereto, if any, as are set forth in the Articles of Organization ARTICLE II DEFINITIONS "Interested Stockholder" shall mean any person (other than the Corporation or any officer or Director thereof, any employee benefit plan of the Corporation, or any Subsidiary of the Corporation) who or which is the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of voting stock, is an affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of ten percent or more of the then outstanding shares of voting stock, or is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of voting stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933 and such assignment or succession was not approved by a two-thirds vote of the Continuing Directors. For the purposes of determining whether a person is an Interested Stockholder, the number of shares deemed to be outstanding shall include shares beneficially owned but shall not include any other shares of voting stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options or otherwise. A person shall be a "beneficial owner" of any shares of voting stock which such person or any of its Affiliates or Associates, directly or indirectly, has or shares with respect to voting stock (a) the right to acquire or direct acquisition of (whether such right is exercisable immediately or only after the passage of time or in the satisfaction of any conditions or both), pursuant to any agreement, arrangement or understanding or upon the exercise of any conversion rights, warrants, or options or otherwise; (b) the right to vote, or direct the voting of, pursuant to any agreement, arrangement or understanding or otherwise; or (c) the right to dispose of or transfer or direct the disposition or transfer of pursuant to any agreement, arrangement, understanding or otherwise; or which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of voting stock. A "person" shall mean an individual, a group acting in concert, a corporation, a partnership, and association, a joint stock company, a trust, a business trust, a government or political subdivision, any unincorporated organization and any similar association or entity. "Group Acting in Concert" shall mean persons (other than the Corporation or any officer or Director thereof, any employee benefit plan of the Corporation, or any Subsidiary of the Corporation) seeking to combine or pool their voting or other interests in the securities of the Corporation for a common purpose, pursuant to any contract, understanding, relationship, agreement or any other arrangement, whether written, oral or otherwise, or any "group of persons" as defined under Section 13(d) of the Securities Exchange Act of 1934. When persons act together for any such purpose, their group is deemed to have acquired their stock. "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. "Continuing Director" means any member of the Board of Directors of the Corporation who is not an Affiliate or Associate of the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is not an Affiliate or Associate of the Interested Stockholder and is approved to succeed a Continuing Director by a two-thirds vote of the Continuing Directors then on the Board of Directors. ARTICLE III MEETINGS OF STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. The annual meeting of stockholders shall be held on the third Monday in April in each year (or if that be a legal holiday in the place where the meeting is to be held, on the 2 next succeeding full business day) at 10:00 a.m. at the main office of the Corporation in Massachusetts, unless a different hour, date or place within Massachusetts (or, if permitted by law, elsewhere in the United States) is fixed by the Chairman of the Board, if one is elected, the Vice Chairman, if one is elected, or the Board of Directors acting by vote or by written instrument or instruments signed by them. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization or these by-laws, may be specified by the Board of Directors, the Chairman of the Board, if one is elected, or the Vice Chairman, if one is elected. If no annual meeting has been held on the date fixed above, a special meeting in lieu thereof may be held and such special meeting shall have for the purposes of these by-laws or otherwise all the force and effect of an annual meeting. Any adjourned session of any meeting of the stockholders shall be held at such place within Massachusetts (or, if permitted by law, elsewhere within the United States) as is designated in the vote of adjournment. SECTION 2. MATTERS TO BE CONSIDERED AT ANNUAL MEETING. At an annual meeting of stockholders, only such new business shall be conducted, and only such proposals shall be acted upon as shall have been brought before the annual meeting (a) by, or at the direction of, the Board of Directors (unless there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors then in office shall also be required) or (b) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section 2. For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Clerk of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than one hundred twenty days nor more than one hundred and fifty days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date. A stockholder's notice to the Clerk shall set forth as to each matter the stockholder proposes to bring before the annual meeting the following: (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (c) the class and number of shares of the Corporation's capital stock which are beneficially owned by the stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (d) any financial interest of the stockholder in such proposal. The Board of Directors may reject any stockholder proposal not timely made in accordance with the terms of this Section 2. If the Board of Directors, or a designated committee thereof, determines that the information provided in a stockholder's notice does not satisfy the informational requirements of this Section 2 in any material respect, then the Board of Directors may reject such stockholder's proposal. If neither the Board of Directors nor such committee makes a determination as to the validity of any 3 stockholder proposal, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the stockholder proposal was made in accordance with the terms of this Section 2. If the Presiding Officer determines that a stockholder proposal was made in accordance with the terms of this Section 2, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to any such proposal. If the presiding officer determines that a stockholder proposal was not made in accordance with the terms of this Section 2, he shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting. If there is an Interested Stockholder, any determinations to be made by the Board of Directors or a designated committee thereof pursuant to the provisions of this paragraph shall also require the concurrence of two-thirds of the Continuing Directors then in office. SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders may be called by the Chairman of the Board, if one is elected, the Vice Chairman, if one is elected, or by the Board of Directors, unless there is an Interested Stockholder, in which case any such call shall also require the affirmative vote of two-thirds of the Continuing Directors then in office, and unless otherwise provided in the Articles of Organization or by-laws, shall be called by the Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application of one or more stockholders who hold at least forty percent in interest of the capital stock entitled to vote thereat. Only matters set forth in the call may be considered or acted upon at the meeting. SECTION 4. NOTICE OF MEETINGS; ADJOURNMENTS. A written notice of the place, date and hour of all meetings of stockholders stating the purposes of the meeting shall be given at least seven days before the meeting to each stockholder entitled to vote thereat and to each stockholder who is otherwise entitled by law or by the Articles of Organization to such notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it, postage prepaid, and addressed to such stockholder at his address as it appears in the stock transfer records of the Corporation. Such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage prepaid. When any stockholders' meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the hour, date, or place of any meeting adjourned for less than thirty days or of the business to be transacted thereat, other than an announcement at the meeting at which such adjournment is taken of the hour, date and place to which the meeting is adjourned. Such notice shall be given by the Clerk or Assistant Clerk, or, in case of the death, absence, incapacity or refusal of the Clerk or Assistant Clerk, by any other officer or by a person designated either by the Clerk or Assistant Clerk, by the person or persons calling the meeting or by the Board of Directors. Whenever notice of a meeting is required to be given a stockholder under any provision of law, the Articles of Organization, or of these by-laws, a written waiver thereof, executed before or after the meeting by such stockholder or his attorney 4 thereunto authorized, and filed with the stock transfer records of the meeting, shall be deemed equivalent to such notice. SECTION 5. PRESIDING OFFICER The Chairman of the Board, or in his absence, the Vice Chairman, shall preside at all stockholder meetings and shall have the power, among other things, to adjourn such meeting at any time and from time to time subject to Section 5 of this Article III. If a Chairman of the Board and Vice Chairman are not elected, the President shall preside at all meetings of stockholders. SECTION 6. QUORUM. At any meeting of the stockholders, a quorum shall consist of a majority in interest of all stock issued and outstanding and entitled to vote at the meeting, represented in person or by proxy; except that if two or more classes or series of stock are entitled to vote on any matter as separate classes or series, then in the case of each such class or series a quorum for that matter shall consist of a majority in interest of all stock of that class or series issued and outstanding, represented in person or by proxy; and except when a larger quorum is required by law, by the Articles of Organization or by these by-laws. Stock owned directly or indirectly by the Corporation, if any, shall not be deemed outstanding for this purpose. The Presiding Officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article III. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The Presiding Officer may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 7. VOTING. Stockholders entitled to vote shall have one vote for each share of stock entitled to vote held by them of record according to the books of the Corporation and a proportionate vote for a fractional share, unless otherwise provided by law or the Articles of Organization. The Corporation shall not, directly or indirectly, vote any share of its own stock. SECTION 8. PROXIES. Stockholders entitled to vote may vote either in person or by proxy in writing dated not more than six months before the meeting named therein, which proxies shall be filed with the Clerk or other person responsible to record the proceedings of the meeting, or any adjournment thereof, before being voted. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. A proxy 5 with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. SECTION 9. ACTION AT MEETING. When a quorum is present at any meeting, any matter before the meeting shall be decided by vote of the holders of a majority of the shares of stock voting on such matter, except where a larger vote is required by law, by the Articles of Organization or by these by-laws. Any election to office shall be determined by a plurality of the votes cast, except where a larger vote is required by law, by the Articles of Organization or by these by-laws. No vote shall be required by a stockholder present or represented at the meeting and entitled to vote in the election. SECTION 10. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of stockholders. Such consents shall be treated for all purposes as a vote at a meeting. ARTICLE IV DIRECTORS SECTION 1. POWERS. The business of the Corporation shall be managed by a Board of Directors who shall have and may exercise all the powers of the Corporation except as otherwise reserved to the stockholders by law, by the Articles of Organization or by these by-laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. SECTION 2. COMPOSITION AND TERM. Pursuant to M.G.L. c. 156B, Section 50A(b)(i), the Corporation hereby elects not to be governed by the provisions of M.G.L. c. 156B, Section 50A. The Board of Directors shall be composed of: (a) those persons designated in the Articles of Organization of the Corporation, such persons to serve as Directors until the respective expiration dates of their terms as set forth therein and until their successors are 6 elected and qualified and (b) as such terms expire, those persons who are elected as Directors from time to time as provided herein. The Board of Directors shall consist of not less than three Directors and shall be divided into three classes, which classes of Directors shall be elected annually by the stockholders. Subject to the foregoing requirements and applicable law, the Board of Directors may from time to time fix the number of Directors and their respective classifications; provided, however, that if at the time of such action there is an Interested Stockholder, such action shall in addition require a vote of two-thirds of the Continuing Directors then in office. Except as otherwise provided in accordance with these by-laws, the members of each class shall be elected for a term of three years and until their successors are elected and qualified. SECTION 3. DIRECTOR NOMINATIONS. Nominations of candidates for election as Directors at any annual meeting of stockholders may be made (a) by, or at the direction of, a majority of the Board of Directors (unless there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors shall also be required) or (b) by any stockholder entitled to vote at such annual meeting. Only persons nominated in accordance with the procedures set forth in this Section 3 shall be eligible for election as Directors at an annual meeting. Nominations, other than those made by, or at the direction of, the Board of Directors (or by the Continuing Directors, if required), shall be made pursuant to timely notice in writing to the Clerk of the Corporation as set forth in this Section 3. To be timely, a stockholder's notice shall be delivered to, or mailed and received, at the principal executive offices of the Corporation not less than one hundred twenty days nor more than one hundred and fifty days prior to the date of the scheduled annual meeting, regardless of postponements, deferrals or adjournments of that meeting to a later date. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director and as to the stockholder giving the notice (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, and (iii) the class and number of shares of the Corporation's capital stock which are beneficially owned by such person on the date of such stockholder notice. At the request of the Board of Directors, any person nominated by, or at the direction of, the Board of Directors for election as a Director at an annual meeting shall furnish to the Clerk of the Corporation that information required to be set forth in the stockholders' notice of nomination which pertains to the nominee. Any person nominated for election as a Director at an annual meeting shall furnish to the Clerk of the Corporation a disclosure statement which the Board of Directors shall prescribe. All nominees for Director in any particular year shall complete the same disclosure statement. No person shall be elected as a Director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3. Ballots bearing the names of all the persons who have been nominated for election as Directors at an annual meeting in 7 accordance with the procedures set forth in this Section 3 shall be provided for use at the annual meeting. The Board of Directors may reject any nomination by a stockholder not timely made in accordance with the requirements of this Section 3. If the Board of Directors, or a designated committee thereof, determines that the information provided in a stockholders' notice does not satisfy the informational requirements of this Section 3 in any material respect, then the Board of Directors may reject such stockholder's nomination. The Clerk of the Corporation shall notify a stockholder in writing whether his nomination has been made in accordance with the time and informational requirements of this Section 3. Notwithstanding the procedure set forth in this paragraph, if neither the Board of Directors nor such committee makes a determination as to the validity of any nominations by a stockholder, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether a nomination was made in accordance with the terms of this Section 3. If the presiding officer determines that a nomination was made in accordance with the terms of this Section 3, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to such nominee. If the Presiding Officer determines that a nomination was not made in accordance with the terms of this Section 3, he shall so declare at the annual meeting and such nomination shall be disregarded. If there is an Interested Stockholder, any determinations to be made by the Board of Directors or a designated committee thereof pursuant to the provisions of this paragraph shall also require the concurrence of two-thirds of the Continuing Directors then in office. SECTION 4. QUALIFICATION. Each Director shall have such qualifications as are required by applicable law. In addition, subsequent to the date on which the Corporation enters into a Plan of Reorganization and Acquisition with The Hibernia Savings Bank, in order to qualify as a Director under this Section 4, each Director shall own, in his own right and free of any lien or encumbrance, common stock having a par value, or a fair market value on the date the person became a Director, of not less than $5,000. Any Director who ceases to be the owner of the required number of shares of stock, or who becomes in any other manner disqualified, shall vacate his office forthwith. Unless waived by a vote of the Board of Directors, a Director shall not serve as a Director after reaching the age of seventy years. SECTION 5. RESIGNATION. Any Director may resign at any time by written notice to the Chief Executive Officer. A resignation shall be effective upon receipt, unless the resignation provides otherwise. 8 SECTION 6. REMOVAL. Any Director may be removed from office as provided in the Articles of Organization. SECTION 7. VACANCIES. Any vacancy occurring on the Board of Directors as a result of resignation, removal or death may be filled by vote of a majority of the remaining Directors, unless at the time of the action there is an Interested Stockholder, in which case such vacancy may only be filled by a vote of two-thirds of the Continuing Directors then in office. A Director elected to fill such a vacancy shall be elected to serve for a term of office continuing until the next election of Directors by the stockholders. Any directorship to be filled by reason of an increase in the authorized number of Directors may be filled by a majority of the Board of Directors for a term of office continuing until the next election of Directors by the stockholders. If at the time of such action, there is an Interested Stockholder, a vote of two-thirds of the Continuing Directors is required instead. SECTION 8. COMPENSATION The members of the Board of Directors and the members of standing or special committees shall receive such compensation as the Board of Directors may determine. SECTION 9. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such times and places within or without the Commonwealth of Massachusetts as the Board of Directors may fix from time to time and, when so fixed, no notice thereof need be given, provided that any Director who is absent when such times and places are fixed shall be given notice of the fixing of such times and places. The first meeting of the Board of Directors following the annual meeting of the stockholders may be held without notice immediately after and at the same place as the annual meeting of the stockholders or the special meeting held in lieu thereof. If in any year a meeting of the Board of Directors is not held at such time and place, any action may be taken at any later meeting of the Board of Directors with the same force and effect as if held or transacted at such meeting. SECTION 10. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of two-thirds of the Directors or the Chairman of the Board, if one is elected. The person or persons authorized to call special meetings of the Board of Directors may fix the hour, date, and place for holding a special meeting. 9 SECTION 11. PRESIDING OFFICER The Chairman of the Board, or in his absence, the Vice Chairman, shall preside at all meetings of the Board of Directors. If a Chairman and Vice Chairman are not elected, the President shall preside at all meetings of the Board of Directors. SECTION 12. NOTICE OF MEETINGS. It shall be reasonable and sufficient notice to a Director to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Such notice shall be deemed to be delivered when hand delivered to such address; read to such Director by telephone; deposited in mail so addressed, with postage thereon prepaid, if mailed; or when delivered to the telegraph company if sent by telegram. When any Board of Directors' meeting, either regular or special, is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the hour, date, or place of any meeting adjourned for less than thirty days, or of the business to be transacted thereat, other than an announcement at the meeting at which such adjournment is taken of the hour, date, and place to which the meeting is adjourned. Notice of a meeting need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 13. QUORUM. A majority of the number of Directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. The Presiding Officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice except as provided in Section 11 of this Article IV. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. SECTION 14. ACTION AT A MEETING The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless otherwise prescribed by law, the Articles of Organization or by these by-laws. 10 SECTION 15. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if the number of Directors required to take a particular action consent to the action in writing and the written consents are filed with the records of the meetings of the Directors. Such consent shall be treated for all purposes as a vote of the Directors at a meeting. SECTION 16. PRESUMPTION OF ASSENT A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any matter regarding the Corporation is taken shall be presumed to have assented to the action taken unless his dissent or abstention shall be entered in the minutes of the meeting or unless he shall file a written dissent to such action with the person acting as the Clerk of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Clerk of the Corporation within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a Director who voted in favor of such action. SECTION 17. COMMITTEES. The Board of Directors, by vote of a majority of the Directors then in office, may elect from its number an Executive Committee or other committees and may delegate thereto some or all of its powers except those which by law, by the Articles of Organization, or by these by-laws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these by-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time subject to applicable law. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall upon request report its action to the Board of Directors. The Board of Directors shall have power to rescind any action of any committee, but no rescission shall have retroactive effect. With the approval of the Board of Directors, the Chief Executive Officer shall select and nominate Committee members. Any recommendations of such committees appointed by the Chief Executive Officer shall be submitted to the Board of Directors. SECTION 18. MANNER OF PARTICIPATION Members of the Board of Directors or of the committees elected by the Board pursuant to Section 16 of this Article III may participate in meetings of the Board by means of conference telephone or similar communications equipment by which all 11 persons participating in the meeting can hear each other. Such participation shall constitute presence in person but shall not constitute attendance for the purpose of compensation pursuant to Section 8 of this Article III, unless the Board of Directors by resolution so provides. ARTICLE V OFFICERS AND AGENTS SECTION 1. ENUMERATION. The officers of the Corporation shall consist of a President, a Treasurer, a Clerk and such other officers, including, without limitation, a Chairman of the Board, a Vice Chairman, a Secretary and one or more Vice Presidents or Assistant Vice Presidents and Assistant Treasurers as the Board of Directors may determine may be necessary for the management of the Corporation. SECTION 2. ELECTION. All officers of the Corporation shall be elected at the beginning of the fiscal year of the Corporation by the Board of Directors at a meeting duly called for such purpose. SECTION 3. QUALIFICATION. Any two or more offices may be held by the same person. The Chief Executive Officer shall be a Director. Any officer may be required by the Board of Directors to give bond for the faithful performance of his duties to the Corporation in such amount and with such sureties as the Directors may determine. SECTION 4. TENURE. Except as otherwise provided by law, all officers shall hold office until the first meeting of Directors at the beginning of the fiscal year and until their respective successors are chosen and qualified, or for such shorter term as the Board of Directors may fix at the time such officers are chosen. The Chief Executive Officer may resign at any time by written notice to the Board of Directors or the Clerk. Any other officer may resign at any time by written notice to the Chief Executive Officer. Such resignation shall become effective upon receipt unless the resignation provides otherwise. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The Board of Directors may, however, authorize the Corporation to enter into an employment contract with any officer in accordance with the law, but no such contract right shall impair the right of the Board of Directors to remove any officer at any time in accordance with Section 5 of the Article IV. 12 SECTION 5. REMOVAL. Except as otherwise provided by law, the Board of Directors may remove the Chief Executive Officer with cause by the affirmative vote of two-thirds of the entire number of Directors then in office, and without cause by a vote of three-fourths of the entire number of Directors; provided, however, that if at the time of such removal there is an Interested Stockholder, an affirmative vote of two-thirds of the Continuing Directors then in office shall also be required to remove the Chief Executive Officer with cause, and an affirmative vote of three-fourths of the Continuing Directors then in office shall also be required to remove the Chief Executive Officer without cause. Any such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the persons involved. The Chief Executive Officer may be removed only after reasonable notice and opportunity to be heard by the Board of Directors. Except as otherwise provided by law, the Chief Executive Officer may remove any other officer, with or without cause. SECTION 6. ABSENCE OR DISABILITY. In the event of the absence or disability of any officer, the Chief Executive Officer, or, in his absence, a majority of the Board of Directors may designate another officer to act temporarily in place of an absent or disabled officer. SECTION 7. VACANCIES. Any vacancy in any office may be filled for the unexpired portion of the term by a majority of the Board of Directors. SECTION 8. CHIEF EXECUTIVE OFFICER The President shall be the Chief Executive Officer, unless the Board of Directors shall elect a Chairman of the Board and designate such Chairman to be the Chief Executive Officer. The Chief Executive Officer shall, subject to the direction of the Board of Directors, have general supervision and control of the Corporation's business. SECTION 9. CHAIRMAN OF THE BOARD The Chairman of the Board shall preside at all meetings of stockholders and at all meetings of the Board of Directors. The Chairman of the Board shall also have such other powers and shall perform such other duties as the Board of Directors may from time to time designate. If the Chairman of the Board is not the Chief Executive Officer, he shall also have such powers and perform such duties as the Chief Executive Officer may from time to time designate. 13 SECTION 10. VICE CHAIRMAN The Vice Chairman shall preside over all meetings at which the Chairman is absent. The Vice Chairman shall also have such powers and perform such duties as the Chief Executive Officer may from time to time designate. SECTION 10. PRESIDENT The President, if he is the Chief Executive Officer, shall preside at all meetings of the stockholders. If a Chairman of the Board or Vice Chairman are not elected, the President shall preside at all meetings of the Board of Directors. If the President is not the Chief Executive Officer, he shall have such powers and perform such duties as the Chief Executive Officer may from time to time designate. SECTION 11. VICE PRESIDENT AND ASSISTANT VICE PRESIDENTS. Any Vice President or Assistant Vice President shall have such powers and shall perform such duties as the Chief Executive Officer may from time to time designate. SECTION 12. TREASURER AND ASSISTANT TREASURERS. Any Treasurer or Assistant Treasurer shall have such powers and perform such duties as the Chief Executive Officer may from time to time designate. SECTION 13. CLERK AND ASSISTANT CLERKS. The Clerk shall keep a record of the meetings of stockholders. In the event there is no Secretary or he is absent, the Clerk shall keep a record of the meetings of the Board of Directors. In the absence of the Clerk from any meeting of stockholders, an Assistant Clerk if one is elected, shall perform the Clerk's duties. Otherwise a Temporary Clerk designated by the person presiding at the meeting shall perform the duties of the Clerk. SECTION 14. SECRETARY AND ASSISTANT SECRETARIES. The Secretary, if one be elected or appointed, shall keep a record of the meetings of the Board of Directors. In the absence of the Secretary, any Assistant Secretary, the Clerk and any Assistant Clerk, a Temporary Secretary shall be designated by the person presiding at such meeting to perform the duties of the Secretary. 14 ARTICLE VI CAPITAL STOCK SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a certificate of the capital stock in form selected by the Board of Directors stating the number and the class and the designation of the series, if any, of the shares held by him or her. Such certificate shall be signed by the Chairman of the Board of Directors, the President or a Vice President and the Treasurer or an Assistant Treasurer. Such signatures may be facsimiles if the certificate is signed by a transfer agent, or by a registrar, other than a Director, officer or employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer at the time of its issuance. Every certificate for shares of stock subject to any restriction on transfer pursuant to the Articles of Organization, these by-laws, or any agreement to which the Corporation is a party shall have the restriction noted conspicuously on the certificate and shall also set forth on the face or back either the full text of the restriction or a statement of the existence of such restriction and a statement that the Corporation will furnish a copy to the holder of such certificate upon written request and without charge. Every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series authorized to be issued or a statement of the existence of such preferences, powers, qualifications and rights, and a statement that the Corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. SECTION 2. TRANSFERS. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock may be transferred on the books of the Corporation only by surrender to the Corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment of such shares or by a written power of attorney to sell, assign, or transfer such shares, properly executed, with necessary transfer stamps affixed, and with such proof that the endorsement, assignment or power of attorney is genuine and effective as the Corporation or its transfer agent may reasonably require. 15 SECTION 3. RECORD HOLDERS Except as may be otherwise required by law, the Articles of Organization, or these by-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these by-laws. It shall be the duty of each stockholder to notify the Corporation of his address and any changes thereto. SECTION 4. SETTING RECORD DATE AND CLOSING TRANSFER RECORDS. The Board of Directors may fix in advance a time not more than sixty days before the date of any meeting of the stockholders, the date for the payment of any dividend or the making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice and to vote at such meeting and any adjournment thereof, or the right to receive such dividend or distribution, or the right to give such consent or dissent. If a record date is set, only stockholders of record on the date shall have such right notwithstanding any transfer of stock on the books of the Corporation after the record date. Without fixing such record date, the Board of Directors may close the transfer books of the Corporation for all or any part of such sixty-day period. If no record date is fixed and the transfer books are not closed, then the record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors acts with respect thereto. SECTION 5. REPLACEMENT OF LOST, MUTILATED, OR DESTROYED CERTIFICATES. Except as otherwise provided by law, the Board of Directors may determine the conditions upon which a new certificate of stock may be issued in place of any certificate alleged to have been lost, mutilated or destroyed. It may, in its discretion, require the owner of a lost, mutilated or destroyed certificate, or his legal representative, to give a bond, sufficient in its opinion, with or without surety, to indemnify the Corporation against any loss or claim which may arise by reason of the issue of a certificate in place of such lost, mutilated or destroyed stock certificate. SECTION 6. ISSUE OF AUTHORIZED UNISSUED CAPITAL STOCK. Except as provided by law, the Board of Directors shall have the authority to issue or reserve for issue from time to time the whole or any part of the capital stock of the 16 Corporation which may be authorized from time to time, to such persons or organizations, for such consideration, whether cash, property, services or expenses and on such terms as the Board of Directors may determine, including, without limitation, the granting of options, warrants or conversions or other rights to subscribe to said capital stock. No such stock shall be issued unless the cash, so far as due, or the property, services or expenses for which it was authorized to be issued, has been actually received or incurred by, or conveyed or rendered to, the Corporation, or is in its possession as surplus. SECTION 7. DIVIDENDS Subject to applicable law, the Articles of Organization and these by-laws, the Board of Directors may from time to time declare, and the Corporation may pay dividends on outstanding shares of its capital stock. ARTICLE VII INDEMNIFICATION SECTION 1. DEFINITIONS. For purposes of this Article: (a) "Officer" means any person who serves or has served as Director of the Corporation or in any other office filled by election or appointment by the stockholders, or the Board of Directors and any heirs or personal representatives of such person; (b) "Non-Officer Employee" means any person who serves or has served as an employee of the Corporation, but who is not or was not an Officer, and any heirs or personal representatives of such person; (c) "Proceeding" means any action, suit, or proceeding, civil or criminal, brought or threatened in or before any court, tribunal administrative or legislative body or agency and any claim which could be the subject of a Proceeding; and (d) "Expenses" means any liability fixed by a judgment, order, decree, or award in a Proceeding, any amount reasonably paid in settlement of a Proceeding, and any professional fees or other disbursements reasonably incurred in a Proceeding. SECTION 2. OFFICERS. Except as provided in Sections 4 of this Article VII, each Officer of the Corporation shall be indemnified by the Corporation against all Expenses incurred by such Officer in connection with any Proceedings in which such Officer is involved as a result of serving or having served (a) as an Officer or employee of the Corporation; (b) as a Director, officer, or employee of any wholly-owned subsidiary of the Corporation; or (c) in any capacity with any other corporation, organization, partnership, joint venture, trust or other entity at the request or direction of the Corporation. 17 SECTION 3. NON-OFFICER EMPLOYEES. Except as provided in Sections 4 of this Article VIII, each Non-Officer Employee of the Corporation may, in the discretion of the Board of Directors, be indemnified against any or all Expenses incurred by such Non-Officer Employee in connection with any Proceeding in which such Non-Officer Employee is involved as a result of serving or having served (a) as a Non-Officer Employee of the Corporation; (b) as a Director, officer or employee of any wholly-owned subsidiary of the Corporation; or (c) in any capacity with any other organization, partnership, joint venture, trust, or other entity at the request or direction of the Corporation. SECTION 4. GOOD FAITH. No indemnification shall be provided to an Officer or to a Non-Officer Employee with respect to a matter as to which such person shall have been adjudicated in any Proceeding not to have acted in good faith in the reasonable belief that the action of such person was in the best interests of the Corporation. In the event that a proceeding is compromised or settled so as to impose any liability or obligation upon an Officer or Non-Officer Employee, no indemnification shall be provided to said Officer or Non-Officer Employee with respect to a matter if there be a determination that with respect to such matter such person did not act in good faith in the reasonable belief that the action of such person was in the best interests of the Corporation. The determination shall be made by a majority vote of those Directors who are not involved in such Proceeding. However, if more than half of the Directors are involved in such Proceeding, the determination shall be made by a majority vote of a committee of three disinterested Directors chosen by the disinterested Directors at a regular or special meeting. If there are fewer than three disinterested Directors, the determination shall be based upon the opinion of the Corporation's regular outside counsel. SECTION 5. PRIOR TO FINAL DISPOSITION. Unless otherwise provided by the Board of Directors or by the committee pursuant to the procedure specified in Section 5 of this Article VII, any indemnification provided for under this Article VII shall include payment by the Corporation of Expenses incurred in defending a Proceeding in advance of the final disposition of such Proceeding upon receipt of an undertaking by the Officer or Non-Officer Employee seeking indemnification to repay such payment if such Officer or Non-Officer Employee shall be adjudicated or determined to be not entitled to indemnification under this Article VII. SECTION 6. INSURANCE. The Corporation may purchase and maintain insurance to protect itself and any Officer or Non-Officer Employer against any liability of any character asserted against or incurred by the Corporation or any such Officer or Non-Officer Employee, or arising out 18 of any such status, whether or not the Corporation would have the power to indemnify such person against such liability by law or under the provisions of this Article VII. SECTION 7. OTHER INDEMNIFICATION RIGHTS. Nothing in this Article VII shall limit any lawful rights to indemnification existing independently of this Article VII. ARTICLE VIII MISCELLANEOUS PROVISIONS SECTION 1. AMENDMENT OF BY-LAWS. These by-laws may be adopted, altered, amended, changed or repealed as provided in the Articles of Organization. SECTION 2. FISCAL YEAR Except as from time to time otherwise determined by the Directors, the fiscal year of the Corporation shall in each year end on the last day of October, or on such other date as may be required by law. SECTION 3. CORPORATE SEAL. The Board of Directors shall have power to adopt and alter the seal of the Corporation. SECTION 4. EXECUTION OF PAPERS. All deeds, leases, transfers, contracts, bonds, notes, releases, checks, drafts and other obligations authorized to be executed on behalf of the Corporation in the ordinary course of its business without Board of Directors' action may be executed by the Chairman of the Board, if one is elected, the President, the Treasurer or such other officer as the Directors or the Executive Committee may authorize. SECTION 5. VOTING OF SECURITIES. Except as the Directors may generally or in particular cases otherwise specify, the Chairman of the Board, if one is elected, the President or the Treasurer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney-in-fact for the Corporation, with or without power of substitution, at any meeting of stockholders or shareholders of any other organization, any of whose securities are held by the Corporation. 19 SECTION 6. ARTICLES OF ORGANIZATION. All references in these by-laws to the Articles of Organization shall be deemed to refer to the Articles of Organization of the Corporation, as amended and in effect from time to time. SECTION 7. CORPORATE RECORDS. The original, or attested copies, of the Articles of Organization, by-laws and records of all meetings of the incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal office of the Corporation, or at an office of its transfer agent or of its Clerk or of its Resident Agent. Said copies and records need not all be kept in the same office. They shall be available at all reasonable times to the inspection of any stockholder for any proper purpose but not to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the Corporation. SECTION 8. EVIDENCE OF AUTHORITY. A certificate by the Clerk or Secretary or an Assistant or Temporary Clerk or Secretary as to any matter relative to the Articles of Organization, by-laws, records of the proceedings of the incorporators, stockholders, Board of Directors, or any committee of the Board of Directors, or stock and transfer records or as to any action taken by any person or persons as an officer or agent of the Corporation, shall as to all persons who rely thereon in good faith be conclusive evidence of the matters so certified. SECTION 9. EFFECTIVE DATE. These by-laws shall become effective on the date of receipt of the last approval required to permit the Corporation to act in holding company form. 20 EX-99.3 4 EXHIBIT 99.3 Exhibit 99.3 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20429 FORM F-2 Annual Report Under Section 13 of the Securities Exchange Act of 1934 For the Fiscal Year Ended: FDIC Certificate No.: December 31, 1995 22054 THE HIBERNIA SAVINGS BANK (exact name of Bank as specified in its charter) Massachusetts 04-1437380 (state or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 731 Hancock Street Quincy, Massachusetts 02170 (address of principal office) (zip code) 617-479-2265 (Bank's telephone number, including area code) Securities Registered Pursuant to section 12 (b) of the Act: None Securities Registered Pursuant to section 12 (g) of the Act: COMMON STOCK $1.00 PAR VALUE (title of class) Indicate by check mark whether the bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- The aggregate market value of the voting stock held by non-affiliates of the bank was approximately $11,509,068 based upon the closing sale price of the common stock on the National Association of Securities Dealers Automated Quotation System on February 29, 1996. The number of shares outstanding of the Bank's common stock, as of February 29, 1996: 1,553,846. DOCUMENTS INCORPORATED BY REFERENCE PART OF FORM F2 INTO WHICH DOCUMENT INCORPORATED - -------------------------------------------------------------------------------- Portions of the registrant's Annual Report to Stockholders for the Fiscal Year ended December 31, 1995 Part IV Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 29, 1996. Part I, II, and III SELECTED HISTORICAL FINANCIAL DATA THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES
At December 31 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------- (Dollars in Thousands, except per share data) Balance Sheet Data: Total assets $346,865 $286,429 $249,827 $229,792 $216,575 Loans, net 208,327 163,371 135,661 134,584 144,143 Securities 125,300 111,582 105,735 80,449 56,277 Deposits 282,787 256,340 221,950 205,921 187,102 Borrowings 38,968 9,000 8,530 8,531 16,606 Stockholders' equity 22,825 19,786 17,312 13,954 11,953 Book value per share $14.89 $13.68 $12.92 $10.89 $9.96 For the year ended December 31 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------- (Dollars in Thousands, except per share data) Operating Data: Interest and dividend income $23,949 $18,728 $18,157 $18,805 $19,698 Interest expense 13,720 9,498 8,950 10,569 13,779 --------------------------------------------------------------------- Net interest income 10,229 9,230 9,207 8,236 5,919 Add Noninterest income 579 549 719 364 216 Gain (loss) on sale of loans (52) (1) 20 320 24 Less Provision for possible loan losses 300 135 2,080 2,270 2,850 Noninterest expenses 6,552 6,209 5,680 4,835 4,695 --------------------------------------------------------------------- Pretax core earnings 3,904 3,434 2,186 1,815 (1,386) Net gain on sale of securities 91 193 3,952 2,188 768 Gain on sale of loan servicing 764 - - - - Loss on sale of fixed assets (50) - - - - Net loss on sale of other real estate owned (43) (170) (666) (511) (561) Real estate owned expense 301 387 1,194 1,643 972 Income (loss) before income taxes 4,365 3,070 4,278 1,849 (2,151) Provision (benefit) for income taxes 1,646 1,002 1,198 265 (673) ---------------------------------------------------------------------- Net income (loss) $2,719 $2,068 $3,080 $1,584 ($1,478) ---------------------------------------------------------------------- ---------------------------------------------------------------------- Earnings (loss) per share $1.76 $1.41 $2.14 $1.21 ($1.23) Weighted average number of common shares and common equivalents 1,545,297 1,468,758 1,437,092 1,306,610 1,200,000 Dividends declared per share $ 0.22 $ - $ - $ - $ -
PART I Item 1. Business of The Hibernia Savings Bank The Hibernia Savings Bank ("Hibernia" or the "Bank") is a Massachusetts chartered stock savings bank founded in 1912. The Bank's main office is located at 731 Hancock Street, Quincy, Massachusetts, with branch locations at 52 Coddington Street, Quincy, Massachusetts, 51 Commercial Street, Braintree, Massachusetts, 1150 Washington Street, Weymouth, Massachusetts, 101 Federal Street, Boston, Massachusetts, 274 Main Street, Hingham, Massachusetts, and 397 Washington Street, Stoughton, Massachusetts. The Bank has Loan Centers at 730 and 731 Hancock Street, Quincy, Massachusetts, and 51 Commercial Street, Braintree, Massachusetts. The Bank's administrative office, and finance department are located at 730 Hancock Street, Quincy, Massachusetts. The Bank's primary market area is the South Shore and, includes the following communities; Boston, Canton, Stoughton, Randolph, Avon, Holbrook, Hull, Milton, Quincy, Braintree, Weymouth, Hingham, Norwell, Hanover, Marshfield, Scituate, and Cohasset . The Bank is primarily engaged in attracting retail deposits from the general public and borrowing funds, primarily from the Federal Home Loan Bank, and using these funds to originate and invest in loans secured by first or second mortgage loans on residential real estate, to originate or participate in commercial real estate loans, to make small business loans, and to make investments in securities. The Bank also originates and services residential mortgage loans sold into the secondary mortgage market and originates consumer loans for inclusion in its loan portfolio. At December 31, 1995 assets totaled $346,865,213, with deposits of $282,787,249 and stockholders' equity of $22,824,616. Management believes that providing quality financial services and products in a personalized manner along with maintaining a community orientation have long been characteristics of the Bank which have resulted in customer recognition and loyalty. The Bank seeks to develop multiple relationships with its customers through an experienced service staff and offers a wide range of financial products and services to meet the demands of the Bank's existing market area and target customer base. LENDING The loan portfolio of The Hibernia Savings Bank continues to be the primary earning asset of the Bank. The Bank, throughout 1995, continued its focus on originating residential and commercial real estate loans, commercial business loans and consumer loans for inclusion in the Bank's portfolio, as well as originating residential real estate loans for sale into the secondary mortgage market. The Bank believes that providing retail, and commercial lending services to its community holds great potential as each banking office is located in an active business district. The Bank's loan portfolio totaled $210,968,694 before unearned discounts, deferred fees, and reserves at December 31, 1995. This represents an increase of $45,054,736 or 27.2% from $165,913,958 at December 31, 1994. The loan portfolio represents approximately 60.8% of the Bank's total assets. The loan portfolio consists of 53.3% in residential first and second mortgage, 37.5% in commercial real estate loans, 8.0% in commercial business loans and 1.2% in consumer loans. The Bank's present policy is to sell the majority of its fixed rate residential real estate loan originations into the secondary mortgage market. The Bank primarily originates various types of adjustable rate loans for inclusion in its own portfolio although the majority of adjustable rate residential mortgage loans originated are also eligible for sale in the secondary markets. RESIDENTIAL FIRST MORTGAGES The Bank offers various owner occupied residential first mortgage loan products, including, but not limited to, one, three and five year conforming, non- conforming and Jumbo adjustable rate mortgage loans and seven, ten, fifteen, twenty and thirty year fixed rate mortgage loans. In addition the Bank offers adjustable rate residential mortgage loans and short-term notes on non owner occupied residential properties. Residential mortgage loans are defined as real estate loans secured by both owner occupied and non owner occupied mortgages on one to four family homes and condominiums. During the year ended December 31, 1995, the Bank originated approximately $58.8 million in residential first mortgage loans of which approximately $12.9 million were sold in the secondary mortgage market. At December 31, 1995 the majority of the Bank's residential real estate mortgage loan portfolio was secured by properties located within Massachusetts or within contiguous states. Underwriting standards are consistent for all loans. The underwriting of one to four family owner occupied residential real estate loans is performed, in most cases, in accordance with the standards prescribed by the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Underwriting of other residential real estate mortgage loans is in accordance with the Bank's Loan Policy which is reviewed and approved annually by the Board of Directors. The Bank's present policy is to require title insurance to insure the validity of its first mortgage liens. Escrow accounts are generally required to ensure the timely payment of real estate taxes. Private mortgage insurance, in almost all cases, is required on loans in excess of 90% of the appraised value of the property. In addition to origination charges and closing costs, borrowers generally also pay for the cost of property appraisals and credit analysis. Residential mortgage loans are written for an amortization period not to exceed thirty years. Residential mortgage loans normally remain outstanding for less than their full term, primarily due to prepayments and property sales. RESIDENTIAL SECOND MORTGAGES In addition to residential first mortgage loans, the Bank also makes term residential second mortgage loans in amounts up to 70% of the appraised value of the property in excess of the first mortgage balance for terms not to exceed fifteen years. These loans are written on an adjustable rate basis and reviewed every one to three years and on a fixed basis up to fifteen years. In addition, the Bank originates adjustable rate second mortgage loans in the form of Home Equity Credit Lines for inclusion in its portfolio. Underwriting of residential second mortgage loans is in accordance with the Bank's Loan Policy which is reviewed and approved annually by the Board of Directors. During the year ended December 31, 1995 the Bank originated approximately $1.9 million of second mortgage loans. As of December 31, 1995, the Bank had $4.2 million of residential second mortgage loans outstanding, which were primarily Home Equity Credit Lines. COMMERCIAL REAL ESTATE The Bank originates both commercial real estate loans and participates with other banks in securing commercial real estate loans. During the year ended December 31, 1995 the Bank originated and purchased approximately $27.2 million of commercial real estate loans. Commercial real estate loans are defined as multi-family residential properties, retail space, office buildings and certain types of industrial properties. Commercial real estate mortgage loans are generally written for an initial note term of three to ten years or on an adjustable rate basis, amortized up to twenty-five years. Underwriting of commercial real estate mortgage loans is in accordance with the Bank's Loan Policy which is reviewed and approved annually by the Board of Directors. As of December 31, 1995 the Bank had $79.1 million of commercial real estate loans outstanding. COMMERCIAL BUSINESS LOANS The Bank's commercial business loan portfolio at December 31, 1995 totaled $16.9 million. During the year the Bank originated $13.8 million in loans. Commercial loans are defined as small business loans, loans secured by business assets, and owner occupied business loans. Commercial loans are generally written for an initial note term of three to five years on a variable rate basis. Underwriting of commercial loans is in accordance with the Bank's Loan Policy which is reviewed and approved annually by the Board of Directors. CONSUMER LOANS The Bank's consumer loan portfolio at December 31, 1995 was $2.5 million before unearned discount and reserves. Consumer loans consist primarily of personal consumer loans, both secured and unsecured, education loans made under the Massachusetts Higher Education Assistance Corporation program, Visa and Master Card, overdraft lines of credit, passbook and stock loans, and home improvement loans. Consumer loans are written over various terms, but the average life of a personal loan is approximately two to three years in length. Consumer loans originated during the year ended December 31, 1995 totaled approximately $2.0 million. THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION CONCERNING THE COMPOSITION OF THE BANK'S LOAN PORTFOLIO
AT DECEMBER 31, 1995 % 1994 % 1993 % 1992 (Dollars in Thousands) Mortgage Loans: Residential $109,163 51.74% $83,338 50.23% $91,624 66.86% $99,838 Construction & Land Development 12,387 5.87% 7,673 4.62% 3,334 2.43% 22 Non-Residential 70,048 33.20% 64,056 38.61% 32,220 23.51% 33,366 ------------ ------ ------------ ------ ----------- ------ ----------- TOTAL MORTGAGE LOANS 191,598 90.82% 155,067 93.46% 127,178 92.80% 133,226 ------------ ------ ------------ ------ ----------- ------ ----------- Commercial Loans: Commercial 16,857 7.99% 8,423 5.08% 5,490 4.01% ------------ ------ ------------ ------ ----------- ------ Other Loans: Lines of Credit 747 .35% 831 .50% 464 .34% 435 Passbook & Collateral 799 .38% 707 .43% 423 .31% 644 Home Improvement 195 .09% 219 .13% 208 .15% 324 Installment 773 .37% 667 0.40% 3,285 2.40% 1,641 ------------ ------ ------------ ------ ----------- ------ ----------- TOTAL OTHER LOANS $2,514 1.19% $2,424 1.46% $4,380 3.20% 3,044 ------------ ------ ------------ ------ ----------- ------ ----------- TOTAL LOANS 210,969 100.0% 165,914 100.0% 137,048 100.0% 136,270 ------------ ------ ------------ ------ ----------- ------ ----------- Less: - Deferred Fees ($94) ($290) ($118) ($85) Unearned discount ($6) ($12) (21) (47) Allowance for possible loan losses (2,542) (2,241) (2,481) (3,056) ------------ ------------ ----------- ------------ TOTAL LOANS, NET $208,327 $163,371 $134,428 $ 133,082 ------------ ------------ ---------- ----------- ------------ ------------ ---------- ----------- AT DECEMBER 31, % 1991 % (Dollars in Thousands) Mortgage Loans: Residential 73.26% $104,523 73.42% Construction & Land Development 0.02% 27 0.0% Non-Residential 24.49% 34,926 24.53% ------ ---------- ------ TOTAL MORTGAGE LOANS 97.77% 139,476 97.97% ------ ----------- ------- Commercial Loans: Commercial Other Loans: Lines of Credit .32% 404 .28% Passbook & Collateral .47% 530 .37% Home Improvement .24% 342 .24% Installment 1.20% 1,620 1.14% ----- ---------- ----- TOTAL OTHER LOANS 2.23% $2,896 2.03% ----- ---------- ----- TOTAL LOANS 100% 142,372 100% ----- ---------- ----- Less: Deferred Fees ($184) Unearned discount (49) Allowance for possible loan losses (2,701) ---------- TOTAL LOANS, NET $139,438 ---------- ----------
INVESTMENT ACTIVITIES Investment income is the second largest source of income for the Bank. The Bank's investment portfolio, including short-term investments, securities held to maturity, and securities available for sale, totaled $125,300,270 or 36.1% of total assets at December 31, 1995. This represents an increase of $13,718,345 or 12.3% from December 31, 1994. Income from investments, principal reductions and maturities, represent a major source of liquidity to fund loans and meet the short-term cash needs of the Bank. The Bank's investment portfolio consists primarily of mortgage backed securities totaling $77,565,687 or 61.9% of the investment portfolio which are held to maturity. Securities available for sale consist of FHLB Notes, FHLMC Notes and Common Stock which totaled $40,676,183. In addition, the Bank maintains a modest position in certificates of deposits and federal funds when there is available cash. The $77.6 million in mortgage backed securities at December 31, 1995 yielded an average return of 5.44%. Payments of principal and interest are received monthly on the mortgage backed securities, which provide an ongoing source of cash. The Bank had approximately $39.9 million in FHLMC and FHLB bonds and notes which were yielding an average of 7.47%. At December 31, 1995 the market value of the Bank's portfolio was less than book value by $857,000. THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION REGARDING THE CONTRACTUAL MATURITIES OF THE BANK'S INVESTMENT PORTFOLIO, EXCLUSIVE OF EQUITIES:
AT DECEMBER 31, 1995 % 1994 % 1993 % 1992 (Dollars in Thousands) HELD TO MATURITY Due in 1 year or less $ - 0% $ - 0% $ - 0% $ - Due after 1 year through 5 years - 0% - 0% - 0% 42,999 Due after 5 years - 0% - 0% - 0% 16,516 through 10 years Due after 10 years 0% 0% - 0% - Mortgage-backed securities 77,566 66.01% 100,253 94.41% 84,737 82.52% 11,446 ------------ ----------- ----------- ---------- SUB-TOTAL $77,566 66.01% $100,253 94.41% $84,737 82.52% $70,961 AVAILABLE FOR SALE Due in 1 year or less $ 39,947 33.99% $ 5,931 5.59% $ 17,946 17.48% $ - Due after 1 year through 5 years - - - - Due after 5 years - - - - through 10 years Due after 10 years - - - - Mortgage-backed securities --------- -------- ------- ----- SUB-TOTAL $39,947 33.99% $5,931 5.59% $17,946 17.48% $ - TOTAL $117,513 100.00% $106,184 100.00% $102,683 100.00% $70,961 --------- ------- --------- ------- --------- ------- ------- AT DECEMBER 31, % 1991 % (Dollars in Thousands) HELD TO MATURITY Due in 1 year or less 0% $ - 0% Due after 1 year through 5 years 60.60% 35,503 70.09% Due after 5 years 23.27% - 0% through 10 years Due after 10 years 0% - 0% Mortgage-backed securities 16.13% 15,151 29.91% ---------- SUB-TOTAL 100.0% $50,654 100.0% AVAILABLE FOR SALE Due in 1 year or less 0% $- 0% Due after 1 year through 5 years - Due after 5 years - through 10 years Due after 10 years - Mortgage-backed securities -------- SUB-TOTAL $ - 100.0% TOTAL 100.00% $50,654 100.0% ------- -------- ------
DEPOSITS AND OTHER SOURCES OF FUNDS Savings deposits continue to represent the major source of the Bank's funds for lending and other investments. In addition to deposit flows, other sources include loan amortization and prepayments, loan sales in the secondary market, sales and maturity of investments, operating revenues, and borrowings. Deposit flows can vary significantly and are influenced by prevailing interest rates, economic conditions and pricing by the Bank and its competitors. Borrowings by the Bank may be used on a short-term basis to cover reductions in normal sources of funds and may also be used on a longer term basis to support expansion of specific investment activities. Aggressive price competition for retail deposits within our local market area dictated, from a cost standpoint, that we utilize borrowing as an alternative funding resource. At December 31, 1995 total borrowings amounted to $38,968,000. SUBSIDIARIES The Bank at December 31, 1995 has a wholly owned subsidiary known as Kildare corporation. Kildare holds investments in limited real estate partnerships and is the sole owner of four subsidiaries, Athlone Corporation, Donegal Corporation, Mayo Corporation, and Roscommon Corporation. These corporations were used for Real Estate Management and are currently inactive. The Bank, at December 31, 1995, also has a wholly owned subsidiary known as Limerick Securities Corporation. This corporation was formed solely in order to invest in securities in which the Bank could invest pursuant to Sections 2 and 3 of Chapter 167F of the Massachusetts General laws. The Bank, at December 31, 1995, also has a wholly owned subsidiary known as Meath Corporation. This corporation was formed to undertake the construction and sale of a condominium project in the western part of Massachusetts and is currently inactive. EMPLOYEES As of December 31, 1995 the Bank employed 84 full time and 10 part-time employees, none of whom were represented by a collective bargaining group. Management considers Hibernia's relationship with its employees to be excellent. COMPETITION The Bank faces extensive competition, both in originating loans and in attracting deposits, from other savings banks as well as co-operative banks, commercial banks, savings and loan associations, credit unions, and other financial service businesses. Competition for loans comes primarily from other savings banks, co-operative banks, savings and loan associations, commercial banks, and mortgage banking companies. The Bank competes for loans principally on the basis of interest rates and loan fees, types of loans originated, processing time, and the quality of service provided to borrowers. In attracting deposits, the Bank's primary competitors are other thrift institutions, commercial banks, mutual funds, and credit unions. The Bank's branches attract deposits from the communities in which they are located. The Bank's attraction and retention of deposits depends principally on the quality of its service and its ability to provide investment opportunities that satisfy the requirements of investors with respect to rate of return, liquidity, risk, and other factors. The Bank also competes for these deposits by offering competitive rates, convenient locations, and convenient business hours. Management believes that providing quality financial services and products in a personalized manner along with maintaining a community orientation have long been characteristics of the Bank which have resulted in customer recognition and loyalty. The Bank seeks to develop multiple relationships with its customers through an experienced service staff and offers a wide range of financial products and services to meet the demands of the Bank's existing market area and target customer base. RESEARCH AND DEVELOPMENT The Bank does not maintain a separate research and development department or budget. A number of employees of the Bank, as part of their job responsibility, spend varying amounts of time developing new products and new services. The amount of time spent cannot be measured and as a result no estimate is made. REGULATION The Bank operates under Massachusetts General Laws and is subject to supervision, examination, and regulation by the Commissioner of Banks and the Federal Deposit Insurance Corporation (the "FDIC"). Deposit accounts at the Bank are insured by the FDIC up to a total of $100,000. As an insurer of savings accounts the FDIC issues regulations, conducts examinations, requires the filing of reports, and generally supervises the operations of institutions to which it provides deposit insurance (see Item 7 for further discussion). The approval of the FDIC is required prior to any merger or consolidation, or the establishment or relocation of an office facility. All deposit accounts in excess of $100,000 are insured in full by the Deposit Insurance Fund, a corporation created by an act of the Massachusetts legislature in 1932. The Bank is also subject to additional regulations by the Federal Reserve Board ("FRB") with respect to the maintenance of certain nonearning reserves. The Bank is also subject to federal and state statutory and regulatory provisions covering, among other things, security procedures, currency reporting, insider and affiliated party transactions, management interlocks, community reinvestment, truth-in-lending, electronic funds transfers, truth-in- savings, and equal credit opportunity. Item 2. Properties The Bank's headquarters is located at 731 Hancock Street, Quincy, Massachusetts. The Bank has a branch located at 101 Federal St., Boston Massachusetts, a branch located at 51 Commercial St., Braintree, Massachusetts an educational training facility in Quincy High School located at 52 Coddington St., Quincy, Massachusetts a branch located at 1150 Washington St., Weymouth, Massachusetts, a branch located at 274 Main St, Hingham, Massachusetts, and a branch located at 397 Washington St., Stoughton, Massachusetts. The Bank has a location at 730 Hancock Street, Quincy, Massachusetts which houses the Finance/Administration Department, and Executive Office. The Bank's headquarters in Quincy, the Boston facility, and Stoughton facility are leased premises. The Braintree, Weymouth, and Hingham facilities as well as the building at 730 Hancock are owned by the Bank. The Bank also has three Loan Centers, one located at 51 Commercial St., Braintree, Massachusetts, 731 Hancock Street Quincy, Massachusetts and 730 Hancock Street, Quincy, Massachusetts. The following table sets forth the location of the Bank's offices, as well as certain information relating to offices at December 31, 1995.
Current Year Square Owned/ Term Renewal/ Acquired Feet Leased Expires Options -------- ------ ------- -------- ------------------------- Branch 101 Federal St. 1989 2,060 leased 1999 2/five year terms Boston, MA Branch 397 Washington St. 1995 2,200 leased 2005 3/five year terms Stoughton, MA Branch Quincy High School 52 Coddington Street. 1993 360 leased 1 year renewable agreement Quincy, MA Main Office 731 Hancock St. 1986 10,100 leased 2002 3/five year terms Quincy, MA Branch 51 Commercial St. 1979 4,970 owned Braintree, MA Branch 1150 Washington St. 1991 1,800 owned Weymouth, MA Branch 274 Main St. 1995 2,100 owned Hingham, MA 730 Hancock St. Quincy, MA 1994 6,000 owned
Item 3. Legal Proceedings The Bank is a defendant in legal actions involving loans. In the opinion of the Bank's management the resolution of these matters is not expected to have a material effect on the consolidated financial position of the Bank. Item 4. Securities Ownership of Certain Beneficial Owners and Management The response to the item is incorporated herein by reference from the Proxy Statement under "Outstanding Voting Securities" on page 6. There are no arrangements known to the Bank, including any pledge by any person of securities of the Bank, the operation of which may at a subsequent date result in a change in control of the Bank. PART II Item 5. Market for the Bank's Common Stock and Related Security Holder Matters The information required by this item is incorporated herein by reference to page 30 of the Bank's Annual Report to Stockholders for the fiscal year ended December 31, 1995 (the "1995 Annual Report"). Item 6. Selected Financial Data The information required by this item is contained in Part I of this Report and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is incorporated herein by reference from pages 6 through 13 of the Bank' s Annual Report to Stockholders for the fiscal year December 31, 1995 (the "1995 Annual Report"). Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated herein by reference from pages 14 through 30 of the Bank's Annual Report to Stockholders for the fiscal year ended December 31, 1995. Schedules of Financial Statements are included in exhibit 10. PART III Item 9. Directors and Executive Officers of the Bank Information about the directors of the Bank is incorporated herein by reference from the Proxy Statement under "Board of Directors" on pages 7 and 8. PRINCIPAL OFFICERS OF THE BANK The following table sets forth certain information about officers of the Bank. NAME AGE POSITION HELD WITH BANK - ------------------------------------------------------------------------ Mark A. Osborne 46 Chairman of the Board and Chief Executive Officer Richard S. Straczynski 49 President and Chief Operating Officer Gerard F. Linskey 50 Senior Vice President and Chief Financial Officer Dennis P. Myers 48 Senior Vice President and Senior Lending Officer Wayne F. Blaisdell 44 Senior Vice President, Branch Administration and Operations Officer The principal occupation and business experience during at least the last five years for each of the principal officers is as follows: Mr. Osborne has been with Hibernia since 1971, became its President in 1982 and Chairman of the Board in 1988. Previously Mr. Osborne held the offices of Vice President and Treasurer of the Bank. Mr. Straczynski became President and Chief Operating Officer of Hibernia in March of 1995. Mr. Straczynski was most recently a regional President of Citizens Bank of Massachusetts. Mr. Linskey became a Senior Vice President of Hibernia in January of 1988. Prior to this he was a Senior Vice President of the Union Warren Savings Bank from 1982 through 1987. Mr. Myers joined Hibernia in 1985 as an Assistant Vice President and became a Senior Vice President in 1993. Previously Mr. Myers was a Mortgage Officer of the First American Bank for Savings. Mr. Blaisdell joined Hibernia in 1975 and became its Assistant Vice President in 1980 and Vice President of the Bank in 1982. Mr Blaisdell was promoted to Senior Vice President in March of 1995. Item 10. Management Remuneration and Transactions The information required by this item is incorporated herein by reference from page 10 of the 1995 Proxy Statement. PART IV Item 11. Exhibits, Financial statement, schedules, and Reports on Form F-3 (a) List of Documents filed as part of this report (a)(1) The Hibernia Savings Bank's consolidated Financial Statements and Management's Discussion and Analysis included in the Annual Report are incorporated herein into Item 7 and Item 8 of this Report by reference. (The remaining information appearing in the Annual Report is not to be filed as part of this report except as expressly provided herein.) Consolidated Balance Sheets at December 31, 1995 and 1994 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Cash Flows for the years ending December 31, 1995,1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Public Accountants Management's Discussion and Analysis of Financial Condition and Results of Operations (a)(2) The following Financial Statement schedules are included in Item 8 as part of this report. Report of Independent Public Accountants Schedule V All other schedules have been omitted because information is not applicable or is not material or becauseinformation required is included in the Financial Statements or notes thereto. (b) No reports on F-3 were filed during the quarter ended December 31, 1995 (c) Exhibits: (1) NA (2) NA (3) NA (4) A schedule showing earnings per share is included in Part 1 of this report. (5) NA (6) Annual Report to Stockholders for the year ended December 31, 1995 is furnished for information only and is not to be filed as part of this report except as otherwise specified. (7)-(9) NA (10) Financial Statement Schedules SIGNATURES Pursuant to the requirement of Section 13 of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE HIBERNIA SAVINGS BANK By /s/ Mark A. Osborne ----------------------------------- Mark A. Osborne, Chairman of the Board and Chief Executive Officer By /s/ Gerard F. Linskey ----------------------------------- Gerard F. Linskey Senior Vice President and Chief Financial Officer
THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES Schedule V Investments in, Income from Dividends, and equity in Earnings or Losses of Subsidiaries and Associated Companies Equity in Proportionate Underlying Part of Percent of Net Assets Earnings or Due in 1 year or less Voting Stock Total at Balance Amount of Loss for the Name of issurer Owned Investments Sheet Data Dividends Period At and for the years: December,31,1995 100% KILDARE CORPORATION Accounts receivable $469 $469 $0 Common stock and paid-in capital $ 51 $ 51 $0 Accumulated earnings ($63) ($63) $9 ---- ---- -- $457 $457 $0 $9 ---- ---- -- -- ---- ---- -- -- December,31,1994 100% KILDARE CORPORATION Accounts receivable $547 $ 547 $0 Common stock and paid-in capital $ 51 $ 51 $0 Accumulated earnings (72) ($72) ($3) ---- ---- --- - $526 $526 $0 ($3) ---- ---- -- --- ---- ---- -- --- December,31,1993 100% KILDARE CORPORATION Accounts receivable $544 $544 $0 Common stock and paid-in capital $ 51 $ 51 $0 Accumulated earnings ($69) ($69) $2 ---- ---- -- $526 $526 $0 $2 ---- ---- -- -- ---- ---- -- --
THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES Schedule V Investments in, Income from Dividends, and equity in Earnings continued or Losses of Subsidiaries and Associated Companies Equity in Proportionate Underlying Part of Percent of Net Assets Earnings or Due in 1 year or less Voting Stock Total at Balance Amount of Loss for the Name of issurer Owned Investments Sheet Data Dividends Period At and for the years: December 31,1995 100% LIMERICK SECURITIES Accounts receivable $0 $0 $0 Common stock and paid-in capital $30,000 $30,000 $0 Accumulated earnings $ 5,231 $ 5,231 $1,537 ------- ------- ------ $35,231 $35,231 $0 $1,537 ------- ------- -- ------ ------- ------- -- ------ December 31,1994 100% LIMERICK SECURITIES Accounts receivable $0 $0 $0 $0 Common stock and paid-in capital 20,000 $20,000 $0 Accumulated earnings 3,694 $ 3,694 $973 ------- ------- ---- - $23,694 $23,694 $0 $973 ------- ------- -- ---- ------- ------- -- ---- December 31,1993 100% LIMERICK SECURITIES Accounts receivable $0 $0 $0 Common stock and paid-in capital $20,000 $20,000 $0 Accumulated earnings $ 2,721 $ 2,721 $1,220 ------- ------- ------ $22,721 $22,721 $0 $1,220 ------- ------- -- ------ ------- ------- -- ------
Date: Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated. Name Title Date /s/ Mark A. Osborne - -------------------------- Chairman of the Board MARK A. OSBORNE & CEO /s/ Martha M. Campbell - -------------------------- Director MARTHA M. CAMPBELL /s/ Thomas J. Carens - -------------------------- Director THOMAS J. CARENS /s/ Bernard J. Dwyer - -------------------------- Director BERNARD J. DWYER /s/ William E. Lucey - -------------------------- Director WILLIAM E. LUCEY - -------------------------- Director PETER L. MAGUIRE /s/ Thomas P. Moore - -------------------------- Director THOMAS P. MOORE /s/ Richard J. Murney - -------------------------- Director RICHARD J. MURNEY - -------------------------- Director JOHN V. MURPHY /s/ William T. Novelline - -------------------------- Director WILLIAM T. NOVELLINE /s/ Paul D. Osborne - -------------------------- Director PAUL D. OSBORNE /s/ Douglas C. Purdy - -------------------------- Director DOUGLAS C. PURDY /s/ Michael T. Putziger - -------------------------- Director MICHAEL T. PUTZIGER - -------------------------- Director RICHARD P. QUINCY EX-99.4 5 EXHIBIT 99.4 Exhibit 99.4 THE HIBERNIA SAVINGS BANK NOTICE OF ANNUAL MEETING OF STOCKHOLDERS Notice is hereby given that the Annual Meeting of the Stockholders of The Hibernia Savings Bank ("the Bank") will be held at the Sheraton Tara Hotel, 37 Forbes Road, Braintree, Massachusetts on Monday, April 29, 1996, at 10:00 A.M. for the following purposes: 1. To elect four Directors to serve on the Board of Directors for a term of three years or until their successors have been elected and qualified. 2. To elect a Director to serve on the Board of Directors for a term of one year or until a successor has been elected and qualified. 3. To consider and vote upon the formation of a holding company for the Bank by approval of a plan of reorganization and acquisition, dated as of February 15, 1996 (the "Plan of Reorganization") between the Bank and Emerald Isle Bancorp, Inc. ("Bancorp"), a newly formed Massachusetts corporation organized at the direction of the Bank, and each of the transactions contemplated thereby, pursuant to which the Bank will become a wholly-owned subsidiary of Bancorp, and each issued and outstanding share of common stock of the Bank, par value $1.00 per share (the "common stock"), other than shares held by stockholders, if any, exercising dissenters' rights, will be converted into and exchanged for one share of common stock of Bancorp, par value $1.00 per share (the "Reorganization"). A copy of the plan of reorganization is attached as Exhibit (A) to the accompanying proxy statement. If the action is approved by the stockholders at the Annual Meeting and effected by the Bank, any stockholder (1) who files with Bancorp before the taking of the vote on the approval of such action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) whose shares are not voted in favor of such action, has or may have the right to demand in writing from Bancorp within twenty (20) days after the date of mailing to him of notice in writing that the corporate action has become effective, payment for his shares and an appraisal of the value thereof. Bancorp and any such stockholder shall in such cases have the rights and duties and shall follow the procedure set forth in Sections 88 to 98, inclusive, of Chapter 156B of the General Laws of Massachusetts. 4. To elect Douglas C. Purdy to serve as Clerk of the Bank until the next election, or until a successor is elected and qualified. 5. To approve the selection of the independent accounting firm of Arthur Andersen LLP as auditors for the fiscal year ending December 31, 1996. 6. To consider and act upon any other matters which may properly come before the meeting and any and all adjournments thereof. The close of business on Thursday, February 29, 1996 has been fixed as the record date for determining the stockholders entitled to notice of and to vote at the meeting. This notice and accompanying proxy materials are being mailed to such stockholders on or about Friday, March 15, 1996. Whether or not you are able to attend the meeting, please complete and sign the accompanying proxy and return it promptly in the enclosed envelope. /s/ Douglas C. Purdy Douglas C. Purdy, CLERK 730 Hancock Street Quincy, MA 02170 (617) 479-5001 Quincy, Massachusetts March 15, 1996 -1- THE HIBERNIA SAVINGS BANK EMERALD ISLE BANCORP, INC. ----------------------------- PROXY STATEMENT This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of The Hibernia Savings Bank (the "Bank") for use at the 1996 Annual Meeting of Stockholders of the Bank (the "Meeting") to be held at the Sheraton Tara Hotel, 37 Forbes Road, Braintree, Massachusetts on Monday, April 29, 1996 at 10:00 A.M. and is revocable by written notice to the Clerk prior to its exercise. Proxies in the accompanying form, properly executed and received prior to the meeting and not revoked, will be voted. Assistance in soliciting proxies will be provided by D.F. King & Co., Inc., 77 Water Street, New York, New York, 10005. The projected cost of such proxy solicitation assistance is $3,000. The expense of soliciting proxies will be borne by the Bank. Solicitation will be accomplished by first mailing the proxy materials on or about March 15, 1996 to stockholders as of the record date and subsequently by letter and by telephone to stockholders whose proxies have not been received. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL A SECURITY, OR A SOLICITATION OF A PROXY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES MADE UNDER THIS PROXY STATEMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE HIBERNIA SAVINGS BANK OR EMERALD ISLE BANCORP, INC. SINCE THE DATE OF THIS PROXY STATEMENT. THE SHARES OF STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE BANK INSURANCE FUND, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SHARE INSURANCE FUND, THE DEPOSIT INSURANCE FUND OF MASSACHUSETTS OR ANY OTHER GOVERNMENTAL AGENCY. The Bank is subject to the informational reporting requirements of the Securities Exchange Act of 1934 and, in accordance therewith, files reports, proxy statements and other information with the Federal Deposit Insurance Corporation ("FDIC"). Copies may be obtained at prescribed rates from the office of the FDIC, 550 Seventeenth Street, N.W., Washington, D.C. 20429, or at the Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA 02106. Bancorp is applying to have its common stock approved for quotation on the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market System using the symbol: "EIRE," effective upon consummation of the Reorganization. Such approval is anticipated although there is no assurance that such approval will be received. The principal executive offices of both Emerald Isle Bancorp, Inc. and The Hibernia Savings Bank are located at 730 Hancock Street, Quincy, Massachusetts 02170 and their telephone number is (617) 479-5001. STOCKHOLDERS ARE URGED TO EXECUTE AND RETURN THEIR PROXIES PROMPTLY IN ORDER TO MINIMIZE THE COST OF SOLICITATION. THE DATE OF THIS PROXY STATEMENT IS MARCH 15, 1996. -2- - -------------------------------------------------------------------------------- THE HIBERNIA SAVINGS BANK EMERALD ISLE BANCORP, INC. PROXY STATEMENT MARCH 15, 1996 - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE Notice of Annual Meeting of Stockholders . . . . . . . . . . . . . . . . 1 Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Summary Information on Proposed Holding Company. . . . . . . . . . . . . 4 Outstanding Voting Securities. . . . . . . . . . . . . . . . . . . . . . 6 Proposals I and II -- Election of Directors . . . . . . . . . . . . . . 7 Market Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Executive Compensation of Principal Officers . . . . . . . . . . . . . . 10 Option Grants in Last Fiscal Year. . . . . . . . . . . . . . . . . . . . 11 Compensation Committee Report on Executive Compensation. . . . . . . . . 11 Performance Graph. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Proposal III -- Formation of Holding Company . . . . . . . . . . . . . . 14 Description of the Plan of Reorganization . . . . . . . . . . . . . 15 Remuneration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Effect on Stock Options and Other Stock Related Benefit Plans . . . 16 Reasons for the Holding Company Formation . . . . . . . . . . . . . 17 Business of the Bank. . . . . . . . . . . . . . . . . . . . . . . . 17 Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 18 Business of Bancorp . . . . . . . . . . . . . . . . . . . . . . . . 18 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 19 Financial Resources of Bancorp. . . . . . . . . . . . . . . . . . . 19 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Financial Statements and Annual Disclosure Statement. . . . . . . . 20 Conditions of the Reorganization. . . . . . . . . . . . . . . . . . 21 Rights of Dissenting Stockholders . . . . . . . . . . . . . . . . . 22 Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . 23 Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 24 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Comparison of Stockholder Rights. . . . . . . . . . . . . . . . . . 25 Effect on Current Market Value of Outstanding Bank Stock. . . . . . 29 Anti-Takeover Provisions. . . . . . . . . . . . . . . . . . . . . . 29 Legal Investments . . . . . . . . . . . . . . . . . . . . . . . . . 29 Regulation of Bancorp and the Bank. . . . . . . . . . . . . . . . . 29 Proposal IV -- Election of Clerk . . . . . . . . . . . . . . . . . . . . 32 Proposal V -- Selection of Auditors. . . . . . . . . . . . . . . . . . . 32 Stockholder Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . 32 Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Exhibit A -- Plan of Reorganization and Acquisition. . . . . . . . . . . 33 Exhibit B -- Articles of Organization. . . . . . . . . . . . . . . . . . 38 Exhibit C -- Dissenters' Appraisal Rights. . . . . . . . . . . . . . . . 46 -3- THE HIBERNIA SAVINGS BANK EMERALD ISLE BANCORP, INC. 730 HANCOCK STREET QUINCY, MASSACHUSETTS 02170 - -------------------------------------------------------------------------------- SUMMARY INFORMATION ON PROPOSED HOLDING COMPANY - -------------------------------------------------------------------------------- The following summary does not purport to be complete and is qualified in its entirety by reference to the more detailed information appearing elsewhere in this Proxy Statement under "Proposal III -- Formation of Holding Company," and Exhibits A, B and C attached hereto. THE HIBERNIA SAVINGS BANK The Hibernia Savings Bank (the "Bank") is a Massachusetts-chartered savings bank incorporated in 1912. The Bank provides a wide array of commercial and consumer banking services and its deposits are insured by the Federal Deposit Insurance Corporation. In addition, deposits in excess of Federal Deposit Insurance limits are insured by the Deposit Insurance Fund. EMERALD ISLE BANCORP, INC. Emerald Isle Bancorp, Inc. ("Bancorp") is a Massachusetts stock corporation established in January, 1996 under the provisions of Chapter 156B of the General Laws of Massachusetts solely for the purpose of becoming a holding company for the Bank. Bancorp has not engaged in any business since its incorporation. THE REORGANIZATION The formation of a holding company will be accomplished under a Plan of Reorganization and Acquisition, dated February 15, 1996, pursuant to which the Bank will become a wholly-owned subsidiary of Bancorp. Under the terms of the Plan of Reorganization and Acquisition, each outstanding share of Bank common stock (other than shares held by dissenting stockholders, if any) will be converted into one share of common stock, par value $1.00 per share, of Bancorp, and the former holders of Bank common stock will become the holders of all of the outstanding common stock of Bancorp (the "Reorganization"). Following the Reorganization, it is intended that the Bank will continue its operation at the same location, with the same management, and subject to all the rights, obligations and liabilities of the Bank existing immediately prior to the Reorganization. CONDITIONS TO THE REORGANIZATION The Plan of Reorganization sets forth a number of conditions which must be met before the Reorganization will be consummated, including: (i) the Plan of Reorganization shall have been approved by a vote of the holders of two-thirds of the outstanding Common Stock of the Bank, (ii) the Plan of Reorganization shall have been approved by the Commissioner of Banks under Section 26B of Chapter 172 of the General Laws of Massachusetts, (iii) any approval, consent or waiver required by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") shall have been received and any waiting period imposed by applicable law shall have expired, (iv) the Bank and Bancorp shall have received a favorable opinion from the BankOs independent public accountants, Arthur Andersen LLP, concerning the federal income tax consequences of the Reorganization, (v) Bancorp Common Stock to be issued in exchange for Common Stock of the Bank shall have been registered or qualified for issuance under applicable state securities laws, and (vi) the Bank and Bancorp shall have obtained all other necessary consents or approvals required for the formation of the Holding Company. In addition, the Plan of Reorganization also provides that the Reorganization may be terminated by the Board of Directors of the Bank or Bancorp if, among other things, (i) the number of shares of Common Stock owned by dissenting stockholders makes the Reorganization unwise in the opinion of the Bank and Bancorp, (ii) any action, suit, proceeding or claim has been instituted, made or threatened relating to the proposed Reorganization which will make its consummation inadvisable in the opinion of the Bank or Bancorp, or (iii) for any other reason the Reorganization is inadvisable in the opinion of the Bank or Bancorp. -4- RISK The transactions contemplated by the Reorganization are principally designed to reorganize the corporate structure of the Bank in order to conduct the business of the Bank as a wholly-owned subsidiary of a registered bank holding company. The Reorganization, if consummated, does not represent any material change in the nature of the business conducted by the Bank. Stockholders electing to receive Bancorp stock for Bank stock do so without the ability to analyze the historical financial performance of Bancorp. Bancorp is a newly formed Massachusetts corporation and has no history of financial performance. Bancorp's financial condition immediately following the effective date of the merger contemplated by the Agreement will depend on the operation and profitability of the Bank at the time of and after the effective date of the Reorganization. As Bancorp continues to operate in the future, additional factors may affect its profitability including, among other things: (i) businesses started or acquired by Bancorp other than the Bank; (ii) the nature of federal or state laws and regulations applicable to Bancorp; and (iii) the effect of management. REASONS FOR THE HOLDING COMPANY REORGANIZATION The Board of Directors of the Bank believes that a holding company structure will provide greater flexibility in the operation of the Bank and in responding to competitive conditions in the banking and financial services industries. See "Proposal III -- Formation of Holding Company -- Reasons for the Holding Company Reorganization." COMPARISON OF STOCKHOLDER RIGHTS As a result of the Reorganization, holders of the common stock of the Bank, which is a Massachusetts-chartered savings bank subject to Massachusetts banking law and the Charter and By-laws of the Bank, will become stockholders of Bancorp, a Massachusetts corporation. Accordingly, their rights will be governed by Massachusetts corporation law and the Articles of Organization and By-laws of Bancorp. Certain differences arise from this change of governing law, as well as from distinctions between the Charter and By-laws of the Bank and the Articles of Organization and By-laws of Bancorp. These differences relate, among other things, to the issuance of capital stock, the payment of dividends and dissenters' rights. See "Proposal III -- Formation of Holding Company -- Comparison of Stockholder Rights." ACCOUNTING TREATMENT It is anticipated that the Reorganization will be accounted for as a "pooling of interests" transaction under generally accepted accounting principles. TAX CONSEQUENCES The Bank has received an opinion from its independent public accountants that, among other things, the Reorganization will be treated as a non-taxable transaction at the corporate and stockholder levels, except with respect to shares purchased from dissenting stockholders, if any. Receipt of this opinion is a condition to the consummation of the Reorganization. This opinion is not binding on the Internal Revenue Service. Each stockholder should consult his own tax counsel as to specific federal, state and local tax consequences of the Reorganization, if any, to such stockholder. See "Proposal III -- Formation of Holding Company -- Income Tax Consequences." DISSENTERS' RIGHTS Stockholders of the Bank will have dissenters' rights in connection with the Reorganization. Stockholders who exercise dissenters' rights must carefully follow the required procedures. See "Proposal III -- Formation of Holding Company -- Rights of Dissenting Stockholders." VOTE REQUIRED The affirmative vote of the holders of at least two-thirds of the issued and outstanding shares of Common Stock eligible to be cast by stockholders of record at the close of business on the Record Date will be required to approve the Plan of Reorganization and each of the transactions contemplated thereby. All officers and Directors as a group own 51.43% of the shares entitled to vote. RECOMMENDATION OF BOARD OF DIRECTORS THE BOARD OF DIRECTORS OF THE BANK HAS UNANIMOUSLY APPROVED THE PROPOSED REORGANIZATION AND ACQUISITION AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE REORGANIZATION. -5- - -------------------------------------------------------------------------------- OUTSTANDING VOTING SECURITIES - -------------------------------------------------------------------------------- Only holders of record at the close of business on February 29, 1996 will be entitled to vote at the meeting. As of that date there were 1,553,846 shares of common stock of the Bank outstanding. These are the only voting securities of the Bank outstanding. Each share is entitled to one vote on each matter to be presented to the meeting. To the knowledge of management, as of February 29, 1996 and based upon 1,553,846 outstanding shares of common stock, only the stockholders listed below own more than five percent of the common stock of the Bank: NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS The Hibernia Savings Bank 237,003(1) 15.25% Employee Stock Ownership Plan c/o The Pentad Corporation 950 Winter Street, Suite 1400 Waltham, MA 02154 Mark A. Osborne, 212,889(2) 13.70%(3) Chairman of the Board and Chief Executive Officer The Hibernia Savings Bank 730 Hancock Street Quincy, MA 02170 Michael T. Putziger Roche, Carens & DeGiacomo One Post Office Square Boston, MA 02109 and Myrna Putziger 171,700(4) 11.05% Rubin and Rudman 50 Rowes Wharf Boston, MA 02110 The officers, Directors and nominees for Director own common stock in the Bank as follows: All Officers and Directors as a group(5) 799,153(5) 51.43% (1) Form F-11A, filed with the FDIC 1/90; Amendment 1 to Form F-11A filed with the FDIC 2/92; Amendment 2 to Form F-11A filed with the FDIC 2/93; Amendment 3 to Form F_11A filed with FDIC 2/94; Amendment 4 to Form F-11A filed with the FDIC 1/95; Amendment 5 to Form F-11A filed with the FDIC 1/96. The ESOP has no power to vote these shares. Allocated shares are voted as directed by the persons to whom they are allocated; unallocated shares are voted in the same percentages as the allocated shares. (2) Form F-11, filed with the FDIC 9/89; Amendment 1 to Form F-11 filed with the FDIC 1/90; Amendment 2 to Form F-11 filed with the FDIC 2/90; Amendment 3 to Form F-11 filed with the FDIC 4/91; Amendment 4 to Form F-11 filed with the FDIC 3/92; Amendment 5 to Form F-11 filed with the FDIC 2/93; Amendment 6 to Form F-11 filed with the FDIC 2/94; Amendment 7 to Form F-11 filed with the FDIC 12/94; Amendment 8 to Form F-11 filed with the FDIC 3/96. Of the shares beneficially owned by Mr. Osborne, Mr. Osborne owns 83,500 in his own name; he presently has a right to acquire 40,500 by exercise of options granted to him; 51,132 are being held in the ESOP; 9,291 are being held for Mr. Osborne under the Bank's NQERP; 5,500 are owned jointly with his wife; 13,300 are owned by his wife. Effective 2/92 Mr. Osborne, by power of attorney from his parent, has the right to vote and dispose of 6,000 shares. In addition, Mr. Osborne presently has the right to vote 3,666 shares of unallocated stock in the ESOP. Mr. Osborne specifically disclaims ownership of the shares owned by his wife and mother and of the unallocated shares of the ESOP. Mr. Osborne currently has sole power to vote 144,298 shares and shared power to vote 5,500 shares. He has sole power to dispose of 89,500 shares and shared power to dispose of 5,500 shares. (3) The Board of Directors voted at its 2/90 meeting to approve the acquisition by Mr. Osborne of more than 10% of the outstanding common stock of the Bank in accordance with Article 10 of the Bank's Amended and Restated Charter. (4) Form F-11, filed with the FDIC 12/90; Amendment 1 to Form F-11 filed with the FDIC 11/91; Amendment 2 to Form F-11 filed with the FDIC 5/92; Amendment 3 to Form F-11 filed with the FDIC 2/93, Amendment 4 to Form F-11 filed with the FDIC 2/94; Amendment 5 to Form F-11 filed with the FDIC 11/94; Amendment 6 to Form F-11 filed with the FDIC 1/95. (5) This amount also includes shares owned in the company's ESOP of 215,877 allocated shares and 15,477 unallocated shares and unexercised incentive stock options granted to principal officers of 84,350 shares. -6- - -------------------------------------------------------------------------------- PROPOSALS I AND II -- ELECTION OF DIRECTORS - -------------------------------------------------------------------------------- At the 1996 Annual Meeting, four persons will be elected to serve three year terms as Directors (Proposal I) and one person will be elected to serve for a one year term (Proposal II). Unless otherwise specified in the proxy, it is the intention of the persons named in the proxy to vote the shares represented by each properly executed proxy for the election of the nominees listed below. If any of the nominees shall be unable to serve, discretionary authority is reserved to vote for a substitute or to reduce the number of Directors to be elected, or both. The Board of Directors has no reason to believe that any of the nominees will be unwilling or unable to serve if elected. The information shown in the following table regarding nominees has been furnished by each of the nominees. Shares held by or jointly with a spouse, minor child, or other relative living in the home of such nominee, or by a trust in which members of the nominee's family have a beneficial interest, have been treated for purposes of this proxy statement as beneficially owned by such nominee. However, such nominees disclaim beneficial interest in shares so held.
CURRENT PROPOSED TRUSTEE OR SHARES % OF TERM TERM NAME AND PRINCIPAL AGE AT DIRECTOR OWNED AT COMMON TO TO OCCUPATION 2/29/96 SINCE 2/29/96 STOCK EXPIRE EXPIRE THREE YEAR TERM: Thomas P. Moore, Jr.(1) 57 1991 32,280(2) 2.08 1996 1999 VICE PRESIDENT STATE STREET RESEARCH & MANAGEMENT CO. Mark A. Osborne(1) 46 1977 212,889(3) 13.70 1996 1999 CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER THE HIBERNIA SAVINGS BANK Paul D. Osborne(4) 45 1986 8,375(5) .54 1996 1999 TREASURER OSBORNE OFFICE FURNITURE(6) Douglas C. Purdy 53 1995 400 .03 1996 1999 ATTORNEY-AT-LAW SERAFINI, PURDY, DINARDO & WELLS(7) ONE YEAR TERM: William E. Lucey 47 1996 800 .05 - 1997 CERTIFIED PUBLIC ACCOUNTANT O'CONNOR & DREW
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS ONE AND TWO. (1) Director of Kildare Corporation, The Limerick Securities Corporation and The Meath Corporation, all subsidiaries of the Bank. Mr. Osborne is also trustee of a testamentary trust which owns 49.9% of Paul D. Osborne Desk Co., Inc. which does business as Osborne Office Furniture. (2) Includes 2,700 shares held in trust for children. (3) Refer to footnote 3 "Outstanding Voting Securities." (4) Brother of Mark A. Osborne. (5) Includes 375 shares owned by spouse. (6) The Bank, during 1995, paid Osborne Office Furniture $68,961 for the purchase of office equipment. (7) During 1995, the Bank paid $115,100 to Serafini, Purdy, DiNardo & Wells in fees, reimbursement of expenses paid on behalf of the Bank and conveyancing fees paid by borrowers at loan closings. -7- The following is a list of present Directors of the Bank whose terms have not expired. These Directors, together with those named above, if elected, will constitute the Board of Directors of the Bank for the coming year or until their successors are elected and qualified.
CURRENT TRUSTEE OR SHARES % OF TERM NAME AND PRINCIPAL AGE AT DIRECTOR OWNED AT COMMON TO OCCUPATION 2/29/96 SINCE 2/29/96 STOCK EXPIRE Martha M. Campbell 52 1986 23,700(1) 1.53 1998 ATTORNEY-AT-LAW Bernard J. Dwyer 65 1970 5,302(2) .34 1998 ATTORNEY-AT-LAW Peter L. Maguire(3) 47 1986 18,240 1.17 1998 PRESIDENT MANAGEMENT INFORMATION SERVICES Michael T. Putziger(3) 49 1989 171,700(4) 11.05 1998 ATTORNEY-AT-LAW ROCHE, CARENS & DEGIACOMO(5) Thomas J. Carens 73 1985 1,143 .07 1997 OF COUNSEL ROCHE, CARENS & DEGIACOMO(5) Richard J. Murney 67 1987 1,650(6) .11 1997 CERTIFIED PUBLIC ACCOUNTANT John V. Murphy(3) 46 1989 9,750 .63 1997 EXECUTIVE VICE PRESIDENT & CHIEF OPERATING OFFICER DAVID L. BABSON & CO. INC. Richard P. Quincy(3) 41 1994 1,500 .10 1997 PRESIDENT QUINCY & CO.(7) William T. Novelline 54 1977 5,550(8) .36 1996 PRESIDENT ABBOT FINANCIAL MANAGEMENT
(1) Includes 12,450 shares held in mother's estate, of which Ms. Campbell is the executrix and in which she has a 25% beneficial interest. (2) Includes 2,700 shares held in trust for children. (3) Director of Kildare Corporation, The Limerick Securities Corporation and The Meath Corporation, all subsidiaries of the Bank. (4) Includes 77,250 shares held jointly with spouse and 31,250 shares held in IRA and pension trust. (5) Roche, Carens & DeGiacomo has been retained as counsel to the Bank during the last eight fiscal years and will be retained in the 1996 fiscal year. During 1995, the Bank paid $569,985 to Roche, Carens & DeGiacomo in fees, reimbursement of expenses paid on behalf of the Bank, and conveyancing fees paid by borrowers at loan closings. (6) Includes 1,500 shares held jointly with spouse. (7) The Bank during 1995 paid Quincy & Co. $136,934 for the Bank's general insurance coverage. Said coverage was obtained at the same rate and on the same terms and conditions the Bank could have obtained from other insurance agents. (8) Includes 300 shares held as trustee of family trust and 3,750 shares held as trustee of profit sharing plan. -8- - -------------------------------------------------------------------------------- MARKET INFORMATION - -------------------------------------------------------------------------------- The Bank's common stock is presently traded on the NASDAQ National Market System under the symbol "HSBK." Bancorp intends to seek approval for the listing of Bancorp Common Stock in substitution for the Bank's Common Stock on the NASDAQ National Market System using the symbol "EIRE" subject to completion of Bancorp formation. The Bank expects that approval for this substitution will be received prior to consummation of the Reorganization. Set forth below are the per share high and low closing sale prices of the Bank's Common Stock as reported on the NASDAQ National Market System and the cash dividends declared during the periods indicated. Prices listed below have been adjusted to reflect a 3 for 2 stock split effective February 1, 1995. CASH DIVIDENDS FISCAL YEAR 1995 HIGH LOW PAID December 31, 1995 $18 1/4 $15 3/4 $0.06 September 30, 1995 17 1/8 14 1/2 0.06 June 30, 1995 14 3/4 12 1/2 0.05 March 31, 1995 13 1/2 10 1/8 0.05 CASH DIVIDENDS FISCAL YEAR 1994 HIGH LOW PAID December 31, 1994 $11 5/8 $10 $ -- September 30, 1994 12 5/8 11 1/2 -- June 30, 1994 13 1/8 10 3/8 -- March 31, 1994 11 5/8 9 -- The closing sale price of the Common Stock as reported on the NASDAQ National Market System on February 14, 1996 was $16.00 per share. As of February 29, 1996, there were approximately 400 holders of record of the Common Stock, not including persons or entities who hold the stock in nominee or street name through various brokerage firms. - -------------------------------------------------------------------------------- COMMITTEES - -------------------------------------------------------------------------------- The Board of Directors met twelve times in 1995. The Bank has standing Audit, Executive and Nominating Committees. Directors who are not Officers of the Bank receive an annual retainer of $2,500.00, payable semi-annually and are compensated for meetings attended during the year. Compensation is equal to $300.00 per meeting attended for board and committee members and $400.00 per meeting attended for the committee clerk or chairman. Total compensation to all Directors, including attendance at Board and Committee meetings amounted to $95,400 in 1995. During 1995 two members of the Board of Directors, Mr. William T. Novelline and Mr. Thomas P. Moore, Jr. attended fewer than 75 percent of the Director's meetings. One member of the Executive Committee, Mr. Thomas P. Moore, Jr. attended fewer than 75 percent of the meetings of that committee held during 1995. The Audit Committee presently is chaired by Mr. Richard J. Murney and has as its members Ms. Martha M. Campbell, Mr. Bernard J. Dwyer and Mr. William E. Lucey. The Committee met four times in 1995. The Audit Committee reviews the results of the Bank's independent audit and regulatory examinations, reviews internal auditing procedures, and the results of internal auditing programs. The Executive Committee presently is chaired by Mr. Mark A. Osborne and has as its members Messrs. Peter L. Maguire, John V. Murphy, Thomas P. Moore, Jr., Michael T. Putziger and Richard P. Quincy. The Committee met eleven times in 1995. The Executive Committee approves all investments and lending activities. In addition, the Executive Committee administers the 1986 Stock Option Plan, the 1989 Stock Option Plan, the 1995 Premium Incentive Stock Option Plan, Short Term Incentive Bonus Plan, and determines compensation for the Principal Officers of the Bank. The Executive Committee is also the Trustee of the Employee Stock Ownership Plan. The Nominating Committee presently is chaired by Mr. Mark A. Osborne and has as its members Messrs. Peter L. Maguire, Thomas P. Moore, Jr., Michael T. Putziger and Richard P. Quincy. The Committee meets annually to recommend nominees for Officers and Directors of the Bank to the full Board. The Committee will consider stockholder nominations, if received along with all background materials, prior to November 15, 1996, for consideration at the annual meeting to be held in the second quarter of 1997. -9- Two members of the Board of Directors, Mr. William T. Novelline and Mr. Charles R. Simpson, Jr. have tendered letters of resignation from the Board of Directors. Mr. Novelline has been a member of the Board of Directors for over 25 years and has decided not to stand for re-election when his term expires April 29, 1996 due to increased business commitments. Mr. Novelline's resignation is effective as of that date. Mr. Simpson has taken a senior management position at another federally insured banking institution; consequently, he is prohibited by statute from continuing to serve as a member of the Board. Mr. Simpson's resignation was effective January 15, 1996. During 1995, three members of the Board of Directors, Douglas C. Purdy, Paul D. Osborne and Martha M. Campbell purchased additional shares of The Hibernia Savings Bank stock that were not reported on Form F-8, during the year, as required by the FDIC. All purchases have been properly reported on Form F-8A filed as of December 31, 1995. - -------------------------------------------------------------------------------- EXECUTIVE COMPENSATION OF PRINCIPAL OFFICERS - -------------------------------------------------------------------------------- The following table sets forth a summary of certain information concerning the compensation awarded or paid by The Hibernia Savings Bank for services rendered in all capacities during the last three fiscal years to the Chairman of the Board and Chief Executive Officer and the top four other senior officers. ANNUAL COMPENSATION
OTHER LONG-TERM ALL NAME AND PRINCIPAL ANNUAL COMPENSATION OTHER POSITION FOR 1995 FISCAL YEAR SALARY BONUS COMPENSATION AWARDS(1) COMPENSATION(2) Mark A. Osborne 1995 $225,000 $40,000 $8,353(3) $247,500 $49,748 Chairman of the Board 1994 210,000 50,000 8,701 173,250 64,248 and Chief Executive Officer 1993 198,000 - 7,995 132,500 29,700 Richard S. Straczynski 1995 $108,316 - - $191,750 - President and Chief 1994 - - - - - Operating Officer 1993 - - - - - Gerard F. Linskey 1995 $90,000 $7,000 - - $10,800 Senior Vice President and 1994 90,000 10,000 $2,500(4) $ 49,500 13,500 Chief Financial Officer 1993 86,000 - 2,500 - 12,900 Dennis P. Myers 1995 $90,000 $10,000 - - $10,800 Senior Vice President and 1994 90,000 20,000 - $49,500 13,500 Senior Lending Officer 1993 85,000 - - - 12,750 Wayne F. Blaisdell 1995 $80,000 $5,000 - - $9,600 Senior Vice President and 1994 76,000 10,000 - $9,900 11,400 Branch Administration and 1993 73,000 - - - 10,950 Operations Officer
(1) Long term compensation awards consist of stock options granted to officers. The value is computed based on the option price which was the fair market value of the Bank's stock on the date the options were issued. (2) Contributions by the Bank to the Employee Stock Ownership Plan, the Non Qualified Employee Retirement Plan and the Bank's 401(k) plan. (3) Personal use of Bank automobile and reimbursement of costs associated with life insurance. (4) Personal use of Bank automobile. -10- - -------------------------------------------------------------------------------- OPTION GRANTS IN LAST FISCAL YEAR(1) - -------------------------------------------------------------------------------- The following table sets forth certain information with respect to stock options granted during the Bank's last fiscal year. No stock appreciation rights (SARs) were granted during such year.
POTENTIAL REALIZABLE VALUES AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERMS (1) - ------------------------------------------------------------------------------------------------------------------- NUMBER OF PERCENT OF SECURITIES TOTAL OPTIONS UNDERLYING GRANTED TO EXERCISE OF OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) - ------------------------------------------------------------------------------------------------------------------- 1986 STOCK OPTION PLAN Richard S. Straczynski 1,500 100% $11.75 3-14-05 $11,084 $28,090 1989 STOCK OPTION PLAN Richard S. Straczynski 1,500 40% $11.75 3-14-05 $11,084 $28,090 Richard S. Straczynski 2,250 60% $11.75 3-14-05 $16,626 $42,135 1995 STOCK OPTION PLAN Mark A. Osborne 15,000 40.82% $16.50 12-12-05 $155,651 $394,451 Richard S. Straczynski 14,750 40.14% $13.00 5-10-05 $120,590 $305,600 Robert D. McCarthy 4,000 10.88% $16.50 12-12-05 $41,507 $105,187 Roger L. Meade 1,000 2.72% $16.50 12-12-05 $10,377 $26,296 Edwin J. Beck 1,000 2.72% $16.50 12-12-05 $10,377 $26,296 Michael P. Donohoe 1,000 2.72% $16.50 12-12-05 $10,377 $26,296
(1) All such options are exercisable twenty-four months after their respective issue dates at the market price of the Bank stock as of the issue date, and expire on the tenth anniversary of the date of grant. (2) These amounts represent assumed rates of appreciation only, are not discounted for inflation, and are not necessarily indicative of actual expected growth. Actual gains, if any, on stock option exercises and common stock holdings are dependent on the future performance of the common stock and overall stock market conditions. There can be no assurance that the amounts reflected in this table will be achieved. - -------------------------------------------------------------------------------- COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION - -------------------------------------------------------------------------------- The Executive Committee of The Hibernia Savings Bank acts as the compensation committee in establishing salaries for the principal officers of the Bank. The Bank's compensation policies are designed to provide competitive levels of compensation integrating pay with the Bank's performance goals, reward above average performance, recognize individual initiatives and achievements and assist the Bank in attracting and retaining qualified executives in the competitive market in which the Bank operates. Executive compensation consists of three components: cash compensation, including base salary and an annual incentive bonus; long term incentive compensation in the form of stock options; and executive benefits. The components are intended to provide incentives to achieve short and long-range objectives of the Bank and to reward exceptional performance. Performance is evaluated not only with respect to The Hibernia Savings Bank's earnings but also with respect to comparable industry performance, the accomplishment of business objectives and the individual's contribution to The Hibernia Savings Bank's core earnings and stockholder value. The competitiveness of The Hibernia Savings Bank's compensation structure is determined by a thorough review of compensation survey data collected by the Committee. To motivate job performance and to encourage growth in stockholder value, stock options are granted under The Hibernia Savings Bank's stock option plans to all executives and other personnel in order to encourage substantial contributions toward the overall success of The Hibernia Savings Bank. The Committee believes that this focuses attention on managing the Bank from the perspective of an owner with an equity stake in the business. With respect to executive benefits, executive officers receive all normal employee fringe benefits. -11- In determining the overall compensation package for the Chief Executive Officer, the Committee considered each of the factors enumerated in the preceding paragraphs regarding compensation for executive officers of The Hibernia Savings Bank, as well as the financial performance achieved by the Bank during the past fiscal year. In addition, The Hibernia Savings Bank continued at or near the top of the financial industry for such key financial performance measures as growth in assets, growth in earning assets, growth in loans outstanding, return on average assets, return on average equity, and efficiency ratios. Additionally, the Committee reviewed various compensation packages provided to executive officers of publicly traded financial institutions. The results of such review showed Mr. Osborne's overall compensation package to be competitive for chief executive officers of publicly traded financial institutions of comparable size, complexity of operation and performance. - -------------------------------------------------------------------------------- PERFORMANCE GRAPH - -------------------------------------------------------------------------------- The following graph sets forth the cumulative total stockholders return (assuming reinvestment of dividends) to The Hibernia Savings Bank's stockholders during the five year period ended December 31, 1995 as well as the NASDAQ Combined Composite Index, NASDAQ Combined Bank Index and S&P 500 Index: Date Date The Hibernia NASDAQ Comb NASDAQ S&P 500 Savings Bank Composite Index Comb Bank Index Equity Return Return Index Return Return 1/29/91 0% 0% 0% 0% 1/30/91 0% 0% 0% 0% 2/28/91 78% 9% 10% 7% 3/29/91 56% 16% 16% 10% 4/29/91 89% 17% 23% 10% 5/29/91 67% 22% 25% 15% 6/29/91 Jun-91 56% 15% 22% 9% 7/29/91 56% 21% 23% 15% 8/29/91 56% 27% 29% 17% 9/29/91 56% 27% 28% 15% 10/29/91 11% 31% 25% 17% 11/29/91 0% 6% 21% 12% 12/29/91 Dec-91 22% 42% 31% 25% 1/29/92 100% 50% 40% 23% 2/29/92 111% 53% 48% 24% 3/29/92 100% 46% 48% 22% 4/29/92 178% 40% 56% 25% 5/29/92 200% 41% 64% 26% 6/29/92 Jun-92 256% 36% 66% 24% 7/29/92 244% 40% 73% 29% 8/29/92 244% 36% 70% 27% 9/29/92 178% 41% 73% 28% 10/29/92 200% 46% 79% 28% 11/29/92 233% 58% 89% 33% 12/29/92 Dec-92 244% 63% 99% 34% 1/29/93 422% 68% 121% 36% 2/28/93 322% 62% 124% 37% 3/29/93 322% 67% 135% 40% 4/29/93 511% 57% 127% 37% 5/29/93 522% 69% 123% 41% 6/29/93 Jun-93 489% 70% 127% 41% 7/29/93 578% 70% 142% 40% 8/29/93 456% 79% 153% 46% 9/29/93 556% 84% 161% 45% 10/29/93 600% 88% 164% 48% 11/29/93 567% 82% 155% 46% 12/29/93 Dec-93 511% 88% 158% 48% 1/29/94 567% 93% 164% 53% 2/28/94 556% 91% 159% 49% 3/29/94 622% 79% 152% 42% 4/29/94 611% 77% 158% 44% 5/29/94 622% 78% 174% 47% 6/29/94 Jun-94 678% 70% 183% 43% 7/29/94 733% 74% 187% 48% 8/29/94 700% 85% 193% 54% 9/29/94 667% 85% 189% 50% 10/29/94 656% 88% 175% 53% 11/29/94 589% 81% 161% 48% 12/29/94 Dec-94 611% 82% 161% 50% 1/29/95 648% 82% 173% 54% 2/28/95 670% 92% 186% 60% 3/29/95 754% 97% 188% 65% 4/29/95 774% 104% 197% 69% 5/29/95 812% 109% 204% 76% 6/29/95 Jun-95 888% 125% 218% 80% 7/29/95 912% 142% 232% 86% 8/29/95 963% 146% 256% 87% 9/29/95 056% 152% 262% 95% 10/29/95 1110% 150% 258% 94% 11/29/95 1068% 156% 271% 102% 12/29/95 Dec-95 1000% 154% 277% 106% - -------------------------------------------------------------------------------- BENEFITS - -------------------------------------------------------------------------------- EMPLOYMENT AGREEMENTS The Bank in 1986 entered into an Employment Agreement (the "Agreement") with Mark A. Osborne, Chairman of the Board and Chief Executive Officer. The Agreement provides for a five year term and for a continuation of benefits currently provided by the Bank. This Agreement was amended and approved by a vote of the Board of Directors at its July 1991 meeting. The Agreement will be automatically extended for an additional year on each anniversary of the Agreement, unless prior to such anniversary either party gives written notice to the other of an election not to extend the Agreement. The Agreement provides that the Bank may terminate Mr. Osborne's employment at any time for "cause" as that term is defined by the Agreement, without further obligation on the part of the Bank. However, if the Bank were to terminate Mr. Osborne's employment for any reason other than cause, Mr. Osborne would be entitled to receive the compensation specified in the Agreement for the balance of the term of the Agreement. The Bank would not be entitled to a set-off for compensation received as a result of new employment. In addition, the Bank entered into a Special Termination Agreement with Mr. Osborne in 1986. This Agreement was amended and approved by a vote of the Board of Directors at its July 1991 meeting. This Agreement provides that if there is a Change in Control of the Bank, and Mr. Osborne's employment is terminated within three years thereafter, or if Mr. Osborne should terminate his employment within three years after such a Change in Control because of demotion, loss of title or office or reduction in compensation, Mr. Osborne would be entitled to an additional severance benefit in an amount equal to three times his annual compensation. A Change in Control, as defined in the Special Termination Agreement, occurs (a) where a person or group of persons acquires beneficial ownership of 25% or more of the common stock of the Bank without the approval of two-thirds of the Board of Directors, or (b) where as a result of a tender offer, exchange offer, business combination or merger, or sale of assets, a majority of the Board of Directors is comprised of persons who did not serve on the Board of Directors prior to such tender offer or other transaction listed above. -12- EMPLOYEE STOCK OWNERSHIP PLAN The Board of Directors at its February 1989 meeting voted to establish an Employee Stock Ownership Plan ("ESOP"), which is one type of qualified stock bonus plan under Internal Revenue Code Section 401(a). All employees who complete twelve consecutive months of employment with the Bank are eligible to participate in the Plan. After thirty six months of consecutive employment, employees are 100% vested in the plan. An ESOP is designed to invest primarily in the stock of the employer corporation and may borrow money to buy such stock. As of February 29, 1996 the Employee Stock Ownership Plan had acquired 237,003 shares of the Bank's outstanding common stock. The Executive Committee of the Board of Directors has been designated as Trustee for the ESOP and the plan is administered by The Pentad Corporation, Waltham, MA. For the years 1990, 1991, 1992, 1993, 1994 and 1995 the Bank made contributions to the plan of $170,949, $184,299, 178,233, $195,875, $200,914 and $183,800, respectively. 401(K) PLAN The Board of Directors at its January 1992 meeting, voted to establish a Profit Sharing Plan as defined in the Internal Revenue Code Section 401(k). The 401(k) Plan became effective on February 1, 1992. All employees who complete twelve consecutive months of employment with the Bank are eligible to participate in the Plan. Vesting at 100% begins when the employees are eligible to participate in the plan. The Bank will match employees' voluntary contributions on a dollar for dollar basis up to 3% of total compensation. The plan is administered by the Savings Banks Employees Retirement Association (SBERA). For the years 1992, 1993, 1994 and 1995, the Bank made contributions to the plan of $40,965, $44,624, $43,394 and $49,444, respectively. NON-QUALIFIED EXECUTIVE RETIREMENT PLAN The Board of Directors at its January 1994 meeting voted to establish a Non-Qualified Executive Retirement Plan (NQERP) which is an unfunded non-qualified plan maintained for the purpose of providing deferred compensation for a select group of management whose retirement benefits in the Bank's tax qualified retirement plans are restricted by statute. The amount credited to an executive's account shall be equal to the difference between what the Bank would have (in the absence of statutory limitations) contributed minus the actual contribution made for the year. During 1994 and 1995, the Bank made contributions to the plan of $41,748 and $30,944, respectively. SHORT TERM INCENTIVE BONUS PLAN During 1986, the Bank adopted a Short Term Incentive Bonus Plan (the "Plan") whereby certain employees are eligible to receive a bonus if the Bank meets or exceeds certain base standards of profitability, and certain strategic goals are achieved. The structure of the Plan is reviewed on an annual basis by the Executive Committee of the Bank. There was no incentive compensation expense recorded for 1990, 1991 or 1992, while for 1993, 1994 and 1995, the Bank recorded expenses of $136,900, $124,125 and $185,504 of incentive compensation expense, respectively. 1986, 1989 AND 1995 STOCK OPTION PLANS The Bank currently has three stock option plans designed to furnish an additional incentive to key employees of the Bank by affording them the opportunity to become owners of the Bank's common stock. The options available, granted and exercised under both plans have been adjusted to reflect a three for two stock split effective February 1, 1995. During 1995, the Bank received $77,418 from the exercise of 41,200 options. The total number of shares available under the 1986 Stock Option Plan is 120,000 shares. Options for 120,000 shares have been granted. Of the total number of options granted under the plan, 7,100 options remain unexercised as of February 29, 1996. On March 14, 1995, 1,500 new options were granted to Richard S. Straczynski under the 1986 Stock Option Plan. These options will be exercisable after 24 months from issue date. They are exercisable at $11.75 per share, the market price of the Bank's stock as of the issue date. The total number of shares available under the 1989 Stock Option Plan is 52,500 shares. Options for 52,500 shares have been granted. Of the total number of options granted under the plan, 40,500 options remained unexercised as of February 29, 1996. On March 14, 1995, 3,750 new options were granted to Richard S. Straczynski under the 1989 Stock Option Plan. These options will be exercisable after 24 months from the issue date. They are exercisable at $11.75 per share, the market price of the Bank's stock as of the issue date. -13- The 1995 Premium Incentive Stock Option Plan provides for options on an additional 70,000 shares. Options for 36,750 shares have been granted. Of the total number of options granted under the plan, 36,750 options remain unexercised as of February 29, 1996. On May 10, 1995, 14,750 new options were granted to Richard S. Straczynski under the 1995 plan. These options will be exercisable after 24 months from the issue date. They are exercisable at $13.00 per share, the market price of the Bank's stock as of the issue date. In addition on December 12, 1995, new options were granted to the following persons under the 1995 Premium Incentive Stock Option Plan: Mark A. Osborne, 15,000 shares; Robert D. McCarthy, 4,000 shares; Edwin J. Beck, 1,000 shares; Michael P. Donohoe, 1,000 shares and Roger L. Meade, 1,000 shares. The options will be exercisable after 24 months from the issue date. They are exercisable at $16.50 per share, the market price of the Bank's stock as of the issue date. STOCK PURCHASE PLAN In 1989, the Board of Directors voted to adopt a Stock Purchase Plan, which was subsequently approved by the Commissioner of Banks. Shares available for purchase were limited to 150,000 shares adjusted for a 3 for 2 stock split effective February 1, 1995 of authorized but unissued common stock. In 1990 the Board of Directors voted to increase the shares available for purchase to 300,000 shares adjusted for a 3 for 2 stock split effective February 1, 1995 of authorized but unissued common stock, but not to authorize the issuance of any shares pursuant to the Plan without further Board approval. The increase in the number of shares of authorized but unissued stock was also approved by the Commissioner of Banks. The two purposes of the Plan are (1) to provide a continuing source of additional capital for the Bank without the costs normally associated with that activity, and (2) to provide an additional method for Directors, officers, employees, and employee benefit plans to acquire a proprietary interest in the Bank through the purchase of shares of common stock of the Bank. No participant, except for the Employee Stock Ownership Plan, may purchase more than 25,000 shares absent the approval of two thirds of the Board of Directors. The Board of Directors approved the purchase of in excess of 25,000 shares for Director Michael T. Putziger at its October 21, 1992 meeting. Shares must be purchased for investment only and must be held for at least one year. The purchase price will be the closing bid price of the common stock on the business day prior to the purchase. The Board of Directors authorized the sale of stock through the Stock Purchase Plan at its April 29, 1992 meeting and as of February 29, 1996, 164,715 additional shares of common stock had been issued under the Plan. All of the shares were issued at market prices at the time of issuance, raising additional paid in capital of $1,663,225. INDEBTEDNESS OF MANAGEMENT Certain of the Bank's Directors and executive officers and their associates are customers of the Bank and from time to time have had loans from the Bank. Such loans were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unaffiliated persons and did not involve more than the normal risk of collectibility or present other unfavorable features to the Bank. The total outstanding indebtedness of Directors and officers was $1,088,274 at December 31, 1995. - -------------------------------------------------------------------------------- PROPOSAL III -- FORMATION OF HOLDING COMPANY - -------------------------------------------------------------------------------- The following descriptions are qualified in their entirety by reference and made subject to the Plan of Reorganization attached hereto as Exhibit A, the form of Articles of Organization of Emerald Isle Bancorp, Inc. attached hereto as Exhibit B, and certain provisions of the General Laws of Massachusetts relating to the rights of dissenting stockholders attached hereto as Exhibit C. RECOMMENDATION OF DIRECTORS The Plan of Reorganization has been unanimously approved by the Board of Directors of The Hibernia Savings Bank (the "Bank") and Emerald Isle Bancorp, Inc. ("Bancorp"). THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK ELIGIBLE TO BE CAST BY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON THE RECORD DATE WILL BE REQUIRED TO APPROVE THE PLAN OF REORGANIZATION AND EACH OF THE TRANSACTIONS CONTEMPLATED THEREBY. The Board of Directors of the Bank believes that the Plan of Reorganization is in the best interests of the Bank and its stockholders. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE BANK VOTE FOR APPROVAL OF THE PLAN OF REORGANIZATION AND EACH OF THE TRANSACTIONS CONTEMPLATED THEREBY. -14- DESCRIPTION OF THE PLAN OF REORGANIZATION Bancorp has been organized as a Massachusetts corporation at the direction of the Bank for the purpose of becoming the holding company of the Bank. Bancorp and the Bank have entered into the Plan of Reorganization, which provides, subject to the exercise of dissenters' rights, for the acquisition of all the outstanding shares of Bank Common Stock by Bancorp in exchange for an equal number of shares of the common stock, par value $1.00 per share, of Bancorp ("Bancorp Common Stock") pursuant to the provisions of Section 26B of Chapter 172 of the General Laws of Massachusetts. Under the Plan of Reorganization, Bancorp will become the owner of all the outstanding shares of the Common Stock of the Bank, and each stockholder of the Bank who does not exercise dissenters' rights with respect to the Plan of Reorganization will become the owner of one share of Bancorp Common Stock for each share of Common Stock of the Bank held immediately prior to the consummation of the Reorganization. On the effective date of the Reorganization, each share of Common Stock of the Bank will be automatically converted into and exchanged for one share of Bancorp Common Stock. The Reorganization will become effective at 12:01 a.m. on the first business day following the date on which the Bank and Bancorp advise the Massachusetts Commissioner of Banks (the "Commissioner") that all conditions precedent have been satisfied or on such other date as is specified to the Commissioner (the "Effective Time"). As a condition to the consummation of the Reorganization, Bancorp and the Bank must receive certain regulatory approvals. See "-- Regulation of Bancorp and the Bank." Neither Bancorp nor the Bank can predict with any certainty whether such approvals on terms satisfactory to Bancorp and the Bank will be obtained, and, if so, the timing of such approvals. Accordingly, the consummation of the Reorganization may be subject to a delay, which may, under certain circumstances, be significant. If the stockholders approve the Plan of Reorganization at the Annual Meeting, Bancorp and the Bank shall have the right to consummate the Reorganization at any time thereafter. The number of shares of Bancorp Common Stock to be issued at the Effective Time will equal the number of shares of Common Stock of the Bank issued and outstanding immediately prior thereto, less the number of shares of Common Stock of the Bank held by dissenting stockholders. Shares of Bancorp Common Stock that would have been issued had dissenting stockholders not dissented will remain as authorized but unissued shares of Bancorp Common Stock. The shares of Bancorp Common Stock that are outstanding prior to the Effective Time, all of which are presently held by the Bank, will be canceled as part of the Reorganization. The outstanding stock certificates of Common Stock of the Bank that, prior to the Reorganization, represented shares of Common Stock of the Bank, will thereafter, for all purposes represent an equal number of shares of Bancorp Common Stock, except for certificates held by dissenting stockholders and as further described below. After the Effective Time, Bancorp will issue and deliver to the transfer agent (the "Transfer Agent") for the Bank and Bancorp certificates representing the number of shares of Bancorp Common Stock issuable in connection with the Reorganization. Bancorp and the Bank will notify stockholders by mail at their addresses as shown on the Bank's records and by publication that they may, or, if required to do so by Bancorp in its sole discretion, shall, present their certificates to the Transfer Agent for exchange. Stockholders may exchange their present stock certificates representing Common Stock of the Bank for new certificates representing Bancorp Common Stock by surrendering their certificates of the Bank's Common Stock to the Transfer Agent. They will then receive in exchange therefor a certificate representing an equal number of shares of Bancorp Common Stock. Until so exchanged, stockholders' present certificates for the Bank's Common Stock will, for all purposes, represent an equal number of shares of Bancorp Common Stock, and the holders of those certificates will have all the other rights of stockholders of Bancorp. However, Bancorp, at any time, may, in its sole discretion, withhold any dividends that may be declared on shares of Bancorp Common Stock until stockholders present their certificates for the Bank's Common Stock to the Transfer Agent for exchange. In such case, upon delivery of such certificates or as soon thereafter as practicable, such person shall be entitled to receive from Bancorp or the Transfer Agent an amount equal to all accrued dividends (without interest thereon and less the amount of taxes, if any, which may have been imposed or paid thereon or which are required by law to be withheld in respect thereof) on the shares represented thereby. After consummation of the Reorganization, the Bank, as a subsidiary of Bancorp, will continue to serve the communities it presently serves from its existing office locations. The assets, property, rights and powers, debts, liabilities, obligations and duties of the Bank will not be changed by the Reorganization, except for the proposed initial transfer, subject to applicable law and any agreements of the Bank with regulatory agencies, of up to approximately $100,000.00 from the Bank to Bancorp. See "Regulation of Bancorp and the Bank." Similarly, the Charter, By-laws and the name of the Bank will not be affected by consummation of the Reorganization. The Hibernia Savings Bank 1986 Stock Option Plan, The Hibernia Savings Bank 1989 Stock Option Plan, and The Hibernia Savings Bank 1995 Premium Incentive Stock Option Plan will become stock option plans of Bancorp. All other stock related benefit plans of the Bank will be unchanged by the Reorganization, except that any plan which refers to the Bank's Common Stock, such as the Employee Stock Ownership Plan ("ESOP"), will, following the comple- -15- tion of the Reorganization, be deemed to refer instead to Bancorp Common Stock. The Directors, officers and other employees of the Bank will be unchanged by the Reorganization. The Directors and officers of Bancorp will initially consist of the following persons who are also Directors and officers of the Bank: --------------------------------------- DIRECTORS: TERM TO EXPIRE: --------------------------------------- Douglas C. Purdy 1997 Richard P. Quincy 1997 Peter L. Maguire 1998 John V. Murphy 1998 Thomas P. Moore, Jr. 1999 Mark A. Osborne 1999 Michael T. Putziger 1999 For further information regarding Bancorp"s Directors, see Proposals I and II -- Election of Directors. --------------------------------------- OFFICERS: OFFICE HELD: --------------------------------------- Mark A. Osborne President Gerard F. Linskey Treasurer Douglas C. Purdy Clerk REMUNERATION Since the formation of Bancorp, none of its executive officers or Directors has received any remuneration from Bancorp. It is expected that unless and until Bancorp becomes actively involved in additional business, no separate compensation will be paid to the Directors and officers of Bancorp in addition to that paid to them by the Bank. However, Bancorp may determine in the future that such separate compensation is appropriate. EFFECT ON STOCK OPTIONS AND OTHER STOCK RELATED BENEFIT PLANS By voting in favor of this Plan of Reorganization, Bancorp shall have approved adoption of The Hibernia Savings Bank 1986 Stock Option Plan, The Hibernia Savings Bank 1989 Stock Option Plan, and The Hibernia Savings Bank 1995 Premium Incentive Stock Option Plan as the stock option plans of Bancorp and shall have agreed to issue Bancorp Common Stock in lieu of Bank Common Stock pursuant to options currently outstanding under the existing Stock Option Plans. As of the Effective Time, the Stock Option Plans shall automatically, by operation of law, be continued as, and become the stock option plans of Bancorp. Further, at the Effective Time, each option to purchase shares of Bank Common Stock under the Stock Option Plans outstanding and unexercised immediately prior to the Effective Time shall automatically be converted into an identical option, with identical price, terms and conditions, to purchase an identical number of shares of Bancorp Common Stock in lieu of shares of Bank Common Stock. Bancorp and the Bank shall make appropriate amendments to the Stock Option Plans to reflect the adoption of the Stock Option Plans as the Stock Option Plans of Bancorp, without adverse effect upon the options outstanding as of the Effective Time under the Stock Option Plans. By voting in favor of this Plan of Reorganization, Bancorp shall also have approved The Hibernia Savings Bank 1989 Stock Purchase Plan and The Hibernia Savings Bank 1995 Automatic Dividend Reinvestment and Common Stock Purchase Plan as the stock purchase plans of Bancorp. As of the Effective Time, the Stock Purchase Plans shall automatically, by operation of law, be continued as and become the stock purchase plans of Bancorp. Further, at the Effective Time, all rights to purchase shares of Bank Common Stock under the existing Stock Purchase Plans shall automatically, by operation of law, be converted into and shall become identical rights to purchase Bancorp Common Stock upon identical terms and conditions. The Bank shall make appropriate amendments to the Stock Purchase Plans, effective as of the Effective Time, to reflect the substitution of rights to purchase Bank Common Stock for rights to purchase Bancorp Common Stock. -16- REASONS FOR THE HOLDING COMPANY FORMATION The Board of Directors of the Bank believes that a holding company structure will provide flexibility for meeting the future financial needs of the Bank or other subsidiaries of Bancorp and responding to competitive conditions in the financial services market. As a bank holding company, Bancorp will not be subject to the same regulatory restrictions as the Bank, and will be able to acquire and invest more freely in certain bank and bank-related activities as well as such other activities as might be permitted by regulatory authorities. In addition, Bancorp, unlike the Bank, will not be subject to any regulatory limitations on the amounts which it can invest in its subsidiaries and other businesses and will not be required to obtain regulatory approval before issuing shares of its capital stock, except under certain circumstances. Furthermore, Bancorp, when market conditions so warrant, can purchase its own Common Stock without adverse federal income tax consequences, which the Bank, in certain circumstances, may not be able to do. See "-- Regulation of Bancorp and the Bank." There are no current agreements or understandings with respect to any investments or the issuance of any additional shares of capital stock by either the Bank or Bancorp, except pursuant to options granted under the Stock Option Plans. A holding company structure will also facilitate the acquisition of other banks as well as other companies engaged in bank-related activities if and when opportunities arise. A holding company structure would permit an acquired entity to operate on a more autonomous basis as a wholly-owned subsidiary of Bancorp rather than as a division of the Bank. For example, the acquired institution could retain its own directors, officers, corporate name and local identity. This more autonomous operation may be decisive in acquisition negotiations. In addition, the stock of Bancorp may serve as appropriate consideration in any such acquisition. Although the recent enactment of federal interstate banking legislation may eventually curtail the advantages of a holding company structure for acquisitions, the ability of states to opt out of the interstate branching authorization until June 1, 1997 favors continued use of a holding company structure. While the Bank is, from time to time, exploring various acquisition possibilities, there are no current agreements or understandings for the acquisition of any financial institution or other company and there are no assurances that any such acquisitions will occur. It is recognized that some increased costs, including administrative expenses, will be incurred in the formation and operation of Bancorp. However, such increased costs are not expected to have a material adverse effect on the consolidated financial results of Bancorp and the Bank. BUSINESS OF THE BANK The Hibernia Savings Bank is a Massachusetts-chartered stock savings bank founded in 1912. The Bank's headquarters is located at 731 Hancock Street, Quincy, Massachusetts. In 1986, the Bank converted from mutual to stock form. The Bank is primarily engaged in attracting retail deposits from the general public and borrowing funds, primarily from the Federal Home Loan Bank, and using these funds to originate and invest in loans secured by first or second mortgage loans on residential real estate, to originate or participate in commercial real estate loans, to make small business loans, and to make investments in securities. The Bank also originates and services residential mortgage loans sold into the secondary mortgage market and originates consumer loans for inclusion in its loan portfolio. The Bank, at December 31, 1995, has a wholly-owned subsidiary known as Kildare Corporation. Kildare holds investments in limited real estate partnerships and is the sole owner of four subsidiaries, Athlone Corporation, Donegal Corporation, Mayo Corporation, and Roscommon Corporation, each of which is currently inactive. The Bank, at December 31, 1995, also has a wholly-owned subsidiary known as Limerick Securities Corporation. This corporation was formed solely in order to invest in securities in which the Bank could invest pursuant to Sections 2 and 3 of Chapter 167F of the Massachusetts General Laws. The Bank, at December 31, 1995, also has a wholly-owned subsidiary known as Meath Corporation. This corporation was formed to undertake the construction and sale of a condominium project in the western part of Massachusetts and is currently inactive. -17- PROPERTIES The Bank has branches located at 731 Hancock Street, Quincy, Massachusetts, 101 Federal Street, Boston, Massachusetts, 51 Commercial Street, Braintree, Massachusetts, 52 Coddington Street, Quincy, Massachusetts, 1150 Washington Street, Weymouth, Massachusetts, 274 Main Street, Hingham, Massachusetts, and 397 Washington Street, Stoughton, Massachusetts. The Bank's headquarters in Quincy, and the Boston and Stoughton facilities are leased premises. The Bank owns the Hingham, Weymouth and Braintree properties. The Bank also has three Loan Centers located at 730 Hancock Street, Quincy, Massachusetts, 51 Commercial Street, Braintree, Massachusetts, and 731 Hancock Street, Quincy, Massachusetts. The Bank, in February of 1994, purchased a building at 730 Hancock Street, Quincy, Massachusetts which houses the Executive Offices and Commercial Real Estate Department. COMPETITION The Bank faces extensive competition, both in originating loans and in attracting deposits, from other savings banks as well as co-operative banks, savings and loan associations, credit unions, and other financial service businesses. Competition for loans comes primarily from other savings banks, co-operative banks, savings and loan associations, commercial banks, and mortgage banking companies. The Bank competes for loans principally on the basis of interest rates and loan fees, types of loans originated, processing time, and the quality of service provided to borrowers. In attracting deposits, the Bank's primary competitors are other thrift institutions, commercial banks, mutual funds, and credit unions. The Bank's branches attract deposits from the communities in which they are located. The Bank's attraction and retention of deposits depend principally on the quality of its service and its ability to provide investment opportunities that satisfy the requirements of investors with respect to rate of return, liquidity, risk, and other factors. The Bank also competes for these deposits by offering competitive rates, convenient locations, and convenient business hours. Management believes that providing quality financial services and products in a personalized manner along with maintaining a community orientation have long been characteristics of the Bank which have resulted in customer recognition and loyalty. The Bank seeks to develop multiple relationships with its customers through an experienced service staff and offers a wide range of financial products and services to meet the demands of the Bank's existing market area and target customer base. EMPLOYEES As of December 31, 1995, the Bank employed 94 employees, none of whom was represented by a collective bargaining group. Management considers the Bank's relationship with its employees to be excellent. LEGAL PROCEEDINGS The Bank is not currently involved in any material legal proceedings. BUSINESS OF BANCORP Bancorp is a business corporation organized under the laws of the Commonwealth of Massachusetts on January 10, 1996. The only office of Bancorp, and its principal place of business, is located at the administrative office of the Bank at 730 Hancock Street, Quincy, Massachusetts 02170, and its telephone number is (617) 479-5001. Bancorp was organized for the purpose of becoming the holding company of the Bank. Upon completion of the Reorganization, the Bank will be a wholly-owned subsidiary of Bancorp, which will thereby become a bank holding company. Each stockholder of the Bank, upon completion of the Reorganization, will, subject to dissenters' appraisal rights, become a stockholder of Bancorp without change in the number of shares owned or in respective ownership percentages. Bancorp has not yet undertaken any business activities and there are no operating business activities currently proposed for Bancorp. In the future, Bancorp may become an operating company or acquire banks or companies engaged in bank-related activities and may engage in or acquire such other business or activities as may be permitted by applicable law. Upon consummation of the Reorganization, Bancorp will own all of the outstanding Common Stock of the Bank. Bancorp may enter into a management agreement for the purpose of rendering certain services to the Bank after completion of the Reorganization. No proposal and no terms of any such agreement, however, have been considered. COMPETITION It is expected that for the immediate future that the primary business of Bancorp will be the ownership of the Common Stock acquired in the Reorganization. Therefore, the competitive conditions to be faced by Bancorp will be the same as those faced by the Bank. -18- EMPLOYEES At the present time, Bancorp does not intend to employ persons other than its present management. If Bancorp acquires other business, it may at such time hire additional employees. LEGAL PROCEEDINGS Bancorp has not, since its organization, been a party to any legal proceedings. FINANCIAL RESOURCES OF BANCORP In connection with the Reorganization, the Bank currently intends, subject to applicable law and any agreements of the Bank with regulatory agencies, to transfer up to approximately $100,000.00 to Bancorp, which amount does not exceed the accumulated earnings and profits for tax purposes of the Bank as of December 31, 1995. See "-- Regulation of Bancorp and the Bank." The actual amount of funds which may be transferred, however, is subject to change and may be greater or less than this amount, depending on a number of factors, including Bancorp's future financial requirements and applicable regulatory restrictions. In this regard, the Bank may also lend funds to Bancorp, either as part of or in addition to the transfer of funds being made in connection with the Reorganization. However, the amount of capital which will initially be transferred from the Bank to Bancorp may be reduced to the extent necessary to avoid any taxable income to the Bank. See "-- Income Tax Consequences." A transfer of $100,000.00 to Bancorp would reduce the Bank's stockholders' equity as of December 3l, 1995, to approximately $22,724,616. If such a transfer to Bancorp had been made on December 31, 1995, the leverage, Tier 1 risk-based, and total risk-based capital ratios of the Bank would have been approximately 6.55 %, 11.39% and 12.64%, respectively. Upon consummation of the Reorganization, the currently outstanding shares of Bancorp, all of which are owned by the Bank, will be canceled. Any amounts transferred to Bancorp by the Bank may be used by Bancorp for various corporate purposes, including acquisitions of other banks and bank-related businesses. At the present time, however, Bancorp has no agreements or understandings regarding any acquisitions. In addition, such funds will be available for other general corporate purposes, to the extent permitted by law, including the payment of dividends to Bancorp's stockholders and loans to the Bank. Additional financial resources may be available to Bancorp in the future through borrowings, debt or equity financings, or dividends from the Bank, other acquired entities or new businesses. In addition, the Bank may lend amounts to Bancorp both prior to the consummation of the Reorganization and thereafter. Such loans may be subject to certain restrictions on transactions with affiliates of a bank holding company under the Federal Reserve Act. There can be no assurance, however, as to the amount of additional financial resources which will be available to Bancorp. In particular, dividends from the Bank to Bancorp will be subject to tax considerations and regulatory limitations. See "-- Income Tax Consequences," "Comparison of Stockholder Rights -- Common Stock -- Dividend Rights." -19- CAPITALIZATION The following table sets forth (i) the consolidated capitalization of the Bank as of December 31, 1995; (ii) the pro forma consolidated capitalization of the Bank as of December 31, 1995 after giving effect to the Reorganization (which reflects the proposed transfer of $100,000.00 from the Bank's retained earnings to Bancorp); and (iii) the pro forma capitalization of Bancorp on a consolidated basis after giving effect to the Reorganization. The pro forma consolidated capitalization of Bancorp as of December 31, 1995 will be the same as the consolidated capitalization of the Bank as of that date. However, the pro forma capitalization of the Bank is changed as a result of the $100,000.00 proposed transfer by the Bank to Bancorp.
AS OF DECEMBER 31, 1995 BANK BANK BANCORP (ACTUAL (PRO FORMA (PRO FORMA CONSOLIDATED) CONSOLIDATED) CONSOLIDATED) - -------------------------------------------------------------------------------- Deposits $282,787,249 $282,787,249 $282,787,249 Securities sold under agreements to repurchase -- -- -- Federal Home Loan Bank advances 38,968,000 38,968,000 38,968,000 Stockholders' equity: Serial Preferred stock - $1.00 par value authorized 1,000,000 shares, none issued -- -- -- Common stock - $1.00 par value authorized, 5,000,000 shares issued and outstanding 1,532,431 1,532,431 1,532,431 Additional paid-in capital 8,824,970 8,824,970 8,824,970 Retained earnings 12,406,361 12,306,361 12,406,361 Net unrealized gain (loss) on investment securities available for sale, after tax effects 60,854 60,854 60,854 Total stockholders' equity $22,824,616 $ 22,724,616 $22,824,616 - --------------------------------------------------------------------------------
FINANCIAL STATEMENTS AND ANNUAL DISCLOSURE STATEMENT The Bank's 1995 Annual Report to Stockholders, including financial statements prepared in accordance with generally accepted accounting principles, has been mailed on or about March 15, 1996 to all stockholders of record as of the close of business on February 29, 1996 together with this Proxy Statement. A copy of the most recent Form F-2 as filed with the Federal Deposit Insurance Corporation will be furnished without charge to stockholders as of the record date upon written request to Gerard F. Linskey, Senior Vice President and Chief Financial Officer, The Hibernia Savings Bank, 730 Hancock Street, Quincy, Massachusetts 02170. -20- Provided below is a five-year summary of selected financial data of the Bank. For additional information, see the Bank's 1995 Annual Report to Stockholders which contains the management's discussion and analysis of financial condition and results of operations.
At December 31 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------- (Dollars in Thousands, except per share data) Balance Sheet Data: Total assets $346,865 $286,429 $249,827 $229,792 $216,575 Loans, net 208,327 163,371 135,661 134,584 144,143 Securities 125,300 111,584 105,735 80,449 56,277 Deposits 282,787 256,340 221,950 205,921 187,102 Borrowings 38,968 9,000 8,530 8,531 16,606 Stockholders' equity 22,825 19,786 17,312 13,954 11,953 Book value per share $ 14.89 $ 13.68 $ 12.92 $ 10.89 $ 9.96 At December 31 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------- (Dollars in Thousands, except per share data) Operating Data: Interest and dividend income $ 23,949 $ 18,728 $ 18,157 $ 18,805 $ 19,698 Interest expense 13,720 9,498 8,950 10,569 13,779 --------- --------- --------- --------- --------- Net interest income 10,229 9,230 9,207 8,236 5,919 Add Non-interest income 579 549 719 364 216 Gain (loss) on sale of loans (52) (1) 20 320 24 Less Provision for possible loan losses 300 135 2,080 2,270 2,850 Non-interest expenses 6,552 6,209 5,680 4,835 4,695 --------- --------- --------- --------- --------- Pretax core earnings 3,904 3,434 2,186 1,815 (1,386) Net gain on sale of securities 91 193 3,952 2,188 768 Gain on sale of loan servicing 764 - - - - Loss on sale of fixed assets (50) - - - - Net loss on sale of other real estate owned (43) (170) (666) (511) (561) Real estate owned expense 301 387 1,194 1,643 972 --------- --------- --------- --------- --------- Income (loss) before income taxes 4,365 3,070 4,278 1,849 (2,151) Provision (benefit) for income taxes 1,646 1,002 1,198 265 (673) --------- --------- --------- --------- --------- Net income (loss) $ 2,719 $ 2,068 $ 3,080 $ 1,584 $ (1,478) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Earnings (loss) per share primary $ 1.76 $ 1.41 $ 2.14 $ 1.21 $ (1.23) Weighted average number of common shares and common equivalents 1,545,297 1,468,758 1,437,092 1,306,610 1,200,000 Dividend declared per share $ 0.22 $ - $ - $ - $ -
CONDITIONS OF THE REORGANIZATION The Plan of Reorganization provides that it shall not become effective until all of the following first shall have occurred: (i) the Plan of Reorganization shall have been approved by a vote of the holders of two-thirds of the outstanding Common Stock of the Bank, (ii) the Plan of Reorganization shall have been approved by the Commissioner of Banks under Section 26B of Chapter 172 of the General Laws of Massachusetts, (iii) any approval, consent or waiver required by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") shall have been received and any waiting period imposed by applicable law shall have expired, (iv) the Bank and Bancorp shall have received a favorable opinion from the Bank's independent public accountants, Arthur Andersen LLP, concerning the federal income tax consequences of the Reorganization, (v) Bancorp Common Stock to be issued in exchange for Common Stock of the Bank shall have been registered or qualified for issuance under applicable state securities laws, and (vi) the Bank and Bancorp shall have obtained all other necessary consents or approvals required for Bancorp formation. -21- The Bank intends to file an application with the Commissioner of Banks to obtain approval of the Plan of Reorganization under Section 26B of Chapter 172 of the General Laws of Massachusetts after the date of this Proxy Statement. The Commissioner will not grant his approval until the Plan of Reorganization has been approved by the Bank's stockholders. Bancorp intends to file an application or notice as is required to register with the Federal Reserve Board as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Any delays which are encountered in seeking any of the foregoing regulatory approvals could result in a delay in the consummation of the Reorganization. See "Regulation of Bancorp and the Bank". If the Plan of Reorganization is approved by the Bank's stockholders at the Annual Meeting, the formation of Bancorp's structure is currently expected to become effective as soon thereafter as the required regulatory approvals are received. Bank and Bancorp have the right under the terms of the Plan of Reorganization to abandon the Reorganization if, among other things, regulatory approvals cannot be obtained or if the conditions or obligations associated with such regulatory approvals make the Reorganization inadvisable in the opinion of the Bank or Bancorp. If the Plan of Reorganization is not approved at the Annual Meeting or all of the necessary regulatory approvals are not obtained, the Bank will continue to operate without a holding company structure. All expenses in connection with the Reorganization will be paid by the Bank whether or not the Plan of Reorganization is approved by its stockholders or the Reorganization is consummated. RIGHTS OF DISSENTING STOCKHOLDERS Any holder of the Bank's Common Stock (i) who files with the Bank before the taking of the vote on the approval of the Plan of Reorganization, written objection to the Plan of Reorganization, stating that he intends to demand payment for his shares if the Reorganization is consummated, and (ii) whose shares are not voted in favor of the Plan of Reorganization, has or may have the right to demand in writing from the Bank, within 20 days after the date of mailing to him of notice in writing that the Reorganization has become effective, payment for his shares and an appraisal of the value thereof. The Bank and any such stockholder shall follow the procedures set forth in Sections 86 to 98, inclusive, of Chapter 156B of the General Laws of Massachusetts. A brief summary of those sections of the General Laws of Massachusetts is set forth below. However, this summary does not purport to be a complete statement of the procedures to be followed by stockholders desiring to exercise their rights to dissent from the Reorganization and is qualified in its entirety by express reference to such sections, which are included in this Proxy Statement as Exhibit C. A holder of the Bank's Common Stock intending to exercise his dissenter's right to receive payment for his shares must file with the Bank, before the Annual Meeting or at the Annual Meeting but before the vote on the Plan of Reorganization, written objection to the proposed Plan of Reorganization, stating that he intends to demand payment for his shares if the Reorganization is consummated, and must not vote in favor of the Reorganization at the Annual Meeting. Within 10 days after the Reorganization becomes effective, the Bank will give written notice of such effectiveness by registered or certified mail to each holder of Bank Common Stock who filed such written objection and who did not vote in favor of the Plan of Reorganization. Such written notice of effectiveness will be addressed to the stockholder at his last known address as it appears in the stock record books of the Bank. Within 20 days after the mailing of such notice, any holder of the Bank's Common Stock to whom the Bank was required to give such notice may make written demand for payment for his shares from the Bank, and, in such event, the Bank will be required to pay to him the fair value of his shares within 30 days after the expiration of the period during which such demand may be made. If during such 30-day period the Bank and the dissenting stockholder fail to agree as to the fair value of such shares, the Bank or such stockholder may have the fair value of the stock of all dissenting stockholders determined by judicial proceedings by filing a bill in equity in the Superior Court in Norfolk County, Massachusetts, within four months after such 30-day period. For the purposes of any such Superior Court determination, the value of the shares of the Bank is to be determined as of the day preceding the date of the vote of the stockholders approving the Plan of Reorganization and shall be exclusive of any element of value arising from the expectation or accomplishment of the Reorganization. Upon making such written demand for payment, the dissenting stockholder will not, thereafter, be entitled to notices of meetings of stockholders, to vote, or to dividends unless no suit is filed within four months to determine the value of the stock, and such suit is dismissed as to that stockholder, or the stockholder withdraws his objection in writing with the written approval of the Bank. The enforcement by a dissenting stockholder of his right to receive payment for his Bank Common Stock in the manner provided by Sections 86 through 98 of Chapter 156B of the General Laws of Massachusetts will be his exclusive remedy, except that a stockholder shall not be excluded from bringing or maintaining an appropriate proceeding to obtain relief on the ground that consummation of the Reorganization will be or is illegal or fraudulent as to him. -22- INCOME TAX CONSEQUENCES The Bank will not seek a ruling from the Internal Revenue Service concerning the federal income tax consequences of the proposed holding company formation, but will instead rely on an opinion of its independent public accountants, Arthur Andersen LLP. Unlike a private letter ruling from the Internal Revenue Service, an opinion of the independent public accountants has no binding effect on the Internal Revenue Service. Based on such opinion, the material federal tax results of the Reorganization would be as follows: 1. No gain or loss will be recognized by the stockholders of the Bank upon the exchange of their Common Stock of the Bank solely for Bancorp Common Stock. 2. No gain or loss will be recognized by the Bank as a result of the proposed transaction (except to the extent that, as described below, the Bank may have taxable income as a result of payments to stockholders who exercise dissenters' rights and/or the transfer to Bancorp of an amount that exceeds the current and accumulated earnings and profits of the Bank). 3. No gain or loss will be recognized by Bancorp upon the receipt of shares of the Bank's Common Stock solely in exchange for Bancorp Common Stock. 4. The holding period of the Bank's Common Stock in the hands of Bancorp will include the period during which such stock was held by stockholders of the Bank. 5. The basis of the Bancorp Common Stock to be received by each stockholder of the Bank will be the same as the basis of the Bank's Common Stock surrendered in exchange therefor. 6. The holding period of the Bancorp Common Stock to be received by each stockholder of the Bank will include the holding period of the Bank's Common Stock surrendered in exchange therefor, provided that the Bank's Common Stock was held as a capital asset in the hands of such stockholder. 7. The Bank and Bancorp will be considered members of an "affiliated group," within the meaning of Section 1504(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"); dividend distributions paid by the Bank to Bancorp will not be included in computing the taxable income of Bancorp. 8. The affiliated group of which the Bank was the common parent immediately prior to the proposed transaction will remain in existence after the proposed transaction with Bancorp as the new common parent of the affiliated group. 9. The basis of the Bank's Common Stock in the hands of Bancorp, as the new parent company of the affiliated group, will be equal to the net asset basis of the property of the Bank immediately after the proposed transaction, adjusted as necessary in accordance with Treas. Reg. Section 1.1502-31(d). 10. Stockholders of the Bank who exercise their dissenters' appraisal rights and receive cash in exchange for their shares of the Common Stock of the Bank will recognize taxable income or gain or loss for federal income tax purposes in connection with the transaction. The amount of that income or gain or loss and the character of that income or gain or loss (that is, whether it constitutes ordinary income, short-term capital gain or loss or long-term capital gain or loss) will turn upon a number of factual considerations peculiar to the individual stockholder. If a stockholder exercises his dissenter's appraisal rights with respect to all of his shares of the Bank's Common Stock, including any shares constructively owned by him under the rules of Section 318(a) (unless such constructive ownership is waived under the rules of Section 302(c)(2)), then the transaction should qualify as a sale or exchange of the stock redeemed under Section 302(a), rather than a dividend. If the shares of the Bank's Common Stock qualify as "capital assets" in the hands of such a stockholder and if the shares have been held for more than one year, then any gain recognized on the exchange should qualify for long-term capital gain treatment. If, however, a stockholder fails to exercise dissenters' appraisal rights as to all shares owned by him, (or is deemed to own constructively under Section 318(a)) then the transaction might be treated as a dividend to the stockholder, depending upon whether or not it qualifies as "not essentially equivalent to a dividend" within the meaning of Section 302(b)(1), or as "a substantially disproportionate redemption" within the meaning of Section 302(b)(2). If the transaction were treated as a dividend, then the entire payment could be taxable as ordinary income, depending upon the circumstances. ANY STOCKHOLDER OF THE BANK CONSIDERING EXERCISING HIS DISSENTER'S APPRAISAL RIGHTS WITH RESPECT TO ANY SHARES OF THE BANK'S COMMON STOCK SHOULD CONSULT HIS PERSONAL INCOME TAX ADVISOR FOR SPECIFIC ADVICE WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF THAT EXERCISE. -23- The Bank utilizes the reserve method under Section 593 of the Code for computing its bad debt reserve deduction for federal income tax purposes. Payments made by the Bank to stockholders who exercise their dissenters' appraisal rights will result in taxable income to the Bank to the extent that the payments are deemed made out of the Bank's bad debt reserve. Section 593(e). Any of these payments that are treated as being in exchange for the shares of such stockholders under Section 302(a) would be deemed to be made out of the Bank's bad debt reserve to the extent of the sum of the following: (i) the excess of the reserve for losses on "qualifying real property loans" over the reserve that would be permitted under the "actual loss experience" method, and (ii) the supplemental reserve for losses. The amount deemed withdrawn from the bad debt reserve (and included in the Bank's gross income) will be equal to the lesser of (x) the sum of (i) and (ii) above, or (y) the amount which, when reduced by the federal income tax attributable to the inclusion of such amount in the Bank's gross income, is equal to the amount payable to dissenting stockholders in exchange for their Common Stock of the Bank. Hence, depending upon the amount of the Bank's bad debt reserve, payments to dissenting stockholders could result in federal taxable income to the Bank in an amount equal to approximately 1.52 times the amount paid to the dissenting stockholders. In addition, any dividend distributions by the Bank (including any distribution made to provide working capital to Bancorp and any payments to dissenting stockholders that are treated as dividends) that exceed the current and accumulated earnings and profits of the Bank will result in taxable income to the Bank to the extent that they are deemed made out of the Bank's bad debt reserve. Section 593(e)(1). Whether a dividend distribution to Bancorp (or payments to dissenting stockholders that are treated as dividends) in excess of the current and accumulated earnings and profits of the Bank will be deemed made out of the Bank's bad debt reserve and the amount deemed paid out of the bad debt reserve will be determined under the rules described above in connection with payments to dissenting stockholders. The determination of current and accumulated earnings and profits turns upon the application of a complicated set of tax laws within the Code generally set forth in Section 312 to a number of factual circumstances arising over an extended period of years. Because of the inherently factual issues associated with determining accumulated earnings and profits, Arthur Andersen LLP, does not intend to confirm the amount of the Bank's earnings and profits and thus its opinion will not address whether or not the proposed transfer of funds to Bancorp will exceed the current and accumulated earnings and profits of Bancorp. Payments to dissenting stockholders that are treated as made in exchange for their Common Stock under Section 302 will not reduce the amount that the Bank can distribute to Bancorp without some portion of the distribution being treated as made out of the Bank's bad debt reserve, if such payments are made in the same taxable year as the distribution to Bancorp. Such payments will, however, reduce the accumulated earnings and profits of the Bank available for distribution in later years. Under Section 312(n)(7), in such cases the Bank's accumulated earnings and profits will be reduced by the allocable portion of the Bank's earnings and profits attributable to the Common Stock redeemed. On the other hand, payments to dissenting stockholders that are treated as dividend distributions will reduce the Bank's current and accumulated earnings and profits in their entirety and, to the extent made in the same taxable year as a distribution to Bancorp, will reduce the amount that can be distributed to Bancorp without some portion of the distribution being treated as made out of the Bank's bad debt reserve. EACH STOCKHOLDER OF THE BANK SHOULD CONSULT HIS OWN TAX COUNSEL AS TO SPECIFIC FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE REORGANIZATION, IF ANY, TO SUCH STOCKHOLDER. ACCOUNTING TREATMENT It is anticipated that the Reorganization will be accounted for as a "pooling of interests" transaction under generally accepted accounting principles. The Bank's Annual Report to Stockholders, which is being mailed to stockholders of the Bank together with this Proxy Statement, includes the consolidated financial statements of the Bank for the fiscal year ended December 31, 1995. LEGAL OPINION The validity of the shares of Bancorp's common stock issuable upon consummation of the Reorganization will be passed upon by Roche, Carens & DeGiacomo, A Professional Corporation, Boston, Massachusetts. -24- COMPARISON OF STOCKHOLDER RIGHTS As a result of Bancorp formation, stockholders of the Bank, whose rights are presently governed by Massachusetts banking law, will become stockholders of Bancorp, a Massachusetts corporation, and as such, their rights will be governed by Massachusetts corporate law. Certain differences in the rights of stockholders arise from this change in governing law. In addition, there are certain differences between the Charter and By-laws of the Bank and the Articles of Organization (the "Articles") and By-laws of Bancorp. Certain differences and similarities of the rights of stockholders of the Bank and Bancorp are discussed below. The following discussion does not purport to be a complete statement of such similarities and differences affecting the rights of stockholders of the Bank but is intended as a summary only. The form of Articles of Organization of Bancorp attached as Exhibit B to this Proxy Statement should be reviewed carefully by each stockholder. CAPITAL STOCK AUTHORIZED AND ISSUED STOCK. The Bank had, as of the Record Date, 5,000,000 shares of authorized Common Stock of which 1,553,846 shares were issued and outstanding, and 117,600 shares were reserved for issuance under the Stock Option Plans. As of such date, the Bank also had 1,000,000 shares of authorized but unissued preferred stock. The Articles of Bancorp will provide for 10,000,000 shares of authorized Bancorp Common Stock and 5,000,000 shares of preferred stock, of which 1,553,846 shares of Bancorp Common Stock are currently issued and outstanding, all of which are owned by the Bank. After the consummation of the Reorganization, and subject to the exercise of dissenters' appraisal rights, the number of issued and outstanding shares, shares reserved for issuance under the Stock Option Plans, and non-reserved shares of Common Stock available for future issuance by Bancorp will be the same as the number of such shares of the Bank immediately prior to the Effective Time. Because Bancorp has more authorized shares of common stock available for issuance than the Bank, if in the future, Bancorp authorizes the issuance of additional shares of Bancorp Common Stock, said issuance may have a greater dilutive effect on the voting power of stockholders then holding shares of Bancorp Common Stock than an additional stock issuance by the Bank would have on the voting power of current holders of Bank Common Stock. ISSUANCE OF STOCK. Under the provisions of Massachusetts banking law, the issuance of capital stock by the Bank requires the prior approval of the Commissioner of Banks. In contrast, Bancorp is authorized to issue shares of capital stock without obtaining prior approval of the Commissioner of Banks. Although the issuance of Bancorp Common Stock in connection with the Reorganization is exempt from registration under the Securities Act, future issuances of Bancorp Common Stock would be subject to registration under the Securities Act, unless another exemption were available. See "Regulation of Bancorp and the Bank--Consequences of the Reorganization Under Federal Securities Laws". The Bank's Common Stock is exempt from registration under the Securities Act. There are no current agreements or understandings with respect to the issuance of any additional shares of Bancorp capital stock. PRE-EMPTIVE RIGHTS. The stockholders of Bancorp, like the stockholders of the Bank, will not be entitled to pre-emptive rights with respect to any shares of capital stock which may be issued. COMMON STOCK DIVIDEND RIGHTS. The stockholders of the Bank are entitled to dividends when and as declared by the Bank's Board of Directors. Under Massachusetts banking law, Massachusetts stock-form savings banks, such as the Bank, may pay dividends only out of net profits without impairing their capital stock and surplus accounts. Such dividend payments are also subject to a number of additional statutory limitations. Bancorp may pay dividends if, as, and when declared by its Board of Directors. The holders of Common Stock of Bancorp will be entitled to receive and share equally in such dividends as may be declared by the Board of Directors out of funds legally available therefor. Although Massachusetts does not have a specific statute regulating the payment of dividends by Massachusetts corporations, the directors of a corporation are jointly and severally liable to the corporation if a payment of dividends (i) is made when the corporation is insolvent, (ii) renders the corporation insolvent, or (iii) violates the corporation's articles of organization. In both cases, any issuance by the Bank or Bancorp of preferred stock with a preference over Common Stock as to dividends may affect the dividend rights of common stockholders. VOTING RIGHTS. All voting rights in the Bank are currently vested in the holders of the Bank's issued and outstanding Common Stock. Each share of the Bank's Common Stock is entitled to one vote on all matters. A stockholder is not permitted to vote cumulatively in the election of Directors by casting all of said stockholder's votes for one or more but fewer than all of the Directors on the slate. Following the formation of Bancorp, all voting rights in Bancorp will be vested in the holders of Bancorp Common Stock, and each share of Bancorp Common Stock will be entitled to one vote on all matters. In both cases, any issuance by the Bank or Bancorp of preferred stock with voting rights may affect the voting rights of common stockholders. -25- PREFERRED STOCK Both under the Charter of the Bank and under the Articles of Bancorp, the respective Boards of Directors (or a committee thereof in the case of Bancorp) of the Bank and Bancorp are authorized to issue preferred stock in series (and classes in the case of Bancorp) and to fix the powers, designations, preferences, or other rights of the shares of each such series (or class in the case of Bancorp) and the qualifications, limitations, and restrictions thereof. The issuance of preferred stock by the Bank, unlike the issuance of preferred stock by Bancorp, would be subject to approval by the Commissioner of Banks. Preferred stock issued by Bancorp after the Reorganization may rank prior to the Bancorp Common Stock as to dividend rights, liquidation preferences, or both, may have full or limited voting rights (including multiple voting rights and voting rights as a class), and may be convertible into shares of Bancorp Common Stock. Bancorp has no present plans or understandings for the issuance of any preferred stock. DIRECTORS NUMBER AND STAGGERED TERMS. The By-laws of Bancorp provide that the Board of Directors shall consist of not less than three Directors. The Board of Directors of Bancorp will initially be composed of seven Directors. The Charter and By-laws of the Bank provide that the Board shall consist of not less than seven nor more than twenty-five Directors. The By-laws of Bancorp provide that the Board of Directors may fix the number and classification of Directors, unless at the time there is an Interested Stockholder (as defined in Bancorp's By-laws) in which case a two-thirds vote of the Continuing Directors (as defined in Bancorp's By-laws) is also required. The By-laws of the Bank provide that the Board of Directors may fix the number and classification of Directors, unless at the time there is an Interested Stockholder (as defined in the Bank's Charter) in which case a majority vote of the Continuing Directors (as defined in the Bank's Charter) is also required. The By-laws of the Bank also authorize the Board of Directors to elect up to two additional Directors in any year. Both the Charter of the Bank and the Articles of Bancorp provide for three classes of Directors with one class elected each year for three-year staggered terms, so that ordinarily no more than approximately one-third of the Directors will stand for election in any one year, and that there will be no cumulative voting in the election of Directors. REMOVAL OF DIRECTORS. Bancorp's Articles provide that a Director may be removed with or without cause, by a vote of two-thirds of the Directors then in office unless at the time of such action there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors shall also be required. The Bank's Charter provides that a Director may be removed, with or without cause, by vote of eighty percent of the stockholders or two-thirds of the Directors, unless there is an Interested Stockholder, in which case a vote of two-thirds of the Continuing Directors is required. VACANCIES. The By-laws of Bancorp provide that any vacancy occurring on the Board of Directors as a result of resignation, removal or death may be filled by vote of a majority of the remaining Directors, unless at the time of the action there is an Interested Stockholder, in which case such vacancy may only be filled by a vote of two-thirds of the Continuing Directors then in office. A Director elected to fill such a vacancy shall be elected to serve for a term of office continuing until the next election of Directors by the stockholders. Any directorship to be filled by reason of an increase in the authorized number of Directors may be filled by a majority of the Board of Directors for a term of office continuing until the next election of Directors by the stockholders. If at the time of such action, there is an Interested Stockholder, a vote of two-thirds of the Continuing Directors is required instead. The By-laws of the Bank provide that any vacancy occurring on the Board of Directors as a result of resignation, removal or death may be filled by vote of a majority of the remaining Directors, unless there is an Interested Stockholder, in which case such vacancy may only be filled by vote of a majority of the Continuing Directors then in office. A Director elected to fill such a vacancy shall be elected to serve for a term of office continuing until the next election of Directors by the stockholders. Any directorship to be filled by reason of an increase in the authorized number of Directors may be filled by the Board of Directors for a term of office continuing until the next election of Directors by the stockholders. MASSACHUSETTS LAW. Under Section 50A of Massachusetts General Laws Chapter 156B, a publicly-held Massachusetts corporation which has not opted out of that statute must have a classified Board of Directors. In general, Section 50A provides that the Board of Directors of the corporation must be divided into three classes, each of which would contain approximately one-third of the total number of the members of the Board of Directors. Section 50A provides that each class shall serve a staggered term, with approximately one-third of the total number of Directors being elected each year. The stockholders may remove a Director from the board prior to the expiration of his term only for cause, upon the affirmative vote of the holders of a majority of the shares then entitled to vote in an election of Directors. Section 50A provides that the number of Directors shall be fixed by the board, and that any vacancy occurring on the board, including a vacancy created by an increase in the number of Directors or resulting from death, resignation, disqualification, removal from office or other cause, shall be filled for the remainder of the unexpired term exclusively by a majority vote of the Directors then in office. -26- A Massachusetts corporation is permitted to opt out of Section 50A. Bancorp's By-laws contain a provision opting out of Section 50A. As a result of Bancorp's decision to opt out of the statute, the provisions of Section 50A are not currently applicable to Bancorp's stockholders. The Board of Directors of Bancorp may amend the By-laws at any time to subject Bancorp shares to this statute prospectively. In addition, as described above, Bancorp's Articles and By-laws contain provisions similar to Section 50A regarding a classified Board of Directors, removal of Directors and vacancies. MEETINGS OF STOCKHOLDERS The By-laws of Bancorp provide that special meetings of the stockholders may be called by the Chairman of the Board, if one is elected, the Vice-Chairman, if one is elected, or by the Board of Directors, unless there is an Interested Stockholder, in which case any such call shall also require the affirmative vote of two-thirds of the Continuing Directors then in office, and unless otherwise provided in the Articles of Organization or By-laws, shall be called by the Clerk, or in the case of the death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application of one or more stockholders who hold at least forty percent in interest of the capital stock entitled to vote thereat. Only matters set forth in the call may be considered or acted upon at the meeting. The Bank's Charter provides that special meetings of the stockholders for any purpose or purposes may be called at any time only by the Chairman of the Board, if one is elected, the President or by a majority of two-thirds of the Directors then in office. Only those matters set forth in the call of the special meeting may be considered or acted upon at such special meeting, unless otherwise provided by law. The Bank's By-laws provide that special meetings of the stockholders for any purpose or purposes may be called at any time only by the Chairman of the Board, if one is elected, the President or by the affirmative vote of two-thirds of the Directors then in office. Only those matters set forth in the call of the special meeting may be considered or acted upon at such special meeting, unless otherwise provided by law. Both the Bank's and Bancorp's By-laws set forth certain advance notice and informational requirements and time limitations on any Director nomination or any new business that a stockholder wishes to propose for consideration at an annual or special meeting of stockholders. Bancorp's By-laws provide that a stockholder's nomination or proposal must be received not less than 120 days nor more than 150 days prior to the annual meeting. The Board of Directors may reject a stockholder's nomination or proposal if it is not timely or does not contain sufficient information, or, if the Board does not make this determination, the presiding officer at the meeting shall do so. If there is an Interested Stockholder, the nomination or proposal shall also require the concurrence of two-thirds of the Continuing Directors. The Bank's By-laws provide that a stockholder's nomination must be received not less than 60 days nor more than 150 days prior to the annual meeting and that a stockholder's proposal must be received not less than 90 days nor more than 150 days prior to the annual meeting. The Board of Directors may reject a stockholder's nomination or proposal if it is not timely or does not contain sufficient information, or, if the Board does not make this determination, the presiding officer at the meeting shall do so. If there is an Interested Stockholder, the nomination or proposal shall require the concurrence of a majority of the Continuing Directors. STOCKHOLDER VOTE REQUIRED TO APPROVE CERTAIN TRANSACTIONS Bancorp's Articles contain a provision requiring a two-thirds vote of the stockholders to authorize (i) a sale, lease, or other disposition of all or substantially all of the property or assets of Bancorp, (ii) a merger or consolidation of Bancorp with or into any other corporation, or (iii) any reclassification of or recapitalization involving Bancorp's common stock. The Bank's Charter contains a provision requiring approval by 80% of the voting stock for certain Business Combinations (as defined in the Charter) except where two-thirds of the Continuing Directors have approved the Business Combination or where certain procedures and price requirements are met. MASSACHUSETTS LAW. Chapter 110F of the Massachusetts General Laws, entitled "Business Combinations with Interested Shareholders" ("Chapter 110F") provides that a Massachusetts corporation with more than 200 stockholders may not engage in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless (i) the interested stockholder obtains the approval of the Board of Directors prior to becoming an interested stockholder, (ii) the interested stockholder acquires 90% of the outstanding voting stock of the corporation (excluding shares held by certain affiliates of the corporation) at the time it becomes an interested stockholder, or (iii) the business combination is approved by both the Board of Directors and the holders of 66 2/3% of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder). An "interested stockholder" is a person who, together with affiliates and associates, owns (or, in certain cases, at any time within the prior three years did own) 5% or more of the outstanding voting stock of the corporation. A "business combination" includes a merger, certain stock or asset sales, and certain other specified transactions resulting in a financial benefit to the interested stockholder. -27- A Massachusetts corporation is permitted to opt out of Chapter 110F. The Articles of Bancorp contain a provision opting out of Chapter 110F. As a result of Bancorp's decision to opt out of the statute, the provisions of Chapter 110F are not currently applicable to Bancorp's stockholders. The Board of Directors of Bancorp may amend the By-laws at any time to subject Bancorp to this statute prospectively. PROVISIONS RELATING TO EXERCISE OF BUSINESS JUDGMENT BY BOARD OF DIRECTORS The Charter of the Bank provides that its Board of Directors, when evaluating any tender, exchange, merger, acquisition or similar offer of another person, must in connection with the exercise of its judgment in determining what is in the best interests of the Bank and its stockholders, give due consideration to all relevant factors including, without limitation, the social and economic effects of acceptance of such an offer on the Bank's present and future account holders, borrowers and employees, on the communities in which the Bank operates or is located, and on the ability of the Bank to fulfill its objectives under applicable statutes and regulations. CONTROL SHARE ACQUISITION STATUTE Massachusetts General Laws Chapter 110D, entitled "Regulation of Control Share Acquisitions" ("Chapter 110D") provides that any person who makes a bona-fide offer to acquire, or acquires (the "acquiror") shares of stock of a corporation in an amount equal to or greater than one-fifth, one-third, or a majority of the voting stock of the corporation (the "thresholds") must obtain the approval of a majority of shares of all stockholders except the acquiror and the officers and inside Directors of the corporation in order to vote the shares that the acquiror acquires in crossing the thresholds. A Massachusetts corporation is permitted to opt out of Chapter 110D. The By-laws of Bancorp contain a provision opting out of Chapter 110D. As a result of Bancorp's decision to opt out of the statute, the voting restrictions of Chapter 110D are not currently applicable to Bancorp's stockholders. The Board of Directors of Bancorp may amend the By-laws at any time to subject Bancorp to this statute prospectively. INDEMNIFICATION The By-laws of the Bank provide that Directors and officers of the Bank shall, and in the discretion of the Board of Directors, non-officer employees may, be indemnified by the Bank against expenses arising out of service for, or on behalf of the Bank. The By-laws of the Bank provide that such indemnification shall not be provided if it is determined that the action giving rise to the liability was not taken in good faith in the reasonable belief that the action was in the best interests of the Bank. The By-laws of the Bank provide that the indemnification provision in the By-laws does not limit any other right to indemnification existing independently of the By-laws. The By-laws of Bancorp contain a similar indemnification provision. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to Directors, officers or persons controlling Bancorp pursuant to the foregoing provisions, it is the position of the SEC that such indemnification is against public policy as expressed in such Act and is therefore unenforceable. AMENDMENT OF CHARTER AND ARTICLES The Bank's Charter provides that any amendment thereof must be first approved by a majority of the Board of Directors, and then approved by at least two-thirds of the stockholders eligible to vote thereon (but only a majority of the stockholders in the case of amendments to provisions in the Bank's Charter relating to the Bank's name, office, powers, authorized capital stock and liquidation account) except that, to the extent that any Charter provision requires stockholder approval by more than two-thirds of the eligible votes, if at any time within the sixty day period immediately preceding the meeting at which the stockholder vote is to be taken on such amendment there is an Interested Stockholder, amendment of such provision shall be only the same vote required by that provision, unless such action is approved by a majority of the Continuing Directors, in which case only a two-thirds vote of the eligible votes is required. Under Massachusetts law, certain amendments to a corporation's articles of organization require a vote of a majority of the outstanding shares of each class of stock entitled to vote thereon, while other amendments require a two-thirds vote. In either case, the articles of organization may provide for a greater or lesser percentage vote, but not less than a majority. Bancorp's Articles provide that any amendment, addition, alteration, change or repeal of the Articles regarding (i) an increase or reduction of the capital stock or of any authorized class, (ii) a change of the par value of any authorized shares or class thereof, (iii) a change of the authorized shares with par value or any class thereof into any number of shares without par value, or the exchange thereof pro rata for any number of shares without par value, (iv) a change of the authorized shares without par value or any class thereof into a greater or lesser number of shares without par value, or the exchange thereof pro rata for a greater or lesser number of shares without par value, (v) a change of the authorized shares with par value or any class thereof into a greater or lesser -28- number of shares with par value, (vi) a change of the authorized shares without par value or any class thereof into any number of shares with par value, or the exchange thereof pro rata for any number of shares with par value, or (vii) a change of the corporate name may be made if first approved by the affirmative vote of two-thirds of the Board of Directors (unless at the time of such action there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors shall also be required) and thereafter approved by the affirmative vote of a majority of the stockholders. No other amendment, alteration, change or repeal of the Articles shall be made unless first approved by the affirmative vote of two-thirds of the Board of Directors and thereafter approved by the affirmative vote of not less than two-thirds of the total votes eligible to be cast at a duly constituted meeting of stockholders. If, at any time within the sixty day period immediately preceding the meeting at which the stockholder vote is to be taken there is an Interested Stockholder, such provision may only be amended, altered, changed or repealed if such action shall have been approved by not less than two-thirds of the Continuing Directors then in office. Massachusetts law requires a class vote under certain circumstances when an amendment of the articles of organization will adversely affect the special rights of a class of stock. AMENDMENT OF BY-LAWS The Charter of the Bank provides that the By-laws of the Bank may be adopted or amended by affirmative vote of 80% of the Board of Directors. Bancorp's Articles provide that Bancorp's By-laws may be adopted or amended by affirmative vote of two-thirds of the Board of Directors, unless there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors is also required. Bancorp's Articles further provide that the By-laws may be adopted or amended by the stockholders only upon vote of two-thirds of the stock entitled to vote, such vote to be cast at a meeting of stockholders called for the purpose of adopting or amending the By-laws. EFFECT ON CURRENT MARKET VALUE OF OUTSTANDING BANK STOCK Although the Board of Directors does not know of any reason why implementation of the Plan of Reorganization would cause the market value of the stock of Bancorp to be different from the market value of the stock of the Bank immediately prior to consummation of the Reorganization, it is possible that the public trading market could perceive that the stock of Bancorp has a different value from the stock of the Bank. It is not known whether the public trading market will attribute any additional or lesser value to Bancorp Common Stock than it would attribute to the Bank's Common Stock. On February 14, 1996, the last trading day prior to the day on which the Board of Directors adopted a resolution approving the Plan of Reorganization, the high and low sale prices of the Bank's Common Stock as quoted on the NASDAQ National Market were $16.00 and $16.00 per share, respectively. ANTI-TAKEOVER PROVISIONS A number of provisions of the Bank's Charter and By-laws deal with matters of corporate governance and rights of stockholders. Certain of the provisions discussed above may be deemed to have an "anti-takeover" effect, and may discourage takeover attempts not first approved by the Directors (including takeovers which certain stockholders might deem to be in their interests). For example, the Bank's charter requires the affirmative vote of at least 80% of the Bank's voting stock in order for the Bank or any Subsidiary to enter into certain business combinations with Interested Stockholders or their Affiliates (as defined therein), including, but not limited to, any merger or consolidation, sale, lease, exchange, mortgage, pledge or other disposition of assets, the issuance or transfer of securities having an aggregate fair market value of $100,000 or more, the adoption of any plan or proposal for the liquidation or dissolution of the Bank or any reclassification of securities, recapitalization of the Bank or any other transaction which has the effect of increasing the proportion of the outstanding shares of any class of equity or convertible securities of the Bank which is directly or indirectly owned by any Interested Stockholder or its Affiliates. The super-majority vote detailed above is not required if the business combination is approved by two-thirds of the Continuing Directors of the Bank (as defined therein) or if certain detailed fair price and procedure requirements are met. Bancorp's Articles and By-laws do not contain similar provisions. The Bank has entered into an agreement with its Chairman which requires the Bank to make certain payments to the Chairman upon the termination of his employment under certain circumstances. LEGAL INVESTMENTS Under the laws of some jurisdictions, shares of the Bank's Common Stock may be legal investments for certain institutions and fiduciaries, whereas shares of Bancorp's Common Stock may not be legal investments for such investors. REGULATION OF BANCORP AND THE BANK The following summaries of statutes and regulations affecting banks and holding companies do not purport to be complete. Such summaries are qualified in their entirety by reference to such statutes and regulations. -29- HOLDING COMPANY REGULATION. As a bank holding company, Bancorp would be subject to regulation and supervision by the Federal Reserve Board under the BHC Act. The regulations of the Federal Reserve Board restrict or require prior approval for acquisitions of ownership or control of banks or other companies, restrict transactions between bank holding companies and their affiliates, restrict tying arrangements, limit non-banking activities of bank holding companies and their subsidiaries, require filing of annual and periodic reports and give the Federal Reserve Board supervisory authority over various activities of bank holding companies. The Bank is not currently subject to the regulations or authority of the Federal Reserve Board, except as certain of such regulations are made applicable to the Bank by law or regulations of the FDIC. CERTAIN FEDERAL AND STATE RESTRICTIONS ON ACQUISITION OF STOCK. Any attempt to acquire control of the Bank, currently, or Bancorp, following completion of the Reorganization, through the purchase of stock would be subject to regulation under Massachusetts law, the BHC Act and the federal Change in Bank Control Act of 1978, as amended (the "CBCA"). With respect to acquisitions of Common Stock of the Bank, Massachusetts law prohibits any person from acquiring voting stock of a bank that would result in such person having the power, directly or indirectly, to direct the management or policies of such bank or to vote 25% or more of such stock unless such person has provided the Commissioner with 60 days prior notice and certain information in connection therewith, and the acquisition has not been disapproved by the Commissioner. An exemption from these requirements is provided for acquiring persons who have complied with substantially similar procedures under the federal law provisions outlined below. The Federal Reserve Board's regulations promulgated under the CBCA generally require persons who at any time intend to acquire control of a bank holding company, to provide 60 days prior written notice and certain financial and other information to the Federal Reserve Board. The 60-day notice period does not commence until the information is deemed to be substantially complete. Control for the purpose of the CBCA exists in situations in which the acquiring party would have voting control of at least 25% of any class of a holding company's voting stock, or the power to direct management or policies of Bancorp. However, under Federal Reserve Board regulations, control would be presumed to exist where the acquiring party would have voting control of at least 10% of any class of Bancorp's voting securities if (i) Bancorp has a class of voting securities which is registered under Section 12 of the Exchange Act, or (ii) the acquiring party would be the largest holder of a class of voting shares of Bancorp. The statute and underlying regulations authorize the Federal Reserve Board to disapprove the proposed acquisition on certain specified grounds. The FDIC has adopted substantially similar regulations under the CBCA which would apply to the acquisition of control of an FDIC insured bank such as the Bank. Under the BHC Act, prior approval of the Federal Reserve Board is generally required for an acquisition of control of a bank by any "company" defined under the BHCA. Control for purposes of the BHCA would be based on a 25% voting stock test or on the ability of the acquiror otherwise to control the election of a majority of the Board of Directors of the Bank or Bancorp or on the ability of the acquiror to exert controlling influence over the management and policies of the Bank or Bancorp (as set forth in the BHCA). As part of such acquisition, the acquiring company (unless already so registered) would be required to register as a bank holding company under the BHCA. A bank holding company's business activities are generally limited to those activities which the Federal Reserve Board determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Registration as a bank holding company would generally require divestiture or other termination of other business activities not approved for bank holding companies by the Federal Reserve Board under the foregoing test. In addition to the aforementioned state and federal laws governing the acquisition of stock of a bank or a bank holding company, there are various provisions of Massachusetts law which apply to the acquisition of stock of business corporations and banks. BANK REGULATION. As a Massachusetts-chartered, FDIC insured savings bank, the Bank is subject to regulation and supervision by the Commissioner and the FDIC. After the Reorganization, the Bank will continue to be subject to such regulation and supervision. MASSACHUSETTS LAW. As a Massachusetts-chartered, stock form savings bank, the Bank now is, and following consummation of the Reorganization will continue to be, subject to regulation and examination by the Commissioner. The Massachusetts statutes and regulations govern, among other things, lending and investment powers, deposit activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings, and payment of dividends. The Bank is also subject to state regulatory provisions covering such matters as issuance of capital stock, branching, and mergers and acquisitions. Bancorp has been incorporated as a business corporation under Massachusetts law. Thus, Bancorp is subject to regulation by the Secretary of State of Massachusetts and the rights of its stockholders are governed by Massachusetts corporate law. -30- PROPOSED LEGISLATION. From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and restrictions on, the business of the Bank or Bancorp. It cannot be predicted whether any legislation currently being considered will be adopted or how such legislation or any other legislation that might be enacted in the future would affect the business of the Bank or Bancorp. CERTAIN FEDERAL TAX MATTERS. If the Reorganization is consummated, Bancorp and the Bank intend to file consolidated federal income tax returns, which would have the effect of eliminating inter-company distributions, including dividends, in the computation of consolidated taxable income. Bancorp and the Bank are required to file unconsolidated state income tax returns. If the Bank adopts the reserve method under Section 593 of the Code for computing its bad debt reserve deduction for federal income tax purposes for its taxable year ending October 31, 1996, even though Bancorp and the Bank plan to file consolidated federal income tax returns, distributions from the Bank to Bancorp would have significant adverse tax consequences to the Bank to the extent that the distributions were deemed to be out of the Bank's bad debt reserve (to the extent that the amount in the bad debt reserve account exceeds the amount that would be in such account had the Bank always used the experience method when making additions to such account), rather than its current or accumulated earnings and profits. The amount deemed distributed out of the bad debt reserve (which would be approximately 1.52 times the net amount actually distributed to Bancorp) would increase the Bank's federal taxable income and be subject to federal income tax rates of up to 34%. However, a dividend distribution will be deemed to be out of the bad debt reserve only if it exceeds the sum of the current and accumulated earnings and profits of the Bank. Some or all of the Bank's accumulated earnings and profits for tax purposes are expected to be transferred to Bancorp by the Bank as part of the Reorganization. The actual amount of the distribution will be adjusted to the extent necessary to avoid any taxable income to the Bank. See "--Financial Resources of Bancorp." Bancorp has no present intention of causing the Bank to pay cash dividends that would result in the Bank being required to recognize taxable income. Although it is intended that Bancorp, the Bank and their subsidiaries will file consolidated federal income tax returns, in general, only the income of the Bank may be considered in determining the amount the Bank is permitted to deduct as an addition to its bad debt reserve for federal income tax purposes. However, if other members of the group of corporations filing consolidated returns with the Bank incur losses that are "functionally related" to the Bank's business, such losses will be taken into account for purposes of determining the Bank's allowable deduction for additions to its bad debt reserve. CONSEQUENCES OF THE REORGANIZATION UNDER FEDERAL SECURITIES LAWS. Upon consummation of the reorganization, the reporting obligations of the Bank under the Securities and Exchange Act of 1934 (the "Exchange Act"), as administered by the FDIC, will be replaced with substantially identical obligations of Bancorp under the Exchange Act, as administered by the Securities and Exchange Commission ("SEC"). Pursuant to the Exchange Act, Bancorp will file annual, quarterly and periodic reports with the SEC. Bancorp will also be subject to the insider trading requirements of Sections 16(a) and 16(b) of the Exchange Act as administered by the SEC. Upon consummation of the Reorganization, Bancorp intends to file a Registration Statement on Form S-8 to register the issuance by Bancorp of shares of Common Stock under the Stock Option Plans. The issuance of Bancorp Common Stock in connection with the Reorganization is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), as a result of a new Section 3(a)(12) of the Securities Act. Section 3(a)(12) exempts securities issued in connection with the acquisition of a bank by a newly formed holding company from the registration requirements of the Securities Act. In order to qualify for the exemption (i) the acquisition must occur solely as part of a reorganization in which security holders exchange their shares of the bank for shares of a newly formed holding company with no significant assets other than securities of the bank and its existing subsidiaries, (ii) the security holders must receive the same proportional share interests in the holding company as they held in the bank (except for changes resulting from elimination of fractional interests and the exercise of dissenters' rights), (iii) the rights and interests of security holders in the holding company must be substantially the same as those in the bank prior to the transaction, other than as required by law, and (iv) the assets and liabilities of the holding company on a consolidated basis must be substantially the same assets and liabilities as the bank prior to the transaction. The exemption under Section 3(a)(12) would not apply to future issuances of Bancorp Common Stock. Such future issuances would be subject to the registration requirements of the Securities Act, unless another exemption under the Securities Act were available. In addition, the Section 3(a)(12) exemption does not cover the resale of any of Bancorp Common Stock issued in connection with the Reorganization. Bancorp Common Stock received by persons who are not affiliates of the Bank or Bancorp may be resold without registration. Shares received by affiliates of the Bank of Bancorp will be subject to the resale restrictions of Rule 145 under the Securities Act, which are substantially the same as the restrictions of Rule 144 discussed below. The Rule 145 restrictions terminate after two years, if Bancorp continues to comply with the reporting requirements under the Exchange Act, but any affiliate of the Bank who becomes an affiliate of Bancorp will continue to be subject to the restrictions of Rule 144. -31- If Bancorp meets the current public information requirements of Rule 144 under the Securities Act, each affiliate of the Bank who complies with the other conditions of Rule 144, including requirements as to the manner of sale and aggregation of affiliate sales with those of certain other persons, would be able to sell in the public market without registration, in any three-month period, a number of shares not to exceed the greater of 1% of the outstanding shares of Bancorp, or the average weekly volume of trading in such shares during the preceding four calendar weeks. Each person who controls, or is a member of a group which controls, or who is under common control with, the Bank at the time the Plan of Reorganization is submitted for a vote of the stockholders of the Bank may, in connection with any distribution after the Reorganization of securities of Bancorp to be received in the Reorganization, be deemed to be an underwriter within the meaning of the Securities Act. - ------------------------------------------------------------------------------- PROPOSAL IV -- ELECTION OF CLERK - ------------------------------------------------------------------------------- Massachusetts General Laws Ch. 172, Section 14 provides that the Clerk of the Bank shall be elected by the Stockholders. Shares represented by the enclosed proxy will be voted to elect Douglas C. Purdy to serve as Clerk of the Bank until the next election, or until a successor is elected and qualified, unless otherwise specified in the proxy. Mr. Purdy is an attorney at Serafini, Purdy, DiNardo and Wells of Quincy, Massachusetts. He is 53 years old. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. - ------------------------------------------------------------------------------- PROPOSAL V -- SELECTION OF AUDITORS - ------------------------------------------------------------------------------- The Board of Directors recommends that the stockholders approve the selection of Arthur Andersen LLP as independent auditors for the Bank to certify the Annual Report of Condition of the Bank for the year ending December 31, 1996. Arthur Andersen LLP was engaged as of June, 1990, and has certified the Annual Report of Condition of the Bank from December 31, 1990. The Audit Committee and the Board of Directors approved the engagement of Arthur Andersen LLP in June of 1990. In 1995, the Bank paid Arthur Andersen $85,550, of which amount $57,000 was for audit work and $28,550 was for tax return preparation. Prior to completion of the work, the services to be provided were approved by, and the possible effect on the independence of the accountant was considered by, the Audit Committee. It is expected that a representative of Arthur Andersen LLP will attend the stockholders meeting; such representative will be afforded the opportunity to make a statement if he desires to do so and will be available to respond to appropriate questions. Ms. Campbell and Messrs. Murney, Dwyer and Lucey are members of the Audit Committee and are also expected to attend the meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. - ------------------------------------------------------------------------------- STOCKHOLDER PROPOSALS - ------------------------------------------------------------------------------- The Bank will entertain proposals of stockholders. Stockholder proposals relating to the April 28, 1997 Annual Meeting must be received by the Bank at its executive offices on or before December 30, 1996 and should be addressed to Douglas C. Purdy, Clerk. - ------------------------------------------------------------------------------- OTHER MATTERS - ------------------------------------------------------------------------------- As of the date of this statement, management knows of no other matters which will be presented to the meeting, which are not referred to in the accompanying notice. However, regarding the other matters, if any, which may properly come before the meeting and as to matters incident to the conduct of the meeting, it is the intention of the persons named in the accompanying form of proxy to vote such proxies in accordance with their judgment. By order of the Board of Directors Douglas C. Purdy, CLERK Quincy, Massachusetts March 15, 1996 -32- EXHIBIT A PLAN OF REORGANIZATION AND ACQUISITION THIS PLAN OF REORGANIZATION AND ACQUISITION (the "Plan of Reorganization"), dated as of February 15, 1996, is made and entered into by and between The Hibernia Savings Bank, a Massachusetts-chartered savings bank in stock form (the "Bank"), and Emerald Isle Bancorp, Inc., a Massachusetts corporation (the "Holding Company"), pursuant to Chapter 172, Section 26B of the Massachusetts General Laws ("MGL"). The parties hereto desire to enter into a Plan of Reorganization whereby the corporate structure of the Bank will be reorganized into holding company form of ownership. The result of such reorganization (the "Reorganization") will be that, at and after the Effective Time (as defined in Section 2 below), all of the issued and outstanding shares of common stock of the Bank ("Bank Common Stock"), $1.00 par value per share, will be held by the Holding Company, and the holders of the issued and outstanding shares of common stock of the Bank, except for those stockholders exercising dissenters' rights in accordance with Chapter 156B, Sections 86 to 98 of the MGL, will become the holders of the issued and outstanding shares of common stock of the Holding Company ("Holding Company Common Stock"), $1.00 par value per share. The Bank and the Holding Company have agreed that the Holding Company will acquire all of the issued and outstanding shares of Bank Common Stock in exchange for shares of Holding Company Common Stock pursuant to Chapter 172, Section 26B of the MGL and this Plan of Reorganization. The Plan of Reorganization has been adopted and approved by a vote of two-thirds of the members of the Board of Directors of the Bank and by a vote of two-thirds of the members of the Board of Directors of the Holding Company. The officers of the Bank and of the Holding Company whose respective signatures appear below have been duly authorized to execute and deliver this Plan of Reorganization. NOW, THEREFORE, and in consideration of the premises, the Bank and the Holding Company agree as follows: SECTION 1 - APPROVAL AND FILING OF PLAN OF REORGANIZATION 1.1 The Plan of Reorganization shall be submitted for approval by the holders of Bank Common Stock at the Annual Meeting of Stockholders, scheduled for April 29, 1996, or at a special meeting to be called and held in accordance with the applicable provisions of law. Notice of such special meeting shall be published at least once a week for two successive weeks in a newspaper of general circulation in the County of Norfolk, Commonwealth of Massachusetts or for such other times and such other publications as may be required by law or regulation. 1.2 Upon approval of the Plan of Reorganization by the holders of two-thirds of the outstanding shares of Bank Common Stock as required by law, the Bank and the Holding Company shall submit the Plan of Reorganization to the Commissioner of Banks of the Commonwealth of Massachusetts (the "Commissioner") for his approval and filing in accordance with the provisions of Chapter 172, Section 26B of the MGL. The Plan of Reorganization shall be accompanied by such certificates of the respective officers of the Bank and the Holding Company as may be required by law and a written request from the Bank that the Plan of Reorganization not be filed by the Commissioner until such further time as the Commissioner shall have received from the Bank and the Holding Company the written notice described in Section 2.1. 1.3 If the requisite approval of the Plan of Reorganization is obtained at the meeting of the holders of Bank Common Stock referred to in Subsection 1.1, thereafter and until the Effective Time, as hereafter defined, the Bank shall issue certificates for Bank Common Stock, whether upon transfer or otherwise, only if such certificates bear a legend indicating that the Plan of Reorganization has been approved and that shares of Bank Common Stock evidenced by such certificates are subject to acquisition by the Holding Company pursuant to the Plan of Reorganization. SECTION 2 - DEFINITION OF EFFECTIVE TIME 2.1 The Plan of Reorganization shall become effective at 12:01 A.M. on the first business day following the date on which the Bank and the Holding Company advise the Commissioner in writing (i) that all the conditions precedent to the Plan of Reorganization becoming effective specified in Section 5 have been satisfied and (ii) that the Plan of Reorganization has not been abandoned by the Bank or the Holding Company in accordance with the provisions of Section 6, or at such other date and time as is specified in such written notice to the Commissioner. Such time is hereafter called the "Effective Time." -33- SECTION 3 - ACTIONS AT THE EFFECTIVE TIME 3.1 Each share of Bank Common Stock issued and outstanding immediately prior to the Effective Time (other than any shares of Bank Common Stock held by a stockholder who exercises dissenters' rights under applicable provisions of the MGL, as set forth below) shall, at the Effective Time, automatically and by operation of law, be converted into one share of Holding Company Common Stock. 3.2 At the Effective Time, the Holding Company shall, without any further action on its part or on the part of the holders of Bank Common Stock, automatically and by operation of law acquire and become the owner for all purposes of all the then issued and outstanding shares of Bank Common Stock and shall be entitled to have issued to it by the Bank a certificate or certificates representing such shares. Thereafter, the Holding Company shall have full and exclusive power to vote such shares of Bank Common Stock, to receive dividends thereon and to exercise all rights of an owner thereof. 3.3 At the Effective Time, the holders of the then issued and outstanding shares of Bank Common Stock (except for any such holder who exercises dissenters' rights) shall, without any further action on their part or on the part of the Holding Company, automatically and by operation of law cease to own such shares and shall instead become owners of one share of Holding Company Common Stock for each share of Bank Common Stock previously held by them. Thereafter, such persons shall have full and exclusive power to vote such shares of Holding Company Common Stock, to receive dividends thereon, except as otherwise provided herein, and to exercise all rights of an owner thereof. 3.4 Certificates representing shares of Bank Common Stock that are outstanding immediately prior to the Effective Time (the "Old Certificates") shall, at the Effective Time, automatically and by operation of law, cease to represent shares of Bank Common Stock or any interest therein and each Old Certificate shall instead represent the ownership by the holder thereof of an equal number of shares of Holding Company Common Stock. 3.5 At the Effective Time, the holders of Old Certificates shall cease to be holders of Bank Common Stock and shall have no rights as stockholders of the Bank other than (i) to receive shares of Holding Company Common Stock into which the shares of Bank Common Stock evidenced by such Old Certificates have been converted in accordance with the provisions of Section 3.1 hereof, and (ii) the rights afforded to the Bank stockholders who chose to exercise dissenters' rights under applicable provisions of the MGL. 3.6 Notwithstanding any of the foregoing, any Dissenting Stockholder, as defined in Subsection 8.1, shall have such rights as are provided by Subsection 8.2 and by the laws of the Commonwealth of Massachusetts. SECTION 4 - ACTIONS AFTER THE EFFECTIVE TIME Section 4.1 After the Effective Time, there shall be no transfers on the stock transfer books of Bank of shares of Bank Common Stock that were issued and outstanding immediately prior to the Effective Time and converted into shares of Holding Company Common Stock pursuant to the provisions of Section 3.1. As soon as practicable and in any event not more than thirty days after the Effective Time: Section 4.2 The Holding Company shall deliver to the transfer agent for the Bank and the Holding Company (the "Transfer Agent"), as agent for the then holders of Old Certificates (other than Old Certificates representing shares of Bank Common Stock as to which dissenters' appraisal rights shall have been exercised), a certificate or certificates for the aggregate number of shares of Holding Company Common Stock (the "New Certificates"), to which said holders shall be entitled. Each such holder may, or if required by the Holding Company in its sole discretion, shall, surrender his Old Certificate to the Transfer Agent and receive in exchange therefor a New Certificate for an equal number of shares of Holding Company Common Stock. Until so surrendered, each Old Certificate shall be deemed, for all corporate purposes, to evidence the ownership of the number of shares of Holding Company Common Stock which the holder thereof would be entitled to receive upon its surrender, except that the Holding Company may, in its sole discretion, withhold from the holder of shares represented by such Old Certificate, distribution of any or all dividends declared by the Holding Company on such shares until such time as such Old Certificate shall be surrendered in exchange for one or more New Certificates, at which time dividends so withheld by the Holding Company with respect to such shares shall be delivered (without interest thereon and less the amount of taxes, if any, which may have been imposed or paid thereon or which are required by law to be withheld in respect thereof), to the stockholder to whom such New Certificates are issued. -34- 4.3 The Holding Company shall publish, in accordance with applicable law, a notice to the holders of all Old Certificates, specifying the Effective Time of the Plan of Reorganization and notifying such holders that they may, or if required to do so by the Holding Company in its sole discretion, shall, present their Old Certificates to the Transfer Agent for exchange. Such notice shall likewise be given by mail to such holders at their addresses on the Bank's records. SECTION 5 - CONDITIONS PRECEDENT This Plan of Reorganization and the acquisition provided for herein shall not become effective unless all of the following first shall have occurred: 5.1 The holders of the outstanding shares of Bank Common Stock, at a meeting of the stockholders of the Bank, duly called and held, shall have adopted this Plan of Reorganization by the affirmative vote of stockholders owning at least two-thirds in amount of the issued and outstanding shares of Bank Common Stock. 5.2 The Plan of Reorganization shall have been approved by the Commissioner and a copy of the Plan of Reorganization with his approval endorsed thereon shall have been filed in his office, all as provided in Chapter 172, Section 26B of the MGL. 5.3 Any approval, consent, or waiver required by the Board of Governors of the Federal Reserve System shall have been received and any waiting period imposed by applicable law shall have expired. 5.4 All approvals from any other state or federal governmental agency having jurisdiction necessary for the lawful consummation of the Reorganization as contemplated by this Plan of Reorganization shall have been obtained, all conditions imposed by such regulatory approvals shall have been satisfied, and all waiting periods required in connection with any such approvals shall have expired. 5.5 The Bank shall have received a favorable opinion or opinions from its independent auditors or legal counsel, satisfactory in form and substance to the Bank, with respect to the federal and state income tax consequences of the Plan of Reorganization and the Reorganization contemplated thereby. 5.6 The shares of Holding Company Common Stock to be issued to the stockholders of the Bank pursuant to this Plan of Reorganization, shall have been duly registered or qualified for such issuance to the extent required under all applicable state securities laws. 5.7 The Bank and the Holding Company shall have obtained all other consents, permissions and approvals and shall have taken all actions required by law or agreement, or deemed necessary by the Bank or the Holding Company prior to the consummation of the acquisition provided for in the Plan of Reorganization and to the Holding Company's having and exercising all rights of ownership with respect to all of the outstanding shares of Bank Common Stock acquired by it under this Agreement. SECTION 6 - ABANDONMENT OF THE PLAN OF REORGANIZATION 6.1 The Plan of Reorganization may be abandoned by either the Bank or the Holding Company at any time before the Effective Time in the event that: (a) The number of shares of Bank Common Stock owned by Dissenting Stockholders, as defined in Subsection 8.1, shall make consummation of the acquisition contemplated by the Plan of Reorganization inadvisable in the opinion of the Bank or the Holding Company; (b) Any action, suit, proceeding or claim has been instituted, made or threatened relating to the Plan of Reorganization which shall make consummation of the acquisition contemplated by the Plan of Reorganization inadvisable in the opinion of the Bank or the Holding Company; or (c) For any other reason consummation of the acquisition contemplated by the Plan is inadvisable in the opinion of the Bank or the Holding Company. -35- Such abandonment shall be effected by written notice by either the Bank or the Holding Company to the other of them, and shall be authorized or approved by the Board of Directors of the party giving such notice. Upon the giving of such notice, the Plan of Reorganization shall be terminated and there shall be no liability hereunder or on account of such on the part of the Bank or the Holding Company or the Directors, officers, employees, agents or stockholders of either of them. In the event of abandonment of the Plan of Reorganization, the Bank shall pay the fees and expenses incurred by itself and the Holding Company in connection with the Plan of Reorganization and proposed acquisition. If either party hereto gives written notice of termination to the other party pursuant to this section, the party giving such written notice shall simultaneously furnish a copy thereof to the Commissioner. SECTION 7 - AMENDMENT OF PLAN OF REORGANIZATION 7.1 Any of the terms or conditions of the Plan of Reorganization may be amended or modified in whole or in part at any time, to the extent permitted by applicable law, rules, and regulations, by an amendment in writing, provided that any such amendment or modification is not materially adverse to the Bank, the Holding Company or their stockholders. In the event that any governmental agency requests or requires regulatory approval for favorable ruling, or that in the opinion of counsel to the Bank, such modification is necessary to obtain such approval or ruling, this Plan of Reorganization may be modified, at any time before or after adoption thereof by the stockholders of the Bank, by an instrument in writing, provided that the effect of such amendment would not be materially adverse to the Bank, the Holding Company or their stockholders. SECTION 8 - RIGHTS OF DISSENTING STOCKHOLDERS 8.1 "Dissenting Stockholders" shall mean those holders of Bank Common Stock who file with the Bank before the taking of the vote on the Plan of Reorganization, written objection to the Plan of Reorganization, pursuant to Chapter 156B, Section 86 of the MGL, stating that they intend to demand payment for their shares of Bank Common Stock if the Plan of Reorganization is consummated and whose shares are not voted in favor of the Plan of Reorganization. 8.2 Dissenting Stockholders who comply with the provisions of Chapter 156B, Sections 86 to 98, inclusive, of the MGL and all other applicable provisions of law shall be entitled to receive from the Bank payment of the fair value of their shares of Bank Common Stock upon surrender by such holders of the certificates which previously represented shares of Bank Common Stock. Certificates so obtained by the Bank, upon payment of the fair value of such shares as provided by law, shall be canceled. Shares of Holding Company Common Stock, to which Dissenting Stockholders would have been entitled had they not dissented, shall be deemed to constitute authorized but unissued shares of Holding Company Common Stock and may be sold or otherwise disposed of by the Holding Company at the discretion of, and on such terms as may be fixed by its Board of Directors. SECTION 9 - STOCK OPTIONS 9.1 By voting in favor of this Plan of Reorganization, the Holding Company shall have approved adoption of The Hibernia Savings Bank 1986 Stock Option Plan, The Hibernia Savings Bank 1989 Stock Option Plan, and The Hibernia Savings Bank 1995 Premium Incentive Stock Option Plan as the stock option plans of the Holding Company and shall have agreed to issue Holding Company Common Stock in lieu of Bank Common Stock pursuant to options currently outstanding under the existing Stock Option Plans. As of the Effective Time, the Stock Option Plans shall automatically, by operation of law, be continued as, and become the stock option plans of the Holding Company. Further, at the Effective Time, each option to purchase shares of Bank Common Stock under the Stock Option Plans outstanding and unexercised immediately prior to the Effective Time shall automatically be converted into an identical option, with identical price, terms and conditions, to purchase an identical number of shares of Holding Company Common Stock in lieu of shares of Bank Common Stock. The Holding Company and the Bank shall make appropriate amendments to the Stock Option Plans to reflect the adoption of the Stock Option Plans as the stock option plans of the Holding Company, without adverse effect upon the options outstanding as of the Effective Time under the Stock Option Plans. 9.2 By voting in favor of this Plan of Reorganization, the Holding Company shall also have approved The Hibernia Savings Bank 1989 Stock Purchase Plan and The Hibernia Savings Bank 1995 Automatic Dividend Reinvestment and Common Stock Purchase Plan as the stock purchase plans of the Holding Company. As of the Effective Time, the Stock Purchase Plans shall automatically, by operation of law, be continued as and become the stock purchase plans of the Holding Company. Further, at the Effective Time, all rights to purchase shares of Bank Common Stock under the existing Stock Purchase Plans shall automatically, by operation of law, be converted into and shall become identical rights to purchase Holding Company Common Stock upon identical terms and conditions. The Bank shall make appropriate amendments to the Stock Purchase Plans, effective as of the Effective Time, to reflect the substitution of rights to purchase Holding Company Common Stock for rights to purchase Bank Common Stock. -36- SECTION 10 - GOVERNING LAW 10.1 This Plan of Reorganization shall take effect as a sealed instrument and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. SECTION 11 - COUNTERPARTS 11.1 This Plan of Reorganization may be executed in several identical counterparts, each of which when executed by the parties hereto and delivered shall be an original, but all of which together shall constitute a single instrument. SECTION 12 - HEADINGS 12.1 The headings contained in this Plan of Reorganization are for reference purposes only and shall not be deemed to be part of this Plan of Reorganization. IN WITNESS WHEREOF, the parties hereto have caused this Plan of Reorganization and Acquisition to be executed by their duly authorized officers as of the date first above written. THE HIBERNIA SAVINGS BANK Attest: /s/ Gerard F. Linskey By: /s/ Mark A. Osborne ----------------------- ------------------------- Mark A. Osborne Chairman of the Board and Chief Executive Officer EMERALD ISLE BANCORP, INC. Attest: /s/ Gerard F. Linskey By: /s/ Mark A. Osborne ----------------------- -------------------------- Mark A. Osborne, President -37- EXHIBIT B THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF ORGANIZATION (General Laws, Chapter 156B) ARTICLE I The exact name of the corporation is: Emerald Isle Bancorp, Inc. ARTICLE II The purpose of the corporation is to engage in the following business activities: To acquire, invest in or hold stock in any subsidiary permitted under the Bank Holding Company Act of 1956 or Chapter 167A of the Massachusetts General Laws, as such statutes may be amended from time to time, and to engage in any other permissible activity or enterprise under said statutes or other applicable law. To engage generally in any business activity which may be lawfully carried on by a corporation organized under Chapter 156B of the Massachusetts General Laws. ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue. WITHOUT PAR VALUE WITH PAR VALUE - ------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - ------------------------------------------------------------------------------- Common: Common: 10,000,000 $1.00 Preferred: Preferred: 5,000,000 $1.00 ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class. See Continuation Sheet IV attached. NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS INSUFFICENT, ADDITIONS SHALL BE SET FORTH ON ONE SIDE ONLY OF SEPARATE 8 1/2 X 11 SHEETS OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH ARTICLE REQUIRING EACH ADDITION IS CLEARLY INDICATED. -38- CONTINUATION SHEET IV CAPITAL STOCK The aggregate number of shares of all classes of capital stock which the Corporation has authority to issue is 15,000,000, of which 10,000,000 are to be shares of common stock, of $1.00 par value per share, and of which 5,000,000 are to be shares of serial preferred stock, of $1.00 par value per share. The shares may be issued by the Corporation from time to time as approved by the Board of Directors of the Corporation without the approval of the stockholders except as otherwise provided in this Article IV or the rules of a national securities exchange if applicable. The consideration for the issuance of the shares shall be paid to or received by the Corporation in full before their issuance and shall not be less than the par value per share. The consideration for the issuance of the shares shall be cash, services rendered, personal property (tangible or intangible), real property, leases of real property or any other consideration deemed appropriate by the Board of Directors. In the absence of actual fraud in the transaction, the judgment of the Board of Directors as to the value of such consideration shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, the part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. A description of the different classes and series (if any) of the Corporation's capital stock, and a statement of the relative powers, designations, preferences and rights of the shares of each class and series (if any) of capital stock, and the qualifications, limitations or restrictions thereof, are as follows: A. COMMON STOCK. Except as provided in these Articles (or in any certificate of establishment of series of preferred stock), the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share. There shall be no cumulative voting rights in the election of Directors. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and sinking fund or retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock, and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends, but only when and as declared by the Board of Directors of the Corporation. In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class having preference over the common stock in any such event the full preferential amounts to which they are respectively entitled, the holders of the common stock and of any class or series of stock entitled to participate therewith, in whole or in part, as to distribution of assets shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation to receive the remaining assets of the Corporation available for distribution, in cash or in kind, in proportion to their holdings. Each share of common stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of common stock of the Corporation. B. SERIAL PREFERRED STOCK. Subject to any limitations prescribed by law or these Articles, the Board of Directors of the Corporation is authorized, by vote from time to time taken, to provide for the issuance of serial preferred stock in one or more series and to fix and state the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series, and the qualifications, limitations or restrictions thereof, including, but not limited, to determination of any of the following: 1. the distinctive serial designation and the number of shares constituting such series; 2. the dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; 3. the voting powers, full or limited, if any, of the shares of such series; 4. whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions upon which such shares may be redeemed; -39- 5. the amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; 6. whether the shares of such series shall be entitled to the benefits of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such fund; 7. whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; 8. the subscription or purchase price and form of consideration for which the shares shall be issued; and 9. whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. Any establishment of a series of preferred stock by the Board of Directors shall become effective when the Corporation files with the Secretary of State of the Commonwealth of Massachusetts a certificate of establishment of series of preferred stock, signed under the penalties of perjury by the President or any Vice President and by the Clerk, Assistant Clerk, Secretary or Assistant Secretary of the Corporation, setting forth a copy of the vote of the Board of Directors establishing and designating the series and fixing and determining the relative rights and preferences thereof, the date of adoption of such vote and a certification that such vote was duly adopted by the Board of Directors of the Corporation. Each share of each series of serial preferred stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of the Corporation of the same series. ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: See Continuation Sheet V attached. CONTINUATION SHEET V ARTICLE V(A) REGULATION OF CONTROL SHARE ACQUISITIONS Pursuant to M.G.L. c. 110D, Section 2(d), the Corporation hereby elects not to be governed by the provisions of Chapter 110D. ARTICLE V(B) BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS Pursuant M.G.L. c. 110F, Section 2(a), the Corporation hereby elects not to be governed by the provisions of Chapter 110F. ARTICLE V(C) STOCKHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS The affirmative vote of at least two-thirds of the total votes eligible to be cast by stockholders, at a meeting expressly called for such purpose, (and, if any class or series of shares is entitled to vote thereof separately, the affirmative vote of the holders of at least two-thirds of the outstanding shares) shall be required in order to authorize any (i) sale, lease, exchange or other disposition, including without limitation, a mortgage, or any other security device, of all or substantially all of the property or assets, including goodwill, of the Corporation, (including without limitation, any voting securities of a subsidiary), (ii) merger or -40- consolidation of the Corporation with or into any other corporation or (iii) any reclassification of the common stock of the Corporation, or any recapitalization involving the common stock of the Corporation. ARTICLE VI **Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: See Continuation Sheet VI attached. **IF THERE ARE NO PROVISIONS STATE "NONE". NOTE: THE PRECEDING SIX (6) ARTICLES ARE CONSIDERED TO BE PERMANENT AND MAY ONLY BE CHANGED BY FILING APPROPRIATE ARTICLES OF AMENDMENT. CONTINUATION SHEET VI ARTICLE VI(A) PRE-EMPTIVE RIGHTS No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any pre-emptive right to purchase or subscribe for any unissued stock of any class or series, or any unissued bonds, charters of indebtedness, debentures or other securities convertible into or exchangeable for stock of any class or series or carrying any right to purchase stock of any class or series. Any such unissued stock, bonds, charters of indebtedness, debentures or other securities convertible into or exchangeable for stock or carrying any right to purchase stock may be issued pursuant to a vote of the Board of Directors of the Corporation to such persons, firms, corporations or associations, whether or not holders thereof, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. ARTICLE VI(B) REPURCHASE OF SHARES The Corporation may, from time to time, pursuant to authorization by the Board of Directors of the Corporation and without action by the stockholders, purchase or otherwise acquire shares of any class, bonds, debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or other securities of the Corporation in such manner, upon such terms, and in such amounts as the Board of Directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition in question or as are imposed by applicable law. ARTICLE VI(C) DIRECTORS The number of Directors of the Corporation shall be such number, not less than three as shall be provided from time to time, provided that no decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. The Board of Directors of the Corporation shall be divided into three classes of Directors as nearly equal in number as possible, with one class to be elected annually. The initial Directors of the Corporation shall hold office as follows: the first class of Directors shall hold office initially for a term expiring at the annual meeting of stockholders to be held in 1997, the second class of Directors shall hold office initially for a term expiring at the annual meeting of stockholders to be held in 1998, and the third class of Directors shall hold office initially for a term expiring at the annual meeting of stockholders to be held in 1999, with the members of each class to hold office until their respective successors are duly elected and qualified. At each annual meeting of stockholders of the Corporation, the successors to the class of Directors whose term expires at the meeting shall be -41- elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their respective successors are elected and qualified. Should the number of Directors of the Corporation be increased, the additional directorships shall be allocated among classes as appropriate so that the number of Directors in each class is as nearly equal as possible. ARTICLE VI(D) REMOVAL OF DIRECTORS Any Director may be removed with or without cause by a vote of two-thirds of the Directors then in office, unless at the time of such action there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors shall also be required. ARTICLE VI(E) LIMITATION OF LIABILITY OF DIRECTORS No Director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director notwithstanding any provision of law imposing such liability; provided, however, that this Article VI(E) shall not eliminate or limit any liability of a Director (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or emissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Sections 61 or 62 of Chapter 156B of the Massachusetts General Laws or (iv) with respect to any transaction from which the Director derived an improper personal benefit. No amendment or repeal of this Article VI(E) shall adversely affect the rights and protection afforded to a Director of this Corporation under this Article VI(E) for acts or omissions occurring prior to such amendment or repeal. If the Massachusetts Business Corporation Law is hereafter amended to further eliminate or limit the personal liability of Directors or to authorize corporate action to further eliminate or limit such liability, then the liability of the Directors of this Corporation shall be eliminated or limited to the fullest extent permitted by Massachusetts Business Corporation Laws as so amended. ARTICLE VI(F) ACTING AS PARTNER The Corporation may be a partner in any business enterprise which it would have power to conduct by itself. ARTICLE VI(G) AMENDMENT OF BY-LAWS In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, repeal, alter, amend and rescind the by-laws of the Corporation by the affirmative vote of not less than two-thirds of the Directors then in office, unless at the time of such action, there is an Interested Stockholder, in which case the affirmative vote of not less than two-thirds of the Continuing Directors shall also be required. Notwithstanding any other provision of these Articles or the by-laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law), the by-laws shall not be made, repealed, altered, amended, or rescinded by the stockholders of the Corporation except by the vote of the holders of not less than two-thirds of the outstanding shares of capital stock of the Corporation (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed adoption, repeal, alteration, amendment or rescission is included in the notice of such meeting). -42- ARTICLE VI(H) AMENDMENT OF ARTICLES OF ORGANIZATION Any amendment, addition, alteration, change or repeal of these Articles of Organization regarding, (i) an increase or reduction of the capital stock or of any authorized class, (ii) a change of the par value of any authorized shares or class thereof, (iii) a change of the authorized shares with par value or any class thereof into any number of shares without par value, or the exchange thereof pro rata for any number of shares without par value, (iv) a change of the authorized shares without par value or any class thereof into a greater or lesser number of shares without par value, or the exchange thereof pro rata for a greater or lesser number of shares without par value, (v) a change of the authorized shares with par value or any class thereof into a greater or lesser number of shares with par value, or the exchange thereof pro rata for a greater or lesser number of shares with par value, (vi) a change of the authorized shares without par value or any class thereof into any number of shares with par value, or the exchange thereof pro rata for any number of shares with par value or, (vii) a change of the corporate name may be made if first approved by the affirmative vote of two-thirds of the Board of Directors of the Corporation then in office (unless at the time of such action there is an Interested Stockholder, in which case the affirmative vote of two-thirds of the Continuing Directors shall also be required) and thereafter approved by the affirmative vote of a majority of the stockholders. No other amendment, addition, alteration, change or repeal of these Articles of Organization shall be made unless first approved by the affirmative vote of two-thirds of the Board of Directors of the Corporation then in office, and thereafter approved by the affirmative vote of not less than two-thirds of the total votes eligible to be cast at a duly constituted meeting of stockholders. Notwithstanding the foregoing, if at any time within the sixty day period immediately preceding the meeting at which the stockholder vote is to be taken there is an Interested Stockholder, such provision may only be amended, altered, changed or repealed if such action shall have been approved by not less than two-thirds of the Continuing Directors then in office. Unless otherwise provided by law, any amendment, addition, alteration, change or repeal so acted upon shall be effective on the date it is filed with the Secretary of State of the Commonwealth of Massachusetts or on such other date as specified in such amendment, addition, alteration, change or repeal or as in the Secretary of State may specify. As used in these Articles, the phrase "Interested Stockholder" shall have the meaning as set forth in the by-laws of the Corporation. ARTICLE VII The effective date of organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a LATER effective date is desired, specify such date which shall not be more than thirty days after the date of filing. ARTICLE VIII THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE ARTICLES OF ORGANIZATION. a. The street address (post office boxes are not acceptable) of the principal office of the corporation in Massachusetts is: 730 Hancock Street, Quincy, Massachusetts 02170 b. The name, residence address and post office address of each Director and officer of the corporation is as follows:
NAME RESIDENTIAL ADDRES POST OFFICE ADDRESS President: Mark A. Osborne 100 Brigantine Circle 100 Brigantine Circle Norwell, MA 02061 Norwell, MA 02061 Treasurer: Gerard F. Linskey 1299 South River Street 1299 South River Street Marshfield, MA 02050 Marshfield, MA 02050 Clerk: Douglas C. Purdy 115 Branch Street 115 Branch Street Scituate, MA 02066 Scituate, MA 02066
Directors: See Continuation Sheet VIII Attached. -43- CONTINUATION SHEET VIII DIRECTORS
Name Residential Address Post Office Address - ---- ------------------- -------------------- Richard P. Quincy 41 Countryside Lane 41 Countryside Lane Milton, MA 02186 Milton, MA 02186 Douglas C. Purdy 115 Branch Street 115 Branch Street Scituate, MA 02066 Scituate, MA 02066 Peter L. Maguire 405 North Street 405 North Street Duxbury, MA 02332 Duxbury, MA 02332 John V. Murphy 651 Main Street 651 Main Street Hingham, MA 02043 Hingham, MA 02043 Thomas P. Moore, Jr. 68 Abbot Road 68 Abbot Road Wellesley, MA 02181 Wellesley, MA 02181 Michael T. Putziger 30 King Street 30 King Street Cohasset, MA 02025 Cohasset, MA 02025 Mark A. Osborne 100 Brigantine Circle 100 Brigantine Circle Norwell, MA 02061 Norwell, MA 02061
c. The fiscal year (i.e., tax year) of the corporation shall end on the last day of the month of October d. The name and business address of the resident agent, if any, of the corporation is: ARTICLE IX By-laws of the corporation have been duly adopted and the president, treasurer, clerk and Directors whose names are set forth above, have been duly elected. IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I/we, whose signature(s) appear below as incorporator(s) and whose name(s) and business or residential address(es) are clearly typed or printed beneath each signature do hereby associate with the intention of forming this corporation under the provisions of General Laws, Chapter 156B and do hereby sign these Articles of Organization as incorporator(s) this 9th day of January, 1996. /s/ Mark A. Osborne The Hibernia Savings Bank 730 Hancock Street Quincy, MA 02170 NOTE: IF AN EXISTING CORPORATION IS ACTING AS INCORPORATOR, TYPE IN THE EXACT NAME OF THE CORPORATION, THE STATE OR OTHER JURISDICTION WHERE IT WAS INCORPORATED, THE NAME OF THE PERSON SIGNING ON BEHALF OF SAID CORPORATION AND THE TITLE HE/SHE HOLDS OR OTHER AUTHORITY BY WHICH SUCH ACTION IS TAKEN. -44- THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF ORGANIZATION (General Laws, Chapter 156B) I hereby certify that, upon examination of these Articles of Organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations have been complied with, and I hereby approve said articles; and the filing fee in the amount of $15,000.00 having been paid, said articles are deemed to have been filed with me this 10th day of January 1996. Effective date: ______________________ /s/ WILLIAM FRANCIS GALVIN Secretary of the Commonwealth FILING FEE: One tenth of one percent of the total authorized capital stock, but not less than $200.00. For the purpose of filing, shares of stock with a par value less than $1.00, or no par stock, shall be deemed to have a par value of $1.00 per share. TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: Anne H. Stossel Roche, Carens & DeGiacomo A Professional Corporation One Post Office Square Boston, MA 02109 Telephone (617) 451-9300 -45- EXHIBIT C PROVISIONS OF THE GENERAL LAW OF MASSACHUSETTS RELATING TO RIGHTS OF DISSENTING STOCKHOLDERS (Sections 86 to 98 of Chapter 156B of the General Laws of Massachusetts) SECTION 86. Sections Applicable To Appraisal; Prerequisites. If a corporation proposes to take a corporate action as to which any section of this chapter provides that a stockholder who objects to such action shall have the right to demand payment for his shares and an appraisal thereof, sections eighty-seven to ninety-eight, inclusive, shall apply except as otherwise specifically provided in any section of this chapter. Except as provided in sections eighty-two and eighty-three, no stockholder shall have such right unless (1) he files with the corporation before the taking of the vote of the shareholders on such corporate action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) his shares are not voted in favor of the proposed action. SECTION 87. Statement Of Rights Of Objecting Stockholder In Notice of Meeting; Form. The notice of the meeting of stockholders at which the approval of such proposed action is to be considered shall contain a statement of the rights of objecting stockholders. The giving of such notice shall not be deemed to create any rights in any stockholder receiving the same to demand payment for his stock, and the Directors may authorize the inclusion in any such notice of a statement of opinion by the management as to the existence or nonexistence of the right of the stockholders to demand payment for their stock on account of the proposed corporate action. The notice may be in such form as the Directors or officers calling the meeting deem advisable, but the following form of notice shall be sufficient to comply with this section: "If the action proposed is approved by the stockholders at the meeting and effected by the corporation, any stockholder (1) who files with the corporation before the taking of the vote on the approval of such action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) whose shares are not voted in favor of such action has or may have the right to demand in writing from the corporation (or, in the case of a consolidation or merger, the name of the resulting or surviving corporation shall be inserted), within twenty days after the date of mailing to him of notice in writing that the corporate action has become effective, payment for his shares and an appraisal of the value thereof. Such corporation and any such stockholder shall in such cases have the rights and duties and shall follow the procedure set forth in Sections 88 to 98, inclusive, of Chapter 156B of the General Laws of Massachusetts." SECTION 88. Notice Of Effectiveness Of Action Objected To. The corporation taking such action, or in the case of a merger or consolidation the surviving or resulting corporation, shall, within ten days after the date on which such corporate action became effective, notify each stockholder who filed a written objection meeting the requirements of section eighty-six and whose shares were not voted in favor of the approval of such action, that the action approved at the meeting of the corporation of which he is a stockholder has become effective. The giving of such notice shall not be deemed to create any rights in any stockholder receiving the same to demand payment for his stock. The notice shall be sent by registered or certified mail, addressed to the stockholder at his last known address as it appears in the records of the corporation. SECTION 89. Demand For Payment; Time For Payment. If within twenty days after the date of mailing of a notice under subsection (e) of section eighty-two, subsection (f) of section eighty-three, or section eighty-eight, any stockholder to whom the corporation was required to give such notice shall demand in writing from the corporation taking such action, or in the case of a consolidation or merger from the resulting or surviving corporation, payment for his stock, the corporation upon which such demand is made shall pay to him the fair value of his stock within thirty days after the expiration of the period during which such demand may be made. SECTION 90. Demand For Determination of Value; Bill In Equity; Venue. If during the period of thirty days provided for in section eighty-nine the corporation upon which such demand is made and any such objecting stockholder fail to agree as to the value of such stock, such corporation or any such stockholder may within four months after the expiration of such thirty-day period demand a determination of the value of the stock of all such objecting stockholders by a bill in equity filed in the superior court in the county where the corporation in which such objecting stockholder held stock had or has its principal office in the commonwealth. SECTION 91. Parties To Suit To Determine Value; Service. If the bill is filed by the corporation, it shall name as parties respondent all stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as to the value thereof. If the bill is filed by a stockholder, he shall bring the bill in his own behalf and in behalf of all other stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as -46- to the value thereof and service of the bill shall be made upon the corporation by subpoena with a copy of the bill annexed. The corporation shall file with its answer a duly verified list of all such other stockholders, and such stockholders shall thereupon be deemed to have been added as parties to the bill. The corporation shall give notice in such form and returnable on such date as the court shall order to each stockholder party to the bill by registered or certified mail, addressed to the last known address of such stockholder as shown in the records of the corporation, and the court may order such additional notice by publication or otherwise as it deems advisable. Each stockholder who makes demand as provided in section eighty-nine shall be deemed to have consented to the provisions of this section relating to notice, and the giving of notice by the corporation to any such stockholder in compliance with the order of the court shall be a sufficient service of process on him. Failure to give notice to any stockholder making demand shall not invalidate the proceedings as to other stockholders to whom notice was properly given, and the court may at any time before the entry of a final decree make supplementary orders of notice. SECTION 92. Decree Determining Value And Ordering Payment; Valuation Date. After hearing the court shall enter a decree determining the fair value of the stock of those stockholders who have become entitled to the valuation of and payment for their shares, and shall order the corporation to make payment of such value, together with interest, if any, as hereinafter provided, to the stockholders entitled thereto upon the transfer by them to the corporation of the certificates representing such stock if certificated or, if uncertificated, upon receipt of an instruction transferring such stock to the corporation. For this purpose, the value of the shares shall be determined as of the day preceding the date of the vote approving the proposed corporate action and shall be exclusive of any element of value arising from the expectation or accomplishment of the proposed corporate action. SECTION 93. Reference To Special Master. The court in its discretion may refer the bill or any question arising thereunder to a special master to hear the parties, make findings and report the same to the court all in accordance with the usual practice in suits in equity in the superior court. SECTION 94. Notation On Stock Certificates Of Pendency Of Bill. On motion the court may order stockholder parties to the bill to submit their certificates of stock to the corporation for the notation thereon of the pendency of the bill and may order the corporation to note such pendency in its records with respect to any uncertificated shares held by such stockholder parties, and may on motion dismiss the bill as to any stockholder who fails to comply with such order. SECTION 95. Costs; Interest. The costs of the bill, including the reasonable compensation and expenses of any master appointed by the court, but exclusive of fees of counsel or of experts retained by any party, shall be determined by the court and taxed upon the parties to the bill, or any of them, in such manner as appears to be equitable, except that all costs of giving notice to stockholders as provided in this chapter shall be paid by the corporation. Interest shall be paid upon any award from the date of the vote approving the proposed corporate action, and the court may on application of any interested party determine the amount of interest to be paid in the case of any stockholder. SECTION 96. Dividends And Voting Rights After Demand For Payment. Any stockholder who has demanded payment for his stock as provided in this chapter shall not thereafter be entitled to notice of any meeting of stockholders or to vote such stock for any purpose and shall not be entitled to the payment of dividends or other distribution on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the date of the vote approving the proposed corporate action) unless: (1) A bill shall not be filed within the time provided in section ninety; (2) A bill, if filed, shall be dismissed as to such stockholder; or (3) Such stockholder shall with the written approval of the corporation, or in the case of a consolidation or merger, the resulting or surviving corporation, deliver to it a written withdrawal of his objections to and an acceptance of such corporate action. Notwithstanding the provisions of clauses (1) to (3), inclusive, said stockholder shall have only the rights of a stockholder who did not so demand payment for his stock as provided in this chapter. SECTION 97. Status Of Shares Paid For. The shares of the corporation paid for by the corporation pursuant to the provisions of this chapter shall have the status of treasury stock, or in the case of a consolidation or merger the shares or the securities of the resulting or surviving corporation into which the shares of such objecting stockholder would have been converted had he not objected to such consolidation or merger shall have the status of treasury stock or securities. SECTION 98. Exclusive Remedy; Exception. The enforcement by a stockholder of his right to receive payment for his shares in the manner provided in this chapter shall be an exclusive remedy except that this chapter shall not exclude the right of such stockholder to bring or maintain an appropriate proceeding to obtain relief on the ground that such corporate action will be or is illegal or fraudulent as to him. -47- EX-99.5 6 EXHIBIT 99.5 Exhibit 99.5 FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20429 FORM F-4 QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1996 22054-0 -------- (FDIC Certificate No.) 04-1437380 ---------- (I.R.S. Employer Identification Number) THE HIBERNIA SAVINGS BANK -------------------------- (Exact name of Bank as specified in its Charter) MASSACHUSETTS -------------- (State of Incorporation) 731 HANCOCK STREET, QUINCY, MA ------------------------------ (Address of Principal Office) 02170 ------ (Zip Code) (617) 479-2265 -------------- (Bank's Telephone Number, including area code) Indicate by check mark whether the bank (1) has filed all reports required to be filed by section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period the bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) YES X NO ---- ---- (2) YES X NO ---- ---- At March 31, 1996 there were 1,555,868 shares of common stock outstanding, $1.00 par value. THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements of The Hibernia Savings Bank and Subsidiaries (Kildare Corporation/The Limerick Securities Corporation/Meath Corporation) presented herein should be read in conjunction with the consolidated financial statements of The Hibernia Savings Bank for the year ended December 31, 1995. Consolidated financial information as of March 31, 1996 and the results of operations and the changes in stockholders' equity and cash flows for the three months ended March 31, 1996 and 1995 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 March 31, 1996 the Bank had outstanding commitments to originate loans amounting to approximately $16,498,676 which are not reflected in the consolidated balance sheet. 3) EARNINGS PER SHARE The earnings per share computations for the quarter ended March 31, 1996 are based on 1,555,868 shares outstanding, and for the quarter ended March 31, 1995 are based on 1,523,524 shares outstanding. Material Changes in Financial Conditions Management's discussion and analysis of the financial conditions and results of operations for the three month period ended March 31, 1996 with the appropriate comparisons to the same period in 1995 are as follows: The Bank's total assets increased to $355,071,229 at March 31, 1996 or 9.5% on an annualized basis from total assets of $346,865,213 at December 31, 1995 and increased 17.7% from total assets of $301,654,660 at March 31, 1995. Short term investments, investment securities and securities held for sale totaled $128,525,591 or 36.2% of total assets at March 31, 1996 an increase of $3,225,321 from $125,300,270 or 36.1% of total assets at December 31, 1995 and an increase of $11,929,853 from $116,595,738 or 38.7% of total assets at March 31, 1995. Loans, net increased $4,450,174 or 8.5% on an annualized basis to $212,776,897 or 59.9% of total assets at March 31, 1996 from $208,326,723 or 60.1% of total assets at December 31, 1995 and increased $38,297,359 from $174,479,538 or 57.8% of total assets at March 31, 1995. The Bank's nonperforming loans totaled $951,660 or .3% of total assets at March 31, 1996 as compared to $930,766 or .3% of total assets at December 31, 1995 and $1,709,620 or .57% of total assets at March 31, 1995. The Bank's loan loss provision for the first quarter ended March 31, 1996 was $1,020,000 as compared to $151,666 for the first quarter of 1995. The Bank's charge-offs net of recoveries for the quarter ended March 31, 1996 were $1,348,707 compared to $157,246 during the first quarter of 1995. The Bank became aware of an SEC lawsuit against one of its borrowers , Bennett Funding Group Inc., of which the Bank had three pools of commercial equipment leasing loans totaling $1,409,950 at March 30, 1996. The lawsuit charged Bennett Funding had sold investors tens of millions of dollars of assignments on office equipment that did not exist, or had already been sold. The Bank took the most conservative position and charged off these loans against the allowance for loan losses and booked an extraordinary loan loss provision of $1,000,000. The allowance for loan losses totaled $2,213,289 at March 31, 1996 as compared to $2,541,997 at December 31, 1995 and $2,235,706 at March 31, 1995. The allowance for loan losses represented 232.6%, 366.2% and 223.7% of nonperforming loans at March 31, 1996, December 31, 1995 and March 31, 1995 respectively. Deposits at March 31, 1996 totaled $289,682,551 as compared to $282,787,249 at December 31, 1995 an increase of $6,895,302, or 9.8% on an annualized basis, and increased $24,303,036 or 9.2% from deposits of $265,379,515 at March 31, 1995. Federal Home Loan Bank advances increased $1,700,000 to $40,668,000 at March 31, 1996 from $38,968,000 at December 31, 1995, and increased $26,668,000 from $14,000,000 at March 31, 1995. Stockholders Equity increased to $23,108,392 at March 31, 1996 from $22,824,616 at December 31, 1995 and $20,821,899 at March 31, 1995. The increase in the first quarter reflects earnings of $121,474 for the first quarter and the issuance of 23,437 additional shares of stock through exercising of options, and through the purchase of stock in the Bank's "Stock Purchase Plan", "Dividend Reinvestment Plan", and "Optional Cash Payment Plan" for total additional paid-in capital of $323,480 , and was decreased by the payment of a $.07 dividend on shares outstanding of $108,371. Material Changes in Results of Operations Net Income for the first quarter ended March 31, 1996 was $121,474 or $.08 per share as compared to net income in the first quarter ended March 31, 1995 of $637,722 or $.42 per share. Interest and dividend income increased 25.6% in the first quarter of 1996 to $6,794,137 from $5,411,401 for the first quarter of 1995. The increase reflects our growth in earning assets which increased $50,252,452 or 17.2% at March 31, 1996 from March 31, 1995, and a slight increase in the yield on average earning assets to 8.0% at March 31, 1996 from 7.8% at March 31, 1995. Interest expense increased $1,060,524 or 36.7% to $3,949,872 from $2,889,348 for the first quarter ended March 31, 1996. This increase reflects the increased overall cost of funds to 4.87% at March 31, 1996 from 4.46% at March 31, 1995, in conjunction with an increase in average total deposits by $26,710,000 at an increased cost of 37 basis points, an increase in average borrowings by $30,000,000 at a decreased cost of 92 basis points. Other income for the quarter ended March 31, 1996 totaled $228,098 compared to $280,959 for the same quarter in 1995. Security gains for the first quarter ended March 31, 1996 were $54,201, net losses on the sale of real estate owned $12,948, gain on the sale of loans of $10,042, REO income of $11,163 and service charges of $165,640, as compared to security gains of $133,012, net losses on the sale of real estate of $10,105, REO income of $35,307 and service charges of $118,268 for the same period in 1995. Operating expenses totaled $1,853,226 for the first quarter ended March 31, 1996 as compared to $1,671,810 for the same period in 1995, an increase of $181,416 or 10.8%. This increase reflects the increased personnel costs of $183,795 required by the opening of two new branch locations, one in the second quarter and one in the fourth quarter of 1995, as well as a new department for in-house processing of our checking accounts. Occupancy costs also increased $83,503 reflecting the two new branches opened in the later half of 1995. These increases were partially offset by the reduction of the FDIC deposit assessment to $500 a quarter in 1996 compared to $159,000 for the first quarter of 1995. Income Tax Provision for income taxes for the quarter ended March 31, 1996 was $77,663 as compared to $341,814 for the same period in 1995. THE HIBERNIA SAVINGS BANK CONSOLIDATED BALANCE SHEET MARCH 31, 1996
MARCH 31, 1996 DECEMBER 31, 1995 (UNAUDITED) (AUDITED) ASSETS: Total cash and due from banks $3,626,401 $3,213,259 Short term investments 3,275,000 4,860,000 Investment securities 96,632,897 77,565,687 Securities held for sale 28,617,694 42,874,583 Loans, net 212,703,786 208,326,723 Banking premises & equipment, net 6,061,604 5,574,956 Accrued interest receivable 2,344,617 2,128,536 Other real estate owned 0 430,000 Other assets 1,736,119 1,891,469 ------------ ------------ Total assets $355,071,229 $346,865,213 ------------ ------------ ------------ ------------ LIABILITIES & STOCKHOLDERS' EQUITY Deposits: Now & demand deposits $22,263,547 $22,011,361 Money market accounts 35,356,781 33,819,928 Other deposits 44,860,367 46,038,261 Term certificates accounts 187,201,856 180,917,699 ------------ ------------ Total deposits 289,682,551 282,787,249 Federal Home Loan Bank advances 40,668,000 38,968,000 Other borrowings 0 0 Mortgagors' escrow payments 1,266,126 1,094,397 Income taxes payable (342,222) 364,444 Other liabilities 688,382 826,507 ------------ ------------ Total liabilities 331,962,837 324,040,597 Commitments and contingencies STOCKHOLDERS' EQUITY Serial preferred stock, $1.00 par value 1,000,000 shares authorized: none issued 0 0 Common stock, $1.00 par value, 5,000,000 shares authorized 1,662,090 and 1,532,431 shares issued and outstanding 1,555,868 1,532,431 Additional paid-in-capital 9,148,450 8,824,970 Undivided profits 12,419,463 12,406,361 Net unrealized loss on marketable equity securities (15,389) 60,854 Other Reserve 0 0 ------------ ------------ Total stockholders' equity 23,108,392 22,824,616 ------------ ------------ Total Liabilities & Stockholders' Equity $355,071,229 $346,865,213 ------------ ------------ ------------ ------------
The Hibernia Savings Bank and Subsidiaries Consolidated Statement of Income
---------------------------------- Three months ended March 31, March 31, 1996 1995 ---------------------------------- INTEREST & DIVIDEND INCOME Interest on loans $4,845,051 $3,828,298 Income & dividends on investment securities 1,913,255 1,514,655 Interest on short-term investments 35,831 68,448 ------------ ------------ Total interest & dividend income 6,794,137 5,411,401 INTEREST EXPENSE Interest on deposits 3,379,976 2,721,124 Interest on borrowed funds 569,896 168,224 ------------ ------------ Total interest & dividend expense 3,949,872 2,889,348 ------------ ------------ Net interest income 2,844,265 2,522,053 Provision for possible loan losses 1,020,000 151,666 ------------ ------------ Net interest income after loan loss provision 1,824,265 2,370,387 ------------ ------------ OTHER INCOME Gains (losses) securities sales 54,201 133,012 Gains (losses) real estate sale (12,948) (10,105) Gains (losses) on loan sales net 10,042 0 Gains (losses) on sale of fixed assets 0 4,748 Miscellaneous 176,803 153,304 ------------ ------------ Total other income 228,098 280,959 ------------ ------------ OPERATING EXPENSES Salaries & employee benefits 989,681 805,886 Net occupancy & Equipment 318,967 235,463 OREO Expenses 26,711 80,184 Other operating expenses 517,867 550,277 ------------ ------------ Total operating expenses 1,853,226 1,671,810 ------------ ------------ Income (loss) before income taxes 199,137 979,536 Provision (benefit) for income tax 77,663 341,814 ------------ ------------ Net income (loss) $121,474 $637,722 ------------ ------------ ------------ ------------ Earnings per common share Primary $0.08 $0.42 Fully diluted $0.08 $0.42 Average number of common shares Primary 1,571,812 1,522,131 Fully diluted 1,571,812 1,522,131
THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Three months ended March 31, 1996 (Unaudited in thousands)
NET UNREALIZED ADDITIONAL LOSS ON COMMON PAID-IN UNDIVIDED MARKETABLE STOCK CAPITAL PROFITS EQUITY SECURITIES TOTAL ------------ ------------ ----------- ------------------ ----------- Balance at December 31, 1995 $1,532,431 $8,824,970 $12,406,361 $60,854 $22,824,616 Net income 121,474 121,474 Issuance of additonal stock 23,437 323,480 346,917 Increase in net unrealized loss on securities held for sale (76,244) (76,244) Cash dividend paid (108,371) ($108,371) ----------- ---------- ----------- --------- ----------- Balance at March 31, 1996 $1,555,868 $9,148,450 $12,419,464 ($15,390) $23,108,392 ---------- ---------- ----------- --------- -----------
THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Three months ended March 31, 1995 (Unaudited in thousands)
NET UNREALIZED ADDITIONAL LOSS ON COMMON PAID-IN UNDIVIDED MARKETABLE STOCK CAPITAL PROFITS EQUITY SECURITIES TOTAL --------- ---------- ----------- ----------------- ----------- Balance at December 31, 1994 $964,491 $8,804,519 $10,022,386 ($5,299) $19,786,097 Net income 637,722 637,722 3 for 2 stock split 499,147 (499,147) Issuance of additonal stock 59,886 408,270 468,156 Increase in net unrealized loss on securities held for sale 5,299 5,299 Cash dividend paid (75,375) ($75,375) ---------- ---------- ----------- -------- ----------- Balance at March 31, 1995 $1,523,524 $8,713,642 $10,584,733 $0 $20,821,899 ---------- ---------- ----------- -------- ----------- ---------- ---------- ----------- -------- -----------
The Hibernia Savings Bank and Subsidiaries Consolidated Statements of Cash Flows
Three Months Ended March 31, ----------------------------- 1996 1995 ---------- ---------- Cash flows from operating activities Net Income $121,474 $637,722 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 156,324 132,778 Amortization of bond premium 90,041 136,638 Loan loss provision 1,020,000 151,666 (Gain) on sale of loans, real estate owned, securities,fixed assets (net) (51,295) (127,655) Deferred loan fees 27,123 (118,657) Loans sold 2,590,680 62,125 Loans originated for sale (2,580,638) (965,450) Increase (decrease) in accrued expenses, income taxes, and other liabilities (921,033) (314,984) (Increase) decrease in accrued interest receivable (216,081) 46,045 (Increase) decrease in other assets 266,648 86,432 ---------- ------------ Total adjustments 381,769 (911,062) ---------- ------------ Net cash provided by operating activities 503,243 (273,340) ---------- ------------ Cash flows from investing activities Loans purchased (3,012,891) (7,994,319) Loans paid(net) (2,561,517) (3,116,771) Proceeds of Oreo Sales 494,163 285,000 Short-term investments ( net) 1,585,000 (13,620,000) Purchases of investment securities (21,961,856) Proceeds from sales and maturities of investment securities 2,798,275 2,837,112 Purchase of Securities held for sale (22,750) Proceeds of Securities Securities held for sale 14,228,870 5,776,043 Purchases of premises and equipment (642,972) (121,294) ---------- ------------ Net cash used by investing activities (9,095,678) (15,954,229) ---------- ------------ Cash flows from financing activities Deposits, net 7,067,031 9,228,036 FHL Bank Advances (net) 1,700,000 5,000,000 Proceeds from sale of Common Stock 346,917 468,156 Dividends Paid (108,371) (75,375) ---------- ------------ Net cash provided by financing activities 9,005,577 14,620,817 Net increase (decrease) in cash 413,143 (1,606,752) Cash and cash equivalents--beginning of year 3,213,259 3,780,957 ---------- ------------ Cash and cash equivalents--end of year 3,626,402 2,174,205 ---------- ------------ Supplemental disclosures of cash flow information: Interest paid $3,754 $2,879 Federal income taxes paid $300 $200
SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Bank has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE HIBERNIA SAVINGS BANK Date May 14, 1996 /s/ [illegible] -------------------------------------- Chairman of the Board, and Chief Executive Officer Date May 14, 1996 /s/ [illegible] -------------------------------------- Senior Vice President and Chief Financial Officer EX-99.6 7 EXHIBIT 99.6 Exhibit 99.6 The Hibernia Savings Bank Annual Report 1995 FINANCIAL HIGHLIGHTS 12/31/95 12/31/94 - ------------------------------------------------------------------------------- BALANCE SHEET DATA Total assets $346,865,213 $286,428,660 Securities 125,300,270 111,581,925 Allowance for possible loan losses 2,541,997 2,241,286 Loans, net 208,326,723 163,370,536 Deposits 282,787,249 256,339,791 Stockholders' equity 22,824,616 19,786,097 OPERATING DATA Net interest income $ 10,229,233 $ 9,230,102 Provision for possible loan losses 300,000 135,000 Pretax core earnings 3,904,144 3,433,615 Net income 2,719,235 2,067,626 PER SHARE DATA Earnings per share $1.76 1.41 Weighted average shares outstanding 1,545,297 1,468,758 Book value per share $14.89 $13.68 Outstanding shares 1,532,431 1,446,737 OTHER DATA Yield on average earning assets 7.94% 7.31% Cost of funds 4.55% 3.71% Net interest margin 3.39% 3.60% Return on average assets 0.88% 0.78% Return on average equity 12.42% 10.98% Leverage capital to assets ratio at year end 6.58% 6.91% Risk-based capital to assets ratio at year end 12.69% 13.41% LETTER TO STOCKHOLDERS DEAR STOCKHOLDER: It is my distinct pleasure to have this opportunity to detail for you our continued success during 1995 in improving the financial performance of your Bank, the increases achieved in the volume of our core business activities and the geographic expansion of our franchise. Net income for 1995 totaled $2.72 million, an increase of 31.5% from $2.07 million earned in 1994. Earnings per share for 1995 totaled $1.76, an increase of 24.8% from earnings per share of $1.41 for 1994. Stockholders' equity increased by 15.4% from $19.79 million at December 31, 1994 to $22.82 million at December 31, 1995 and book value per share increased from $13.68 to $14.89. During the past year our local operating environment was characterized by strong competition for both quality lending opportunities and retail deposits. The condition of our local real estate market continued to improve as both real estate values and the volume of sales increased modestly. Business activity in our market area continued to expand. Against this background we achieved substantial growth during the past year in each of our major business lines. Total assets increased by 21.1% to $346.87 million, earning assets grew by 21.7% to $335.76 million, loans outstanding increased by 27.5% to $208.33 million and total deposits grew by 10.3% to $282.79 million. The volume of transactions generated by our core business activities and the number of customers serviced continued to expand throughout the year. A combination of factors contributed to the continuing improvement in our operating results. Our yield on average earning assets increased during 1995 to 7.9% from 7.3% in 1994, even though competition for quality lending opportunities during the past year limited our ability to more aggressively price our loan products and services. As a result of a restrictive monetary policy adopted by the Federal Reserve Bank that prevailed throughout the first 9 months of 1995, interest rates rose and our average cost of funds increased steadily throughout the year to 4.5% from 3.7% for 1994. Consequently, our net interest margin decreased modestly during 1995 to 3.4% from 3.6% for 1994. A number of positive achievements combined to more than offset the decrease in our net interest margin. Total earning assets increased by $59.82 million or 21.7% from $275.94 million at year end 1994 to $335.76 million at year end 1995. The increase achieved during 1995 in earning assets, which was primarily in loans outstanding, was the most significant positive factor in the 42.2% increase in pretax earnings for the year. Our ratio of average earning assets to average total assets improved from 96.8% for 1994 to 97.1% for 1995. The net result of the foregoing factors was that interest and dividend income generated from our aggregate investment in loans and securities for 1995 increased by 27.9% or $5.22 million to $23.95 million from $18.73 million for 1994 while total interest expense increased by 44.4% or $4.22 million from $9.50 million in 1994 to $13.72 million for 1995. Consequently, even though our net interest margin declined slightly by 21 basis points or 5.8%, our net interest income increased by $1.0 million or 10.8% from $9.23 million for 1994 to $10.23 million for 1995. Net Income/Loss [GRAPH] Earnings (Loss) Per Share [GRAPH] Total Assets [GRAPH] 1 LETTER TO STOCKHOLDERS Our loan loss provision for 1995 increased to $300,000 as compared to $135,000 for 1994. The increase in the loan loss provision for 1995 was necessary to maintain adequate reserves due to the exceptional growth rate achieved in loans outstanding. Also during 1995, our collection activities resulted in net recoveries, as compared to $374,595 in net charge-offs during 1994. Noninterest income in 1995 rose 125.7% from $570,926 in 1994 to $1.29 million. Gains from the sale of loan servicing rights totaling $763,806 in 1995 accounted for the increase in noninterest income. Net gains on the sale of securities totaled $90,993 during the year compared to $193,577 in net gains realized during 1994. Losses on the sale of other real estate owned declined from $170,177 in 1994 to just $42,872 in 1995. Noninterest operating expenses rose modestly by $256,427 or 3.9% from $6.60 million for 1994 to $6.85 million for 1995. The increase was primarily a result of increases in compensation and benefits expense of 11.8% to $3.42 million in 1995 from $3.06 million in 1994. The increase in compensation and benefits expense is the direct result of the expansion of our staff from 73 employees at December 31, 1994 to 94 employees at December 31, 1995. Our lending staff was increased in order to achieve and manage our growth in loans outstanding and additional branch personnel were required to staff our two new full service branch offices opened during 1995 in Hingham and Stoughton. Related to the same factors, we also experienced during 1995 a 14.1% or $124,895 increase in occupancy and equipment expense from $883,639 for 1994 to $1.01 million. The operating expense increases for compensation and benefits and for occupancy and equipment were partially offset by a reduction in expenses related to the management and disposition of nonperforming assets which totaled $300,796 as compared to $387,058 for the previous year, a reduction of 22.3%, along with a substantial decline in our FDIC assessment of $290,279 from $623,431 in 1994 to $333,152 in 1995. While we believe the effective control of operating expenses and increased productivity and efficiency are integral factors in the achievement of increases in future profitability, we also believe that it is essential that our staffing level be sufficient to ensure that the various business initiatives and strategies we undertake can be completed efficiently and successfully. Net earnings before taxes totaled $4.37 million for 1995, an increase of 42.2% from $3.07 million for 1994. After accruing our tax liability for 1995 of $1.65 million our Bank earned $2.72 million in net income, an increase of 31.5% from net income of $2.07 million for 1994. As previously noted, total assets increased by $60.44 million or 21.1% from $286.43 million at December 31, 1994 to $346.87 million at December 31, 1995, a rate of growth well in excess of the industry average. Our investment in securities increased by $13.72 million or 12.3% from $111.58 million at December 31, 1994 to $125.30 million. Of our total portfolio at year end 1995, $77.57 million was invested in short term balloon payment FHLMC mortgage backed securities which are classified as held to maturity and $39.94 million in callable U.S. Government Agency notes which are classified as available for sale Earning Assets [GRAPH] Total Loans, Net [GRAPH] Net Interest Income [GRAPH] 2 LETTER TO STOCKHOLDERS and are available to provide liquidity as needed. The balance of our portfolio is invested in equity securities. Our continuing business focus on originating residential, commercial real estate loans and business loans for inclusion in our loan portfolio as our primary investment vehicle produced very strong results during the past year. In 1995, we saw a continuation of the trend towards the consolidation of our local banking industry. The consolidation process has drastically reduced the number of community based banks within our market area. We view this as a significant business opportunity for us not only for the coming year, but for many years to come. We feel that our institution provides a superior level of personalized service that many customers demand and that our larger regional competitors are unable to provide. In order to take better advantage of these business opportunities we introduced new loan products and hired additional lending staff during 1995. Throughout 1995 residential mortgage lending was the strongest performing business line of our Bank. For the year we originated, through our Retail Loan Department, 483 residential first mortgage loans totaling $60.74 million as compared to 351 residential loans totaling $33.04 million originated in 1994. During the year, 126 residential fixed rate mortgage loans totaling $12.92 million were sold into the secondary mortgage market as compared to 66 residential mortgage loans totaling $6.85 million sold during 1994. We were able to achieve significant growth of $28.90 million or 34.6%, in our residential mortgage loan portfolio which totaled $83.59 million at December 31, 1994 and $112.49 million at December 31, 1995. During the past year our Retail Loan Department also originated 384 consumer loans, including Visa credit cards, totaling $2.04 million as compared to 639 loans totaling $2.71 million originated during 1994. Consumer loans outstanding totaled $2.51 million at December 31, 1995 as compared to $2.41 million at December 31, 1994. During 1995, our Commercial Real Estate Loan Department originated 47 commercial real estate loans totaling $27.22 million as compared to 68 loans totaling $29.20 million originated in 1994. Our focus is investing in commercial real estate loans secured by multi-family residential properties, retail space, office buildings and certain types of industrial properties held for investment purposes. Even though there was a modest decline in the volume of loans originated during last year from the previous year our commercial real estate loan outstandings increased by $7.63 million or 10.7% to $79.11 million at December 31, 1995 from $71.48 million a year earlier. During the past year our Commercial Loan Department originated 48 commercial and industrial business loans totaling $13.76 million as compared to 26 business loans totaling $5.12 million in 1994. Commercial and industrial loans outstanding increased during 1995 by $8.44 million or 100.2% to $16.86 million at December 31, 1995 from $8.42 million a year earlier. Our continuing corporate commitment of additional resources to this department is directed at accomplishing, over time, a substantial increase in both the volume of our commercial and industrial business loan originations and in our total commercial loan portfolio outstandings. Total Operating Expenses [GRAPH] Loan Originations [GRAPH] Total Deposits [GRAPH] 3 LETTER TO STOCKHOLDERS During 1995, 962 loans of all types were originated totaling $103.76 million as compared to 1,084 loans totaling $70.07 million in 1994. Total loans outstanding, net for the year, increased by $44.96 million or 27.5% from $163.37 on December 31, 1994 to $208.33 million on December 31, 1995. The number of loans in our portfolio increased from 2,427 at December 31, 1994 to 2,686 at December 31, 1995. We were one of the most active real estate lenders in our market area during 1995. According to the latest statistical information available from the Banker & Tradesman, we were the highest volume originator of purchase money mortgages, and the third highest volume originator overall of real estate loans, in the Quincy, Braintree and Weymouth area. Our origination volume of purchase money mortgages was the second highest in our entire market area which includes the City of Boston and extends south to Marshfield. The substantial increase in total loans outstanding generated during 1995 represented the achievement of a very important business goal which is a major factor in the improvement in our core earnings capacity. Our success in achieving this goal will have a substantial impact on our net earnings for 1996. Overall asset quality continued to improve during 1995. Nonperforming assets declined by $746,861 or 44.5% from $1.68 million at December 31, 1994 to $930,766 as of December 31, 1995 and declined as a percent of assets from 0.6% to 0.3% as of the same dates. The continuing improvement in our asset quality resulted in net recoveries in 1995, lower losses on the sale of other real estate owned and reduced expenses related to the management and disposition of nonperforming assets. Deposit growth for the year totaled $26.45 million or 10.3% as deposits increased from $256.34 million on December 31, 1994 to $282.79 million on December 31, 1995. The number of deposit accounts open increased by 1,552 or 7.9% from 19,550 accounts as of December 31, 1994 to 21,102 accounts as of December 31, 1995. The growth in retail deposits achieved during 1995 was somewhat disappointing. Retail deposits increased by only $8.48 million or 3.3% from $254.31 million at December 31, 1994 to $262.79 million at December 31, 1995. Retail deposit growth was achieved in Money Market Deposit Account balances which increased by $21.99 million or 185.9% to $33.82 million at December 31, 1995 from $11.83 million at December 31, 1994. NOW Account and Checking Account balances increased by 19.7% or $3.62 million to $22.01 million from $18.39 million as of the same dates. The increase in NOW, Checking and Money Market Account balances was offset by a decline in Passbook Savings Account balances of 28.8% or $18.63 million to $46.04 million at December 31, 1995 from $64.67 million at December 31, 1994. Wholesale deposits increased from $2.03 million to $20.00 million as of the same dates. We utilized wholesale deposit sources for funding as part of a business strategy to control our funding costs while at the same time locking in whenever possible, what represented in our view, a cyclically low cost of deposits by the issuance of longer term certificates of deposit which effectively extended the average maturity of our liabilities. As a result, certificates of deposit of all types increased by $19.48 million or 12.1% from $161.44 million at Stockholder's Equity [GRAPH] Liverage Capital Ratio [GRAPH] Year End Stock Price [GRAPH] 4 LETTER TO STOCKHOLDERS December 31, 1994 to $180.92 million at December 31, 1995. Borrowings increased during 1995 by $29.97 million or 333.0% from $9.00 million at December 31, 1994 to $38.97 million at December 31, 1995. During most of 1995, borrowings, particularly Federal Home Loan Bank Advances, were a more economical means of funding our asset growth than retail deposits. Aggressive price competition for retail deposits within our local market area dictated, from a cost perspective, that we utilize borrowings as a funding resource. Stockholders' equity increased by $3.03 million or 15.4% from $19.79 million as of year end 1994 to $22.82 million as of year end 1995. The return on average stockholders' equity for 1995 was 12.42% and our return on average assets was 0.88% as compared to 10.98% and 0.78%, respectively in 1994. Our leverage capital ratio declined modestly to 6.6% at December 31, 1995 from 6.9% at December 31, 1994 and our risk-based capital ratio was 12.7% and 13.4% as of the same respective dates. In addition to the positive financial achievements, there were several other significant business developments that occurred in 1995. We opened our 6th branch office at 274 Main Street in Hingham on July 17, 1995 and as of December 31, 1995 new deposit accounts with balances totaling $7.8 million were open. These results are well ahead of our original projections. On December 21, 1995 we opened our 7th branch office at 397 Washington Street in Stoughton and, as of year end, new deposit accounts with balances totaling $269,401 had been opened. We believe that the most effective business strategy available to us to expand both the scope of our business activities and our franchise is the continued expansion of our branch network. Accordingly, we plan to open at least one additional full service branch office during 1996. One 1995 accomplishment that we are particularly proud of is the achievement of an "Outstanding" Community Reinvestment Act rating. This achievement is a result of hard work and the dedication of our entire staff to the principles of CRA. Further, our "Outstanding" rating is a reflection of our corporate commitment to meet the financial needs of the communities we serve. On February 1, 1995, we declared a three for two stock split which we believe has enhanced the liquidity in the marketplace and value of our common stock. On the same date, we reinstituted a quarterly cash dividend of $0.05 per share to our stockholders. Since that time, due to the continuing improvement in our core earning capacity, two increases in our cash dividend have been announced bringing our quarterly dividend rate to $0.07 per share. For the year, dividends paid totaled $0.22 per share. In addition, we recently adopted an Automatic Dividend Reinvestment & Stock Purchase Plan that enables each of you as stockholders to purchase additional shares of common stock directly from your Bank in an economical fashion and which allows our company to raise incremental capital on a continuing basis to support the continuing future expansion of our business activities and our franchise. We wish to encourage all of our stockholders to take advantage of this opportunity. From our mutual perspective as stockholders, one of the most important results achieved during 1995 was a 52.3% increase in the price per share of the common stock of our Bank, from $10.67, split adjusted, at December 31, 1994 to $16.25 at December 31, 1995. The continuing consolidation of our industry has created unprecedented business opportunities for this institution. To take advantage of those business opportunities we must continue to aggressively seek to increase our market share. There are voids in our local marketplace for banking products and services which we can, and intend to, fill. Over the past year, our dedicated staff has worked diligently and successfully to achieve our business goals and improve both the financial and competitive position of our Bank. I would like to personally thank each and every member of our staff and our Board of Directors for their efforts over the past year. I also wish to thank all of our stockholders for their continuing support and confidence. I am looking forward to sharing our future successes with you. Best Regards, /s/ Mark A. Osborne Mark A. Osborne Chairman of the Board & Chief Executive Officer 5 SELECTED HISTORICAL FINANCIAL DATA
At December 31 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------- (Dollars in Thousands, except per share data) BALANCE SHEET DATA: Total assets $346,865 $286,429 $249,827 $229,792 $216,575 Loans, net 208,327 163,371 135,661 134,584 144,143 Securities 125,300 111,582 105,735 80,449 56,277 Deposits 282,787 256,340 221,950 205,921 187,102 Borrowings 38,968 9,000 8,530 8,531 16,606 Stockholders' equity 22,825 19,786 17,312 13,954 11,953 Book value per share $ 14.89 $ 13.68 $ 12.92 $ 10.89 $ 9.96 For the year ended December 31, 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------- (Dollars in Thousands, except per share data) OPERATING DATA: Interest and dividend income $ 23,949 $ 18,728 $ 18,157 $ 18,805 $ 19,698 Interest expense 13,720 9,498 8,950 10,569 13,779 ------- ------- ------- ------- ------- Net interest income 10,229 9,230 9,207 8,236 5,919 Add Noninterest income 579 549 719 364 216 Gain (loss) on sale of loans (52) (1) 20 320 24 Less Provision for possible loan losses 300 135 2,080 2,270 2,850 Noninterest expenses 6,552 6,209 5,680 4,835 4,695 ------- ------- ------- ------- ------- Pretax core earnings 3,904 3,434 2,186 1,815 (1,386) Net gain on sale of securities 91 193 3,952 2,188 768 Gain on sale of loan servicing 764 - - - - Loss on sale of fixed assets (50) - - - - Net loss on sale of other real estate owned (43) (170) (666) (511) (561) Real estate owned expense 301 387 1,194 1,643 972 ------- ------- ------- ------- ------- Income (loss) before income taxes 4,365 3,070 4,278 1,849 (2,151) Provision (benefit) for income taxes 1,646 1,002 1,198 265 (673) ------- ------- ------- ------- ------- Net income (loss) $ 2,719 $ 2,068 $ 3,080 $ 1,584 $ (1,478) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Earnings (loss) per share $ 1.76 $ 1.41 $ 2.14 $ 1.21 $ (1.23) Weighted average number of common shares and common equivalents 1,545,297 1,468,758 1,437,092 1,306,610 1,200,000 Dividends declared per share $ 0.22 $ - $ - $ - $ -
6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion should be read in conjunction with the accompanying consolidated financial statements and notes included within this Annual Report. For the first three quarters of 1995, the Federal Reserve Board of Governors adopted a more restrictive monetary policy. Despite the progressive tightening of monetary policy throughout the year, both the national and local economy continued to expand. The condition of the local real estate market continued to improve as both real estate values and sales volume increased modestly during the year. Within this economic and operating environment, the Bank was able to achieve substantial growth in core earnings and in residential and commercial real estate loans and commercial business loans outstanding during 1995. The Bank has retail banking facilities in Boston, Braintree, Quincy, Weymouth, Hingham and Stoughton and considers its primary market area to be these six communities and the surrounding cities and towns south of Boston. In addition, the Bank maintains Loan Centers in Braintree and Quincy. The Bank is primarily engaged in the lending business with an emphasis on residential and commercial real estate loans and commercial business loans. The Bank's assets are funded primarily by attracting retail deposits through its branch network. The Bank's ultimate success is very dependent on the conditions of both the local economy and the local real estate market. ASSET/LIABILITY MANAGEMENT The overall interest rate sensitivity of the Bank is dependent upon the Bank's ability to reprice its interest rate sensitive assets and liabilities. The ability to successfully manage the repricing of assets and liabilities, significantly helps reduce the interest rate risk in any interest rate environment. As of December 31, 1995, the Bank is net asset sensitive for the following one year period, net liability sensitive for the next one to two year and two to three year periods, net asset sensitive for the three to five year time horizons, liability sensitive in the five to ten year time horizon and asset sensitive thereafter. The Bank's management monitors and manages interest rate risk as an integral part of its overall business strategy. Certain investments in the Bank's portfolio have call options which in management's opinion are likely to be exercised. The schedule below reflects the Bank's Gap position based on the call dates of these investments. All investments are reported at amortized cost. The Interest Rate Sensitivity Gap Analysis at December 31, 1995 is as follows:
1-180 181-364 1-2 2-3 3-5 5-10 Over 10 Interest Rate Sensitivity Period Days Days Years Years Years Years Years Total - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) EARNING ASSETS: Fixed rate mortgages $ 83 $ 9 $ 373 $ 126 $ 1,310 $ 3,477 $ 11,774 $ 17,152 Variable rate mortgages 78,967 33,564 25,504 5,737 19,400 3,246 7,526 173,944 Commercial loans 13,734 287 622 409 1,805 - - 16,857 Consumer loans 1,255 323 569 211 35 - 115 2,508 Investments 42,947 15,481 17,352 19,550 7,310 20,360 2,199 125,199 -------- -------- -------- -------- -------- -------- -------- -------- Total earning assets 136,986 49,664 44,420 26,033 29,860 27,083 21,614 335,660 Interest-bearing liabilities: NOW deposits and money market accounts 8,961 8,961 17,922 - - 10,097 - 45,941 Passbook and escrow deposits 7,070 7,070 14,140 619 1,201 17,033 - 47,133 Time deposits 64,973 46,870 32,734 19,253 13,479 3,609 - 180,918 Borrowed funds 12,300 4,000 - 15,000 7,668 - - 38,968 -------- -------- -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities 93,304 66,901 64,796 34,872 22,348 30,739 - 312,960 -------- -------- -------- -------- -------- -------- -------- -------- Interest rate sensitivity gap $ 43,682 $(17,237) $(20,376) $ (8,839) $ 7,512 $ (3,656) $21,614 $ 22,700 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ANALYSIS OF FINANCIAL CONDITION Total assets of the Bank increased by $60,436,553 or 21.1% to $346,865,213 at December 31, 1995 from $286,428,660 as of December 31, 1994. The growth in assets was primarily due to the increase achieved in the Bank's loans outstanding. The securities portfolio, which includes securities held to maturity, securities available for sale and short-term investments, increased by $13,718,345 or 12.3% and totaled $125,300,270 or 36.1% of total assets at December 31, 1995 compared to $111,581,925 or 39.0% of total assets at December 31, 1994. The Bank utilizes its securities portfolio as a source of liquidity to fund loans and meet short-term cash needs. At December 31, 1995 the Bank's investment portfolio included Federal Home Loan Mortgage Corporation (FHLMC) Participation Certificates classified as held to maturity. Predominantly, the FHLMC Participation Certificates owned were short-term with maturities in the four to six year range. The cash flow received from these obligations of $18,635,268 during 1995 was used primarily to fund the growth in commercial business loans and the growth in residential and commercial mortgage loans. The investment portfolio can, at December 31, 1995, be broken down into three major components. The first component, securities held to maturity, consists solely of Federal Home Mortgage Corporation Participation Certificates totaling $77,565,687 or 61.9% of total securities, all of which mature within six years. These obligations, although being held to maturity, can be used as collateral for short-term borrowings if required. The second component consists of callable FHLB and FHLMC Bonds and Notes and Common Stock, which totaled $40,676,183 or 32.5% of total securities and which are designated as available for sale. The third component is short-term investments and FHLB stock, totaling $7,058,400 or 5.6% of total securities. With the exception of securities designated as available for sale, the Bank's intention is to hold all investment securities to maturity, and accordingly, investments are carried at cost, adjusted for amortization of premiums and accretion of discounts. Loans continue to be the primary earning asset of the Bank and represent 60.1% of total assets. As of December 31, 1995, 91.9% of total loans outstanding or $191,503,175 were secured by residential and commercial real estate, and of this amount, $112,485,567 or 58.7% were secured by residential properties. During 1995, our efforts to originate residential and commercial real estate loans and commercial business loans produced substantial growth in our asset size. In 1995, the Bank originated $87,955,986 in residential and commercial real estate mortgage loans, of which only $12,915,640 were sold into the secondary market. In addition, the Bank originated $13,761,138 in business loans and $2,039,608 in consumer loans. As a result, net loans for 1995 increased by $44,956,187 or 27.5% to $208,326,723 at December 31, 1995 from $163,370,536 at December 31, 1994. The provision for possible loan losses was $300,000 in 1995 as compared to $135,000 in 1994 and $2,080,000 in 1993. The increase in the loan loss provision for 1995 was necessary to maintain adequate reserves given the 27.5% growth in loans achieved in 1995. For 1995, the Bank had net recoveries of $711 compared to net charge-offs of $374,595 in 1994 and $2,655,455 in 1993. As of December 31, 1995, the Bank's allowance for possible loan losses totaled $2,541,997 as compared to $2,241,286 at December 31, 1994. Continued uncertainty exists as to the ultimate realization in full of certain of the Bank's loans due to the current conditions of the Massachusetts economy. Based upon management's assessment of the quality of loan production, and the current condition of the Massachusetts economy, management believes that the allowance for loan losses as of December 31, 1995 is adequate to absorb the current estimation of future losses in the loan portfolio. However, any deterioration in future periods could result in the Bank experiencing increased levels of nonperforming loans and charge-offs, and additional provisions for loan losses may be required. Other real estate owned increased by $297,000 or 223.3% to $430,000 at December 31, 1995 from $133,000 at December 31, 1994. Other real estate owned consists of assets that were acquired by foreclosure, or assets that were acquired by the acceptance of a deed in lieu of foreclosure during the year. Other real estate owned is carried on the Bank's books at the lower of the preforeclosure loan balance or the fair value less cost to sell. During 1995, deposits increased by $26,447,458 or 10.3% to $282,787,249 at December 31, 1995 from $256,339,791 at December 31, 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1994. The growth in deposits during 1995 was primarily in wholesale term certificates of deposits which increased by $17,972,586. The remainder of our deposit growth was in retail deposits which increased by $8,474,872 during 1995. Money market deposits increased by $21,988,890 or 185.9% to $33,819,928 in 1995 from $11,831,038 in 1994. The increase in wholesale term certificates and money market deposits was partially offset by the decline in passbook savings deposits which decreased by $18,637,225 or 28.8%. The Bank uses borrowed funds, primarily advances from the Federal Home Loan Bank as an alternative funding source for immediate lending or investment opportunities or as a means of controlling its cost of funds. The Bank pays down borrowings in accordance with the respective contracted borrowing agreements and as cash flow warrants. RESULTS OF OPERATIONS COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1995 AND 1994 Net interest margins were negatively impacted by the overall increase in our cost of funds in 1995 which increased by 84 basis points to 4.55% in 1995 compared to 3.71% in 1994. However, net income was positively impacted by the increase in the Bank's loan portfolio which increased by $44,956,187 or 27.5% to $208,326,723 at year end 1995 compared to $163,370,536 in 1994. Total earning assets increased by $59,817,399 or 21.7% to $335,761,878 at December 31, 1995. As a result, net interest income increased by $999,131 or 10.8% to $10,229,233 for 1995 compared to $9,230,102 for 1994. Noninterest income was comprised of fees on checking and savings related services, gains and losses on sales of securities, loans, loan servicing, fixed assets, other real estate owned, and miscellaneous other items. Noninterest income totaled $1,288,714 in 1995 compared to $570,926 in 1994. The net increase in noninterest income came primarily from gains from the sale of loan servicing which totaled $763,806 in 1995 as compared to no gains in 1994. We also experienced an increase in customer service fees to $463,518 in 1995 from $413,058 in 1994. Noninterest expenses in 1995 increased by $256,427 or 3.9% to $6,852,498 compared to total noninterest expenses of $6,596,071 in 1994. Much of this increase can be attributed to the costs associated with the opening of two additional branches in 1995 and the expansion of our lending staff which was necessary in order to accommodate the growth in loans outstanding achieved. On July 17, 1995, we opened a branch at 274 Main Street in Hingham. We opened our seventh branch on December 21, 1995 at 397 Washington Street, Stoughton. Consequently, salaries and employee benefits increased by $359,379 or 11.8% to $3,416,508 in 1995 from $3,057,129 in 1994. Occupancy and equipment expenses increased by $124,895 or 14.1% to $1,008,534 in 1995 from $883,639 in 1994. This increase was partially offset by a reduction in OREO expenses which declined by $86,262 or 22.3% from $387,058 in 1994 and a reduction in FDIC insurance expense which declined by $290,279 or 46.6% from $623,431 in 1994 to $333,152 in 1995. In total, noninterest expenses as a percentage of average assets declined to 2.2% in 1995 from 2.5% in 1994. The Bank's effective tax rate was 37.7% in 1995, which is less than the combined federal and state statutory rate, due to rehabilitation and low income housing credits and various other differences in recognition of income as allowed under the Internal Revenue Code. The Bank, in 1995, recorded pretax core earnings of $3,904,144 as compared to core earnings of $3,433,615 in 1994 and $2,186,435 in 1993. For the year ended December 31, 1995, the Bank's net income was $2,719,235 or $1.76 per share, based on 1,545,297 weighted average shares and common stock equivalents outstanding compared to net income of $2,067,626 or $1.41 per share, based on 1,468,758 weighted average shares and common stock equivalents outstanding for the year ended December 31, 1994. Finally, as a result of 1995 earnings of $2,719,235 and the issuance of additional capital stock, the Bank experienced an increase of $3,038,519 in stockholders' equity to $22,824,616 at December 31, 1995 from $19,786,097 at December 31, 1994. Over this period, the Bank's leverage capital ratio declined to 6.6% from 6.9% as a result of asset growth. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AVERAGE BALANCE SHEET AND YIELD ANALYSIS The following table sets forth the components of the Bank's average balances, net interest and fee income, interest rate spread and net interest margin for the years indicated.
1995 1994 1993 ------------------------------------------------------------------------------------------------ Interest Average Interest Average Interest Average ------------------------------------------------------------------------------------------------ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate - ---------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) ASSETS Investment securities: Bonds and obligations $ 10,158 $ 796 7.84% $ 271 $ 21 7.75% $ 45,770 $ 2,744 6.00% Mortgage-backed securities 93,438 5,088 5.45% 102,492 5,169 5.04% 35,532 1,957 5.51% Other securities 3,206 228 7.11% 1,812 150 8.28% 2,099 114 5.43% -------- -------- -------- -------- -------- -------- -------- -------- -------- Total investment securities 106,802 6,112 5.72% 104,575 5,340 5.11% 83,401 4,815 5.77% Loans 188,479 17,472 9.27% 148,814 13,296 8.93% 136,227 13,137 9.64% Other interest-bearing deposits 6,126 354 5.78% 2,117 73 3.45% 5,972 170 2.85% Federal funds sold 207 11 5.31% 621 19 3.06% 1,177 35 2.97% -------- -------- -------- -------- -------- -------- -------- -------- -------- Total earning assets 301,614 23,949 7.94% 256,127 18,728 7.31% 226,777 18,157 8.01% Allowance for possible loan losses (2,341) (2,357) (2,786) Cash and due from banks 2,586 2,263 2,318 Other assets 8,898 8,490 12,324 -------- -------- -------- Total assets $310,757 $264,523 $238,633 -------- -------- -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: NOW accounts $ 10,365 $ 155 1.50% $ 9,664 $ 144 1.49% $ 8,877 $ 161 1.81% Savings accounts 50,210 1,415 2.82% 86,656 2,507 2.89% 101,934 3,307 3.24% Money market accounts 27,459 1,136 4.14% 5,498 146 2.66% 4,971 132 2.66% Term certificates 170,020 9,578 5.63% 126,968 6,090 4.80% 92,602 4,484 4.84% -------- -------- -------- -------- -------- -------- -------- -------- -------- Total deposits 258,054 12,284 4.76% 228,786 8,887 3.88% 208,384 8,084 3.88% Borrowed funds 22,395 1,436 6.41% 10,168 611 6.01% 8,836 865 9.79% -------- -------- -------- -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities 280,449 13,720 4.89% 238,954 9,498 3.97% 217,220 8,949 4.12% Demand deposit accounts 7,969 6,076 3,547 Other liabilities 439 660 1,567 Stockholders' equity 21,900 18,833 16,299 Total liabilities and stockholders' equity $310,757 $264,523 $238,633 -------- -------- -------- -------- -------- -------- Net interest income $ 10,229 $ 9,230 $ 9,208 -------- -------- -------- -------- -------- -------- Interest rate spread 3.05% 3.34% 3.89% Net interest margin 3.39% 3.60% 4.06% ----- ----- ----- ----- ----- -----
10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RATE/VOLUME ANALYSIS The following table shows changes in the Bank's net interest income attributable to the change in interest rates and the change in the volume of interest-bearing assets and liabilities. Amounts attributed to the change in rates are based upon the change in rate multiplied by the prior year's volume. Amounts attributed to the change in volume are based upon the change in volume multiplied by the prior year's rate. The combined effect of changes in both volume and rate, which cannot be separately identified, has been allocated proportionately.
Year Ended December 31, 1995 vs. 1994 1994 vs. 1993 ------------------------------ ------------------------------ Increase (Decrease) Due to Increase (Decrease) Due to ------------------------------ ------------------------------ Volume Rate Total Volume Rate Total ------------------------------ ------------------------------ (Dollars in Thousands) INTEREST INCOME: Loans $3,610 $ 566 $4,176 $1,125 $ (966) $ 159 Investments 314 731 1,045 849 (437) 412 ------ ------ ------ ------ ------ ------ Total interest income 3,924 1,297 5,221 1,974 (1,403) 571 ------ ------ ------ ------ ------ ------ INTEREST EXPENSE: Deposits 1,265 2,132 3,397 793 15 808 Borrowed funds 759 66 825 79 (338) (259) ------ ------ ------ ------ ------ ------ Total interest expense 2,024 2,198 4,222 872 (323) 549 ------ ------ ------ ------ ------ ------ Net interest income $1,900 $ (901) $ 999 $1,102 $(1,080) $ 22 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
The earnings of the Bank depend primarily upon the difference between interest and dividend income earned on its loan and investment portfolios and the interest expense paid on its deposits and borrowings. Total interest income increased by $5,220,904 or 27.9% from $18,728,097 for the year ended December 31, 1994 to $23,949,001 for the year ended December 31, 1995. Total interest expense increased by $4,221,773 or 44.4% from $9,497,995 for the year ended December 31, 1994 to $13,719,768 for the year ended December 31, 1995. For the year ended December 31, 1995, the Bank's net interest income totaled $10,229,233 representing an increase of $999,131 compared to $9,230,102 for the year ended December 31, 1994. The gross yield on average earning assets was 7.9% for 1995 compared to 7.3% in 1994. Interest expense as a percentage of average interest-bearing liabilities in 1995 was 4.9% compared to 4.0% in 1994. This resulted in a net interest spread of 3.0% in 1995 and 3.3% in 1994. Interest expense as a percentage of average earning assets in 1995 was 4.5% compared to 3.7% in 1994. This resulted in a net interest margin of 3.4% in 1995 and 3.6% in 1994. COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1994 AND 1993 Net interest margins were negatively impacted by the overall increase in interest rates in 1994. However, net income was positively impacted by the increase in the Bank's loan portfolio resulting in increased net interest income. In addition, pretax core earnings were positively impacted by the substantial decline in net charge-offs and the resultant reduction in loan loss provisions. For 1994, noninterest income was comprised of fees on checking and savings related services, gains and losses on sales of securities, loans and other real estate owned, and miscellaneous other items. Noninterest income totaled $570,926 in 1994 compared to $4,024,540 in 1993. The net decrease in noninterest income was a result of the combination of a decline in net gains on the 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS sale of securities which totaled $193,577 in 1994 as compared to net gains of $3,952,060 in 1993, losses on sale of loans in the secondary market of $1,395 in 1994 compared to a gain of $20,040 in 1993, and a decrease in customer service fees to $413,058 in 1994 from $472,441 in 1993. Noninterest expenses in 1994 decreased by $277,610 or 4.0% to $6,596,071 compared to total noninterest expenses of $6,873,681 in 1993. The decrease was due primarily to a decline in OREO related expenses as the number of OREO properties held by the Bank declined. OREO expenses declined by $806,554 or 67.6% from $1,193,612 in 1993 to $387,058 in 1994. This decline was partially offset by an increase in the number of personnel employed as well as cost-of-living salary increases which resulted in an increase in salaries and benefits totaling $397,641. Occupancy expenses increased by $76,808 for 1994, reflecting the added cost from opening our administrative office at 730 Hancock Street, Quincy, MA plus the preliminary costs incurred related to the planned opening of a new branch office at 274 Main Street, Hingham, MA. In total, noninterest expenses as a percentage of average assets declined to 2.5% in 1994 from 2.9% in 1993. The Bank's effective tax rate was 32.7 % in 1994, which is less than the statutory rate, due to a reduction in the Bank's valuation reserve established for the net deferred tax asset in prior years. Given the strong earnings performance by the Bank over the past two years, management felt that the net deferred tax asset would be realizable in the future. For the year ended December 31, 1994, the Bank's net income was $2,067,626 or $1.41 per share, based on 1,468,758 weighted average shares and common stock equivalents outstanding compared to net income of $3,080,184 or $2.14 per share, based on 1,437,092 weighted average shares and common stock equivalents outstanding for the year ended December 31, 1993. Finally, as a result of 1994 earnings of $2,067,626 and the issuance of additional capital stock, the Bank experienced an increase of $2,473,961 in stockholders' equity to $19,786,097 at December 31, 1994 from $17,312,136 at December 31, 1993. The Bank's leverage capital ratio during this period remained unchanged at 6.9%. LIQUIDITY AND CAPITAL RESOURCES The Bank attempts to maximize interest-earning assets while maintaining sufficient funds on hand to meet loan commitments, cash disbursements and possible deposit outflows. The Bank obtains funds for investment and other banking purposes principally from deposits, borrowings, loan repayments and through sales of loans, loan participations and securities available for sale, 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 stock holdings in the FHLB for any sound business purpose for which the Bank has legal authority. Borrowings authorized totaled $43,968,000 at December 31, 1995. IMPACT OF INFLATION AND CHANGING PRICES Virtually all of the assets and liabilities of a financial institution, unlike those of other companies, are monetary in nature. Consequently, changes in the levels of interest rates have a greater impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily fluctuate in the same direction or in the same magnitude as prices of goods and services. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles requiring the 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. CAPITAL AND REGULATORY MATTERS The Bank's regulators have classified and defined bank 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 predefined credit risk factors (risk-adjusted assets). As of December 31, 1995, the Bank's Tier I and combined Tier I and Tier II capital ratios were 11.4% and 12.7%, respectively. In addition to the risk-based guidelines discussed above, the Bank's regulators require that the Bank maintain a minimum leverage ratio (Tier I capital as a percent of tangible assets) of 4.0%. As of December 31, 1995, the Bank had a leverage capital ratio of 6.6%. 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE HIBERNIA SAVINGS BANK: We have audited the accompanying consolidated balance sheets of The Hibernia Savings Bank and subsidiaries (the "Bank") as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Hibernia Savings Bank and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Boston, Massachusetts January 10, 1996 14 CONSOLIDATED BALANCE SHEETS THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES December 31, 1995 and 1994 1995 1994 - ------------------------------------------------------------------------------- ASSETS: Cash and cash equivalents $ 3,213,259 $ 3,780,957 Short-term investments 4,860,000 3,590,000 Securities (Notes 1 and 3): Held to maturity--market value $76,708,209 and $92,848,514 77,565,687 100,252,866 Available for sale 40,676,183 5,925,359 Federal Home Loan Bank stock 2,198,400 1,813,700 Loans, net of allowance for possible loan losses of $2,541,997 and $2,241,286 (Note 4) 208,326,723 163,370,536 Banking premises and equipment, net (Note 5) 5,574,956 4,738,238 Accrued interest receivable 2,128,536 1,485,077 Other real estate owned 430,000 133,000 Other assets (Note 8) 1,891,469 1,338,927 ------------ ------------ Total assets $346,865,213 $286,428,660 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits (Note 6) $282,787,249 $256,339,791 Federal Home Loan Bank advances (Note 7) 38,968,000 9,000,000 Mortgagors' escrow payments 1,094,397 849,368 Income taxes payable (Note 8) 364,444 156,677 Other liabilities 826,507 296,727 ------------ ------------ Total liabilities 324,040,597 266,642,563 ------------ ------------ COMMITMENTS AND CONTINGENCIES (NOTES 9 AND 10) Stockholders' equity (Notes 2, 11, 12 and 13): Serial preferred stock, $1.00 par value-- Authorized--1,000,000 shares Issued--None -- -- Common stock, $1.00 par value-- Authorized--5,000,000 shares Issued and outstanding--1,532,431 shares and 1,446,737 shares 1,532,431 1,446,737 Additional paid-in capital 8,824,970 8,322,273 Retained earnings 12,406,361 10,022,386 Less: Unrealized gains (losses) on securities available for sale, net of tax 60,854 (5,299) ------------ ------------ Total stockholders' equity 22,824,616 19,786,097 ------------ ------------ Total liabilities and stockholders' equity $346,865,213 $286,428,660 ------------ ------------ ------------ ------------ The accompanying notes are an integral part of these consolidated financial statements. 15 CONSOLIDATED STATEMENTS OF OPERATIONS THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES
For the Years Ended December 31, 1995, 1994 and 1993 1995 1994 1993 - ------------------------------------------------------------------------------------------------ INTEREST AND DIVIDEND INCOME: Interest on loans $17,471,506 $13,295,968 $13,137,156 Interest and dividends on securities 6,112,429 5,339,665 4,814,714 Interest on short-term investments 365,066 92,464 204,928 ----------- ----------- ----------- Total interest and dividend income 23,949,001 18,728,097 18,156,798 ----------- ----------- ----------- INTEREST EXPENSE: Interest on deposits 12,284,438 8,892,241 8,083,920 Interest on borrowed funds (Note 7) 1,435,330 605,754 865,391 ----------- ----------- ----------- Total interest expense 13,719,768 9,497,995 8,949,311 ----------- ----------- ----------- Net interest income 10,229,233 9,230,102 9,207,487 Provision for possible loan losses (Note 4) 300,000 135,000 2,080,000 ----------- ----------- ----------- Net interest income, after provision for possible loan losses 9,929,233 9,095,102 7,127,487 ----------- ----------- ----------- NONINTEREST INCOME: Gain on sale of securities, net 90,993 193,577 3,952,060 Gain on sale of loan servicing (Note 4) 763,806 -- -- Loss on sale of fixed assets (49,826) -- -- (Loss) gain on sale of loans, net (52,611) (1,395) 20,040 Loss on sale of other real estate owned (42,872) (170,177) (666,537) Customer service fees 463,518 413,058 472,441 Other income 115,706 135,863 246,536 ----------- ----------- ----------- Total noninterest income 1,288,714 570,926 4,024,540 ----------- ----------- ----------- NONINTEREST EXPENSE: Salaries and employee benefits (Note 12) 3,416,508 3,057,129 2,659,488 Occupancy and equipment expenses (Notes 5 and 9) 1,008,534 883,639 806,831 Data processing expenses 230,624 217,367 176,344 Other real estate owned expenses 300,796 387,058 1,193,612 Other general and administrative expenses 1,896,036 2,050,878 2,037,406 ----------- ----------- ----------- Total noninterest expense 6,852,498 6,596,071 6,873,681 ----------- ----------- ----------- Income before provision for income taxes 4,365,449 3,069,957 4,278,346 Provision for income taxes (Note 8) 1,646,214 1,002,331 1,198,162 ----------- ----------- ----------- Net income $ 2,719,235 $ 2,067,626 $ 3,080,184 ----------- ----------- ----------- ----------- ----------- ----------- Earnings per share (Note 1) $ 1.76 $ 1.41 $ 2.14 ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares (Note 1) 1,545,297 1,468,758 1,437,092 ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. 16 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES
Net Unrealized Gain (Loss) on Additional Securities For the Years Ended Common Paid-in Retained Available December 31, 1995, 1994 and 1993 Stock Capital Earnings For Sale Total - ------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1992 $ 1,281,878 $ 7,797,248 $ 4,874,576 $ -- $ 13,953,702 Net income -- -- 3,080,184 -- 3,080,184 Proceeds from issuance of stock through stock purchase plan (Note 11) 50,475 215,275 -- -- 265,750 Proceeds from exercise of stock options (Note 13) 7,500 5,000 -- -- 12,500 ----------- ---------- ----------- ---------- ----------- BALANCE AT DECEMBER 31, 1993 1,339,853 8,017,523 7,954,760 -- 17,312,136 Cumulative effect of adopting -- -- -- SFAS No. 115, net of tax (Note 1) 35,387 35,387 Net income -- -- 2,067,626 -- 2,067,626 Proceeds from issuance of stock through stock purchase plan (Note 11) 30,684 253,950 -- -- 284,634 Proceeds from exercise of stock options (Note 13) 76,200 50,800 -- -- 127,000 Increase in net unrealized loss on securities available for sale, net of tax -- -- -- (40,686) (40,686) ----------- ---------- ----------- ---------- ----------- BALANCE AT DECEMBER 31, 1994 1,446,737 8,322,273 10,022,386 (5,299) 19,786,097 Net income -- -- 2,719,235 -- 2,719,235 Proceeds from issuance of stock through stock purchase plan (Note 11) 43,240 446,101 -- -- 489,341 Proceeds from issuance of stock through the dividend reinvestment and optional cash payment plan (Note 11) 1,254 20,378 -- -- 21,632 Proceeds from exercise of stock options (Note 13) 41,200 36,218 -- -- 77,418 Dividends paid -- -- (335,260) -- (335,260) Increase in net unrealized gain on securities available for sale, net of tax -- -- -- 66,153 66,153 ----------- ---------- ----------- ---------- ----------- BALANCE AT DECEMBER 31, 1995 $1,532,431 $8,824,970 $12,406,361 $ 60,854 $22,824,616 ----------- ---------- ----------- ---------- ----------- ----------- ---------- ----------- ---------- -----------
The accompanying notes are an integral part of these consolidated financial statements. 17 CONSOLIDATED STATEMENTS OF CASH FLOWS THE HIBERNIA SAVINGS BANK AND SUBSIDIARIES
For the Years Ended December 31, 1995, 1994 and 1993 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,719,235 $ 2,067,626 $ 3,080,184 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 507,489 430,161 402,207 Amortization of premiums 503,928 1,024,484 749,144 Provision for possible loan losses 300,000 135,000 2,080,000 Gain on sale of assets, net (709,490) (22,005) (3,305,563) Increase (decrease) in deferred loan fees (196,407) 152,718 32,912 Provision (benefit) for deferred taxes (138,293) (52,154) (432,708) Proceeds from sale of mortgage loans 15,848,472 6,845,787 46,633,895 Loans originated for resale (15,901,083) (6,847,182) (46,613,855) (Increase) decrease in accrued interest receivable (643,459) (1,762) 677,290 (Increase) decrease in other assets (814,359) 8,380 1,192,106 Increase (decrease) in accrued expenses and other liabilities 982,578 (731,838) 67,961 ----------- ----------- ----------- Total adjustments (260,624) 941,589 2,063,389 ----------- ----------- ----------- Net cash provided by operating activities 2,458,611 3,009,215 5,143,573 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Loans purchased (22,604,223) -- (7,112,301) Net (increase) decrease in loans (22,451,874) (29,728,001) 696,439 Proceeds from sales of other real estate owned 779,791 1,522,320 6,841,201 Sales (purchases) of short-term investments, net (1,270,000) (1,645,000) 6,505,000 Proceeds from the sale of fixed assets 49,193 -- -- Purchases of securities held to maturity -- (35,734,168) (171,470,238) Proceeds from maturities of securities held to maturity 12,894,834 18,463,098 145,865,570 Purchases of securities available for sale (76,818,369) (15,932,605) (37,476,996) Proceeds from sale of securities available for sale 51,168,978 28,165,654 34,493,336 Purchases of premises and equipment (1,443,227) (1,189,520) (212,728) ----------- ----------- ----------- Net cash used in investing activities (59,694,897) (36,078,222) (21,870,717) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Deposits, net 26,447,457 34,389,711 16,029,130 FHLB advances, net 29,968,000 470,000 (1,000) Proceeds from issuance of stock 588,391 411,634 278,250 Dividends paid (335,260) -- -- ----------- ----------- ----------- Net cash provided by financing activities 56,668,588 35,271,345 16,306,380 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (567,698) 2,202,338 (420,764) Cash and cash equivalents, beginning of year 3,780,957 1,578,619 1,999,383 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 3,213,259 $ 3,780,957 $ 1,578,619 ----------- ----------- ----------- ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 13,721,425 $ 9,500,101 $ 8,943,435 Income taxes paid 1,581,579 2,475,996 156,923 ----------- ----------- ----------- ----------- ----------- ----------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Transfer of loans to other real estate owned $ 1,323,945 $ 1,731,400 $ 2,956,666 ----------- ----------- ----------- ----------- ----------- ----------- Transfer of held to maturity securities to available for sale $ 9,250,187 $ -- $ -- ----------- ----------- ----------- ----------- ----------- -----------
18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND CONSOLIDATION The accompanying consolidated financial statements include the accounts of The Hibernia Savings Bank and its wholly owned subsidiaries, Kildare Corporation, Limerick Securities Corporation and Meath Corporation (the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items in the process of collection and amounts due from banks. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Operating results in the future could vary from the amounts derived from management's estimates and assumptions. SECURITIES Securities purchased are classified as held to maturity when it is management's intent and ability to hold them to maturity. Such securities, including mortgage and asset-backed securities, are carried at cost, adjusted for amortization of premium and accretion of discount, as computed by the effective yield method. Securities not classified as held to maturity are classified as available for sale and are reported at fair value, with unrealized gains or losses, net of the estimated tax effects, classified as a separate component of stockholders' equity. The Bank does not have any securities classified as trading. When securities are sold, the adjusted cost of the specific security sold is used to compute gains or losses on the sale. LOANS, DISCOUNTS AND RESERVES Loans, as reported, have been reduced by unadvanced loan proceeds, unearned discounts, deferred fees and the allowance for possible loan losses. Interest on loans is not accrued when principal or interest is 90 days or more past due or, in the opinion of management, the collectibility of the principal or interest becomes doubtful. At December 31, 1995 and 1994, nonaccrual loans were $500,766 and $1,544,628, respectively. Had the nonaccrual loans at December 31, 1995 and 1994 been accruing, interest income would have been higher by $56,634 and $133,477, respectively. There were no restructured loans at December 31, 1995. The Bank adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a Loan, Income Recognition and Disclosures, as of January 1, 1995. SFAS No. 114 requires that certain impaired loans be measured based on the present value of expected future cash flows discounted at the loan's original effective interest rate. The Bank defines impaired loans as all loans in nonaccrual status and reviews on a continuous basis all classified loans in order to identify possible impaired loans. As a practical expedient, impairment may be measured based on the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. The Bank had previously measured the allowance for credit losses using methods similar to those prescribed in SFAS No. 114. As a result of adopting these statements, no additional allowance for loan losses was required as of January 1, 1995. The adequacy of the allowance for possible loan losses is evaluated on a regular basis by management. Factors considered in evaluating the adequacy of the allowance include previous loss experience, current economic conditions and their effect on borrowers, and the performance of individual loans in relation to contract terms. The provision for possible loan losses charged to operations is based upon management's judgment of the amount necessary to maintain the allowance at a level adequate to absorb possible future losses. The allowance is an estimate, and ultimate losses may vary from current estimates. Loan losses are charged against the allowance when management believes the collectibility of principal is unlikely. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BANKING PREMISES AND EQUIPMENT Land is carried at original cost. Buildings, leasehold improvements and equipment are stated at cost, less accumulated depreciation and amortization, computed primarily on the straight-line basis over the estimated useful lives of the assets or terms of leases, if shorter. The cost of maintenance and repairs is charged to operations as incurred. OTHER REAL ESTATE OWNED Real estate acquired by foreclosure is initially recorded at the lower of cost (principal balance of the former mortgage loan plus costs of obtaining title and possession), or estimated fair value less estimated costs to sell. During the holding period, foreclosed real estate is periodically appraised, and the carrying value is adjusted, if necessary, if the estimated fair value is less than the carrying value. Expenses and revenues related to holding foreclosed assets are reported in the results of operations as incurred. INCOME TAXES The Bank records income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expense or credits are based on the changes in the asset or liability from period to period. EARNINGS PER SHARE Earnings per share are computed based on the weighted average number of common shares and common stock equivalents outstanding during the year using the treasury stock method. On January 18, 1995, the Board of Directors declared a 3 for 2 stock split with an effective date of February 1, 1995. Prior years' consolidated financial statements have been adjusted to reflect the split. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK In the normal course of business, to meet the financing needs of its customers, the Bank is a party to financial instruments with off-balance sheet risk. As discussed in Note 9, these financial instruments include firm commitments to grant loans that involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to grant loans is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making such commitments as it does for on-balance sheet instruments. Commitments to grant loans are binding agreements to lend to a customer as long as there is no violation of any condition in the contract. The Bank has established internal lending limits applicable to a single borrower or a related group of borrowers to minimize risk and control exposure by obligor, industry, loan type and other credit concentrations. The Bank has not experienced any significant losses on open commitments. RECLASSIFICATIONS Certain amounts in the prior years' consolidated financial statements have been reclassified to be consistent with the current year's presentation. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Bank in estimating fair values of financial instruments as disclosed herein: CASH AND CASH EQUIVALENTS - The carrying amounts of cash and short-term instruments approximate their fair value. HELD TO MATURITY AND AVAILABLE FOR SALE SECURITIES - Fair values for securities are based on quoted market prices. FEDERAL HOME LOAN BANK STOCK - Fair value is equal to carrying value since the stock is redeemable at cost. LOANS - For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (for example, one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair values for commercial real estate and commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. DEPOSIT LIABILITIES - The fair values disclosed for demand deposits and variable rate savings accounts are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed rate deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar deposits to a schedule of aggregated expected monthly maturities. SHORT-TERM BORROWINGS - The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Bank's current incremental borrowing rates for similar types of borrowing arrangements. LONG-TERM BORROWINGS - The fair values of the Bank's long-term debt are estimated using discounted cash flow analyses based on the Bank's current incremental borrowing rates for similar types of borrowing arrangements. ACCRUED INTEREST - The carrying amounts of accrued interest approximate their fair values. OFF-BALANCE SHEET INSTRUMENTS - Fair values for off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. RECENT PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which is to become effective for fiscal years beginning after December 15, 1995. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement also requires that certain long-lived assets and identifiable intangibles to be disposed of be reported at the lower of the carrying amount or fair value less cost to sell. Management anticipates that the application of the new statement would not have a significant impact on the results of operations or financial condition in the year it is adopted. In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights, which is to become effective for fiscal years beginning after December 15, 1995. SFAS No. 122 requires that a mortgage banking enterprise recognize as separate assets, rights to service mortgage loans for others regardless of the manner in which the servicing rights are acquired. In addition, capitalized mortgage servicing rights are required to be assessed for impairment based on the fair value of those rights. Management elected to adopt the provisions as of October 1, 1995 and retroactively applied the provisions of this statement to January 1, 1995. The adoption did not have a significant impact on the Bank's reported results of operations or financial condition. (2) CAPITAL Banking regulators have classified and defined bank 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 predefined credit risk factors (risk-adjusted assets). As of December 31, 1995, the regulatory minimum Tier I and combined Tier I and II capital ratios are 4.0% and 8.0%, respectively, of risk-based assets. At December 31, 1995, the Bank's Tier I and combined Tier I and II risk-based capital ratios were 11.4% and 12.7%, respectively. In addition to the risk-based guidelines discussed above, the banking regulators require the Bank maintain a minimum leverage capital ratio (Tier I capital as a percent of tangible assets) of 4.0%. As of December 31, 1995, the Bank has a leverage capital ratio of 6.6%. 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) SECURITIES The amortized cost and estimated market values of securities are as follows:
December 31, 1995 -------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value -------------------------------------------------------- SECURITIES HELD TO MATURITY: Mortgage-backed securities $77,565,687 $ -- $ 857,478 $76,708,209 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SECURITIES AVAILABLE FOR SALE: US Treasury and Agency bonds and notes $40,574,759 $ 101,424 $ -- $40,676,183 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- December 31, 1994 -------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value -------------------------------------------------------- SECURITIES HELD TO MATURITY: Mortgage-backed securities $100,252,866 $ -- $7,404,352 $ 92,848,514 ------------ ----------- ---------- ------------ ------------ ----------- ---------- ------------ SECURITIES AVAILABLE FOR SALE: Corporate bonds and notes $ 5,930,658 $ -- $ 5,299 $ 5,925,359 ------------ ----------- ---------- ----------- ------------ ----------- ---------- -----------
The amortized cost and market value of debt securities at December 31, 1995 and December 31, 1994, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers have the right to prepay obligations with or without call or prepayment penalties. Certain securities classified as available for sale have call provisions. The call dates on all these securities are within one year, as such they are classified in the one year or less category in 1995 rather than the contractual maturity date.
SECURITIES HELD TO MATURITY: Amortized Estimated Percent Cost Market Value of Total December 31, 1995-- ------------------------------------------ Due in one year or less $ -- $ -- -- Due after one year through five years 56,206,391 55,815,979 72.46% Due after five years through ten years 21,359,296 20,892,230 27.54% Due after ten years -- -- -- ----------- ----------- ----------- $77,565,687 $76,708,209 100.00% ----------- ----------- ----------- ----------- ----------- ----------- SECURITIES AVAILABLE FOR SALE: Amortized Estimated Percent Cost Market Value of Total December 31, 1995-- ------------------------------------------ Due in one year or less $40,574,759 $40,676,183 100.00% Due after one year through five years -- -- -- Due after five years through ten years -- -- -- Due after ten years -- -- -- ----------- ----------- ----------- $40,574,759 $40,676,183 100.00% ----------- ----------- ----------- ----------- ----------- -----------
Proceeds from the maturity and sales of investments during 1995, 1994 and 1993 were $64,063,812, $46,628,752 and $180,358,906, respectively. Gross gains of $363,017, $215,126 and $3,994,808 and gross losses of $272,024, $21,549 and $42,748, respectively, were realized on the sales. At December 31, 1995, the Bank had no investments in obligations of states, counties or municipalities which exceeded 10% of stockholders' equity. 22 The Bank transferred and sold approximately $9,250,000 of formerly held to maturity securities which resulted in a corresponding net loss of approximately $171,000. The transfer was made pursuant to the issuance of "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" which allowed a one-time reassessment of the appropriateness of the classification of all securities without calling into question the Bank's classification of its other securities. The FASB issued Statement of Financial Accounting Standards No. 119 (SFAS No. 119), Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments, which is effective for fiscal years ending after December 15, 1994. SFAS No. 119 requires certain disclosures about derivative financial instruments including futures, forward swap and option contracts and other financial instruments with similar characteristics. As of December 31, 1995, the Bank had no financial instruments requiring disclosure under SFAS No. 119. (4) LOANS A summary of the balances of loans follows:
1995 1994 --------------------------- Mortgage loans on real estate Residential, owner-occupied, one to four family and condos $101,817,810 $ 72,216,952 Residential, nonowner-occupied, one to four family and condos 10,667,757 11,371,794 Multi-family units five or more 34,632,581 34,956,394 Retail/mixed-use properties 30,311,277 26,025,089 Office/industrial space 10,638,889 6,809,092 Other loans 3,528,515 3,687,546 ------------ ------------- 191,596,829 155,066,867 Less--Deferred fees and income 93,654 290,061 ------------ ------------- Total mortgage loans on real estate 191,503,175 154,776,806 ------------ ------------- Commercial loans 16,857,492 8,423,229 ------------ ------------- Other loans, personal installment 1,767,627 1,592,808 Lines of credit 746,746 831,054 ------------ ------------- 2,514,373 2,423,862 Less--Unearned discount 6,320 12,075 ------------ ------------- Total other loans 2,508,053 2,411,787 ------------ ------------- Total loans 210,868,720 165,611,822 Less--Allowance for possible loan losses 2,541,997 2,241,286 ------------ ------------- Loans, net $208,326,723 $163,370,536 ------------ ------------- ------------ -------------
An analysis of the allowance for possible loan losses follows:
1995 1994 1993 ---------------------------------------- Balance at beginning of year $2,241,286 $2,480,881 $3,056,336 Provision for possible loan losses 300,000 135,000 2,080,000 Recoveries 340,390 722,440 774,042 ---------- ---------- ---------- 2,881,676 3,338,321 5,910,378 Loans charged-off (339,679) (1,097,035) (3,429,497) ---------- ---------- ---------- Balance at end of year $2,541,997 $2,241,286 $2,480,881 ---------- ---------- ---------- ---------- ---------- ----------
In addition to the loan portfolio noted above, the Bank services approximately $16,370,067 of loans sold without recourse to investors in the secondary mortgage market and other financial institutions. During the second quarter of 1995 the Bank sold its servicing rights on certain residential mortgage loans with a gross outstanding balance of $69,113,347. From this sale the Bank received gross proceeds of $898,473. The related pretax gain of $763,806 is reflected in the current year's consolidated statement of operations. The Bank operates primarily in the Greater Boston area, and the performance of its loan portfolio is dependent, to a large degree, on the condition of the local real estate market. Uncertainty exists as to the ultimate realization in full of certain loans, and other real estate owned as a result of current economic conditions in the New England region. Based on management's assessment of the condition of the Massachusetts real estate market at year end and prevailing economic conditions, management believes that the allowance for loan losses as 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) LOANS (continued) of December 31, 1995 is adequate to absorb the current estimate of future losses in the loan portfolio. However, economic deterioration in future periods could result in the Bank experiencing increased levels of nonperforming assets and charge-offs, additional provisions for loan losses and reduction in net interest income. At December 31, 1995, real estate mortgage loans were pledged to secure Federal Home Loan Bank advances, as further discussed in Note 7. As of December 31, 1995, the Bank's impaired loans and related valuation allowance (which is included in the allowance for loan losses) calculated under SFAS No. 114 were as follows: Impaired Valuation Loans Allowance ------------------------- Valuation allowance required $ -- $ -- No valuation allowance required 500,766 --------- --------- Total impaired loans $ 500,766 $ -- --------- --------- --------- --------- The recorded investment in impaired loans for which no allowance is needed is net of $110,608 of previous direct charge-offs and applications of cash interest payments against the loan balances as of December 31, 1995. The average recorded investment in impaired loans for the year ended December 31, 1995 was $760,750. Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as a reduction in principal. (5) BANKING PREMISES AND EQUIPMENT A summary of the cost and accumulated depreciation and amortization of banking premises and equipment and their estimated useful lives follows: Estimnated 1995 1994 Useful Lives ----------------------------------------- Land and building $1,727,200 $1,817,867 25 years Leasehold improvements 4,170,918 3,409,831 10-25 years Furniture and equipment 3,433,923 2,760,136 2-10 years ---------- ---------- ----------- 9,332,041 7,987,834 Less--Accumulated depreciation and amortization 3,757,085 3,249,596 ---------- ---------- $5,574,956 $4,738,238 ---------- ---------- ---------- ---------- Total depreciation and amortization for the years ended December 31, 1995, 1994 and 1993 amounted to $507,489, $430,161 and $402,207, respectively. (6) DEPOSITS A summary of deposit balances, by type, is as follows: 1995 1994 ---------------------------- NOW and demand deposits $ 22,011,361 $ 18,394,371 Money market deposits 33,819,928 11,831,038 Other savings 46,038,261 64,675,486 ------------ ------------ Total non-certificate accounts 101,869,550 94,900,895 Term certificate accounts 180,917,699 161,438,896 ------------ ------------ Total deposits $282,787,249 $256,339,791 ------------ ------------ ------------ ------------ 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The aggregate amounts of term certificates of deposits of $100,000 or more at December 31, 1995 and 1994 are $63,802,166 and $24,619,451, respectively. A summary of term certificate accounts by maturity as of December 31, 1995 and 1994 is as follows: 1995 1994 -------------------------------------------------------- Weighted Weighted Amount Average Rate Amount Average Rate -------------------------------------------------------- Within one year $111,842,814 5.68% $104,135,730 5.07% One to three years 51,986,914 5.85% 41,479,505 5.20% Over three years 17,087,971 6.67% 15,823,661 5.72% ------------ ----- ------------ ----- $180,917,699 5.83% $161,438,896 5.17% ------------ ----- ------------ ----- ------------ ----- ------------ ----- (7) FEDERAL HOME LOAN BANK ADVANCES (FHLB) Federal Home Loan Bank advances consist of the following at December 31, 1995 and 1994: Maturity Date Interest Rate 1995 1994 - ------------------------------------------------------------------------------- June 12, 1995 6.46% $ -- $1,200,000 June 21, 1995 6.35% -- 1,500,000 October 3, 1995 6.22% -- 2,000,000 January 2, 1996 5.85% 3,000,000 -- January 16, 1996 6.60% 4,300,000 4,300,000 February 16, 1996 5.80% 5,000,000 -- July 12, 1996 5.73% 4,000,000 -- October 13, 1998 5.90% 5,000,000 -- November 23, 1998 5.76% 10,000,000 -- October 10, 2000 6.09% 7,668,000 -- ----------- ---------- Total advances $38,968,000 $9,000,000 ----------- ---------- ----------- ---------- The interest rates charged on advances maturing in 1995 and 1996 are primarily fixed but also include floating rate advances indexed to prime. The FHLB advances are collateralized by a pledge of the Bank's portfolio of unencumbered securities and mortgages and by a lien on the Bank's holdings of FHLB stock. The Bank may borrow up to 30% of its total assets but not more than 20 times its capital stock holdings in the FHLB for any sound business purpose for which the Bank has legal authority. Borrowings authorized totaled $43,968,000 at December 31, 1995. (8) INCOME TAXES Allocation of federal and state income taxes between current and deferred portions is as follows: 1995 1994 1993 --------------------------------------- Current tax provision-- Federal $1,371,186 $ 822,048 $1,576,009 State 413,321 232,437 54,861 ---------- ---------- ---------- 1,784,507 1,054,485 1,630,870 ---------- ---------- ---------- ---------- ---------- ---------- Deferred tax provision (benefit)-- Federal (108,533) (38,446) (436,229) State (29,760) (13,708) 3,521 ---------- ---------- ---------- (138,293) (52,154) (432,708) ---------- ---------- ---------- $1,646,214 $1,002,331 $1,198,162 ---------- ---------- ---------- ---------- ---------- ---------- 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) INCOME TAXES (CONTINUED) The reasons for the differences between the effective tax rate and the corporate statutory federal income tax rate are summarized as follows: 1995 1994 1993 ---------------------------------- Statutory rate 34.0% 34.0% 34.0% Increase (decrease) resulting from-- State taxes, net of federal tax benefit 6.0 5.9 0.9 Reduction in valuation allowance -- (7.0) (6.2) Rehabilitation and low income housing tax credit (0.9) (1.2) (0.8) Dividend received deduction (0.4) (0.1) (0.2) Other (1.0) 1.1 0.3 ----- ----- ----- Effective tax rate 37.7% 32.7% 28.0% ----- ----- ----- ----- ----- ----- As of December 31, 1995 and 1994, the consolidated balance sheets include net deferred tax assets of $383,653 and $245,360, respectively. The tax- affected components of the prepaid income taxes at December 31, 1995 and 1994 are as follows: 1995 1994 ---------------------- Loan allowances $182,711 $140,340 Loan fees 8,314 11,714 State taxes, net of federal benefit 83,109 62,868 Other, net 109,519 30,438 -------- -------- Net deferred tax assets $383,653 $245,360 -------- -------- -------- -------- (9) COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Bank presently occupies the premises at 731 Hancock Street, Quincy, Massachusetts, under a lease expiring in 2002, with three, five-year renewal options, and the premises at 101 Federal Street, Boston, Massachusetts, under a lease expiring in 1999, with two, five-year renewal options. In 1995 the Bank executed a lease on the location of its newest branch office at 397 Washington Street, Stoughton, Massachusetts which expires in 2005 with three, five-year renewal options. Future minimum rental commitments under these leases are as follows: 1996 $ 244,385 1997 248,113 1998 257,423 1999 258,660 2000 258,660 Thereafter 3,490,631 ---------- $4,757,872 ---------- ---------- Net rental expenses for the years ended December 31, 1995, 1994 and 1993 were $211,665, $176,549 and $145,245, respectively. LOAN AND SECURITY COMMITMENTS In the normal course of business, there are outstanding commitments that are not reflected in the accompanying consolidated financial statements. Firm commitments to grant loans amounted to $15,367,512 and $4,868,000 at December 31, 1995 and 1994, respectively. Also, amounts committed under existing lines of credit totaled $4,581,535 at December 31, 1995. EMPLOYMENT AND TERMINATION AGREEMENTS The Bank has entered into a five year Employment Agreement with its Chief Executive Officer providing for specified minimum annual compensation and the continuation of benefits currently received. The contract is automatically extended for an additional year on the anniversary date of the contract. In addition, the Bank has entered into a Special Termination Agreement with its Chief Executive Officer which provides for a lump-sum severance payment within a three year period following a change in control, as defined in the agreement. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) LITIGATION The Bank is a defendant in various legal actions. In the opinion of the Bank's legal counsel, the resolution of these matters is not expected to have a material effect on the consolidated financial position or results of operations of the Bank. (11) STOCKHOLDERS' EQUITY The Bank may not declare or pay cash dividends on its shares of common stock if the effect thereof would cause its stockholders' equity to be reduced below applicable capital maintenance requirements or if such declaration and payments would otherwise violate regulatory requirements (see Note 2). The Bank maintains a Stock Purchase Plan, the purpose of which is to provide an additional source of capital. Under the terms of the plan, 300,000 shares of authorized common stock are available for purchase of which 93,677 shares remain unissued. The purchase price will be the closing bid price of the common stock on the business day prior to the purchase. In 1995, 43,240 shares of common stock were purchased by eligible plan participants under the plan for total proceeds to the Bank of $489,341. In 1995, the Bank began an Automatic Dividend Reinvestment and Common Stock Purchase Plan for the benefit of all eligible stockholders of record on November 1, 1995. The plan permits eligible stockholders to have their dividends reinvested automatically into additional newly issued shares of common stock of the Bank as the dividends are paid. In addition, the plan allows optional cash payments to be made which permits stockholders to purchase additional shares on a monthly basis. In 1995, 1,254 shares of common stock were purchased by eligible stockholders under the plan for total proceeds to the Bank of $21,632. (12) EMPLOYEE BENEFIT PLANS During 1989, the Board of Directors voted to establish an Employee Stock Ownership Plan (ESOP), which is a qualified stock bonus plan under Internal Revenue Code Section 401(a). Employees reaching the age of 21 and having completed 1,000 hours of service in one consecutive twelve-month period automatically become participants in the ESOP. Participants become fully vested upon completion of three years of service. During 1995, 1994 and 1993, the ESOP purchased 20,948, 20,961 and 39,390 shares, respectively, of the Bank's common stock at an aggregate purchase price of $241,480, $195,636 and $198,335 respectively, in the open market. In 1995, 1994 and 1993, the Bank made contributions to the ESOP totaling $183,800, $200,914 and $195,875, respectively, which are included in salaries and employee benefits expense. Dividends on unallocated shares of the Bank's stock held by the ESOP are accumulated within the plan. The Bank also maintains a Non-Qualified Executive Retirement Plan which is an unfunded non-qualified plan which provides deferred compensation to a select group of management whose retirement benefits in the Employer's tax qualified retirement plans are restricted by statute. During 1995 and 1994 the Bank expensed $30,944 and $41,748, respectively, related to this plan. In 1992, the Bank adopted a Profit Sharing Plan as defined in the Internal Revenue Code Section 401(k). All employees who complete twelve consecutive months of employment with the Bank are eligible to participate in the plan. In 1995, 1994 and 1993, the Bank matched employees' voluntary contributions on a dollar-for-dollar basis up to an additional 3% of total compensation. The plan is administered by the Savings Bank Employees Retirement Association. For the plan years ended December 31, 1995, 1994 and 1993 the Bank made contributions of $49,444, $43,394 and $44,624, respectively, to the plan. The Bank maintains a Short-term Incentive Bonus Plan (the Plan) whereby certain employees are eligible to receive a bonus if the Bank meets or exceeds certain base standards of profitability, and certain strategic goals are achieved. The structure of the Plan is reviewed on an annual basis by the Board of Directors of the Bank. The Bank expensed $185,504 in 1995, $124,125 in 1994 and $136,900 in 1993 related to this plan. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) STOCK OPTION PLAN In 1986, 1989 and 1995, the Board of Directors adopted, and the stockholders subsequently approved, stock option plans for the benefit of the Bank's key employees. Under the 1986 Stock Option Plan, 120,000 shares of common stock have been reserved for issuance pursuant to options granted under the plan. Under the 1989 Stock Option Plan, 52,500 shares of common stock have been reserved for issuance pursuant to options granted under the plan. Under the 1995 Premium Incentive Stock Option Plan, 70,000 shares of common stock have been reserved for issuance pursuant to options granted under the plan. Stock options may be granted by the Board of Directors under the plan at an exercise price equal to, or in excess of, the fair market value of a share of common stock of the Bank on the date the option is granted. The following is a summary of the 1986 Stock Option Plan, the 1989 Stock Option Plan and the 1995 Premium Incentive Stock Option Plan activity: Number Price Range of Shares ---------------------------- Outstanding at December 31, 1993 $1.67 - $8.83 142,800 Granted 11.00 22,200 Exercised 1.67 (76,200) Expired 4.00 (1,500) -------------- ------- Outstanding at December 31, 1994 1.67 - 11.00 87,300 Granted 11.75 - 16.50 42,000 Exercised 1.67 - 4.00 (41,200) Expired 11.75 (3,750) -------------- ------- Outstanding at December 31, 1995 $1.67 - $16.50 84,350 -------------- ------- At December 31, 1995, 33,250 shares were available for future grant under the 1995 Premium Incentive Stock Option Plan. The options granted are exercisable on the following dates: Option Options Exercisable Price Granted Beginning Expiration Date ---------------------------------------------------------- 1986 Plan $ 1.67 4,400 January 1994 January 14, 2002 8.83 1,200 September 1995 September 14, 2003 11.75 1,500 March 1997 March 14, 2003 1989 Plan 8.83 16,800 January 1995 January 14, 2003 11.00 19,950 October 1996 October 11, 2004 11.75 3,750 March 1997 March 14, 2005 1995 Plan 13.00 14,750 May 1998 May 10, 2005 16.50 22,000 December 1997 December 12, 2005 (14) RELATED PARTY TRANSACTIONS In the ordinary course of business, the Bank has granted loans to officers and directors and their affiliates amounting to $1,088,274 at December 31, 1995. All such transactions are on substantially the same terms as those prevailing at the same time for individuals not affiliated with the Bank and such loans do not involve more than the normal risk of collectibility. During the year ended December 31, 1995, total principal additions were $192,900, and total principal payments were $1,195,276. At December 31, 1994, outstanding loans to officers and directors and their affiliates amounted to $2,090,650. For 1994, total principal additions were $594,200, and total principal payments were $178,700. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair values of the Bank's financial instruments were as follows:
December 31, 1995 December 31, 1994 -------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------------------------------------------------------- FINANCIAL ASSETS: Cash and due from banks, interest-bearing deposits with banks, and federal funds sold $ 3,213,259 $ 3,213,259 $ 3,780,957 $ 3,780,957 Short-term investments 4,860,000 4,860,000 3,590,000 3,590,000 Securities held to maturity 77,565,687 76,708,209 100,252,866 92,848,514 Securities available for sale 40,676,183 40,676,183 5,925,359 5,925,359 Federal Home Loan Bank stock 2,198,400 2,198,400 1,813,700 1,813,700 Loans receivable 208,326,723 207,283,591 163,370,536 163,916,672 Accrued interest receivable 2,128,536 2,128,536 1,485,077 1,485,077 FINANCIAL LIABILITIES: Deposit liabilities $282,787,249 $283,363,249 $256,339,791 $255,218,324 Federal Home Loan Bank advances 38,968,000 39,327,596 9,000,000 9,000,000
OFF-BALANCE SHEET ASSETS: A summary of the notional amounts of the Bank's financial instruments with off-balance sheet risk at December 31, 1995 and 1994 follows:
1995 1994 -------------------------------------------------------- Notional Fair Notional Fair Amount Value Amount Value -------------------------------------------------------- Commitments to grant loans $ 15,367,512 $ 15,367,512 $ 4,868,000 $ 4,868,000 Existing lines of credit 4,581,535 4,581,535 4,279,000 4,279,000
(16) QUARTERLY DATA (UNAUDITED) Summaries of consolidated operating results on a quarterly basis for the years ended December 31, 1995 and 1994 are as follows:
Fourth Third Second First 1995 Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------- Interest and dividend income $6,683,659 $6,073,597 $5,780,344 $5,411,401 Interest expense 3,892,744 3,569,358 3,368,318 2,889,348 ---------- ---------- ---------- ---------- Net interest income 2,790,915 2,504,239 2,412,026 2,522,053 Provision for possible loan losses -- 48,334 100,000 151,666 ---------- ---------- ---------- ---------- Net interest income after provision for possible loan losses 2,790,915 2,455,905 2,312,026 2,370,387 Gain (loss) on sale of loans 2,760 (179) (55,192) -- Noninterest income 144,153 122,497 159,270 153,304 Noninterest expense 1,694,394 1,585,292 1,680,390 1,591,626 ---------- ---------- ---------- ---------- Core earnings 1,243,434 992,931 735,714 932,065 Net gain (loss) on sale of securities (219,664) 191,395 (13,750) 133,012 Gain on sale of loan servicing -- -- 763,806 -- Net gain (loss) on sale of OREO 87,198 -- (119,965) (10,105) Gain (loss) on sale of fixed assets (54,574) -- -- 4,748 OREO write-downs and expense 105,325 48,367 66,920 80,184 Provision for income taxes 390,998 427,181 486,221 341,814 ---------- ---------- ---------- ---------- Net income $ 560,071 $ 708,778 $ 812,664 $ 637,722 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings per common share $ 0.35 $ 0.46 $ 0.53 $ 0.42 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (16) QUARTERLY DATA (CONTINUED)
Fourth Third Second First 1994 Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------- Interest and dividend income $5,084,751 $4,810,976 $4,513,688 $4,318,682 Interest expense 2,669,661 2,451,230 2,207,674 2,169,430 ---------- ---------- ---------- ---------- Net interest income 2,415,090 2,359,746 2,306,014 2,149,252 Provision for possible loan losses -- -- -- 135,000 ---------- ---------- ---------- ---------- Net interest income after provision for possible loan losses 2,415,090 2,359,746 2,306,014 2,014,252 Gain (loss) on sale of loans 47 (4,684) (6,244) 9,486 Noninterest income 134,816 124,317 148,264 141,524 Noninterest expense 1,668,651 1,529,366 1,528,572 1,482,424 ---------- ---------- ---------- ---------- Core earnings 881,302 950,013 919,462 682,838 Net gain (loss) on sale of securities (18,260) -- 16,605 195,232 Net gain (loss) on sale of OREO 23,635 1,595 (80,998) (114,409) OREO write-downs and expense 76,529 78,819 75,828 155,882 Provision for income taxes 274,763 256,748 264,942 205,878 ---------- ---------- ---------- ---------- Net income $ 535,385 $ 616,041 $ 514,299 $ 401,901 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings per common share $ 0.36 $ 0.43 $ 0.35 $ 0.27 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
MARKET PRICES AND STOCK DIVIDENDS The Hibernia Savings Bank common stock was initially issued and sold in September 1986 as part of its stock conversion at a split adjusted price of $7.67 per share. The common stock of the Bank is quoted on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System under the symbol "HSBK". The stock price and other trade information appear in the Wall Street Journal under NASDAQ over-the-counter markets for National Market Issues under "HiberniaSvg". The following table sets forth high and low daily closing prices for the common stock of the Bank for the periods indicated. Sales Price Cash ---------------------- Dividends Quarter Ended High Low Paid - ------------------------------------------------------------------------------- December 31, 1995 $18 1/4 $15 3/4 $0.06 September 30, 1995 17 1/8 14 1/2 0.06 June 30, 1995 14 3/4 12 1/2 0.05 March 31, 1995 13 1/2 10 1/8 0.05 - ------------------------------------------------------------------------------- December 31, 1994 $11 5/8 $10 $ -- September 30, 1994 12 5/8 11 1/2 -- June 30, 1994 13 1/8 10 3/8 -- March 31, 1994 11 5/8 9 -- 30 OFFICERS AND DIRECTORS OFFICERS OF THE BANK
MARK A. OSBORNE DENNIS P. MYERS THOMASINE F. KENNEDY PATRICIA HANLON CHAIRMAN OF THE BOARD AND SENIOR VICE PRESIDENT AND COMPTROLLER ASSISTANT VICE PRESIDENT CHIEF EXECUTIVE OFFICER SENIOR LOAN OFFICER EDWIN J. BECK, JR. DONALD J. MCLAUGHLIN RICHARD S. STRACZYNSKI ROBERT D. MCCARTHY ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT PRESIDENT AND VICE PRESIDENT CHIEF OPERATING OFFICER BARRY E. BURDEN ROBERT S. PYER, JR. ROGER L. MEADE ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT WAYNE F. BLAISDELL VICE PRESIDENT SENIOR VICE PRESIDENT ELIZABETH M. CASEY JANE M. HANLON-COOK BRANCH ADMINISTRATION & JOSEPH F. RICHARDI ASSISTANT VICE PRESIDENT LOAN OFFICER OPERATIONS OFFICER VICE PRESIDENT ARMAND A. FERNANDEZ DOUGLAS C. PURDY GERARD F. LINSKEY MICHAEL P. DONOHOE ASSISTANT VICE PRESIDENT CLERK OF THE CORPORATION SENIOR VICE PRESIDENT AND TREASURER CHIEF FINANCIAL OFFICER BOARD OF DIRECTORS MARTHA M. CAMPBELL THOMAS P. MOORE, JR. MARK A. OSBORNE MICHAEL T. PUTZIGER ATTORNEY-AT-LAW SENIOR VICE PRESIDENT CHAIRMAN OF THE BOARD AND ATTORNEY-AT-LAW STATE STREET RESEARCH AND CHIEF EXECUTIVE OFFICER ROCHE, CARENS & DEGIACOMO THOMAS J. CARENS MANAGEMENT COMPANY THE HIBERNIA SAVINGS BANK OF COUNSEL RICHARD P. QUINCY ROCHE, CARENS & DEGIACOMO RICHARD J. MURNEY PAUL D. OSBORNE PRESIDENT CERTIFIED PUBLIC ACCOUNTANT TREASURER QUINCY & CO. BERNARD J. DWYER OSBORNE OFFICE FURNITURE ATTORNEY-AT-LAW JOHN V. MURPHY CHARLES R. SIMPSON, JR. EXECUTIVE VICE PRESIDENT & DOUGLAS C. PURDY FORMER CHAIRMAN AND CEO PETER L. MAGUIRE CHIEF OPERATING OFFICER ATTORNEY-AT-LAW QUINCY SAVINGS BANK PRESIDENT DAVID L. BABSON & CO., INC. SERAFINI, PURDY, DINARDO & MANAGEMENT INFORMATION WELLS SERVICES WILLIAM T. NOVELLINE PRESIDENT ABBOT FINANCIAL MANAGEMENT
STOCKHOLDER INFORMATION ADMINISTRATIVE OFFICES LOAN CENTERS FORM F-2 REGISTRATION STOCKHOLDER RELATIONS The Hibernia Savings Bank 730 Hancock Street AND OTHER REPORTS To receive further informa- 730 Hancock Street Quincy, MA 02170 The Bank has filed an tion about The Hibernia Quincy, MA 02170 617-479-5001 Annual Report Form F-2 Savings Bank please contact 617-479-5001 with the Federal Deposit 731 Hancock Street Insurance Corporation Gerard F. Linskey MAIN OFFICE Quincy, MA 02170 (FDIC). Copies of the Form Senior Vice President and 731 Hancock Street 617-479-2265 F-2 without exhibits, our Chief Financial Officer Quincy, MA 02170 Annual Report and Quarterly The Hibernia Savings Bank 617-479-2265 51 Commercial Street Reports may be obtained 730 Hancock Street Braintree, MA 02184 without charge upon written Quincy, MA 02170 BRANCH OFFICES 617-356-8246 request to: 617-479-5001 101 Federal Street Boston, MA 02110 TRANSFER AGENT & REGISTRAR Attention: Gerard F. Linskey ANNUAL MEETING 617-345-0441 Chemical Mellon Senior Vice President and The annual meeting of the Shareholder Services LLC Chief Financial Officer stockholders of the Bank 51 Commercial Street 85 Challenger Road The Hibernia Savings Bank will be held at 10:00 a.m. Braintree, MA 02184 Overpeck Centre 730 Hancock Street Monday, April 29, 1996, at 617-848-5560 Ridgefield Park, NJ 07660 Quincy, MA 02170 the Sheraton Tara Hotel, 1-800-288-9541 37 Forbes Road, Braintree, 1150 Washington Street TRADING OF COMMON STOCK Massachusetts. Weymouth, MA 02189 INDEPENDENT PUBLIC The Hibernia Savings Bank 617-331-0893 ACCOUNTANTS Common Stock is traded Arthur Andersen LLP over-the-counter on the 274 Main Street One International Place NASDAQ National Market Hingham, MA 02043 100 Oliver Street System under the symbol 617-740-4830 Boston, MA 02110 HSBK 617-330-4000 397 Washington Street Stoughton, MA 02072 LEGAL COUNSEL 617-297-3550 Roche, Carens & DeGiacomo One Post Office Square Quincy High School Boston, MA 02109 52 Coddington Street 617-451-9300 Quincy, MA 02169 617-472-2404
THE HIBERNIA SAVINGS BANK - ----------------------------------Cead Mile Failte------------------------------ 731 Hancock St., Quincy * 101 Federal St., Boston * 51 Commercial St., Braintree * 274 Main St., Hingham * 1150 Washington St., Weymouth * 397 Washington St., Stoughton Educational Training Facility: Quincy High School, 52 Coddington St., Quincy Member FDIC/DIF * Equal Housing Lender -----END PRIVACY-ENHANCED MESSAGE-----