<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1994
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-15311
EAGLE FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 06-1194047
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Main Street, Bristol, Connecticut 06010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 589-6300.
Securities registered pursuant to Section 12(b) of the Act:
(Not applicable)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [x]
Based upon the closing price of the registrant's common stock as of
December 20, 1994, the aggregate market value of the voting stock held by
non-affiliates of the registrant is $69.8 million.*
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is:
Class: Common Stock, par value $.01 per share.
Outstanding at December 9, 1994: 4,002,697 shares.
Documents Incorporated By Reference:
Part II:
Annual report to shareholders for the fiscal year ended September 30,
1994.
Part III:
Portions of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on January 24, 1995.
_____________________
* Solely for purposes of this calculation, all executive officers and
directors of the registrant, Employee Stock Ownership Plan and all shareholders
reporting beneficial ownership of more than 5% of the registrant's common stock
are considered to be affiliates.
<PAGE>
PART I
Item 1. Business
General
Eagle Financial Corp. ("Eagle" or the "Company") is the holding company
of Eagle Federal Savings Bank ("Eagle Federal" or the "Bank"). Eagle was
organized in 1986 under Delaware law for the purpose of becoming the holding
company of First Federal Savings and Loan Association of Torrington, Connecticut
("Torrington") upon its conversion to a stock company in 1987. In 1988, BFS
Bancorp, Inc., the holding company of Bristol Federal Savings Bank, Bristol,
Connecticut ("Bristol"), merged into Eagle in a combination structured as a
merger of equals and accounted for as a pooling-of-interests. Bristol had
converted to a stock company in 1987. Torrington and Bristol have operated as
savings institutions since 1919 and 1924, respectively. In January 1993, Eagle
merged Bristol with Torrington under the new name Eagle Federal Savings Bank.
Unless otherwise stated, all references herein to Eagle or the Company include
Eagle Federal and other subsidiaries on a consolidated basis.
Eagle, at September 30, 1994, had total assets of $1.07 billion, net
loans receivable of $810.7 million, deposits of $948.8 million and shareholders'
equity of $66.3 million. Through Eagle Federal, the Company provides consumer
banking services through 23 banking offices in Connecticut, serving the
Torrington, Bristol, Danbury and Hartford market regions. As a community
oriented savings bank, Eagle Federal focuses on the financial needs of its
customers in these local markets, seeking to develop long-term deposit and
lending relationships. In its lending activities, the Bank stresses asset
quality through its emphasis on 1-4 family residential first mortgage lending in
its local markets and the use of conservative loan underwriting standards.
Deposit accounts at the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC").
Eagle's net income has increased each of the previous six fiscal years
from $3.5 million, or $1.17 per share, in fiscal 1989 to $7.6 million, or $2.34
per share, in fiscal 1994.
Eagle intends to continue to concentrate on increasing its earnings,
maintaining high asset quality, meeting customer needs in its existing local
markets, and expanding through selected future acquisitions.
Eagle's principal executive office is located at 222 Main Street, Bristol,
Connecticut 06010 and its telephone number is (203) 584-3600.
Recent Acquisitions. In recent periods, Eagle has significantly
expanded its operations through three federally assisted acquisitions in which
Eagle Federal acquired certain assets and assumed deposit liabilities from the
FDIC or the Resolution Trust Corporation ("RTC"), as shown below. Substantially
all of the loans acquired in these acquisitions consisted of 1-4 family
residential first mortgage loans and home equity loans. In The Bank of Hartford,
Inc. ("Bank of Hartford") acquisition, Eagle Federal also acquired $72.7 million
of investment securities, substantially all of which were U.S. Treasury and
government agency obligations, and loan servicing rights on $80.5 million of
loans with an average loan servicing fee of 0.375%. In addition to these
assisted acquisitions, Eagle Federal in July 1993 purchased from another savings
institution a banking office in Brookfield, Connecticut with $8.2 million in
deposits, and relocated its previously acquired Brookfield office to that
location.
<PAGE>
<TABLE>
<CAPTION>
Banking
Assisted Deposits Loans Intangible Net Cash Offices Acquisition
Acquisition Assumed Acquired Assets Received Acquired Date
----------- ------- -------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Danbury Federal Savings $113.7 $86.8 $1.2 $32.8 6 March 13, 1992
and Loan Association million million million million
Danbury, CT
Brookfield Bank $66.5 --- $561,000 $66.0 1 May 8, 1992
Brookfield, CT million million
Bank of Hartford $272.8 $80.8 $11.3 $112.4 6 June 10, 1994
Hartford, CT million million million million (a)
- -----------------
<FN>
(a) Includes $9.7 million cash receivable from the FDIC.@@
</TABLE>
Eagle has pursued acquisitions which complement its existing operations
and market area. Each of the assisted acquisitions made by the Bank has had a
positive impact on the Company's net income and allowed it to maintain asset
quality. By primarily pursuing assisted acquisitions involving the FDIC or the
RTC, the Company believes that it has successfully expanded at a reasonable cost
and without dilution to shareholder value.
Eagle's expansion strategy is reflected in its recent acquisition of
The Bank of Hartford, which represents a natural extension of Eagle's existing
markets since many residents of Bristol and Torrington commute to the Hartford
area. The Hartford market area is contiguous to Eagle's current market areas,
and has a higher population density and is generally more affluent than the
Bristol and Torrington markets. The Company believes that its expansion into the
Hartford market area creates an additional opportunity for loan originations. In
addition, the combination of size, geographical proximity and cost of the
acquired banking offices is expected to have a positive impact on the Company's
efficiency ratio.
Business. As a holding company, the business operations of Eagle are
conducted through the Bank. The Bank primarily is engaged in the business of
accepting deposits from the general public and using such funds in the
origination of first mortgage loans for the purchase, refinance or construction
of 1-4 family homes. At September 30, 1994, 99.2%, or $814.9 million, of the
Bank's $821.2 million total loans receivable was secured by real estate. The
Bank's real estate loans included $712.0 million of first mortgage loans secured
by 1-4 family residential real estate (86.7% of total loans receivable), $63.0
million of home equity loans, secured by second deeds of trust on residential
real estate (7.6% of total loans receivable), $39.9 million of multi-family,
commercial real estate, and land loans (4.9% of total loans receivable). The
remaining $6.3 million of loans (0.8% of total loans receivable) were consumer
loans, primarily loans secured by deposits and personal loans.
Eagle has experienced increased loan originations (excluding purchased
loans), with $219.9 million of originations in fiscal 1994, compared to $209.9
million in fiscal 1993. Increased loan origination activity during fiscal 1994
is due in substantial part to refinancings of mortgage loans in reaction to
generally low market interest rates. However, as a result of recent increases in
mortgage interest rates, Eagle anticipates a decline in 1-4 family mortgage loan
originations and, beginning in fiscal 1995, intends to implement strategies
which will put additional emphasis on originating commercial real estate loans
within its primary market areas, predominantly on existing structures. This will
involve hiring additional personnel with proven experience in commercial real
estate loan products. Eagle also intends to put additional emphasis on its
multi-family and consumer lending programs. See "Lending Activities -- General."
The marketing of these loans will focus on Eagle's existing customer base, as
well as new relationships within Eagle's primary market areas.
Based on its lending strategy, Eagle has been able to maintain
relatively stable asset quality. Total non-performing assets of Eagle were $10.4
million at September 30, 1992, $12.0 million at September 30, 1993 and $12.3
million (or $9.1 million excluding $3.2 million of non-performing assets
acquired in the Bank of Hartford transaction) at September 30, 1994. At those
dates, non-performing assets constituted 1.81%, 1.81% and 1.51%, respectively,
of total loans receivable and real estate owned. At September 30, 1994, Eagle's
allowance for loan losses totaled $8.3 million, or 104% of total non-performing
loans.
Eagle Federal's funding strategy is focused primarily on developing
core deposits such as regular savings and checking accounts, and attracting
long-term certificates of deposit. The Bank also supplements its retail deposits
with FHL Bank advances.
<PAGE>
Eagle also makes available to its customers various investment products
through Liberty Securities Corporation, a registered broker-dealer not
affiliated with Eagle. These products include mutual funds, unit investment
trusts and fixed- and variable-rate annuity contracts, as well as discount
brokerage services.
Regulation. Eagle, as a unitary thrift holding company, and Eagle
Federal, as its wholly-owned subsidiary, are subject to comprehensive
regulation, supervision and examination by the Office of Thrift Supervision
("OTS"), as the primary federal regulator of the Bank. The FDIC also has
significant regulatory authority over the Bank. The Board of Governors of the
Federal Reserve System ("FRB") has regulatory authority as to certain matters
concerning the Bank. Eagle Federal is a member of the Federal Home Loan Bank
("FHLB") System. FHLB advances are a source of funds for the Bank. See
"Regulation."
Lending Activities
General. Eagle traditionally has concentrated its lending activities on
the origination and purchase of loans secured by first mortgage liens for the
purchase, refinancing or construction of residential real property. At September
30, 1994, mortgage loans, including those secured by 1-4 family residential
units, multi-family residential units, commercial real estate and land,
aggregated $751.9 million or 91.6% of Eagle's loans receivable portfolio. At
September 30, 1993 and 1992, such mortgage loans aggregated $614.5 million, or
92.5%, and $527.7 million, or 91.4%, respectively. The remaining loans in
Eagle's portfolio consist of consumer loans, primarily home equity loans. At
September 30, 1994, over 96.3% of Eagle's loans secured by real estate were
secured by property located in Connecticut. Substantially all of the remaining
real estate secured loans were originated prior to 1982.
<PAGE>
The following tables set forth the composition of the total loan
portfolio of Eagle, in dollar amounts and in percentages at the dates shown, and
a reconciliation of loans receivable, net.
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
-------- ------ -------- ----- --------- ----- -------- ---- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conventional mortgage loans:
1-4 family units:
Permanent. . . . . . . . . $704,912 85.8% $573,165 86.3% $481,804 83.5% $365,159 83.5% $360,654 85.3%
Construction . . . . . . . 7,103 0.9 5,739 0.9 13,225 2.3 8,380 1.9 5,462 1.3
Multi-family units. . . . . 17,513 2.2 18,629 2.8 16,709 2.9 15,453 3.5 12,973 3.0
Commercial real estate. . . 15,862 1.9 11,268 1.6 11,455 2.0 7,260 1.7 6,467 1.5
Land (a). . . . . . . . . . 6,551 0.8 5,735 0.9 4,517 0.8 3,969 0.9 2,886 0.7
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total conventional loans . 751,941 91.6 614,536 92.5 527,710 91.4 400,221 91.5 388,442 91.8
FHA/VA mortgage loans. . . . 2 0.0 3 0.0 5 0.0 8 0.0 12 0.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total mortgage loans . . . 751,943 91.6 614,539 92.5 527,715 91.4 400,229 91.5 388,454 91.8
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Consumer loans:
Secured by deposits . . . . 3,322 0.4 3,490 0.5 3,485 0.6 2,878 0.7 3,237 0.8
Home improvement. . . . . . 458 0.1 402 0.1 411 0.1 484 0.1 521 0.1
Home equity . . . . . . . . 62,977 7.6 43,864 6.6 42,892 7.4 31,871 7.3 28,178 6.7
Education . . . . . . . . . 140 0.1 250 0.1 555 0.1 486 0.1 457 0.1
Personal. . . . . . . . . . 2,204 0.2 1,488 0.2 1,693 0.3 1,064 0.2 1,244 0.3
Automobile. . . . . . . . . 128 0.0 174 0.0 379 0.1 489 0.1 844 0.2
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total consumer loans . . . 69,229 8.4 49,668 7.5 49,415 8.6 37,272 8.5 34,481 8.2
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total loans receivable
(before net items). . . . 821,172 100% 664,207 100.0% 577,130 100.0% 437,501 100.0% 422,935 100.0%
------- ===== ------- ===== ------- ===== ------- ===== ------- =====
Add (deduct):
Unearned discounts and
premiums . . . . . . . . . 183 3 4 5 9
Loans in process. . . . . . 0 (600) (3,518) (2,685) (1,601)
Allowance for loan losses . (8,311) (5,005) (4,011) (1,544) (484)
Deferred loan origination
fees . . . . . . . . . . . (2,339) (2,261) (1,481) (770) (631)
------- ------- ------- ------- -------
Total loans receivable. . $810,705 $656,344 $568,124 $432,507 $420,228
======= ======= ======= ======= =======
<FN>
___________________
(a) Loans for developed building lots, acquisition and development of land and unimproved land.
</TABLE>
<PAGE>
At September 30, 1994, the Company's largest loan relationship
aggregated $8.3 million. That relationship represents seven loans, of which $2.9
million are secured by multi-family properties and $5.4 million are secured by
commercial properties. At that date, the next largest lending relationship was
$3.1 million, representing four loans secured by multi-family residential
properties. Each other lending relationship aggregated less than $3.0 million.
At September 30, 1994, 60.2% of Eagle's net loans receivable portfolio
consisted of adjustable-rate mortgage and home equity loans, compared to 59.0%
and 65.5% at September 30, 1993 and 1992, respectively.
As a result of generally higher mortgage interest rates and a lower
demand for loan refinancing, Eagle anticipates a decline in demand for 1-4
family residential mortgages and, beginning in fiscal 1995, intends to implement
strategies which will put more emphasis on originating commercial real estate
loans, predominantly on existing structures. This will involve hiring additional
personnel with proven experience in commercial real estate loan products. Eagle
also intends to put more emphasis on its multi-family and consumer lending
programs. The marketing of these loans will focus on Eagle's existing customer
base, as well as new relationships within Eagle's primary market areas. By
increasing originations of commercial real estate, multi-family and consumer
loans, Eagle's goal is to increase the yield on its loan portfolio while
offsetting the anticipated decline in 1-4 family residential loan originations.
Eagle also anticipates that these loan products generally will be more
interest-rate sensitive.
At September 30, 1994 commercial real estate loans totaled $15.9
million, consisting of 73 loans with an average balance of $217,000 and secured
by a mix of retail and professional office properties. In order to implement its
anticipated commercial real estate lending strategies, Eagle recently hired an
experienced senior commercial lender and is seeking to hire a commercial loan
credit analyst and support personnel. In the first year of a commercial real
estate lending program, Eagle expects such program to have a negligible impact
on results of operations. Thereafter, commercial real estate lending is expected
to contribute positively to Eagle's net income.
At September 30, 1994, consumer loans totaled $69.2 million and
multi-family loans totaled $17.5 million. Over the next three fiscal years,
Eagle plans to place greater emphasis on these loan products, with a three year
goal to increase consumer loans outstanding by 50% and multi-family loans by
100%. Eagle intends to continue emphasizing home equity loans (91.0% of consumer
loans or 7.6% of total loans before net items at September 30, 1994), as well as
automobile and personal loans. The increase in multi-family loans is expected to
develop from an increase in demand for rental units in Eagle's primary market
areas. As to both consumer and multi-family lending, Eagle intends to utilize
its existing credit programs and personnel, although multi-family lending
personnel will be supplemented by the credit analyst expected to be hired for
commercial real estate lending.
<PAGE>
The following table sets forth certain information at September 30,
1994 regarding the dollar amount of loans maturing in Eagle's loan portfolio
based on scheduled payments to maturity. Demand loans and loans having no stated
schedule of repayments and no stated maturity are reported as due in one year or
less.
<TABLE>
<CAPTION>
Due Due Due
Within 1 to After
1 Year 5 Years 5 Years Total
------ ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Commercial real estate loans..................... $ 22 $ 383 $ 15,457 $ 15,862
Residential construction loans................... 7,103 -- -- 7,103
Residential non-construction loans............... 704 3,721 724,553 728,978
Consumer loans................................... 986 17,815 50,428 69,229
--- ------ ------ ------
Total............................................ $ 8,815 $ 21,919 $ 790,438 $ 821,172
===== ====== ======= =======
</TABLE>
The following table sets forth as of September 30, 1994 the dollar
amount of all loans of Eagle due after one year which have predetermined
interest rates and floating or adjustable interest rates.
<TABLE>
<CAPTION>
Due 1 to 5 Years Due After 5 Years Total
---------------------------- ---------------------------- ----------------------------
Floating or Floating or Floating or
Predetermined Adjustable Predetermined Adjustable Predetermined Adjustable
Rates Rates Rates Rates Rates Rates
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial real
estate loans......... $ 163 $ 220 $ 3,118 $ 12,339 $ 3,281 $ 12,559
Residential non-
construction loans... 2,830 892 329,414 395,138 332,244 396,030
Consumer loans........ 6,350 11,465 13,435 36,993 19,785 48,458
-------- -------- -------- -------- ---------- --------
Total................. $ 9,343 $ 12,577 $345,967 $444,470 $ 355,310 $457,047
======== ======== ======== ======== =========== ========
</TABLE>
At September 30, 1994 Eagle had total nonperforming assets in the
amount of $12.3 million, or 1.15% of total assets, including $8.0 million in
nonperforming loans (i.e., loans delinquent for 90 days or more) and $4.3
million in real estate owned and in-substance foreclosures. The ratio of
nonperforming loans to total assets was .75% at that date.
One-to-Four Family First Mortgage Loans. At September 30, 1994, first
mortgage loans (including construction loans) secured by one-to-four family
homes comprised 86.7% of Eagle's portfolio, before net items. The savings and
loan and mortgage banking industries have generally used a 12- year average loan
life as an approximation in calculations calling for a prepayment assumption.
Management believes that the loan prepayment experience of Eagle has
approximated the 12-year average loan life assumption. From time to time Eagle
has experienced more rapid loan prepayments, primarily during periods of, and as
a result of, a rapid decline in mortgage interest rates.
Federally chartered institutions, such as Eagle Federal, have
substantial flexibility in structuring the terms of mortgage loans to adjust to
changes in interest rates. Federal regulations permit mortgage loans to be
written for varying maturities and at adjustable and fixed interest rates. See
"Lending Activities -- Purchase and Sale of Loans and Loan Servicing."
Eagle currently offers a one-year adjustable-rate loan with a limit on
the maximum change per interest-rate adjustment of 2% and a limit on the total
interest-rate adjustments during the life of the loan ranging from 5.0% to 6.0%
depending on the initial rate of the loan. Eagle also offers three-to-one and
five-to-one loans which have an initial loan rate for three and five years,
respectively, after which the loans convert to a one-year adjustable-rate loan.
Once these loans have converted, they have a 2% limit on the maximum change per
interest-rate adjustment and a 5% limit on the total interest-rate adjustments
over the life of the loan. Interest-rate adjustments currently are based on
changes in the rates on comparable maturity U.S. Treasury securities. There are
no prepayment penalties for any of these adjustable-rate loans. Origination fees
ranging from no fees to 2% of the loan amount are charged on such loans.
<PAGE>
Although adjustable-rate mortgage loans allow Eagle to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest-sensitivity is limited by the interest-rate "caps" contained in
adjustable-rate loans. The terms of such loans may also increase the likelihood
of delinquencies in periods of high interest rates, particularly if such loans
are originated at discounted interest rates. Under regulations adopted by the
Federal Reserve Board, although no specific interest rate limit is set, lenders
are required to impose interest-rate caps on all adjustable-rate mortgage loans
and all dwelling-secured consumer loans, including home equity loans, which
provide for interest-rate adjustments.
The rates offered on adjustable-rate mortgage loans are set at levels
that are intended to be competitive in the market areas served by Eagle and to
produce a yield that provides an acceptable first-year profit margin over the
cost of funds. Eagle from time to time offers mortgage loans at an initial,
discounted interest rate (i.e., a rate which is less than the then-current index
plus margin) until the first loan repricing period, at which time the interest
rate generally is adjusted to equal the index plus margin. Eagle generally
qualifies the borrower at the rate which would be in effect after one year,
assuming the maximum upward adjustment. At September 30, 1994, Eagle did not
have residential mortgage loans with balloon payments or any negative
amortization or equity participation loans in its portfolio.
Most of the fixed-rate mortgage loans originated by Eagle include a
"due-on-sale" clause, which is a provision giving Eagle the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid. Due-on-sale clauses are an important means
of increasing the rate on existing fixed-rate mortgage loans during periods of
rising interest rates, and Eagle actively enforces such clauses.
Multi-Family Residential and Commercial Mortgage Loans. Eagle also
makes loans secured by mortgages on multi-family residential and commercial
properties and land loans. At September 30, 1994, these loans totaled $39.9
million or 4.9% of the total loan portfolio, before net items. Multifamily
residential loans generally are originated on a one-year, adjustable rate basis.
Commercial real estate loans, secured by properties such as office buildings,
are generally one-year or three-year adjustable rate loans, and the interest
rates and fees are often negotiated with the borrower.
Loans secured by commercial and multi-family residential properties can
involve greater risks than single-family residential mortgage lending. Such
loans generally are substantially larger than single-family residential mortgage
loans, and repayment of the loan generally depends on cash flow generated by the
property. Because the payment experience on loans secured by such property is
often dependent on successful operation or management of the security property,
repayment of the loan may be subject to a greater extent to adverse conditions
in the real estate market or the economy generally than is the case with one- to
four-family residential mortgage loans. The commercial real estate business is
cyclical and subject to downturns, overbuilding and local economic conditions.
Eagle seeks to limit these risks in a variety of ways, including, among others,
limiting the size of its commercial and multi-family real estate loans,
generally requiring a personal guaranty from the borrower, limiting such loans
to a lower maximum loan-to-value ratio and generally lending on the security of
property located within its market areas. At September 30, 1994, multi-family
residential and commercial real estate loans comprised 2.2% and 1.9%,
respectively, of the total loan portfolio, before net items, compared to 2.8%
and 1.6%, respectively, at September 30, 1993.
Construction Loans. Eagle makes a limited number of construction loans
to individuals and, to a lesser extent, to professional builders who wish to
construct one-to-four family residential properties, either as a primary
residence or for investment or resale. The construction loans made by Eagle are
typically construction/permanent loans that automatically convert to a permanent
first mortgage loan at the end of the construction phase. At September 30, 1994,
construction loans totaled $7.1 million or 0.9% of the total mortgage loan
portfolio of Eagle, before net items, compared to $5.7 million or 0.9% at
September 30, 1993.
<PAGE>
Consumer Loans. At September 30, 1994, the consumer and second mortgage
loan portfolio of Eagle included loans secured by deposit accounts, home
improvement and home equity loans, education, personal and automobile loans and
totaled $69.2 million or 8.4% of the total loan portfolio of Eagle before net
items. The home equity loans and home improvement loans are secured by the
equity in a borrower's home.
Loan Originations. Loan originations come from a number of sources.
Residential loan originations are attributable primarily to walk-in customers
and referrals from real estate brokers and builders. From time to time Eagle
also originates mortgage loans through independent mortgage brokers in
Connecticut.
Eagle's adjustable rate mortgage loans are secured by property located
primarily in Connecticut and are serviced by Eagle Federal. Short-term
construction loan originations are obtained primarily from builders who have
previously borrowed from Eagle Federal. Multi-family and commercial real estate
loan originations are currently obtained primarily from direct contacts with
Eagle. Eagle seeks to attract consumer loans by direct advertising and
solicitation of its customers. Loan originations (excluding purchased loans and
participations) were $219.9 million for the year ended September 30, 1994
compared to $209.9 million in fiscal 1993. Loan originations increased during
1994 due in large part to the high level of refinanced loan activity prompted by
the low interest rate market. Also, in June 1994, the Bank acquired $80.8
million of loans in the Bank of Hartford transaction. See "Lending Activities --
Purchase and Sale of Loans and Loan Servicing" for information regarding Eagle's
loan purchases.
Eagle makes single-family conventional first mortgage loans with up to
a 95% loan-to-value ratio. In the case of loans with a higher loan-to-value
ratio than 80%, the policy of Eagle is to require private mortgage insurance for
a specified percentage of the amount of the outstanding principal balance of the
loan. Eagle makes multi-family and commercial real estate loans with up to a 75%
loan-to-value ratio. See "Lending Activities -- Purchase and Sale of Loans and
Loan Servicing."
All property securing real estate loans originated by Eagle is
appraised by one of several professionally qualified appraisers who have been
pre-approved by Eagle. For all real estate loans, Eagle requires the borrower to
obtain fire and extended casualty insurance and, where appropriate, flood
insurance and loss of rents coverage. Eagle also requires either title insurance
or a title opinion from an attorney experienced with title matters.
Eagle issues 30 to 90-day commitments to prospective borrowers to make
loans subject to various conditions. Loan commitments generally are issued for
long-term loans to finance residential properties and for construction and
combined construction/permanent loans secured by multi-family residential and
commercial properties. With respect to adjustable rate, single-family
residential loans, it is the practice of Eagle to make commitments to lend at
the rate of interest and the loan origination fee quoted to the borrower at the
time of application. The proportion of the total value of commitments derived
from any particular category of loan varies from time to time and depends on
market conditions. At September 30, 1994 and September 30, 1993, loan
commitments of $46.0 million and $36.8 million, respectively, were outstanding.
These amounts include approximately $24.9 million and $19.5 million,
respectively, in unadvanced home equity credit lines. The $24.9 million of loan
commitments outstanding at September 30, 1994, which includes the unadvanced
portion of home equity credit lines, represented only local originations.
Eagle encounters certain environmental risks in its lending activities.
Under federal and state environmental laws, lenders may become liable for the
costs of cleaning up hazardous materials found on security properties. Certain
states may also impose liens with higher priorities than first mortgages on
properties to recover funds used in such efforts. Although the foregoing
environmental risks are more usually associated with industrial and commercial
loans, environmental risks may be substantial for residential lenders, like
Eagle Federal, since environmental contamination may render the security
property unsuitable for residential use. In addition, the value of residential
properties may become substantially diminished by contamination of nearby
properties. In accordance with the guidelines of FNMA and FHLMC, appraisals for
single-family homes on which Eagle Federal lends include comment on
environmental influences and conditions. Eagle attempts to control its exposure
to environmental risks with respect to loans secured by larger properties by
training its underwriters to recognize the signs of environmental problems when
they inspect properties; by requiring borrowers to represent and warrant that
properties securing loans do not contain hazardous waste, asbestos or other such
substances; by requiring borrowers to indemnify the lending bank, with personal
recourse, against environmental losses; by obtaining environmental reviews and
tests on all loans secured by nonresidential properties. No assurance can be
given, however, that the value of properties securing loans in Eagle's portfolio
will not be adversely affected by the presence of hazardous materials or that
future changes in federal or state laws will not increase Eagle's exposure to
liability for environmental cleanup.
<PAGE>
Purchase and Sale of Loans and Loan Servicing. Because available funds
may from time to time exceed local loan demand, Eagle purchases mortgage loans
and loan participations secured primarily by one-to four family residential
properties throughout the United States although loan purchases in recent years
have been minimal. The purchase of loans reduces certain administrative costs
related to originating and servicing loans, and the purchase of adjustable rate
loans has increased the interest sensitivity of the loan portfolio of Eagle. In
June 1994, Eagle Federal acquired from The Bank of Hartford, $80.8 million of
loans (substantially all of which were 1-4 family first mortgage and home equity
loans) and an additional $3.5 million allowance for loan losses recorded in
connection with such loans. Additionally, there were $2.5 million of loans
purchased in 1994 and no loans purchased in fiscal 1993. At September 30, 1994,
$29.6 million, or 3.6% of total loans receivable, before net items, consisted of
purchased loans and loan participations, compared to 5.3% at September 30, 1993
and 7.3% at September 30, 1992.
There can be significant risks associated with the purchase of loans
secured by properties located outside a savings institution's local lending
territory. The purchaser may be unfamiliar with the local economy in the area
where the security properties are located and is generally dependent on the loan
seller to service the loan and deal with delinquencies and foreclosures. In
order to reduce the risks associated with purchased loans, Eagle employs a
variety of criteria in evaluating the possible purchases of loans. Under such
criteria, Eagle seeks to purchase loans: (i) in diverse geographic areas; (ii)
secured by one-to-four family, owner-occupied residences; and (iii) generally in
accordance with underwriting standards set by FNMA and FHLMC. Each loan proposed
for purchase is generally reviewed to determine whether the loan complies with
underwriting practices, and a physical inspection of properties is made where
management believes such inspection is warranted. In addition, loans are
generally purchased from many different sellers, including other savings
institutions and mortgage companies.
In recent years, Eagle generally has discontinued its practice of
purchasing real estate development loans and participations. A limited amount of
loans of this type were purchased in 1984, and at September 30, 1994 real estate
acquired through foreclosure (or by deed in lieu of foreclosure) included no
property resulting from these out-of-state real estate development loan
purchases. Of the $29.6 million of purchased loans and loan participations in
Eagle's loan portfolio at September 30, 1994, approximately $26.6 million or
89.9% were secured by one- to-four family residential properties.
As of September 30, 1994, $29.6 million, or 3.6%, of Eagle's total loan
portfolio was serviced by others. In addition to servicing its own loans, Eagle
services loans owned by others, which loans had a balance at September 30, 1994
and 1993 of $95.1 million and $11.8 million, respectively. Included in the
September 30, 1994 balance of loans serviced for the benefit of others are
approximately $80.5 million of mortgage loans for which Eagle purchased
servicing rights in connection with the Bank of Hartford acquisition. Servicing
fees have not historically been a significant source of income for Eagle.
<PAGE>
While Eagle has not sold a significant amount of loans in recent years,
the Company sold $10.0 million of residential, fixed rate mortgage loans to the
Federal Home Loan Mortgage Corporation in fiscal 1994. The primary purpose for
the loan sale was to maintain an acceptable level of fixed rate loans in Eagle's
overall loan portfolio.
The table below shows Eagle's mortgage loan origination, purchase, sale
and repayment activities for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Mortgage loan originations and purchases:
Loans originated:
Permanent:
1-4 family units..................................................... $ 138,779 $ 152,292 $ 88,662
Multi-family units................................................... 316 4,293 2,348
Non-residential...................................................... -- 2,299 4,231
Land................................................................. 2,836 1,903 2,200
------- ------- -------
Total permanent loans............................................... 141,931 160,787 97,441
------- ------- -------
Refinancing *......................................................... 42,705 29,189 31,612
------- ------- -------
Construction:
1-4 family units..................................................... 19,166 3,068 19,616
Non-Residential...................................................... 500 -- 700
------- ------- -------
Total construction loans............................................ 19,666 3,068 20,316
------- ------- -------
Total mortgage loans originated..................................... 204,302 193,044 149,369
------- ------- -------
Loans purchased:
Participations........................................................ 2,507 -- --
Whole loans........................................................... -- -- --
Loans purchased through acquisition................................... 60,180 -- 72,657
------- ------- -------
Total loans purchased............................................... 62,687 -- 72,657
------- ------- -------
Total mortgage loans originated and purchased....................... 266,989 193,044 222,026
------- ------- -------
Mortgage loan principal reductions:
Loans sold............................................................ 10,009 -- --
Principal reductions.................................................. 113,240 98,507 94,450
------- ------- -------
Total mortgage loans sold and principal reductions.................. 123,249 98,507 94,450
------- ------- -------
Increase in mortgage loans receivable (before net items)................ $ 143,740 $ 94,537 $ 127,576
======= ======= =======
<FN>
_____________________
* Consists of loans originated in connection with the refinancing of existing loans from Eagle. The
corresponding pay-off of the original loan is included in the table under "principal reductions."
</TABLE>
<PAGE>
Consumer Loan Activities. The following table shows consumer loan
originations and principal reductions of Eagle for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loan originations:
Secured by deposits................................................... $ 2,219 $ 2,655 $ 2,276
Home improvement...................................................... 236 113 134
Home equity........................................................... 11,510 12,472 10,538
Education............................................................. 6 182 371
Automobile and personal............................................... 1,631 1,435 790
------- ------- -------
Total originations................................................... 15,602 16,857 14,109
Loans purchased through acquisition................................... 20,596 -- 12,426
------- ------- -------
Total loan originations and purchase................................. 36,198 16,857 26,535
------- ------- -------
Loan principal reductions:
Secured by deposits................................................... 2,387 2,650 2,351
Home improvement...................................................... 180 122 207
Home equity........................................................... 11,653 11,500 10,317
Education*............................................................ 116 487 301
Automobile and personal............................................... 2,301 1,845 1,216
------- ------- -------
Total principal reductions........................................... 16,637 16,604 14,392
------- ------- -------
Increase in consumer loans.............................................. $ 19,561 $ 253 $ 12,143
======= ======= =======
<FN>
________________________
* Includes loans sold of $1,087,000 in fiscal 1994, $698,000 in fiscal
1993 and $644,000 in fiscal 1992.
</TABLE>
Fee Income from Lending Activities. Currently, Eagle charges
origination fees ranging from no fee to 2% of the amount of the loan, depending
on the type of loan involved. Higher fees may be charged for construction
financing or for loans secured by properties which are not owner-occupied. Fees
for loan modifications, late payments, changes of property ownership and for
related miscellaneous services are also charged. Income realized from these
activities can vary significantly with the volume and type of loans in the
portfolio and in response to competitive factors.
Loan origination fees and certain direct loan origination costs are
being deferred and the net amount amortized as an adjustment to the related
loan's yield. This amount is generally amortized over the contractual life of
the related loans. At September 30, 1994, Eagle had deferred net loan fees of
$2.3 million.
Usury Limitations. Federal legislation first enacted in 1980 has
preempted all state usury laws concerning residential first mortgage loans
unless the state legislature acted to override the preemption by April 1, 1983.
The Connecticut State Legislature did not act to override the federal
preemption. Connecticut law imposes no ceiling on interest rates on the types of
loans currently originated by Eagle Federal.
Non-performing Assets
All mortgage and home equity loans generally are placed on a
non-accrual basis when a loan is contractually delinquent for more than three
complete calendar months, when collectability is doubtful or when legal action
has been instituted. Unsecured consumer loans are placed on a non-accrual basis
when a payment default has existed for more than 60 days or when collectability
is doubtful or when legal action has been instituted; such loans are fully
charged-off when a payment default has existed for 90 days.
<PAGE>
At September 30, 1994, the Company's total non-performing assets,
including non-performing (or non-accrual) loans, real estate owned as a result
of foreclosure or deed in lieu thereof and in-substance foreclosures, was $12.3
million or 1.15% of total assets. Non-performing assets were $9.1 million or
.85% of total assets (without giving effect to the $3.2 million of
non-performing assets relating to the Bank of Hartford transaction). This
compares to non-performing assets of $12.0 million, or 1.51% of total assets, at
September 30, 1993 and $10.4 million, or 1.38% of total assets, at September 30,
1992. Exclusive of the non-performing assets acquired in the Bank of Hartford
transaction, the amount of non-performing assets has declined during fiscal
1994. Management believes this trend reflects the stabilization in the real
estate market and economy in Connecticut over the past 12-18 months.
The following table sets forth information regarding Eagle's
non-performing assets at the dates indicated. At each date indicated, Eagle had
no troubled debt restructurings.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
non-accrual basis:
Mortgage loans:
Residential $ 6,596 $ 5,407 $ 2,801 $ 4,997 $ 3,150
Multi-family and commercial 169 196 513 -- --
Consumer loans 17 18 49 20 15
Home equity loans 1,227 871 633 673 507
Accruing loans 90 or more days
past due -- -- -- -- 11
Real estate acquired through
foreclosure and in-substance
foreclosures, net 4,310 5,471 6,403 3,811 705
------- ------- ------- ------- -------
Total non-performing assets $12,319 $11,963 $ 10,399 $ 9,501 $ 4,388
======= ======= ======= ======= =======
Non-performing assets to
loans receivable, net and
real estate owned 1.51% 1.81% 1.81% 2.18% 1.04%
Non-performing assets to
total assets 1.15% 1.51% 1.38% 1.81% 0.91%
Net charge-offs to average loans
receivable, net (for the period) 0.20% 0.11% 0.19% 0.14% 0.11%
</TABLE>
At September 30, 1994, non-performing assets (including the $3.2
million relating to the Bank of Hartford transaction) included $8.0 million in
non-performing loans (consisting of loans delinquent 90 days or more) and $4.3
million in real estate owned and in-substance foreclosures. Approximately
$37,000 in interest income was recognized on non-performing loans during the
year ended September 30, 1994. If these loans had been performing in accordance
with their original terms, approximately $503,000 would have been received
during fiscal 1994. At September 30, 1993, non-performing assets included $6.5
million in non-performing loans and $5.5 million in real estate owned and
in-substance foreclosures. At September 30, 1992, non-performing assets included
$4.0 million in non-performing loans and $6.4 million in real estate owned and
in-substance foreclosures.
<PAGE>
Although the level of non-performing loans declined in the year ended
September 30, 1994 (before giving effect to the non-performing loans acquired in
the Bank of Hartford transaction), management expects a number of the
non-performing loans to become real estate owned. The overall level of real
estate owned will depend on the number of loans which can be resolved prior to
foreclosure and the ability of Eagle to sell properties which it owns. The
Company strives to aggressively market properties and has been able to decrease
the level of real estate owned during fiscal 1994.
With respect to mortgage loans, when a borrower fails to make a
required payment by the 15th day after payment is due, Eagle attempts to cause
the deficiency to be cured by corresponding with the borrower. If the deficiency
continues, Eagle corresponds further with the borrower and, through telephone
calls and letters, attempts to determine the reason for and cure the
delinquency. If the deficiency cannot be cured, Eagle generally institutes
appropriate legal action through an approved collection attorney. Real estate
acquired through foreclosure or by deed in lieu of foreclosure is placed on the
books at the lower of the carrying value of the loan or the fair market value of
the real estate based upon a current appraisal, less selling costs. Any
reduction below the value previously recorded on the books is charged against
income or against a valuation reserve. Any loss in excess of the reserve is
charged against income. With respect to consumer loans, the borrower receives
correspondence from Eagle after the loan is 10 to 15 days past due. If it
appears, after further communications with the borrower, that the delinquency
cannot be cured, legal action is instituted. These procedures may be accelerated
further in certain cases, such as chronic delinquencies or unsecured loans.
At September 30, 1994, real estate acquired in settlement of loans and
in-substance foreclosures had a book balance of $4.3 million, most of which is
in residential properties except for three local pieces of commercial real
estate with an aggregate book value of $486,000.
Allowance for Loan Losses
At September 30, 1994, Eagle's allowance for loan losses totaled $8.3
million, compared to $5.0 million at September 30, 1993, and $4.0 million at
September 30, 1992. During the year ended September 30, 1994, in addition to a
$1.2 million provision for loan losses, Eagle increased the allowance by $3.5
million in connection with the acquisition of $80.6 million of loans in the Bank
of Hartford transaction. During fiscal 1992, in addition to a $1.6 million
provision for loan losses, Eagle increased the allowance by $1.8 million in
connection with the acquisition of $86.8 million of loans in the Danbury Federal
transaction.
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period............ $ 5,005 $ 4,011 $ 1,544 $ 484 $ 196
Loans charged-off:
1-4 family mortgage loans............... (942) (332) (891) (487) (1)
Multi-family, commercial real
estate and land loans.................. (496) (582) (249) (70) 0
Consumer loans.......................... (68) (44) (10) (64) (4)
------- ------- ------- ------ -----
Total loans charged off............... (1,506) (958) (1,150) (621) (5)
Recoveries:
1-4 family mortgage loans............... 110 235 192 23 12
Multi-family, commercial real
estate and land loans.................. 0 7 18 6 0
Consumer loans.......................... 2 2 2 0 0
------- ------- ------- ------ -----
Total recoveries...................... 112 244 212 29 12
------- ------- ------- ------ -----
Net charge-offs...................... (1,394) (714) (938) (592) 7
------- ------- ------- ------ -----
Provision for loan losses................. 1,200 1,708 1,646 1,652 281
Allowance acquired through purchase....... 3,500 -- 1,759 -- --
------- ------- ------- ------ -----
Balance at end of period.................. $ 8,311 $ 5,005 $ 4,011 $ 1,544 $ 484
------- ------- ------- ------ -----
Ratio of net charge-offs to average
loans outstanding during the
period.................................. 0.20% 0.11% 0.19% 0.14% --
Allowance for loan losses to loans
receivable (at period end).............. 1.03 0.76 0.70 0.36 0.12%
Allowance for loan losses to
non-performing loans (at period end).... 104 77 100 27 13
</TABLE>
Management monitors the adequacy of the allowance for loan losses and
periodically makes additions in the form of provisions for loan losses based
upon an ongoing assessment of the loan portfolio. These provisions are based on
an evaluation of the loan portfolio, past loan loss experience, current market
and economic conditions, volume, growth and composition of the loan portfolio,
and other relevant factors. The provisions are computed quarterly based on a
review of the loan portfolio. The additional $3.5 million and $1.8 million of
allowance for loan losses that were booked as part of The Bank of Hartford and
Danbury Federal transactions, respectively, were based on management's
evaluation of the loans acquired in these transactions. Such evaluation included
an analysis of the loss on all delinquent loans as well as the risk of the
remaining 1-4 family and consumer loans acquired. The additional allowances were
accounted for as an adjustment to the premium paid by Eagle in The Bank of
Hartford and Danbury Federal transactions.
<PAGE>
The following table presents an allocation of Eagle's allowance for
loan losses by loan category and presents the percent of each loan category to
the total loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
1-4 family mortgage loans................. $ 6,231 $ 4,234 $ 3,438 $ 885 $ 379
86.7% 87.2% 85.7% 85.4% 86.6%
Multi-family, commercial real estate
and land loans.......................... $ 803 $ 492 $ 319 $ 399 $ 23
4.9% 5.3% 5.7% 6.1% 5.2%
Consumer loans............................ $ 1,277 $ 279 254 260 82
8.4% 7.5% 8.6% 8.5% 8.2%
---- --- --- --- ---
Total allowance for loan losses........ $ 8,311 $ 5,005 $ 4,011 $ 1,544 $ 484
===== ===== ===== ===== ===
</TABLE>
The ratio of allowance for loan losses to non-performing loans was
104%, 77% and 100% at September 30, 1994, September 30, 1993 and September 30,
1992, respectively. This coverage ratio will vary from time to time based upon
the composition of, and management's analysis of the risk elements in the loan
portfolio, as well as the composition of problem loans. The allowance for loan
losses is not based on a percentage of non-performing loans, but on the total
portfolio classified by risk group plus estimated losses on individual problem
loans.
The following table sets forth the amount of accruing loans delinquent
60-89 days, the amount of non-accrual loans, the balance of the Company's
allowance for loan losses and the coverage ratio of such allowance to the total
of loans at the dates indicated. See "-Non-performing Assets" above for
definition of non-accrual loans.
<TABLE>
<CAPTION>
At September 30,.
1994 1993 1992
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Accruing loans delinquent 60-89
days................................ $ 1,480(a) $ 2,412 $ 2,332
Non-accrual loans..................... 8,009(b) 6,492 3,996
--------- -------- -------
Total................................. $ 9,489 $ 8,904 $ 6,328
========= ======== =======
Allowance for loan losses............. $ 8,311(c) $ 5,005 $ 4,011
Coverage ratio........................ 87.6% 56.2% 63.4%
<FN>
_________________
(a) Includes $440,000 of loans delinquent 60-89 days or more acquired in the
Bank of Hartford transaction.
(b) Includes $3.2 million of non-performing loans acquired in the Bank of
Hartford transaction.
(c) Includes an additional $3.5 million of allowance for loan losses established
as part of the Bank of Hartford transaction.
</TABLE>
At September 30, 1994, loans delinquent 60 days or more (including
non-performing loans) totaled $5.9 million (before giving effect to $3.6 million
of such loans acquired in the Bank of Hartford transaction), compared to $8.9
million at September 30, 1993 and $6.3 million at September 30, 1992. Eagle's
progress in reducing loans delinquent 60 days or more during fiscal 1994 is
attributable to a stabilized Connecticut economy coupled with the Bank's
increased collection efforts earlier in the collection cycle.
Various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for losses on loans and real
estate owned. Such agencies may require the Bank to recognize additions to the
allowances based on their judgments of information available to them at the time
of their examination. The OTS completed a regularly scheduled examination of the
Bank during 1994 and no changes to the allowance for loan losses were required
at that time.
<PAGE>
Investment Activities
Federally chartered savings institutions have authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of federal agencies, certificates of deposit of federally insured
banks and savings institutions, bankers' acceptances and federal funds. Subject
to various restrictions, federally chartered savings institutions may also
invest a portion of their assets in commercial paper, corporate debt securities,
and mutual funds whose assets conform to the investments that a federally
chartered savings institution is otherwise authorized to make directly. Federal
laws and regulations also require savings institutions to maintain liquid assets
at minimum levels which vary from time to time. See "Regulation -- Savings
Institution Regulation -- Liquidity." Eagle Federal purchases debt securities
with the intent and the ability to hold such securities to maturity for the
purpose of earning interest income.
Eagle, as a Delaware corporation, has authority to invest in any type
of investment permitted under Delaware law. As a savings and loan holding
company, however, Eagle's investments are subject to certain regulatory
restrictions described under "Regulation -- Savings and Loan Holding Company
Regulation." Eagle Federal maintains an investment portfolio that provides not
only a source of income but also a source of liquidity to meet lending demands
and fluctuations in deposit flows. The relative mix of investment securities and
loans in these investment portfolios is dependent upon management's judgment
from time to time as to the attractiveness of yields available on loans as
compared to investment securities. Neither Eagle, nor Eagle Federal invest in
below-investment grade corporate bonds and notes.
The Company's total holdings of mortgage-backed and investment
securities increased to $182.9 million at September 30, 1994 from $88.4 million
at September 30, 1993, having previously decreased from $117.7 million at
September 30, 1992. The increase from fiscal year end 1993 to 1994 reflects the
purchase of investment securities funded with matching FHLB advances, as well as
the acquisition of $72.7 million of investment securities, substantially all of
which are U.S. Treasury and agency securities, in the Bank of Hartford
transaction. The decrease from fiscal year end 1992 to 1993 reflects the use of
proceeds from maturities and amortization, as well as the sale of $12.0 million
of investment securities, to fund the Bank's strong loan origination activity in
1993.
The Company's investment securities portfolio at September 30, 1994 was
comprised primarily of U.S. Treasury and government agency securities and other
investment securities rated in the top grade by at least one nationally
recognized rating agency. Mortgage-backed securities are investments generally
secured by pools of government-insured or government-guaranteed, fixed rate or
adjustable rate mortgage loans. The payments of interest and principal on such
loans are passed through to the securities holders after deducting a servicing
fee. The collateralized mortgage obligation portion of the investment portfolio
contains no derivative investment securities such as interest only tranches,
principal only tranches or strips. The mortgage-backed securities held by Eagle
are subject to interest rate and prepayment risks customarily associated with
such securities. The average weighted life of mortgage-backed securities will
differ from contractual maturities, depending upon the rate of prepayments.
Borrowers on the underlying mortgages may have the right to prepay their loans
with or without prepayment penalties. In a declining interest rate environment,
more borrowers than would otherwise be anticipated may choose to prepay their
loans in order to refinance the loans at lower rates. As a result, the actual
yield on mortgage-backed securities may be less than the expected yields based
upon prepayment experience.
At September 30, 1994, there were no investments in any issuer,
excluding securities of the U.S. government and its agencies and corporations,
the aggregate book value or market value of which exceeded 10% of Eagle's
shareholders' equity.
<PAGE>
The following table sets forth the composition of Eagle's
mortgage-backed and investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------------
1994 1993 1992
--------------------- ---------------------- -----------------------
Book % of Book % of Book % of
Value Portfolio Value Portfolio Value Portfolio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment Securities:
U.S. Treasury securities.......... $ 12,834 7.0% $ 4,098 4.6% $ 6,003 5.1%
U.S. government agencies
and corporations................. 14,018 7.6 8,993 10.2 13,344 11.3
Collateralized mortgage
obligations...................... 47,357 25.8 23,223 26.3 39,412 33.5
Other bonds and notes............. 23,040 12.6 10,566 11.9 13,907 11.8
Mutual fund and marketable
equity securities................ 17,615 9.6 15,599 17.7 13,353 11.4
Mortgage-backed securities.......... 68,706 37.4 25,953 29.3 31,652 26.9
------- ------ ------- ------ ------- ------
Total book value of
portfolio....................... 183,570 100.0% 88,432 100.0% 117,671 100.0%
====== ====== ======
Less net unrealized loss on
mutual funds and marketable
equity securities................. (679) -- --
Total net book value of
portfolio....................... $182,891 $ 88,432 $117,671
======== ========= ========
Total market value of
portfolio....................... $179,388 $ 90,303 $120,373
</TABLE>
The following table sets forth the maturities of Eagle's mortgage-
backed and investment securities at September 30, 1994 and the weighted
average yields of such securities. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Within One Year Within Five Years Within 10 Years After 10 Years
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities:
U.S. Treasury securities.......... $ 6,536 5.16% $ 6,298 6.23% $ -- -- % $ -- -- %
U.S. government agencies
and corporations................. 998 5.60 11,020 6.51 -- -- 2,000 7.75
Collateralized mortgage
obligations...................... -- -- 3,680 6.57 68 7.18 43,609 6.26
Other bonds and notes............. 2,306 6.33 11,267 6.27 1,826 6.49 7,641 5.59
Mutual fund and marketable
equity securities, net........... -- -- -- -- -- -- -- --
------ ------ ------- ----- ------- ----- -------- -----
Total investment securities..... 9,840 5.48 32,265 6.38 1,894 6.51 53,250 6.22
Mortgage-backed securities......... -- -- 7,858 6.78 12,301 7.06 48,547 7.51
------ ------ ------- ----- ------- ----- -------- -----
Total mortgage-backed
and investment securities...... $ 9,840 5.48% $ 40,123 6.46% $ 14,195 6.99% $ 101,797 6.83
====== ====== ======= ===== ======= ===== ======== =====
</TABLE>
<PAGE>
The aggregate carrying amounts and market values of Eagle's
mortgage-backed and investment securities at September 30, 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
---------- ---------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Investment Securities:
U.S. Treasury securities.................. $ 12,834 $ 3 $ 38 $ 12,799
U.S. government agencies and
corporations............................. 14,018 10 157 13,871
Collateralized mortgage obligations....... 47,357 32 1,398 45,991
Other bonds and notes..................... 23,040 18 491 22,567
Mutual fund and marketable
equity securities, net................... 16,936 -- -- 16,936
Mortgage-backed securities.................. 68,706 44 1,526 67,224
------- --- ------ -------
Total mortgage-backed and
investment securities, and
securities available for sale.......... $ 182,891 $ 107 $ 3,610 $ 179,388
======= === ====== =======
</TABLE>
Sources of Funds
General. Deposits are the primary source of funds for use in the
lending and investment activities of Eagle. In addition, funds are derived from
loan payments (including interest, amortization of principal and prepayments),
earnings on investments, maturing investments and FHL Bank advances.
Historically, Eagle has not relied on sales of loans and investment securities
as sources of funds. Loan repayments are a relatively stable source of funds,
while deposit inflows and outflows are significantly influenced by prevailing
interest rates on alternative products and general economic conditions.
Borrowings may be used on a short-term basis to compensate for reductions in
normal sources of funds or on a longer term basis to support expanded lending
activities.
<PAGE>
Deposits increased to $948.8 million at September 30, 1994 from $706.2
million at September 30, 1993 and $677.7 million at September 30, 1992. The
growth in deposits includes the July 1993 purchase of a banking office located
in Brookfield, Connecticut with $8.2 million in deposits and the assumption of
$272.8 million of deposits of the Bank of Hartford in June 1994. Total
borrowings increased to $39.6 million at September 30, 1994 from $16.3 million
at September 30, 1993 and $7.3 million at September 30, 1992. The increase in
borrowed money in fiscal 1994 and in fiscal 1993 reflects the use of FHLB
advances to fund a portion of loan originations and to purchase investment
securities with matching durations. Loan originations also were funded with loan
repayments and deposits.
Deposit Activities. Eagle has developed a variety of deposit products
ranging in maturity from demand-type accounts to certificates with maturities of
up to five years. Deposits are primarily derived from the areas in which the
offices of Eagle Federal's are located. Eagle does not actively solicit deposits
outside the State of Connecticut or use brokers to obtain deposits. Eagle does
occasionally use premiums and promotions to attract deposits.
In response to the low interest rate environment during the first part
of 1994, the trend by depositors at Eagle was to withdraw funds in maturing
short-term certificates (original term of one year or less) and either extend
the term of their certificate to obtain a higher yield or transfer the funds
into a money market or passbook account in anticipation of a future rise in
interest rates. More recently, as interest rates have risen, depositors have
begun to shift funds out of money market and passbook accounts. The deregulation
of various federal controls on insured deposits has allowed Eagle to be more
competitive in the acquisition and retention of funds, but has also resulted in
a more volatile cost of funds. Federal regulations no longer require Eagle to
impose interest penalties for early withdrawal of deposits. However, to assist
in maintaining the maturity and cost structure of their deposits, Eagle
continues to impose such penalties. The deposit accounts offered by Eagle are
reviewed on a systematic basis in order to determine whether such accounts
continue to meet asset/liability management goals. Eagle attempts to control the
flow of funds in its deposit accounts according to the need for funds and the
cost of alternative sources of funds. The flow of funds is controlled primarily
by the pricing of deposits, which is influenced to a large extent by competitive
factors in the market area. Interest rates paid by Eagle generally are
competitive with the rates offered by other institutions in its primary market
areas. Eagle has maintained a strong liquidity position and has generally
maintained its deposit base, but has not actively competed for deposits when
funds were available from other sources or when its existing funds were
sufficient to meet their liquidity needs.
<PAGE>
The following table describes the deposit accounts offered by Eagle at
September 30, 1994.
<TABLE>
<CAPTION>
Minimum Interest
Type or Minimum Term Deposit Rate
-------------------- --------- ------
<S> <C> <C>
Passbook...................................................... $ 10 2.00%
NOW........................................................... 50 .50%
Money market accounts......................................... 1,000 2.50%
Market-rate certificates:
91 day...................................................... 500 2.90%
Six months.................................................. 500 3.44%
One year.................................................... 500 4.41%
Two years................................................... 500 5.13%
Three years................................................. 500 4.98%
Five years.................................................. 500 5.85%
IRA certificates:
1-1/2 year (variable rate).................................. 50 3.44%
1-1/2 year (fixed rate)..................................... 500 4.41%
4-1/2 years (fixed rate).................................... 500 5.27%
</TABLE>
Eagle prices its deposits to take advantage of opportunities for
profitable investment of the funds through regular lending activities, and to a
lesser amount to encourage deposits in longer term accounts. Interest rates are
primarily based on prevailing market conditions, the need for funds and ability
to pay.
The following table sets forth the deposit flows for Eagle during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Deposits acquired through acquisitions............................... $ 272,752 $ 8,198 $ 180,140
Deposits............................................................. 1,455,747 1,416,543 998,982
Withdrawals.......................................................... 1,513,532 1,424,188 988,521
--------- --------- -------
Net cash inflow (outflow)............................................ 214,967 553 190,601
Interest credited.................................................... 27,648 27,960 29,026
--------- --------- -------
Net increase in deposits............................................. $ 242,615 $ 28,513 $ 219,627
========= ========= =======
</TABLE>
<PAGE>
The following table sets forth the deposit accounts of Eagle in dollar
amounts and as percentages of total deposits at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1994 1993 1992
---- ---- ----
Weighted % of Weighed % of Weighted % of
average total average total average total
rate Amount deposits rate Amount deposits rate Amount deposits
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance by account type:
Non-interest bearing 0.00% $ 22,101 2.3% 0.00% $ 12,999 1.8% 0.00% $ 12,088 1.8%
Regular savings 1.99 162,344 17.1 2.50 117,847 16.7 3.50 103,755 15.3
NOW accounts 1.05 76,111 8.0 1.25 52,768 7.5 2.70 43,672 6.4
Money market accounts 2.67 151,290 16.0 2.90 135,413 19.2 3.67 136,054 20.1
-------- ----- -------- ----- -------- -----
411,846 43.4 319,027 45.2 295,569 43.6
-------- ----- -------- ----- -------- -----
Certificate accounts with
original maturities of:
Six months or less 3.27 107,722 11.4 3.50 82,890 11.7 4.13 91,218 13.5
Over six months to
one year 3.77 110,928 11.7 3.62 79,396 11.2 4.76 124,112 18.3
Over one year to
two years 4.37 113,970 12.0 4.75 78,086 11.1 5.72 61,050 9.0
Over two years 5.85 204,363 21.5 6.22 146,815 20.8 6.91 105,752 15.6
-------- ----- -------- ----- -------- -----
536,983 56.6 387,187 54.8 382,132 56.4
-------- ----- -------- ----- -------- -----
$948,829 100.0% $706,214 100.0% $677,701 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
The following table presents, by various interest rate categories, the
amounts of certificate accounts at Eagle as of the dates indicated.
At September 30,
1994 1993
---- ----
(In thousands)
Less than 4.01%..................................... $ 228,638 $ 171,582
4.01 - 6.00%........................................ 253,076 111,486
6.01-10.00%......................................... 55,269 104,119
------ -------
$ 536,983 $ 387,187
======= =======
The following table sets forth the amount and remaining maturities by
interest rate of time deposits at September 30, 1994.
<TABLE>
<CAPTION>
One to After
Less Than Three Three
Rate One Year Years Years Total
(In thousands)
<S> <C> <C> <C> <C>
Less than 4.01%.................................. $ 108,497 $ 120,141 $ -- $ 228,638
4.01- 6.00%...................................... 6,510 154,271 92,295 253,076
6.01-10.00%...................................... 164 5,092 50,013 55,269
--- ----- ------ ------
Total....................................... $ 115,171 $ 279,504 $ 142,308 $ 536,983
======= ======= ======= =======
</TABLE>
<PAGE>
Certain information regarding the deposit accounts at Eagle in amounts
of $100,000 or more at September 30, 1994 is shown in the table below.
<TABLE>
<CAPTION>
Total Over Over
Deposits Three Months Six Months
of $100,000 Three Months through through Over % of Total
or more or less Six Months One Year One Year Deposits
(In thousands)
<S> <C> <C> <C> <C> <C>
$ 53,127 $ 17,796 $ 12,558 $ 5,905 $ 16,868 5.6%
</TABLE>
Borrowings. The FHL Bank System functions in a reserve credit capacity
for savings institutions and certain other home financing institutions. Members
of the FHL Bank System are required to own capital stock in the FHL Bank.
Members are authorized to apply for advances on the security of such stock and
certain of their home mortgages and other assets (principally securities which
are obligations of, or guaranteed by, the United States) provided certain
creditworthiness standards have been met. See "Regulation -- Federal Home Loan
Bank System." Under its current credit policies, the FHL Bank limits advances
based on the value of a member's qualified collateral that has not been pledged
to outside sources. Historically, Eagle Federal has not relied on FHL Bank
advances and other borrowings to any significant extent as a source of funds. At
September 30, 1994, Eagle Federal had authority to borrow up to $613 million
from the FHL Bank of Boston, and will continue to use this source of funds.
Outstanding FHL Bank advances at September 30, 1994 totaled $31.8 million
compared to $15.5 million at September 30, 1993 and $5.5 million at September
30, 1992. The weighted average interest rate on FHL Bank advances outstanding at
September 30, 1994, 1993 and 1992 was 5.44%, 5.91% and 7.82% respectively.
Eagle had an average outstanding balance in short-term advances (i.e.
maturing in one year or less) of approximately $3.9 million, $8.5 million and
$2.2 million during fiscal 1994, 1993 and 1992, respectively, at approximate
weighted-average interest rates of 5.26%, 7.58% and 8.75%, respectively. The
maximum amount outstanding at any month-end during fiscal 1994, 1993 and 1992
was $31.8 million, $15.5 million and $8.5 million, respectively.
On a consolidated basis, Eagle had other borrowed money in the amount
of $7.8 million at September 30, 1994 compared to $752,000 at September 30,
1993. The 1994 figure includes a $7.4 million reverse repurchase agreement
maturing on October 26, 1994 at a cost of 5.09%, and $467,000 of payments due on
Eagle's ESOP loans at an average cost of 7.50%. The 1993 figure represents
$752,000 of payments due on Eagle's ESOP loans at an average cost of 5.78%. In
April 1987, Eagle's ESOP borrowed $1.2 million to fund the purchase of 100,000
shares of newly issued Eagle stock. The term note matures in 1997 with interest
due quarterly at 82.5% of the lender's floating prime rate. In 1991, the ESOP
borrowed an additional $759,000 to purchase shares of the Company's outstanding
common stock under a term note maturing in 1997 with interest due quarterly at
the lender's floating prime rate plus .25%. Eagle and Eagle Federal have the
discretion to make contributions to the ESOP each year. Eagle Federal intends to
make annual contributions to the ESOP equal to the debt service of the
borrowings by the ESOP. Eagle has guaranteed the payment of the loans and
secured that guarantee with certain marketable securities.
<PAGE>
The following table sets forth the amount of interest-earning assets
and interest-earning liabilities outstanding as of September 30, 1994 which are
expected to mature or reprice in each of the time periods shown:
<TABLE>
<CAPTION>
Repricing Repricing Repricing Repricing
Percent Within Within Within Over
Amount of Total 0-3 Mos. 4-12 Mos. 1-5 Yrs. 5 Yrs.
------ -------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets.............
Loans receivable, net (a)....... $ 813,272 80% $ 151,882 $ 268,594 $ 200,959 $ 191,837
Mortgage-backed securities...... 68,706 7% 1,365 3,930 20,510 42,901
Investment securities (b)....... 121,082 11% 39,144 24,955 51,993 4,990
Investment securities available
for sale........................ 17,615 2% 10,334 4,399 2,882
------ -- ------ ----- ----- -------
Total interest-earning assets... $ 1,020,675 100% $ 202,725 $ 301,878 $ 276,344 $ 239,728
Interest-earning liabilities
Passbook accounts............... $162,344 16% $19,923 $46,114 $48,373 $47,934
Certificate accounts............ 536,983 54% 121,953 212,238 201,758 1,034
Other deposits.................. 249,502 25% 30,179 74,928 108,554 35,841
FHLB advances................... 31,775 3% 8,975 2,300 17,000 3,500
Other borrowings................ 7,817 1% 7,817
----- -- ----- -------- -------- -------
Total interest-earning liabilities $988,421 100% $188,847 $335,580 $375,685 $88,309
-------- ---- -------- -------- -------- -------
Periodic repricing difference
(periodic gap).................. $13,878 ($33,702) ($99,341) $ 151,419
======= ========= ========= =======
Cumulative repricing difference
(cumulative gap)................ $13,878 ($19,824) ($119,165) $ 32,254
======= ========= ========== ======
Cumulative gap to total assets...... 1.3% -1.9% -11.2% 3.0%
<FN>
- ----------------------
(a) Loans are net of non-performing loans, undisbursed portions of loans due borrowers and unearned discounts and
premiums.
(b) Investment securities include investment securities, interest-bearing deposits, FHL Bank stock, excess cash
and receivables due from the FDIC.
</TABLE>
The following assumptions were determined by management in order to
prepare the gap table set forth above. Non-amortizing investment securities are
shown in the period in which they contractually mature. The table generally
assumes a 15% annual prepayment rate for adjustable-rate, residential mortgage
loans based on the Bank's historical prepayment experience. A 10% rate generally
is assumed for 30 year fixed-rate mortgages, based primarily on the Bank's
historical prepayment rates for such loans. All other residential and
non-residential mortgages are assigned an annual prepayment rate based on the
Bank's historical experience. Estimated decay rates on all deposit accounts are
based primarily upon the Bank's historical experience.
The interest rate sensitivity of the Company's assets and liabilities
could vary substantially if different assumptions were used or if actual
experience differs from the assumptions used. For example, if all passbook
deposits were assumed to reprice in one year or less, the Company's one-year
cumulative gap to total assets would be negative 10.9%
<PAGE>
The following table sets forth certain information relating to the
Company's average interest-earning assets and interest-bearing liabilities and
reflects the average yield on assets and the average cost of liabilities for the
periods and at the dates indicated. During the periods indicated, non-accrual
loans are included in the loans receivable category.
<TABLE>
<CAPTION>
Years Ended September 30,
1994 1993 1992
---- ---- ----
Interest Average Interest Average Interest Average
Average income/ yield/ Average income/ yield/ Average income/ yield/
balance expense cost balance expense cost balance expense cost
------- ------- ---- ------- ------- ---- ------- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable (a)........... $711,302 $51,250 7.21% $625,446 $48,614 7.77% $504,789 $45,404 8.99%
Mortgage-backed securities..... 38,760 2,645 6.82% 29,668 1,859 6.27% 11,841 820 6.93%
Securities available for sale.. 17,197 810 4.71% 11,191 478 4.27% 0 0 0%
Investment securities.......... 94,013 5,272 5.61% 83,728 4,793 5.72% 100,605 5,616 5.58%
Federal funds sold............. 2,577 110 4.27% 320 10 3.13% 1,140 44 3.86%
----- ------ ----- ------- ------- ----- ------- ------ -----
Total interest-earning assets 863,849 60,087 6.96% 750,353 55,754 7.43% 618,375 51,884 8.39%
Non-interest earning assets..... 31,443 26,306 22,532
------- ------- -------
Total assets.................. 895,292 776,659 640,907
======= ======= =======
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Deposits (b)................... 792,833 27,648 3.49% 700,003 27,960 3.99% 570,103 29,026 5.09%
FHLB advances.................. 21,968 1,266 5.76% 5,629 494 8.78% 7,706 634 8.23%
Other borrowings............... 2,450 102 4.16% 416 15 3.61% 1,112 38 3.42%
------- ------ ----- ------- ------ ----- ------- ------ -----
Total interest-bearing
liabilities 817,251 29,016 3.55% 706,048 28,469 4.03% 578,921 $ 29,698 5.13%
------- ------ ----- ------- ------ ----- ------- ------ -----
Non-interest-bearing liabilities. 14,933 13,078 9,274
------- ------- -------
Total liabilities............. 832,184 719,126 588,195
Shareholders' equity............. 63,108 57,533 52,712
------- ------- -------
Total liabilities and
shareholders' equity......... $895,292 $776,659 $640,907
======== ======== ========
Excess of interest-earning assets
over interest-bearing
liabilities/net interest
income......................... $46,598 $31,071 $ 44,305 $27,285 $39,454 $22,186
======= ======= ====== ======= ======= =======
Ratio of interest-earning assets to
interest-bearing liabilities... 105.7% 106.3% 106.8%
===== ===== =====
Net interest income............. $31,071 $27,285 $22,186
======= ======= =======
Average interest rate spread.... 3.41% 3.40% 3.26%
Net interest margin (c).......... 3.60% 3.64% 3.59%
<FN>
__________________
(a) Interest income includes loan origination fees of $937,000, $574,000 and
$263,000 in fiscal 1994, 1993 and 1992, respectively.
(b) Includes non-interest-bearing demand deposits which averaged $17.4 million,
$10.8 million and $7.0 million for fiscal 1994, 1993 and 1992, respectively.
(c) Net interest income divided by average interest-earning assets.
</TABLE>
<PAGE>
The following table allocates the period-to-period changes in the
Company's various categories of interest income and interest expense between
changes due to changes in volume (calculated by multiplying the change in
average volume of the related interest-earning asset or interest-bearing
liability category by the prior year's rate), changes due to changes in rate
(change in rate multiplied by prior year's volume) and changes due to changes in
rate-volume (changes in rate multiplied by changes in volume).
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1994 v. 1993 September 30, 1993 v. 1992
Increase (Decrease) Due To Increase (Decrease) Due To
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable...................... $ (3,550) $ 6,673 $ (497) $ 2,636 $ (6,169) $10,853 $ (1,474) $ 3,210
Mortgage-backed securities............ 165 570 51 786 (78) 1,234 (117) 1,039
Securities available for sale......... 49 256 27 332 0 478 0 478
Investment securities (a)............. (92) 588 (17) 479 141 (944) (22) (825)
Federal funds sold.................... 4 70 26 100 (9) (32) 9 (32)
------- ----- ----- ------ ------- ------- ------- -------
Total................................ (3,424) 8,157 (400) 4,383 (6,115) 11,589 (1,604) 3,870
------- ----- ----- ------ ------- ------- ------- -------
Interest-bearing liabilities:
Deposits............................. (3,549) 3,708 (471) (312) (6,255) 6,614 (1,425) (1,066)
FHLB advances........................ (170) 1,434 (492) 772 42 (171) (11) (140)
Other borrowings..................... 3 75 11 87 2 (24) (1) (23)
------- ----- ----- ------ ------- ------- ------- -------
Total................................ $ (3,716) $ 5,215 $ (952) $ 547 (6,211) 6,419 (1,437) (1,229)
------- ----- ----- ------ ------- ------- ------- -------
Net change in net interest income...... $ 292 $ 2,942 $ 552 $ 3,786 $ 96 $ 5,170 $ (167) $ 5,099
======= ===== ===== ====== ======= ======= ======= =======
<FN>
_________________
(a) Investment securities include interest-bearing deposits, investment securities and FHLB stock.
</TABLE>
The Company's dividend payout ratio (i.e., dividends declared per share
divided by net income per share) was 32.48%, 31.98% and 32.35% for the fiscal
years ended 1994, 1993 and 1992, respectively. Information concerning the
Company's return on assets, return on equity and equity to assets ratio for
fiscal 1994, 1993 and 1992 is included the selected financial information
incorporated by reference under Item 6 below.
Service Corporation Activities
Federal regulations permit a federally chartered savings institution to
invest an amount up to 2% of its assets in the stock, paid-in surplus, and
unsecured obligations of subsidiary service corporations engaged in certain
activities, and an additional 1% of its assets when the additional funds are
used primarily for community or inner-city development or investment. In
addition, federal regulations generally authorize such institutions which meet
minimum regulatory capital requirements to invest up to 50% of regulatory
capital in conforming first mortgage loans to service corporations. At September
30, 1994, Eagle Federal's direct investment (capital stock) in its service
corporation, Eagle Service Corp., was $1,000. Eagle Service Corp. administers
the securities brokerage and investment services made available to Eagle
Federal's customers.
Employees
At September 30, 1994, Eagle had 376 employees (including 108 part-time
employees), all of whom are employed by Eagle Federal. None of these employees
are represented by a collective bargaining group. Employee benefits for
full-time employees include reimbursement of approved, business-related
educational expenses, a pension plan and life, health and disability insurance.
Management considers that Eagle's relations with its employees are good.
<PAGE>
MARKET AREA AND COMPETITION
Eagle Federal is headquartered in Bristol, Connecticut and conducts
business from four offices in Bristol, two offices in Hartford, and one office
each in Avon, Bloomfield, Canton, Rocky Hill and West Hartford (all of which are
in Hartford County), three offices in Danbury, two offices in Torrington, one
office each in Litchfield, Terryville and Winsted (all of which are in
Litchfield County), and one office each in Brookfield, New Fairfield, Ridgefield
and Newtown (all of which are in Fairfield County). Bristol, located in central
Connecticut 18 miles west of Hartford, is a city of approximately 60,000 people
with a broad-based economy. Over 100 manufacturing firms of all sizes operate in
or near Bristol. The city of Torrington is located 27 miles west of Hartford at
the northern end of the Route 8 corridor which runs from the northwest corner of
Connecticut to the New Haven and Bridgeport metropolitan areas. Torrington has
an estimated population of 30,000 and is the largest city in Litchfield County.
Torrington benefits from its close proximity to the Hartford metropolitan area.
Danbury is located in the far western portion of Fairfield County. Danbury has a
population of approximately 60,000 and has a broad-based economy. Hartford, the
capital of Connecticut, has a population of approximately 140,000 and is the
governmental and economic center of Central Connecticut.
Eagle Federal faces substantial competition for deposits and loans
throughout its market area. The primary factors stressed by Eagle Federal in
competing for deposits are interest rates, personalized services, the quality
and range of financial services, convenience of office locations and office
hours. Competition for deposits comes primarily from other savings institutions,
commercial banks, credit unions, money market funds and other investment
alternatives. The primary factors in competing for loans are interest rates,
loan origination fees, the quality and range of lending services and
personalized service. Competition for origination of first mortgage loans comes
primarily from other savings institutions, mortgage banking firms, commercial
banks and insurance companies. In Torrington, competition for loans and deposits
comes primarily from other savings institutions as well as from mortgage
companies headquartered outside Torrington which are active in the area. Eagle
Federal experiences more intense competition in the Canton area, in part as a
result of the larger number of financial institutions in operation there and its
closer proximity to Hartford. Eagle Federal competes with three commercial banks
and thrift institutions headquartered in Bristol, as well as with out-of-state
financial institutions which have opened loan production facilities (especially
mortgage banking offices) in the Bristol area. In Danbury, Eagle Federal
competes with three other local savings institutions along with many commercial
banks and credit unions.
The Connecticut Interstate Banking Act permits Connecticut bank holding
companies to engage in stock acquisitions of depository institutions in other
New England states with reciprocal legislation. All New England states currently
have some form of reciprocal legislation. This law also allows bank holding
companies from any state to establish non-bank offices (including loan
production offices) in Connecticut on a limited basis. The United States Supreme
Court has upheld the Connecticut statute, as well as a similar Massachusetts
law. Several interstate mergers involving large Connecticut banks and banks
headquartered in Massachusetts have since been completed. The impact of such
mergers (and of the possible increase in the number or size of the financial
institutions in its market area) may be to significantly increase the
competition faced by Eagle. The Connecticut legislature also has enacted
legislation which reduces the home office protection enjoyed by
Connecticut-chartered savings institutions and commercial banks. This and other
legislative and regulatory changes may increase the size of the banking
institutions competing in the general market area of Eagle.
The OTS's statement of policy on branching by federally chartered
savings institutions permits a federal association to branch into any state or
territory of the United States, except as otherwise prohibited under federal
law. The OTS statement of policy expressly preempts any contrary state law.
Under the OTS's prior policy statement, a federal savings institution could only
branch across state lines to the same extent permitted under state law to a
state-chartered institution. These provisions may increase competition from
other financial institutions within Eagle Federal's market area.
<PAGE>
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") expressly authorizes the Federal Reserve Board to approve
acquisitions of savings institutions by bank holding companies, and prohibits
the Federal Reserve Board from imposing restrictions on transactions between the
acquired savings institution and its holding company affiliates, except as
otherwise required by applicable statutes (such as the statutory restrictions on
transactions between a bank and its affiliates set forth in the Federal Reserve
Act. See "Regulation -- Savings and Loan Holding Company Regulation").
Additionally, FIRREA permits the acquired savings institution to be converted to
a bank, or merged with a bank subsidiary of the acquiring bank holding company,
under certain circumstances. These provisions of FIRREA have increased
competition from other financial institutions within the market area of Eagle.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("IBBEA"), amends the Bank Holding Company Act
of 1956 (the "BHCA") to permit a bank holding company to acquire a bank located
in any state, provided that the acquisition does not result in the bank holding
company controlling more than 10% of the deposits in the United States, or 30%
of deposits in the state in which the bank to be acquired is located (unless the
state waives the 30% deposit limitation). IBBEA permits individual states to
restrict the ability of an out-of-state bank holding company or bank to acquire
an in-state bank that has been in existence for less than five years and to
establish a state concentration limit of less than 30% if such reduced limit
does not discriminate against out-of-state bank holding companies or banks.
Effective June 1, 1997, an "adequately capitalized" bank, with the
approval of the appropriate federal banking agency, may merge with another
adequately capitalized bank in any state that has not opted out of interstate
branching and operate the target's offices as branches if certain conditions are
satisfied. The same national (10%) and state (30%) deposit concentration limits
and any applicable state minimum-existence restrictions (up to a maximum of 5
years) apply to interstate mergers as to interstate acquisitions. The applicant
also must comply with any nondiscriminatory host state filing and notice
requirements and demonstrate a record of compliance with applicable federal and
state community reinvestment laws. A state may opt out of interstate branching
by enacting a law between September 29, 1994 and June 1, 1997 expressly
prohibiting interstate merger transactions.
Under IBBEA, the resulting bank to an interstate merger may establish
or acquire additional branches at any location in a state where any of the banks
involved in the merger could have established or acquired a branch. A bank also
may acquire one or more branches of an out-of state bank without acquiring the
target out-of-state bank if the law of the target's home state permits such a
transaction. In addition, IBBEA permits a bank to establish a de novo branch in
another state if the host state by statute expressly permits de novo interstate
branching.
IBBEA also permits a bank subsidiary of a bank holding company to act
as agent for other depository institutions owned by the same holding company for
purposes of receiving deposits, renewing time deposits, closing or servicing
loans, and receiving loan payments effective as of September 29, 1995. Under
IBBEA, a savings association may perform similar agency services for affiliated
banks to the extent that the savings association was affiliated with a bank on
July 1, 1994 and satisfies certain additional requirements.
The foregoing provisions of IBBEA are expected to further increase
competition within Eagle's existing market area.
REGULATION
General
The Company, as a savings institution holding company, and the Bank, as
a federally chartered savings bank, are subject to extensive regulation,
supervision and examination by the OTS as their primary federal regulator. The
Bank is also subject to regulation, supervision and examination by the FDIC and
as to certain matters by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board").
<PAGE>
In recent years there have been a significant number of changes in the
manner in which insured depository institutions and their holding companies are
regulated. Such changes have imposed additional regulatory restrictions on the
operations of insured depository institutions and their holding companies. In
particular, regulatory capital requirements for insured depository institutions
have increased significantly. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDICIA") requires the bank regulatory agencies to
impose certain sanctions on insured depository institutions which fail to meet
minimum capital requirements. In addition, the deposit premiums paid by insured
depository institutions have increased significantly in recent years and will
most likely increase in the future.
Savings and Loan Holding Company Regulation
General. Under the Home Owners Loan Act (the "HOLA"), the Director of
the OTS has regulatory jurisdiction over savings and loan holding companies.
Eagle, as a savings and loan holding company within the meaning of the HOLA, is
subject to regulation, supervision and examination by, and the reporting
requirements of, the Director of the OTS.
The HOLA prohibits a savings and loan holding company such as Eagle,
directly or indirectly, or through one or more subsidiaries, from (i) acquiring
control of, or acquiring by merger or purchase of assets another savings
institution or savings and loan holding company without the prior written
approval of the Director of the OTS; (ii) acquiring more than 5% of the issued
and outstanding shares of voting stock of another savings institution or savings
and loan holding company (subject to certain limited exceptions); or (iii)
acquiring or retaining control of a financial institution that does not have
SAIF or BIF insurance of accounts. The HOLA also allows the Director of the OTS
to approve transactions resulting in the creation of multiple savings and loan
holding companies controlling savings institutions located in more than one
state in both supervisory and non-supervisory transactions, subject to the
requirement that, in non-supervisory transactions, the law of the state in which
the savings institution to be acquired is located must specifically authorize
the proposed acquisition, by language to that effect and not merely by
implication. As a result, the Company may, with the prior approval of the
Director of the OTS, acquire control of savings institutions located in states
other than Connecticut if the acquisition is expressly permitted by the laws of
the state in which the savings institution to be acquired is located.
Restrictions relating to service as an officer or director of an unaffiliated
holding company or savings institution are applicable to the directors and
officers of Eagle and its savings institution subsidiaries under the Depository
Institutions Management Interlocks Act.
Restrictions on Activities of Multiple Savings and Loan Holding
Companies. As a unitary holding company, the Company generally is not restricted
under existing laws as to the types of business activities in which it may
engage, provided that Eagle Federal continues to qualify as qualified thrift
lender ("QTL"). Eagle could be prohibited from engaging in any activity
(including those otherwise permitted under the HOLA) not allowed for bank
holding companies if Eagle fails to constitute a QTL. See "Regulation -- Savings
Institution Regulation -Qualified Thrift Lender Requirement."
If Eagle subsequently becomes a multiple savings and loan holding
company, Eagle would be prohibited from engaging in any activities other than
(i) furnishing or providing management services for its subsidiary savings
associations; (ii) conducting an insurance agency or escrow business; (iii)
holding, managing or liquidating assets owned or acquired from its subsidiary
savings associations; (iv) holding or managing properties used or occupied by
its subsidiary savings associations; (v) acting as trustee under deeds of trust;
(vi) engaging in any other activity in which multiple savings and loan holding
companies were authorized by regulation to engage as of March 5, 1987; and (vii)
engaging in any activity which the Federal Reserve Board by regulation has
determined to be permissible for bank holding companies under Section 4(c) of
the BHCA (unless the Director of the OTS, by regulation, prohibits or limits any
such activity for savings and loan holding companies). The activities in which
multiple savings and loan holding companies were authorized by regulation to
engage as of March 5, 1987, consist of activities similar to those permitted for
service corporations of federally chartered savings institutions and include,
among other things, various types of lending activities, furnishing or
performing clerical, accounting and internal audit services primarily for
affiliates, certain real estate development and leasing activities and
underwriting credit life or credit health and accident insurance in connection
with extension of credit by savings institutions or their affiliates. The
activities which the Federal Reserve Board by regulation has permitted for bank
holding companies under Section 4(c) of BHCA generally consist of those
activities that the Federal Reserve Board has found to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto, and
include, among other things, various lending activities, certain real and
personal property leasing activities, certain securities brokerage activities,
acting as an investment or financial advisor subject to certain conditions, and
providing management consulting to depository institutions subject to certain
conditions. OTS regulations do not limit the extent to which savings and loan
holding companies and their non-savings institution subsidiaries may engage in
activities permitted for bank holding companies pursuant to section 4(c)(8) of
the BHCA, although prior OTS approval is required to commence any such activity.
<PAGE>
Savings Institution Regulation
General. As a SAIF-insured savings institution, Eagle Federal is
subject to supervision and regulation by the Director of the OTS. Under OTS
regulations, Eagle Federal is required to obtain audits by an independent
accountant and to be examined periodically by the Director of the OTS.
Examinations must be conducted no less frequently than every 12 months. Eagle
Federal is subject to assessments by the OTS and FDIC to cover the costs of such
examinations. The OTS may revalue assets of Eagle Federal, based upon
appraisals, and require the establishment of specific reserves in amounts equal
to the difference between such revaluation and the book value of the assets. The
Director of the OTS also is authorized to promulgate regulations to ensure the
safe and sound operations of savings institutions and may impose various
requirements and restrictions on the activities of savings institutions. See
"Safety and Soundness Regulations."
Eagle Federal, as a member of the SAIF, also is subject to regulation
and supervision by the FDIC, in its capacity as administrator of the SAIF, to
ensure the safety and soundness of the SAIF. See "Regulation -- Savings
Institution Regulation -- Insurance of Deposits."
Capital Requirements. Eagle Federal is subject to the capital adequacy
regulations adopted by the OTS. Eagle Federal's ability to pay dividends to the
Company and expand its business can be restricted if its capital falls below
levels established by the OTS. OTS capital regulations provide for three
separate capital measures.
(1) Tangible Capital Requirement. Each savings institution must
maintain a level of tangible capital equal to at least 1.5% of its adjusted
total assets (which, under OTS regulations, consist of the institution's total
assets as determined on a consolidated basis in accordance with generally
accepted principles, subject to certain adjustments). Tangible capital consists
of common stockholders' equity (including retained earnings), noncumulative
perpetual preferred stock and related surplus, nonwithdrawable accounts and
pledged deposits meeting certain regulatory criteria, and minority interests in
the equity accounts of consolidated subsidiaries. In calculating tangible
capital, savings associations are required to deduct from assets, and thus from
capital, amounts invested in, and loaned to, subsidiaries engaged as principal
in activities not permitted for national banks (subject to certain exceptions).
Additionally, for purposes of calculating tangible capital, savings associations
are required to deduct all intangible assets other than purchased mortgage
servicing rights (subject to certain conditions) in an amount equal to the
lesser of (i) 90% of their fair market value, (ii) 90% of their original cost or
(iii) their amortized book value determined under generally accepted accounting
principles.
<PAGE>
(2) Leverage Requirement. Each savings association must maintain a
level of core or Tier 1 capital equal to at least 3% of its adjusted total
assets. Core capital consists of the same components, and is determined in the
same manner, as tangible capital, except that the following are not considered
intangible assets for purposes of calculating core capital and, therefore, do
not have to be deducted from assets (or thus from capital) in computing core
capital: (i) certain amounts of supervisory goodwill (i.e., goodwill resulting
from an acquisition of an insolvent or problem institution) existing as of April
12, 1989 and (ii) identifiable intangible assets that meet certain criteria
establishing their separability, marketability and liquidity, but only in an
amount of up to 25% of core capital. The Office of the Comptroller the Currency
(the "OCC") has adopted a regulation indicating that only the most highly rated
banks should maintain a leverage ratio of 3% and that most should instead
maintain ratios of 4% or 5% of assets. The OTS issued but subsequently withdrew
a proposed regulation that would have had the same effect. However, under the
OTS prompt corrective action regulation (discussed below), all but the most
highly rated savings associations must maintain a minimum of leverage ratio of
4% to be consider "adequately capitalized" and 5% or greater to be considered
"well capitalized").
(3) Risk-Based Capital Requirement. Each savings association must
maintain a level of total capital equal to 8% of total risk-weighted assets and
a minimum ratio of core capital to total risk-weighted assets of 4.0%. Total
capital, for purposes of the risk-based capital requirement consists of the sum
of core capital (as defined for purposes of the leverage requirement) and
supplementary capital. Supplementary capital includes such items as cumulative
perpetual preferred stock, long-term and intermediate-term preferred stock,
subordinated debt, and general loan and lease loss allowances (but only in an
amount up to 1.25% of total risk-weighted assets). The maximum amount of
supplementary capital that may be counted towards satisfaction of the total
capital requirement is limited to 100% of core capital. Additionally, in
calculating total capital for purposes of the risk-based capital requirement,
investments in equity securities, equity investments in real estate (other than
real estate held for office facilities or acquired in satisfaction of a debt
previously contracted in good faith), and that portion of land loans and
non-residential construction loans in excess of an 80% loan-to-value ratio are
required to be deducted from assets (and thus from capital). A savings
association's risk-weighted assets are determined by (i) converting each of its
off-balance sheet items to an on-balance sheet credit equivalent amount, (ii)
assigning each on-balance sheet asset and the credit equivalent amount of each
off-balance sheet liability to one of the five risk categories established in
the OTS regulations, and (iii) multiplying the amounts in each category by the
risk factor assigned to that category. The sum of the resulting amounts
constitutes total risk-weighted assets.
Effective January 1, 1994, the OTS revised its risk-based capital
standard to incorporate an interest-rate risk component. Under the revised
regulation, an institution is considered to have excess interest-rate-risk if,
based upon a 200 basis point change in market interest rates, the market value
of an institution's capital changes by more than 2%.
Capital requirements higher than the generally applicable minimum
requirement may be established for a particular savings institution if the OTS
determines that the institution's capital was or may become inadequate in view
of its particular circumstances. Individual minimum capital requirements may be
appropriate where the savings institution is receiving special supervisory
attention, has a high degree of exposure to interest rate risk, or poses other
safety or soundness concerns. Effective December 15, 1994, the OTS revised its
risk-based capital standards, pursuant to FDICIA, to provide that a savings
association's concentration of credit risk and nontraditional activities would
also be considered in determining whether a higher individual capital
requirement should be imposed. No such requirement has been established for
Eagle.
<PAGE>
The following table sets forth the actual and required minimum levels
of regulatory capital for Eagle Federal under applicable OTS regulations as of
September 30, 1994.
<TABLE>
<CAPTION>
ACTUAL PERCENT REQUIRED PERCENT EXCESS
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Core $ 54,955 5.20% $ 31,695 3.00% $ 23,260
- ---- ------ ----- ------ ----- ------
Tangible 54,641 5.17 15,848 1.50 38,793
- -------- ------ ----- ------ ---- ------
Risk-based 58,140 10.94 42,517 8.00 15,623
- ---------- ------ ----- ------ ---- ------
</TABLE>
The following is a reconciliation of Eagle Federal's equity capital
under GAAP to regulatory capital at September 30, 1994.
<TABLE>
<CAPTION>
Core Tangible Risk-Based
(dollars in thousands)
<S> <C> <C> <C>
GAAP capital $65,920 $65,920 $65,920
- ------------ ------- ------- -------
Less: Goodwill and other intangible assets (11,279) (11,279) (11,279)
Add: Qualifying supervisory goodwill 314 -- 314
Add: General loan and lease valuation allowances -- -- 3,185
Regulatory core capital (Tier 1) $54,955 $54,641 $58,140
======= ======= =======
</TABLE>
Sanctions for Failing Capital Standards. Pursuant to FDICIA, the
federal banking agencies have established by regulation, for each capital
measure, the levels at which an insured institution is well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized, and to take prompt corrective action with respect
to insured institutions which fall below minimum capital standards. The degree
of regulatory intervention mandated by FDICIA is tied to an insured
institution's capital category, with increasing scrutiny and more stringent
restrictions being imposed as an institution's capital declines. The prompt
corrective actions specified by FDICIA for undercapitalized institutions include
increased monitoring and periodic review of capital compliance efforts, a
requirement to submit a capital plan, restrictions on dividends and total asset
growth, and limitations on certain new activities (such as opening new branch
offices and engaging in acquisitions and new lines of business) without OTS
approval.
Savings institutions that are "significantly undercapitalized" or
"critically undercapitalized" are subject to additional restrictions under OTS
regulations. The OTS generally will be required to appoint a conservator or
receiver for a critically undercapitalized institution no later than 90 days
after the institution becomes critically undercapitalized, subject to a limited
exception for institutions that are in compliance with an approved capital
restoration plan and the OTS and FDIC certify are not likely to fail.
Under the prompt corrective action regulation adopted by the OTS, an
institution is considered (i) "well capitalized" if the institution has a total
risk-based capital ratio of 10% or greater, a Tier 1 or core capital to
risk-weighted assets ratio of 6% or greater, and a leverage ratio of 5% or
greater (provided that the institution is not subject to an order, written
agreement, capital directive or prompt corrective action directive to meet and
maintain a specific capital level for any capital measure); (ii) "adequately
capitalized" if the institution has capital ratios described in clause (i) of
8%, 4% and 4%, respectively; (iii) "undercapitalized" if the institution has
capital ratios described in clause (i) of less than 8%, 4% and 4%, respectively;
(iv) "critically undercapitalized" if the institution has capital ratios
described in clause (i) of less than 6%, 3% and 3%, respectively; and (v)
"critically undercapitalized" if the institution has a ratio of tangible equity
to total assets that is less than or equal to 2%. The regulation also permits
the OTS to determine that a savings institution should be classified in a lower
category based on other information, such as the institution's examination
report, after written notice. At September 30, 1994, Eagle Federal met the
requirements for a "well-capitalized" institution based on its capital ratios as
of such date.
<PAGE>
Under applicable FDIC regulations, only well-capitalized depository
institutions may solicit and accept, renew or roll over any brokered deposit.
Adequately-capitalized institutions may accept brokered deposits only after
obtaining a waiver from the FDIC. Institutions that are not well capitalized
(including those that meet minimum capital standards) are subject to limits on
rates of interest they may pay on brokered and other deposits. In addition,
institutions that are not well capitalized are subject to increased deposit
insurance premium assessments. See "Insurance of Deposits."
FDICIA requires any company that has control of an "undercapitalized"
depository institution, in connection with the submission of a capital
restoration plan by the depository institution, to guarantee that the
institution will comply with the plan and provide appropriate assurances of
performance. The aggregate liability of any such controlling company under such
guaranty is limited to the lesser of (i) 5% of the depository institution's
assets at the time it became undercapitalized; or (ii) the amount necessary to
bring the depository institution into capital compliance at the time the
institution fails to comply with the terms of its capital plan. Under FDICIA, if
Eagle Federal were to become "undercapitalized", the Company would be required
to guarantee performance of any capital restoration plan submitted under FDICIA
as a condition to OTS approval of that plan.
An institution which fails to meet applicable capital standards is
required to give the OTS 30 days' notice of the appointment of any new director
or senior executive officer. The OTS may disapprove any such appointment if the
competence, experience or integrity of the individual indicates that it would
not be in the best interests of the public to permit the appointment. Deficient
capital may also result in suspension of an institution's deposit insurance.
Restrictions on Dividends and Other Capital Distributions. The OTS
capital distribution regulation places limits upon Eagle Federal's ability to
pay dividends and make certain other capital distributions depending on its
capital level and supervisory condition. For purposes of the OTS capital
distribution regulation, a savings association is classified as a tier 1
institution, a tier 2 institution or a tier 3 institution, depending on its
level of regulatory capital both before and after giving effect to a proposed
capital distribution. A tier 1 institution (i.e., one that both before and after
a proposed capital distribution has net capital equal to or in excess of its
fully phased-in regulatory capital requirement applicable as of January 1, 1995)
may, subject to any otherwise applicable statutory or regulatory requirements or
agreements entered into with the regulators, make capital distributions in any
calendar year up to 100% of its net income to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital ratio" (i.e., the
percentage by which the association's capital-to-assets ratio exceeds the ratio
of its fully phased-in capital requirement to its assets) at the beginning of
the calendar year. No regulatory approval of the capital distribution is
required, but prior notice must be given to the OTS. A tier 2 institution (i.e.,
one that both before and after a proposed capital distribution has net capital
equal to its then-applicable minimum capital requirement but which fails to meet
its fully phased-in capital requirement either before or after the distribution)
may, after prior notice but without the approval of the OTS, make capital
distributions of up to: (i) 75% of its net income over the most recent four
quarter period if it satisfies the risk-based capital standard computed based on
its current portfolio. In calculating an institution's permissible percentage of
capital distributions, previous distributions made during the previous four
quarter period must be included. Tier 2 institutions may not make capital
distributions in excess of the above limitations without the prior written
approval of the OTS. A tier 3 institution (i.e., one that either before or after
a proposed capital distribution fails to meet its then-applicable minimum
capital requirement) may not make any capital distributions without the prior
written approval of the OTS. In addition, the OTS may prohibit a proposed
capital distribution, which would otherwise be permitted by the regulation, if
the OTS determines that such distribution would constitute an unsafe or unsound
practice. Also, an institution meeting the tier 1 criteria which has been
notified that it needs more than normal supervision will be treated as a tier 2
or tier 3 institution, unless the OTS deems otherwise. For purposes of this
regulation, as of September 30, 1994, Eagle Federal believes that it qualifies
as a tier 1 institution.
<PAGE>
FDICIA prohibits an insured depository institution from declaring any
dividend, making any other capital distribution, or paying a management fee to a
controlling person if, following the distribution or payment, the institution
would be classified as undercapitalized. The OTS has indicated that it intends
to review its existing capital distribution regulations to determine whether
amendments are necessary based on FDICIA. The OTS has proposed amending its
capital distribution regulation to incorporate certain definitions from its
prompt corrective action regulation and to permit certain adequately capitalized
savings associations with composite examination ratings of 1 or 2 that do not
have a holding company to make capital distributions without notice to the OTS.
Safety and Soundness Regulations. Under FDICIA, the OTS is required to
prescribe safety and soundness regulations relating to (i) internal controls,
information systems, and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate exposure; (v) asset growth; and (vi)
compensation and benefit standards for officers, directors, employees and
principal shareholders. The HOLA requires that all regulations and policies of
the Director of the OTS for the safe and sound operations of savings
institutions are to be no less stringent than those established by the OCC for
national banks. The OTS has proposed safety and soundness regulations that
contain general guidelines relating to the foregoing operational, managerial and
compensation issues that holding companies and insured depository institutions
are to follow to ensure that they are operating in a safe and sound manner. The
proposed safety and soundness regulations also require that an institution
continue to meet minimum capital standards assuming that any losses experienced
over the past four quarters were to continue over the next four quarters. If an
institution has an aggregate net loss over the past four quarters, the
institution's capital ratios would be recalculated under the assumption that
those losses will continue over the next four quarters. Eagle Federal reported
net income for each quarter in fiscal 1994.
FDICIA also requires the bank regulations to adopt regulations
specifying: (i) a maximum ratio of classified assets to capital; (ii) minimum
earnings sufficient to absorb losses without impairing capital; and (iii) to the
extent feasible, a minimum ratio of market value to book value for publicly
traded shares of institutions and holding companies. The proposed safety and
soundness regulations would establish a maximum ratio of classified assets to
total capital (which for this purpose would include any allowances for loan
losses that would otherwise be excluded from total capital under the risk-based
capital guidelines) of 1.0. For purposes of the proposed regulation, classified
assets include assets classified as substandard, doubtful and loss (but only to
the extent that losses have not been recognized). At September 30, 1994, Eagle
Federal had a ratio of classified assets to total capital (as so calculated) of
0.55. The banking agencies have determined that establishing a minimum market
value to book value ratio is not a feasible means to address the safety and
soundness concerns identified by Congress in adopting FDICIA and do not propose
to take any further action with respect to such ratio.
Qualified Thrift Lender Requirement. In order for Eagle Federal to
exercise the powers granted to federally chartered savings institutions, and
maintain full access to FHL Bank advances, Eagle Federal must constitute a
"qualified thrift lender" ("QTL"). Any savings institution that is not a QTL
must either convert to a bank charter or limit its future investments and
activities (including branching and payments of dividends) to those permitted
for both savings institutions and national banks. Additionally, any such savings
institution that does not convert to a bank charter will be ineligible to
receive further FHL Bank advances and beginning three years after the loss of
QTL status, will be required to repay all outstanding FHL Bank advances and
dispose of or discontinue any preexisting investment or activities not permitted
for both savings institutions and national banks. Further, within one year of
the loss of QTL status, the holding company of a savings institution that does
not convert to a bank charter must register as a bank holding company and will
be subject to all statutes applicable to bank holding companies.
<PAGE>
A savings institution will constitute a QTL if the savings
institution's qualified thrift investments continue to equal or exceed 65% of
the savings association's portfolio assets on a monthly average basis in 9 out
of every 12 months. Qualified thrift investments generally consist of (i)
various housing related loans and investments (such as residential construction
and mortgage loans, home improvement loans, mobile home loans, home equity loans
and mortgage-backed securities), (ii) certain obligations of the FDIC, the FSLIC
Resolution Fund and the Resolution Trust Corporation ("RTC") (for limited
periods of time), and (iii) shares of stock issued by any Federal Home Loan
Bank, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Corporation. In addition, the following assets may be categorized as
qualified thrift investments in an amount not to exceed 20% in the aggregate of
portfolio assets: (i) 50% of the dollar amount of residential mortgage loans
originated and sold within 90 days of origination; (ii) investments in
securities of a service corporation that derives at least 80% of its income from
residential housing finance; (iii) 200% of loans and investments made to
acquire, develop or construct starter homes or homes in credit needy areas
(subject to certain conditions); (iv) loans for the purchase or construction of
churches, schools, nursing homes and hospitals; and (v) consumer loans (in an
amount up to 20% of portfolio assets). For purposes of the QTL test, the term
"portfolio assets" means the savings institution's total assets minus goodwill
and other intangible assets, the value of property used by the savings
institution to conduct its business, and liquid assets held by the savings
institution in an amount up to 20% of its total assets.
At September 30, 1994, qualified thrift investments as a percentage of
portfolio assets for Eagle Federal was 86.6%. The qualified thrift investments
of Eagle Federal equaled or exceeded 65% of its portfolio assets on a monthly
average basis for at least 9 months during the fiscal year ended September 30,
1994.
Liquidity. Under OTS regulations, savings institutions are required to
maintain an average daily balance of liquid assets (including cash, certain time
deposits, certain bankers' acceptances, certain corporate debt securities and
highly rated commercial paper, securities of certain mutual funds and specified
United States government, state or federal agency obligations) equal to a
monthly average of not less than a specified percentage of the average daily
balance of the savings institution's net withdrawable deposits plus short-term
borrowings. Under the HOLA, this liquidity requirement may be changed from time
to time by the Director of the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the deposit flows of member institutions,
and currently is 5%. Savings institutions are also required to maintain an
average daily balance of short term liquid assets at a specified percentage
(currently 1%) of the total of the average daily balance of its net withdrawable
deposits and short-term borrowings. At September 30, 1994, Eagle Federal was in
compliance with these liquidity requirements.
Loans to One Borrower Limitations. The HOLA generally requires savings
institutions to comply with the loans to one borrower limitations applicable to
national banks. In general, national banks may make loans to one borrower in
amounts up to 15% of the bank's unimpaired capital and surplus, plus an
additional 10% of capital and surplus for loans secured by readily marketable
collateral. The HOLA provides certain exceptions under which a savings
association may make loans to one borrower in excess of the generally applicable
national bank limits. A savings association may make loans to one borrower of up
to $500,000 for any purpose. A savings association may make loans to one
borrower of up to the lesser of $30 million or 30% of unimpaired capital and
unimpaired surplus to develop domestic residential housing units, provided
certain conditions are satisfied. FIRREA provided that a savings association
could make loans to one borrower to finance the sale of real property acquired
in satisfaction of debts previously contracted in good faith in amounts up to
50% of unimpaired capital and unimpaired surplus. However, pursuant to its
authority to impose more stringent requirements on savings associations to
protect safety and soundness, the OTS has promulgated a rule limiting loans to
one borrower to finance the sale of real property acquired in satisfaction of
debts to 15% of unimpaired capital and surplus. The rule provides, however, that
purchase money mortgages received by a savings association to finance the sale
of such real property do not constitute "loans" (provided no new funds are
advanced and the savings association is not placed in a more detrimental
position holding the note than holding the real estate) and, therefore, are not
subject to the loans to one borrower limitations. At September 30, 1994, Eagle
Federal had a loan-to-one borrower limit of approximately $9.9 million.
<PAGE>
Limitation on Investments and Activities. Various provisions of federal
statutes and regulations limit the extent to which savings associations may
engage in certain types of investments and activities. Some of the more
significant limitations include the following:
(1) Commercial Loans. Under HOLA, Eagle Federal may invest in loans for
commercial, corporate, business or agricultural purposes in an amount not to
exceed 10% of its total assets. At September 30, 1994, Eagle Federal's
commercial loan portfolio was within the amount permitted by this limitation.
(2) Commercial Real Property Loans. HOLA limits the aggregate amount of
commercial real estate loans that a federal savings institution may make to an
amount not in excess of 400% of the savings institution's capital (as compared
with the 40% of assets limitation in effect prior to the enactment of FIRREA).
However, the new limit does not require the divestiture of loans made prior to
enactment of FIRREA. The OTS is given the authority to grant exceptions to the
limit if the additional amount will not pose a significant risk to the safe or
sound operation of the savings institution involved, and is consistent with
prudent operating practices. At September 30, 1994, Eagle Federal's commercial
real estate portfolio was within the amount permitted by this limitation.
(3) Limitation on Certain Investments. As a federally-chartered savings
association, Eagle Federal generally is prohibited from investing directly in
equity securities and real estate (other than that used for offices and related
facilities or acquired through, or in lieu of, foreclosure or on which a
contract purchaser has defaulted). In addition, OTS regulations limit the
aggregate investment by savings institutions in certain investments, including
service corporations. At September 30, 1994, Eagle Federal was in compliance
with these requirements.
(4) Activities of Subsidiaries. A savings institution seeking to
establish a new subsidiary, acquire control of an existing company (after which
it would be a subsidiary), or conduct a new activity through a subsidiary, must
provide 30 days prior notice to the FDIC and the Director of the OTS and conduct
any activities of the subsidiary in accordance with regulations and orders of
the OTS. The OTS has the power to require a savings institution to divest any
subsidiary or terminate any activity conducted by a subsidiary that the Director
of the OTS determines is a serious threat to the financial safety; soundness or
stability of such savings institution or is otherwise inconsistent with sound
banking practices.
Transactions With Affiliates. Transactions engaged in by a savings
association or one of its subsidiaries with affiliates of the savings
institution generally are subject to the affiliate transaction restrictions
contained in Sections 23A and 23B of the Federal Reserve Act in the same manner
and to the same extent as such restrictions now apply to transactions engaged in
by a member bank or one of its subsidiaries with affiliates of the member bank.
Section 23A of the Federal Reserve Act imposes both quantitative and qualitative
restrictions on transactions engaged in by a member bank or one of its
subsidiaries with an affiliate, while Section 23B of the Federal Reserve Act
requires, among other things that all transactions with affiliates be on terms
substantially the same, and at least as favorable to the member bank or its
subsidiary, as the terms that would apply to, or would be offered in, a
comparable transaction with an unaffiliated party. Exemptions from, and waivers
of, the provisions of Sections 23A and 23B of the Federal Reserve Act may be
granted only by the Federal Reserve Board. HOLA contains certain other
restrictions on loans and extension of credit to affiliates, and the Director of
the OTS may impose additional restrictions on transactions with affiliates if
the Director determines such restrictions are necessary to ensure the safety and
soundness of any savings institution. Current OTS regulations are similar to
Sections 23A and 23B of the Federal Reserve Act.
<PAGE>
Certain affiliate transactions are subject to conflict of interest
regulations enforced by the OTS. These regulations require regulatory approvals
for transactions by Eagle Federal and its subsidiaries with affiliated persons
involving the sale, purchase or lease of property. Affiliated persons include
officers, directors and controlling stockholders. These conflict of interest
regulations also impose restrictions on loans to affiliated persons.
Insurance of Deposits. Federal deposit insurance is required for all
federal and state chartered savings institutions. Savings institutions' deposits
will continue to be insured to a maximum of $100,000 for each insured depositor
by the Federal Deposit Insurance Corporation ("FDIC") through the Savings
Association Insurance Fund ("SAIF"). As a SAIF-insured institution, Eagle
Federal is subject to regulation and supervision by the FDIC, to the extent
deemed necessary by the FDIC to ensure the safety and soundness of the SAIF. The
FDIC is entitled to have access to reports of examination of Eagle Federal made
by the Director of the OTS and all reports of condition filed by Eagle Federal
with the Director of the OTS, and may require the Bank to file such additional
reports as the FDIC determines to be advisable for insurance purposes. The FDIC
may determine by regulation or order that any specific activity poses a serious
threat to the SAIF and that no SAIF member may engage in the activity directly.
The FDIC is also authorized to issue and enforce such regulations or orders as
it deems necessary to prevent actions of savings institutions that pose a
serious threat to SAIF.
In accordance with FDICIA, the FDIC has established a risk-based
deposit insurance assessment system. Deposit insurance assessment rates are
currently within a range of .23% to .31% of insured deposits, depending on the
assessment risk classification assigned to each institution. The FDIC is
required to set SAIF and BIF assessment rates in an amount sufficient to
increase the reserve ratio of each fund to 1.25% of insured deposits over a
period of 15 years. The assessment rate is currently the same for SAIF and BIF
members. The FDIC places each institution into one of nine assessment risk
classifications based on the institution's capital and supervisory
classification. FDICIA also authorizes the FDIC to establish a higher reserve
ratio and to impose special assessments to pay for the costs of authorized
borrowings.
Eagle Federal's deposit insurance premiums did not increase as a result
of implementation of the risk-based assessment system. There can be no assurance
that Eagle Federal's insurance premiums will not increase in the future. Future
semiannual assessments imposed on Eagle Federal may be higher or lower depending
on the risk classification applied to Eagle Federal, SAIF and BIF revenue and
expense levels, the reserve levels established by the FDIC, and the amount and
interest rates of borrowings by the insurance funds.
As a result of FDICIA, BIF and SAIF insured institutions may merge,
consolidate or engage in asset transfer and liability assumption transactions.
The resulting institution may continue to be subject to BIF and SAIF assessments
in relation to that portion of its combined deposit base which is attributable
to the deposit base of its respective predecessor BIF and SAIF institutions or
may apply to the FDIC to convert all of its deposits to either insurance fund
upon payment of the then applicable entrance and exit fees for each fund.
Insurance of deposits may be terminated by the FDIC after notice and
hearing, upon finding by the FDIC that the savings institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, rule, regulation, order or
condition imposed by, or written agreement with, the FDIC. Additionally, if
insurance termination proceedings are initiated against a savings institution,
the FDIC may temporarily suspend insurance on new deposits received by an
institution under certain circumstances.
Federal Home Loan Bank System
The Federal Home Loan Bank System consists of 12 regional FHL Banks,
each subject to supervision and regulation by the Federal Housing Finance Board
(the "FHFB"). The FHL Banks provide a central credit facility for member savings
institutions. Eagle Federal, as a member of the FHL Bank of Boston, is required
to own shares of capital stock in that FHL Bank in an amount at least equal to
1% of the aggregate principal amount of their unpaid residential mortgage loans,
home purchase contracts and similar obligations at the beginning of each year,
or 1/20 of their advances (borrowings) from the FHL Bank, whichever is greater.
Eagle Federal is in compliance with this requirement. The maximum amount which
the FHL Bank of Boston will advance fluctuates from time to time in accordance
with changes in policies of the FHFB and the FHL Bank of Boston, and the maximum
amount generally is reduced by borrowings from any other source. In addition,
the amount of FHL Bank advances that a savings institution may obtain will be
restricted in the event the institution fails to constitute a QTL. See
"Regulation -- Savings Institution Regulation -- Qualified Thrift Lender
Requirement."
<PAGE>
Federal Reserve System
The Federal Reserve Board has adopted regulations that require savings
institutions to maintain nonearning reserves against their transaction accounts
(primarily NOW and regular checking accounts) and nonpersonal time deposits
(those which are transferable or held by a person other than a natural person)
with an original maturity of less than 1 1/2 years. At September 30, 1993, Eagle
Federal was in compliance with these requirements. These reserves may be used to
satisfy liquidity requirements imposed by the Director of the OTS. Because
required reserves must be maintained in the form of vault cash or a
non-interest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the amount of the institution's
interest-earning assets.
Savings institutions also have the authority to borrow from the Federal
Reserve "discount window." Federal Reserve Board regulations, however, require
savings institutions to exhaust all FHL Bank sources before borrowing from a
Federal Reserve Bank. FDICIA prevents Federal Reserve Banks from providing a
discount window advance to an undercapitalized institution for more than 60 days
in a 120-day period, except in limited circumstances.
Taxation
Federal. Eagle, on behalf of itself and its subsidiaries, files a
September 30 tax year consolidated federal income tax return. Eagle and its
subsidiaries report their income and expenses using the accrual method of
accounting.
Savings institutions are generally taxed in the same manner as other
corporations. Unlike other corporations, however, qualifying savings
institutions such as Eagle Federal, that meet certain definitional tests
relating to the nature of their supervision, income, assets and business
operations are allowed to establish a reserve for bad debts and for each tax
year are permitted to deduct additions to that reserve for losses on "qualifying
real property loans" using the more favorable of the following two alternative
methods: (i) a method based on the institution's actual loss experience (the
"experience method") or (ii) a method based on a specified percentage of an
institution's taxable income (the "percentage of taxable income method").
"Qualifying real property loans" are, in general, loans secured by interests in
improved real property. The addition to the reserve for losses on nonqualifying
real property loans must be computed under the experience method.
Under the percentage of taxable income method, qualifying institutions
such as Eagle Federal may deduct up to 8% of their taxable income after certain
adjustments and subject to certain limitations discussed below. The net effect
of the percentage of taxable income method deduction is that the maximum
effective federal income tax rate on income computed without regard to actual
bad debts and certain other factors for qualifying institutions using the
percentage of taxable income method is 31.28% (and at least 32.2% on taxable
income above $10 million).
<PAGE>
The amount of the bad debt deduction that a savings institution may
claim with respect to additions to its reserve for bad debts is subject to
certain limitations. First, the percentage of taxable income or experience
method deduction will be eliminated entirely, the existing reserve will be
recaptured into taxable income and the institution will be permitted a deduction
only for specific charge-offs, unless at least 60% of the savings institution's
assets fall within certain designated categories. Second, the bad debt deduction
attributable to "qualifying real property loans" cannot exceed the greater of
(i) the amount deductible under the experience method or (ii) the amount which,
when added to the bad debt deduction for nonqualifying loans, equals the amount
by which 12% of the sum of the total deposits or withdrawable accounts at the
end of the taxable year exceeds the sum of the surplus, undivided profits and
reserves at the beginning of the taxable year. Third, the amount of the bad debt
deduction attributable to qualifying real property loans computed using the
percentage of taxable income method is permitted only to the extent that the
institution's reserve for losses on qualifying real property loans at the close
of the taxable year, taking into account the addition to that reserve for that
taxable year, does not exceed 6% of such loans outstanding at such time. Fourth,
the deduction is reduced, but not below zero, by the amount of the addition to
reserves for losses on nonqualifying loans for the taxable year. Finally, a
savings institution that computes its bad debt deduction using the percentage of
taxable income method and files its federal income tax return as part of a
consolidated group is required to reduce proportionately its bad debt deduction
for losses attributable to activities of nonsavings institution members of the
consolidated group that are "functionally related" to the savings institution
member. The savings institution member is permitted, however, to proportionately
increase its bad debt deduction in subsequent years to recover any such
reduction to the extent the nonsavings institution members realize income in
subsequent years from their "functionally related" activities. Eagle Federal
expects that these various restrictions will not operate to limit significantly
the amounts of their otherwise allowable bad debt deductions in the near future.
To the extent that (i) the reserves for losses on qualifying real
property loans established by Eagle Federal using the percentage of taxable
income method exceed the amount that would have been allowed under the
experience method and (ii) Eagle Federal makes distributions to its shareholder
that are considered to result in withdrawals from that institution's excess bad
debt reserve, then the amounts considered to be withdrawn will be included in
Eagle Federal's taxable income. The amount considered to be withdrawn by a
distribution will be the amount of the distribution plus the amount necessary to
pay the federal income tax with respect to the withdrawal. Dividends paid out of
Eagle Federal's current or accumulated earnings and profits as calculated for
federal income tax purposes, however, will not be considered to result in
withdrawals from its bad debt reserve. Distributions in excess of Eagle
Federal's current and accumulated earnings and profits, distributions in
redemption of stock, and distributions in partial or complete liquidation, will
generally be considered to result in withdrawals from its bad debt reserve. At
September 30, 1993, Eagle Federal had approximately $8.9 million in earnings and
profits for tax purposes that would be unavailable for distribution to Eagle
because of the imposition of this additional tax on the institutions.
Additionally, there are certain regulatory restrictions on Eagle Federal's
ability to pay dividends to Eagle.
The federal income tax returns for Eagle Federal's predecessor savings
institutions have been examined and audited or closed without audit by the IRS
for tax years through September 30, 1989.
Savings institutions are also entitled to limited special tax treatment
with respect to the deductibility of interest expense relating to certain
tax-exempt obligations. Savings institutions are entitled to deduct 100% of
their interest expense allocable to the purchase or carrying of tax-exempt
obligations acquired before 1983. The deduction is reduced to 80% with respect
to obligations acquired after 1982. For taxable years after 1986, the Tax Reform
Act of 1986 eliminates the deduction entirely for obligations purchased after
August 7, 1986 (except for certain issues by small municipal issuers).
<PAGE>
Depending on the composition of its items of income and expense, a
savings institution may be subject to the alternative minimum tax. For tax years
beginning after 1986, a savings institution must pay an alternative minimum tax
equal to the amount (if any) by which 20% of alternative minimum taxable income
("AMTI"), as reduced by an exemption varying with AMTI, exceeds the regular tax
due. AMTI equals regular taxable income increased or decreased by certain
adjustments and increased by certain tax preferences. Adjustments and
preferences include depreciation deductions in excess of those allowable for
alternative minimum tax purposes, tax-exempt interest on most private activity
bonds issued after August 7, 1986 (reduced by any related interest expense
disallowed for regular tax purposes), the amount of the bad debt reserve
deduction claimed in excess of the deduction based on the experience method and,
for 1990 and succeeding years, 75% of the excess of adjusted current earnings
("ACE") over AMTI. ACE equals pre-adjustment AMTI ("PAMTI") increased or
decreased by certain ACE adjustments, which include tax-exempt interest on
municipal bonds for tax purposes, depreciation deductions in excess of those
allowable for ACE purposes and the dividend received deduction. PAMTI equals
AMTI computed with all the preferences and adjustments other than the ACE
adjustment and the alternative minimum tax net operating loss (AMTNOL). AMTI may
be reduced only up to 90% by AMTNOL carryovers. The payment of alternative
minimum tax will give rise to a minimum tax credit which will be available with
an indefinite carryforward period available to reduce federal income taxes of
the institution in future years (but not below the level of alternative minimum
tax arising in each of the carryforward years).
State. State income taxation is in accordance with the corporate income
tax laws of Connecticut. As a thrift, Eagle Federal is required to pay taxes
equal to the larger of $250, 11.5% (scheduled to decrease in increments to 10%
by 1998) of the year's taxable income (which, with certain exceptions, is equal
to taxable income for federal purposes) or an amount equal to 4% for each year
of the amount of interest or dividends credited by them on savings accounts of
depositors or account holders during the taxable year preceding that in which
the tax becomes due, provided that, in determining such amount, interest or
dividends credited to the savings account of a depositor or account holder are
deemed to be the lesser of the actual interest or dividends credited or the
interest or dividend that would have been credited if it had been computed and
credited at the rate of one-eighth of 1% per annum. The statutory Connecticut
corporate rate is scheduled to decrease to 11.5% for Eagle effective for its
fiscal year ending September 30, 1994.
Income Tax Accounting Standard. During February 1992 the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." This SFAS establishes financial
accounting and reporting standards for the effects of income taxes that result
from an enterprise's activities during the current and preceding years. It
requires the use of the asset and liability method in determining the tax effect
of temporary differences and the recognition of items of income and expense
reported in the financial statements and those reported for income tax purposes.
This SFAS is effective for fiscal years beginning after December 15, 1992,
although earlier application is encouraged. The Company adopted the statement
for the fiscal year beginning October 1, 1993. The cumulative effect of the
change in accounting for income taxes resulted in a tax benefit of approximately
$1.27 million in the first quarter of fiscal 1994. Unlike its predecessor SFAS
NO. 96, SFAS No. 109 requires consideration of future taxable income and other
available evidence in connection with the recognition of a deferred tax asset
and any related valuation allowance.
Item 2. Properties
Eagle's 23 offices are located in Hartford, Litchfield and northern
Fairfield counties. Automated teller machines ("ATM") are located in 18 of the
23 offices. Eagle's ATM's participate in the recently merged "Yankee 24/NYCE"
ATM network which permits access to funds at approximately 13,200 locations and
57,000 "point-of-sale" terminals throughout the Northeast. Data processing
services for Eagle are provided by Connecticut On-Line Computer Center, a data
processing company jointly owned by a number of New England savings institutions
(including Eagle Federal).
<PAGE>
The following table sets forth certain information concerning the
business offices of Eagle at September 30, 1994.
<TABLE>
<CAPTION>
Percent Owned Lease Lease
Year of Total or Expiration Renewal
Opened Deposits Leased Date Option
<S> <C> <C> <C> <C> <C>
Torrington Main Office 1945 14.1% Owned -- --
East Main Street - Torrington 1973 4.2% Owned -- --
Litchfield 1976 3.8% Owned -- --
Canton 1971 3.4% Leased 1996 Two 5-year
options
Winsted 1988 3.2% Leased 2006 Seven
Land Only 5-year
options
Bristol Main Office 1957 16.5% Owned -- --
Commons - Bristol 1972 3.3% Leased 1994 No renewal
option
Farms - Bristol 1983 4.4% Leased 1998 One 5-year
Land Only option
Forestville 1992 1.5% Leased 1998 One 5-year
option
Terryville 1984 2.4% Leased 1999 One 5-year
option
Danbury Main Office 1992 5.4% Owned -- --
Mill Plain - Danbury 1992 1.6% Owned -- --
Commerce Plaza - Danbury 1992 1.9% Leased 1995 Two 5-year
options
Ridgefield 1992 1.9% Leased 1997 None
New Fairfield 1992 1.6% Leased 1998 One 5-year
option
Brookfield 1992 3.5% Leased 1996 One 5-year
option
Newtown 1992 1.8% Leased 1994 Two 5-year
options
Hartford Main Office 1994 5.4% Owned -- --
Franklin Avenue - Hartford 1994 5.1% Owned -- --
West Hartford 1994 6.1% Owned -- --
Rocky Hill 1994 4.4% Leased 1995 Two 5-year
options
Bloomfield 1994 2.9% Leased 1997 No renewal
option
Avon 1994 1.6% Leased 1998 One 3-year
option
</TABLE>
<PAGE>
The total net book value of properties owned and used for offices by
Eagle at September 30, 1994 and the aggregate net book value of leasehold
improvements on properties used for offices was $6.9 million.
Item 3. Legal Proceedings
As of September 30, 1994, there were no material pending legal
proceedings to which Eagle, Eagle Federal or Eagle Savings Corp. was a party or
to which any of their property was subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Eagle shareholders during the
fourth quarter of the fiscal year ended September 30, 1994.
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Information as to the principal market on which the Company's common
stock is traded, the approximate number of holders of record as of September 30,
1994, the Company's dividend policy, and the high and low bid quotations or
sales prices, as applicable, for each calendar quarter during the two most
recent fiscal years is incorporated herein by reference to page 40 of the 1994
Annual Report to Shareholders.
Item 6. Selected Financial Data
Selected consolidated financial data for the five years ended September
30, 1994 on page 1 of the 1994 Annual Report to Shareholders is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 7 to 14 of the 1994 Annual Report to Shareholders
is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Certain of the information required by this Item is incorporated by
reference to pages 15 to 37 of the 1994 Annual Report to Shareholders. The
independent auditors' report of Ernst & Young LLP with respect to the Company's
statements of income, shareholders' equity and cash flows for the year ended
September 30, 1992 and the independent auditors' report of KPMG Peat Marwick LLP
with respect to the Company's balance sheets at September 30, 1994 and 1993 and
the statements of income, shareholders' equity and cash flows for the years
ended September 30, 1994 and 1993 are filed as Exhibits 99.1 and 99.2,
respectively, and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Reference is made to the information set forth under the caption
"Change in Independent Auditors" appearing in the Company's definitive proxy
statement dated December 27, 1994, which information is incorporated herein by
reference.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information set forth under the captions
"Election of Directors" and "Management -- Executive Officers" appearing in the
Company's definitive proxy statement dated December 27, 1994, which information
is incorporated herein by reference.
Item 11. Executive Compensation
Reference is made to the information set forth under the caption
"Management -- Executive Compensation" appearing in the Company's definitive
proxy statement dated December 27, 1994, which information is incorporated
herein by reference..
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information set forth under the captions
"Stock Owned by Management" and "Principal Holders of Voting Securities of
Eagle" appearing in the Company's definitive proxy statement dated December 27,
1994, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information set forth under the caption
"Management -- Certain Transactions" appearing in the Company's definitive proxy
statement dated December 27, 1994, which information is incorporated herein by
reference..
PART I
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following consolidated financial statements of registrant
and its subsidiaries and report of independent auditors are included in Item 8
hereof.
Report of Independent Auditors.
Consolidated Balance Sheets - September 30, 1994 and 1993.
Consolidated Statements of Income - Years Ended September 30, 1994,
1993 and 1992.
Consolidated Statements of Shareholders' Equity - Years Ended September
30, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows - Years Ended September 30, 1994,
1993 and 1992.
Notes to Consolidated Financial Statements.
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
(a)(3) The following exhibits are either filed with this Report or are
incorporated herein by reference:
<PAGE>
3.1 Certificate of Incorporation, as amended, incorporated herein by
reference from Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-1 (No. 33-9166), filed with the SEC on December 24, 1986.
3.2 By-laws of the Company, as amended to date (incorporated by reference
from the Company's Current Report on Form 8-K, as filed with the SEC on November
12, 1993).
10.1 Eagle Financial Corp. Stock Option Plan (incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended September 30, 1987,
as filed with the SEC on December 22, 1987).
10.2 BFS Bancorp, Inc. Stock Option Plan (incorporated by reference from the
Company's Registration Statement on Form S-8 (Reg. No. 33-28403) filed with the
SEC on April 28, 1989).
10.3 Eagle Financial Corp. 1988 Stock Option Plan (incorporated by reference
from the Company's definitive Proxy Statement dated December 21, 1988 for the
1989 Annual Meeting of Shareholders, as filed with the SEC on December 22,
1988).
10.4 Employment Agreement dated April 1, 1994 among the Company, the Bank
and Ralph T. Linsley (incorporated by reference from Pre-effective Amendment No.
1 to the Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed
with the SEC on September 12, 1994).
10.5 Consulting Agreement dated August 25, 1988 between the Company and
Ralph T. Linsley (incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended September 30, 1988, as filed with the SEC on
December 29, 1988).
10.6 Employment Agreement dated April 1, 1994 among the Company, the Bank
and Robert J. Britton (incorporated by reference from Pre-effective Amendment
No. 1 to the Company's Registration Statement on Form S-2 (Reg. No. 33-54981)
filed with the SEC on September 12, 1994).
10.7 Employment Agreement dated April 1, 1994 among the Company, the Bank
and Ercole J. Labadia (incorporated by reference from the Company's Registration
Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.8 Employment Agreement dated April 1, 1994 among the Company, the Bank
and Mark J. Blum (incorporated by reference from the Company's Registration
Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.9 Employment Agreement dated April 1, 1994 among the Company, the Bank
and Irene K. Hricko (incorporated by reference from the Company's Registration
Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.10 Employment Agreement dated April 1, 1994, among the Company, the Bank
and Barbara S. Mills (incorporated by reference from the Company's Registration
Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.11 The Bank deferred compensation plan (incorporated by reference from
Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form
S-4 (No. 33-21122) filed with the SEC on May 17, 1988).
10.12 Deferred Compensation Plan for Non-Employee Directors (incorporated by
reference from the Company's Annual Report on Form 10-K for the year ended
September 30, 1988, as filed with the SEC on December 29, 1988).
10.13 Outside Directors Post Retirement Plan, dated July 26, 1994
(incorporated by reference from the Company's Registration Statement on Form S-2
(Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.14 Guarantee and Pledge Agreement dated November 1, 1990 between the
Company and Bank of Boston Connecticut (incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended September 30, 1990, as
filed with the SEC on December 28, 1990).
10.15 Annual Incentive Compensation Plan (incorporated by reference from the
Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the
SEC on August 9, 1994).
10.16 Amendment to Employment Agreement dated July 26, 1994 among the
Company, the Bank and Ralph T. Linsley (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration Statement on Form
S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994).
10.17 Amendment to Employment Agreement dated July 26, 1994 among the
Company, the Bank and Robert J. Britton (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration Statement on Form
S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994).
13 1994 Annual Report to Shareholders, portions of which have been
incorporated by reference into this Form 10-K.
22 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule (Article 9)
99.1 Independent auditors' report of Ernst & Young LLP.
99.2 Independent auditors' report of KPMG Peat Marwick LLP.
(b) The Registrant did not file any Current Reports on Form 8-K during
the fourth quarter of its fiscal year ended September 30, 1994.
(c) Exhibits to this Form 10-K are attached.
(d) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of the 30th day of
December, 1994. EAGLE FINANCIAL CORP.
EAGLE FINANCIAL CORP.
-----------------------------
Registrant
By: /s/ Ralph T. Linsley
----------------------------
Ralph T. Linsley
Vice Chairman of the Board
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 the capacities indicated as of December 30, 1994.
Signature Title
/s/ Frank J. Pascale Chairman of the Board
Frank J. Pascale
/s/ Ralph T. Linsley Vice Chairman of the Board
Ralph T. Linsley
/s/ Robert J. Britton Chief Executive Officer, President and Director
Robert J. Britton (principal executive officer)
/s/ Mark J. Blum Vice President and Chief Financial Officer
Mark J. Blum (principal financial and accounting officer)
/s/ Richard H. Alden Director
Richard H. Alden
/s/ George T. Carpenter Director
George T. Carpenter
/s/ Theodore M. Donovan Director
Theodore M. Donovan
/s/ Steven E. Lasewicz, Jr. Director
Steven E. Lasewicz, Jr.
/s/ Thomas V. LaPorta Director
Thomas V. LaPorta
/s/ John F. McCarthy Director
John F. McCarthy
/s/ Ernest J. Torizzo Director
Ernest J. Torizzo
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Sequentially
Exhibit No. Exhibit Numbered
Page
</TABLE>
3.1 Certificate of Incorporation, as amended, incorporated herein by reference
from Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-1 (No. 33-9166), filed with the SEC on December 24,
1986.
3.2 By-laws of the Company, as amended to date (incorporated by reference from
the Company's Current Report on Form 8-K, as filed with the SEC on
November 12, 1993).
10.1 Eagle Financial Corp. Stock Option Plan (incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended September 30,
1987, as filed with the SEC on December 22, 1987).
10.2 BFS Bancorp, Inc. Stock Option Plan (incorporated by reference from the
Company's Registration Statement on Form S-8 (Reg. No. 33-28403) filed
with the SEC on April 28, 1989).
10.3 Eagle Financial Corp. 1988 Stock Option Plan (incorporated by reference
from the Company's definitive Proxy Statement dated December 21, 1988 for
the 1989 Annual Meeting of Shareholders, as filed with the SEC on December
22, 1988).
10.4 Employment Agreement dated April 1, 1994 among the Company, the Bank and
Ralph T. Linsley (incorporated by reference from Pre-effective Amendment
No. 1 to the Company's Registration Statement on Form S-2 (Reg. No.
33-54981) filed with the SEC on September 12, 1994).
10.5 Consulting Agreement dated August 25, 1988 between the Company and Ralph
T. Linsley (incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended September 30, 1988, as filed with the SEC on
December 29, 1988).
10.6 Employment Agreement dated April 1, 1994 among the Company, the Bank and
Robert J. Britton (incorporated by reference from Pre-effective Amendment
No. 1 to the Company's Registration Statement on Form S-2 (Reg. No.
33-54981) filed with the SEC on September 12, 1994).
10.7 Employment Agreement dated April 1, 1994 among the Company, the Bank and
Ercole J. Labadia (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC
on August 9, 1994).
10.8 Employment Agreement dated April 1, 1994 among the Company, the Bank and
Mark J. Blum (incorporated by reference from the Company's Registration
Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9,
1994).
10.9 Employment Agreement dated April 1, 1994 among the Company, the Bank and
Irene K. Hricko (incorporated by reference from the Company's Registration
Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9,
1994).
10.10 Employment Agreement dated April 1, 1994, among the Company, the Bank and
Barbara S. Mills (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC
on August 9, 1994).
10.11 The Bank deferred compensation plan (incorporated by reference from
Pre-Effective Amendment No. 1 to the Company's Registration Statement on
Form S-4 (No. 33-21122) filed with the SEC on May 17, 1988).
10.12 Deferred Compensation Plan for Non-Employee Directors (incorporated by
reference from the Company's Annual Report on Form 10-K for the year ended
September 30, 1988, as filed with the SEC on December 29, 1988).
10.13 Outside Directors Post Retirement Plan, dated July 26, 1994 (incorporated
by reference from the Company's Registration Statement on Form S-2 (Reg.
No. 33-54981) filed with the SEC on August 9, 1994).
10.14 Guarantee and Pledge Agreement dated November 1, 1990 between the Company
and Bank of Boston Connecticut (incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended September 30,
1990, as filed with the SEC on December 28, 1990).
10.15 Annual Incentive Plan (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC
on August 9, 1994).
10.16 Amendment to Employment Agreement dated July 26, 1994 among the Company,
the Bank and Ralph T. Linsley (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration Statement on
Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994).
10.17 Amendment to Employment Agreement dated July 26, 1994 among the Company,
the Bank and Robert J. Britton (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration Statement on
Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994).
13 1994 Annual Report to Shareholders, portions of which have been
incorporated by reference into this Form 10-K.
22 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99.1 Independent auditors' report of Ernst & Young LLP.
99.2 Independent auditors' report of KPMG Peat Marwick LLP.
<PAGE>
1994 Annual Report to Shareholders
Exhibit 13
<TABLE>
<CAPTION>
Financial Condition Data At September 30,
(dollars in thousands) 1994(a) 1993 1992(a) 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $1,070,276 $792,468 $751,171 $524,429 $ 480,553
Investment portfolio(b) 123,823 77,924 109,948 63,459 34,666
Mortgage-backed securities 68,706 25,953 31,652 5,248 6,154
Loans receivable, net 810,705 656,344 568,124 432,507 420,228
Allowance for loan losses 8,311 5,005 4,011 1,544 484
Deposits 948,829 706,214 677,701 458,074 402,627
FHLB advances and borrowed money 39,592 16,252 7,326 11,068 25,093
Shareholders' equity 66,276 60,407 55,004 50,892 48,889
- --------------------------------------------------------------------------------------------------------------------------------
Operating Data For the Years Ended September 30,
(dollars in thousands, except for per share data) 1994(a) 1993 1992(a) 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 31,071 $ 27,285 $ 22,186 $ 16,632 $ 14,813
Net income 7,566 6,152 5,166 4,011 3,533
Loan originations 219,904 209,901 163,478 78,927 75,182
Loan purchases 2,507 0 0 240 3,122
Cash dividends declared per share 0.76 0.63 0.55 0.47 0.46
Net income per share 2.34 1.97 1.70 1.37 1.19
Significant Statistical Data 1994(a) 1993 1992(a) 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
For the period:
Return on average assets 0.85% 0.79% 0.81% 0.80% 0.75%(c)
Return on average
shareholders' equity 11.99% 10.69% 9.80% 8.05% 7.39%(c)
Average interest rate spread 3.41% 3.40% 3.26% 2.88% 2.64%
Net interest margin 3.60% 3.64% 3.59% 3.43% 3.27%
Operating expenses to average assets 2.24% 2.10% 2.02% 1.84% 2.02%(c)
Operating expenses to
average assets (excluding real estate owned expenses) 2.09% 1.97% 1.90% 1.81% 1.91%
Net interest income to operating expenses 1.55x 1.67x 1.72x 1.80x 1.56x
Efficiency ratio 55% 51% 49% 50% 56%
At end of period:
Shareholders' equity to total assets 6.19% 7.62% 7.32% 9.71% 10.17%
Common shares outstanding
(net of treasury)(d) 3,131,911 3,054,481 2,961,536 2,922,255 2,932,639
Book value per share $ 21.16 $ 19.78 $ 18.57 $ 17.42 $ 16.67
Non-performing assets to total assets 1.15% 1.51% 1.38% 1.81% 0.91%
Allowance for loan losses to non-performing loans 104% 77% 100% 27% 13%
Tangible capital 5.17% 7.26% 6.87% 9.68% 9.94%
<FN>
(a) Fiscal 1994 and 1992 data reflect the impact of government-assisted
acquisitions.
(b) Includes interest-bearing deposits, Federal funds sold, investment
securities, securities available for sale and FHL Bank stock.
(c) 1990 ratios include the impact of non-recurring merger expenses.
(d) 1994, 1993, 1992, 1991 and 1990 common shares outstanding exclude 43,066,
43,066, 43,066, 40,854 and 30,470 shares, respectively, held in treasury at
year end.
</TABLE>
<PAGE>
It is my pleasure to report that fiscal 1994 was another eventful and highly
successful year at Eagle Financial Corp. For the sixth consecutive year, your
Company reported increased earnings. Cash dividends paid were 23% higher than in
the prior year. Assets reached the $1 billion mark with the acquisition of The
Bank of Hartford. Subsequent to year end, Eagle raised an additional $16.7
million of capital through a common stock offering. Overall, the Company
continued to build significant value for its shareholders.
1994 Earnings
Eagle Financial had record net income of $7.6 million, or $2.34 per share, in
fiscal 1994. The 23% increase was achieved despite non-recurring expenses in the
fourth quarter totaling approximately $550,000 (after taxes), or $0.17 per
share, relating to the retirement of two senior officers. Factors contributing
to these excellent results included:
o A 14% increase in net interest income due to strong growth in earning assets
and a favorable interest rate environment that contributed to a relatively
stable interest rate spread.
o Record loan origination activity which produced net growth of 12% in the loan
portfolio.
o The acquisition of The Bank of Hartford on June 10, 1994 which was accretive
to earnings and boosted fourth quarter results.
o A 30% reduction in the provision for loan losses.
o A 26% increase in non-interest income.
The Company has increased its core earnings by 23% on average over each of the
last six years and has had positive net income in every quarter throughout the
1990's while operating in one of the most difficult economies in recent memory.
The Company's ongoing goal is to increase earnings by no less than 10% annually
and to date we have exceeded this goal.
The Bank of Hartford Acquisition
In June of this year Eagle completed its third government-assisted acquisition
with the purchase of The Bank of Hartford from the FDIC. This transaction
reflected the Company's overall acquisition strategy which focuses on
transactions that are accretive to earnings and do not result in an unacceptable
level of dilution to book value. The 1994 acquisition added six branch offices
and allowed the Bank to enter the Hartford market. Since many of Eagle Federal's
current customers are daily commuters into the Hartford area, the expansion
allowed Eagle to provide more convenient service to those customers. While the
integration of a new financial institution into an existing bank is a formidable
task, our prior experience with acquisitions resulted in a smooth consolidation
of The Bank of Hartford that was completed on schedule before year-end.
With the acquisition, Eagle's assets grew by approximately 33%, making the
Company a $1 billion financial institution. With the increase in earning assets,
the transaction made a meaningful contribution to earnings in the fourth
quarter. Eagle now serves 145,000 accounts from 23 full service banking offices.
Shareholders' Equity and Common Stock Offering
Eagle's shareholders' equity grew by 10% during fiscal 1994 and totaled $66.3
million, or 6.19% of total assets, at September 30, 1994. Book value per share
increased from $19.78 to $21.16 during the year. The increase in both total
assets and intangible assets resulting from The Bank of Hartford transaction is
reflected in Eagle Federal's core capital ratio, which dropped from 7.31% at
September 30, 1993 to 5.20% at September 30, 1994.
In the first quarter of fiscal 1995, the Company completed a common stock
offering which resulted in the sale of 862,310 shares of stock. The net proceeds
of $16.7 million increased Eagle Federal's core capital ratio to just under
7.00%. In addition, the new outstanding shares should increase the market
liquidity of Eagle common stock and may support future growth strategies.
Asset Quality
Prudent underwriting and an emphasis on good asset quality have proven to be
important factors in our ability to produce consistent earnings in a depressed
Connecticut economy. While total non-performing assets grew slightly from $12.0
million at September 30, 1993 to $12.3 million at September 30, 1994, the 1994
balance includes approximately $3 million of assets acquired as part of The Bank
of Hartford transaction. Eagle also acquired a $3.5 million allowance for loan
losses related to assets purchased in the acquisition. Non-performing assets as
a percent of total assets were 1.15% at year-end versus 1.51% at the beginning
of the year.
At the end of fiscal 1994, the Company had loan loss reserves of $8.3 million,
or 104% of non-performing loans, compared to $5.0 million, or 77% of
non-performing loans, at the start of the year. Almost 98% of non-performing
loans at September 30, 1994 were in residential mortgage and home equity loans.
Eagle's investment and mortgage-backed security portfolio is primarily U.S.
Treasury or agency securities. All securities purchased must have an investment
rating in the top two rating categories by a major rating service at time of
purchase.
Leadership: Culture and Continuity
On October 1, 1994, I retired as President and Chief Executive Officer of Eagle
Financial Corp. after 38 years of service. I will continue to serve Eagle as a
director and consultant.
I am happy to be succeeded as President and CEO by Robert J. Britton, who
formerly served as President and Chief Operating Officer of Eagle Federal
Savings Bank and Executive Vice President and director of Eagle Financial Corp.
Mr. Britton has been employed by Eagle since 1978. He was an active participant
in bringing the Company public in 1987 and was also instrumental in Eagle's
three government assisted acquisitions.
The change comes at a time when the Company is strong financially and management
is well prepared to take Eagle forward. Senior management has many years of
experience with the Company and has a good balance of talent. A culture of
shared values and a con-servative yet opportunistic management style are both
well established. Stability of the management team has allowed Eagle to maintain
a consistent strategic focus.
As Eagle has grown, re-evaluating personnel needs and organizational structure
is an ongoing process. Recently we have strengthened management in the areas of
lending, finance and data processing.
Additional resources have also been devoted to training, management performance
and incentive compensation as we work to meet customer expectations for service
while maximizing efficiency.
Looking Ahead
Eagle has demonstrated its ability to produce strong results in a struggling
economy with a weak real estate market. As Connecticut's economy slowly gathers
strength and loan credit quality problems subside, the Company's ability to
continue its trend of steady earnings growth will be challenged on other fronts.
Our ability to successfully manage rate risk will be tested by upward pressure
on interest rates from a stronger economy. Competition from bank and non-bank
competitors for both loans and deposits will remain fierce. The cost of a
greatly increased regulatory burden will continue.
Eagle is well positioned to meet these challenges. The Company will continue to
closely monitor its exposure to interest rate risk as rates change and customer
demands for different loan and deposit products shift. Our position as a
local-based portfolio lender with a fast loan turn-around time and creative
products, such as our successful "First Time Homebuyers" program this year, will
allow us to grow our loan portfolio. A large network of convenient offices
staffed by people with a well deserved reputation for delivering service in a
friendly and efficient manner will help us continue to attract consumer deposits
and retain customers.
Our directors and management are strongly committed to building shareholder
value through an emphasis on residential lending, expense control and providing
financial services in a way that creates customer loyalty and steady earnings
growth.
In closing, I wish to thank the employees of Eagle for their hard work and loyal
service. I also want to thank our shareholders for their continued confidence. I
appreciate your investment in Eagle and invite you to communicate your comments.
Ralph T. Linsley
President and Chief Executive Officer
September 30, 1994
<PAGE>
Eagle Financial Corp. Directors
Frank J. Pascale
Chairman
Eagle Financial Corp.
Ralph T. Linsley
Vice Chairman, President and
Chief Executive Officer
Eagle Financial Corp.
Chairman and Chief
Executive Officer
Eagle Federal Savings Bank
Richard H. Alden
Attorney
Partner with the Law Firm
Anderson, Alden, Hayes &
Ziogas LLC
Robert J. Britton
Executive Vice President
Eagle Financial Corp.
President and
Chief Operating Officer
Eagle Federal Savings Bank
George T. Carpenter
President
Carpenter Companies
Construction and Real Estate
Theodore M. Donovan
Attorney
Partner with the Law Firm
Furey, Donovan, Eddy, Kocsis,
Tracy & Daly
Thomas V. LaPorta
President and Chairman
The LaPorta Funeral Home
Steven E. Lasewicz, Jr.
President
SELCO CONTROLS, Inc.
Building Automation and
Temperature Controls
John F. McCarthy
President
J & M Sales, Inc.
Beer Distributorship
Ernest J. Torizzo
Executive Vice President
O & G Industries, Inc.
Construction
Eagle Financial Corp. Executive Officers
Ralph T. Linsley
President and
Chief Executive Officer
Robert J. Britton
Executive Vice President
Ercole J. Labadia
Vice President,
Administration
Mark J. Blum
Vice President,
Chief Financial Officer
Barbara S. Mills
Vice President,
Treasurer
Irene K. Hricko
Vice President,
Corporate Secretary
<PAGE>
Management's Discussion and Analysis of Financial Conditionmand Results of
Operations
General
Eagle Financial Corp. (the "Company") is the holding company and parent of Eagle
Federal Savings Bank ("Eagle Federal" or the "Bank"). The Bank is a federally
chartered savings bank headquartered in Bristol, Connecticut, which conducts
business from 23 banking offices located in Hartford, Litchfield and northern
Fairfield counties. Prior to January 1, 1993, the Company had two bank
subsidiaries, Bristol Federal Savings Bank and First Federal Savings and Loan
Association of Torrington. Effective January 1, 1993, the two bank subsidiaries
were combined into one subsidiary, Eagle Federal Savings Bank. On June 10, 1994
Eagle Federal acquired certain assets and assumed certain liabilities of The
Bank of Hartford from the Federal Deposit Insurance Corporation ( "FDIC" ). The
acquisition included approximately $273 million of deposits and approximately
$81 million in loans consisting primarily of residential mortgage and home
equity loans. The principal business of the Bank is to provide consumer banking
services in the communities in Connecticut that it serves. The Bank primarily
invests its funds in first mortgage loans on one-to-four family residential real
estate in Connecticut. The Bank's major source of funds is deposits from the
communities in which its banking offices are located.
The Bank's earnings depend largely on its net interest income, which is the
difference between the interest earned on its loan and investment portfolios
versus the interest paid on its deposits and borrowed funds. Additional earnings
are derived from a variety of financial services provided to customers, mainly
deposit and loan products.
As of September 30, 1994, the Company had total assets of $1.07 billion compared
to $792 million at September 30, 1993. The primary reason for the growth from
fiscal year end 1993 to 1994 is The Bank of Hartford acquisition in which Eagle
acquired $265 million of assets (not including $11.3 million of core deposit and
other intangibles). Growth during the year also reflects strong loan origination
activity in excess of $219 million which resulted in net growth of $81 million
in the Company's loan portfolio excluding the impact of the acquisition. Total
loans were $811 million at year end. Deposits grew from $706 million to $949
million in fiscal 1994 and include $273 million in deposits from the acquisition
of The Bank of Hartford.
The Company's ability to pay dividends to shareholders is substantially
dependent on funds received from its subsidiary, Eagle Federal. In general, the
Bank pays dividends to the Company only to the extent that funds are needed to
cover operating expenses and dividends paid to shareholders. Dividends from the
Bank to the Company are subject to certain regulatory limitations which in the
past have not had an impact on dividends paid from the Bank to the Company. At
September 30, 1994, the Bank had approximately $15.6 million in excess capital
over the OTS risk-based requirement, one half of which would be available for
declaration of dividends to the Company. The OTS regulations permit the OTS to
prohibit capital distributions under certain circumstances.
In the first quarter of fiscal 1995, the Company completed a common stock
offering which added approximately $16.7 million of new capital. The additional
capital was raised primarily to increase the Bank's core capital ratio, which
had decreased as a result of its recent substantial increase in asset size as a
result of The Bank of Hartford acquisition. The additional capital may also
assist Eagle in making further acquisitions in Connecticut or other generally
adjacent market areas and increase the market liquidity of its common stock.
The Bank of Hartford Acquisition
On June 10, 1994, Eagle Federal purchased certain assets and assumed certain
liabilities of The Bank of Hartford from the FDIC. As part of the acquisition,
Eagle acquired or received $265 million of assets (not including $11.3 million
of core deposit and other intangibles), and assumed $273 million of deposits as
well as $2.3 million of advance payments by borrowers for taxes and insurance
and $978,000 of other liabilities.
The assets acquired included $112.4 million of cash, interest-bearing deposits
and receivables due from the FDIC, $80.8 million of loans, $72.7 million of
investments and mortgage-backed securities, and $2.3 million of other assets.
Also as a part of the transaction, Eagle purchased for $880,000 the loan
servicing rights on $80.5 million of 1-4 family residential loans with an
average loan servicing fee of 0.375%.
In comparing the results of the years ended September 30, 1994 and 1993, the
acquisition was accretive to earnings and had a positive impact on 1994 results,
primarily due to the increase in interest-earning assets which resulted in
higher net interest income and additional customer service fee income from the
assumed deposits. The major additional expenses relating to the acquisition were
the costs to operate the six acquired Bank of Hartford branch offices and the
expense of amortizing the intangible assets that resulted from the transaction.
Overall, the additional net interest and other income from the acquisition more
than offset these additional expenses.
Liquidity and Capital Resources
As a member of the Federal Home Loan Bank System, the Bank is required to
maintain liquid assets at 5% of its withdrawable deposits plus short-term
borrowings. At September 30, 1994, Eagle Federal was in compliance with the OTS
liquidity requirements, having a ratio of 7.72%.
The Bank's principal sources of funds include deposits, loan payments (including
interest, amortization of principal and prepayments), earnings and principal
amortization on investments, maturing investments and Federal Home Loan Bank
advances. Principal uses of funds include loan originations, investments,
payments of interest on deposits and payments to meet operating expenses. At
September 30, 1994, the Bank had approximately $46 million in loan commitments
outstanding including $25 million in available home equity lines of credit and
$7 million in amounts due borrowers for construction loan advances. It is
expected that these and future loans will be funded primarily by deposits, loan
repayments, principal amortization and maturities on investments and borrowings.
The Bank in total has the capacity to borrow up to $613 million in advances from
the Federal Home Loan Bank of Boston and will continue to consider this source
for borrowing. Federal Home Loan Bank advances at September 30, 1994 were $31.8
million compared to $15.5 million at September 30, 1993.
It is the Bank's general policy to purchase debt securities (including
mortgage-backed securities) with the intent and ability to hold to maturity for
purposes of earning interest income and meeting regulatory liquidity
requirements. Events which may be reasonably anticipated are considered when
determining the Bank's intent to hold investment securities to maturity. Such
securities are classified as investment securities and are stated at cost
adjusted for amortization of premiums and accretion of discounts. Equity
securities and mutual fund investments are accounted for, in the aggregate, at
the lower of cost or market value, with any unrealized loss being recorded as a
reduction to shareholders' equity. Debt securities are classified as "available
for sale" when appropriate and accounted for at the lower of cost or market.
During fiscal 1994, investment securities sold totaled $2.8 million, producing
no gain or loss, while maturing investment securities totaled $9.3 million.
There were no mortgage-backed securities sold or maturing in fiscal 1994. During
fiscal 1993, investment securities sold totaled $12.0 million, producing net
gains of $52,000, while maturing investment securities totaled $6.4 million.
The Bank is required by the OTS to meet minimum capital requirements, which
include tangible capital, core capital, and risk-based capital requirements. The
Bank's actual capital as reported to the OTS at September 30, 1994 exceeded all
three requirements. The following chart indicates the Bank's relative capital
positions at September 30, 1994:
(dollars in thousands) Actual Percent Required Percent Excess
- --------------------------------------------------------------------------
Tangible capital $54,641 5.17% $15,848 1.50% $38,793
Core capital 54,955 5.20% 31,695 3.00% 23,260
Risk-based capital 58,140 10.94% 42,517 8.00% 15,623
The OTS has proposed to increase the minimum required core capital ratio from
the current 3% level to a range of 4% to 5% for all but the most highly rated
financial institutions. While the OTS has not taken final action on such
proposal, it has adopted a prompt corrective action regulation that classifies
any savings institution that maintains a core capital ratio of less than 4% (3%
in the event the institution was assigned a composite 1 rating in its most
recent report of examination) as "undercapitalized".As of September 30, 1994,
the Bank met the requirements for a "well capitalized" institution. Giving
effect to the completion of the stock offering in the first quarter of Fiscal
1995, on a proforma basis at September 30, 1994, the Bank would have tangible,
core and risk-based capital ratios of 6.75%, 6.78% and 14.08%, respectively.
During 1994 the OTS also implemented a final rule for calculating an interest
rate risk component of regular capital. Under the final rule, to be effective as
of September 30, 1994, savings associations with above normal interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings association's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance-sheet contracts) that would result from
a hypothetical 200 basis point increase or decrease in market interest rates
(except when the three-month Treasury bond equivalent yield falls below 4%, then
the decrease will be equal to one-half of that Treasury rate) divided by the
estimated economic value of the association's assets. That dollar amount is
deducted from the association's total capital in calculating compliance with its
risk-based capital requirement. Under the rule, there is a two quarter lag
between the reporting date of an institution's financial data and the effective
date for the new capital requirement based on that data. The rule also provides
that the Director of the OTS may waive or defer an association's interest rate
risk component on a case by case basis. Eagle does not believe that the rule to
incorporate an interest rate risk component would have a material effect on the
amount of regulatory capital that the Bank is required to maintain.
<PAGE>
Asset/Liability Management
Net interest income, the primary component of the Company's net income, is
derived from the difference or "spread" between the yield on interest-earning
assets and the cost of interest-bearing liabilities. The Company has sought to
reduce its exposure to changes in interest rates by matching more closely the
effective maturities and repricings of its interest-sensitive assets and
liabilities. At the same time, the Company's asset and liability management
strategies also must accommodate customer demands for particular types of
deposit and loan products.
While much of the Company's asset and liability management efforts involve
strategies which increase the rate sensitivity of its loans and investments,
such as originations of adjustable rate loans and purchases of adjustable rate
mortgage-backed securities and short term investments, it also uses certain
techniques to reduce the rate sensitivity of its deposits and borrowed money.
Those techniques include attracting longer term certificates of deposit when the
market will permit, emphasizing core deposits which are less sensitive to
changes in interest rates, and borrowing through long-term FHLB advances. At
September 30, 1994 and September 30, 1993, 57% and 56%, respectively, of Eagle's
net loans receivable portfolio consisted of adjustable-rate mortgages and other
loans. While Eagle has generally retained its local loan originations in
portfolio, it may from time to time sell loans to maintain an acceptable
interest rate sensitivity tolerance.
The Company measures its exposure to rate fluctuations on a quarterly basis
primarily by using a computer modeling system designed for savings institutions
such as Eagle Federal. The computer modeling system quantifies the approximate
impact that increases and decreases in interest rates would have on Eagle's net
interest income. Under the model, interest rates are assumed to move to
specified levels on an immediate or "shock" basis. The Board-approved tolerance
for decreases in net interest income is up to 20%, based upon the model's
prediction of the impact of an immediate 200 basis point increase in interest
rates. At September 30, 1994, according to the computer model and using asset
and liability repricing assumptions based on Eagle's historical experience, if
interest rates were to immediately increase by 200 basis points the negative
impact on the Company's net interest income would be within the Board-approved
tolerance level.
The Company also monitors other indicators of interest rate risk. One commonly
used measure of interest rate risk exposure is reflected in the Company's
one-year cumulative gap, which is the difference between rate sensitive assets
and rate sensitive liabilities maturing or repricing within one year. An asset
or liability is said to be interest rate sensitive within a specific period if
it will mature or reprice within that period. The interest rate sensitivity gap
is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities and is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets.
At September 30, 1994, the Company's cumulative one-year gap was a negative
1.9%. The Company's current asset/liability management strategy is to maintain a
one-year gap within a tolerance of plus or minus 15%. However, the Company
believes there are certain shortcomings inherent in the gap analysis and,
accordingly, does not rely solely on gap analysis as an accurate measure of
interest rate risk. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rates. The interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates on other types of assets and liabilities may lag behind
changes in market interest rates. Certain assets, such as adjustable-rate
mortgages, have features which restrict changes in interest rates on a
short-term basis and over the life of the assets. In the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. The ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
The interest rate sensitivity of the Company's assets and liabilities could vary
substantially if different assumptions were used or if actual experience differs
from the assumptions used. For example, if all passbook deposits were assumed to
reprice in one year or less, the Company's one-year cumulative gap to total
assets would be negative 10.9%.
Eagle's average interest rate spread was relatively unchanged for 1994 versus
1993. However, since the second quarter of fiscal 1994 market interest rates
have risen. As a result, those of the Company's assets which are subject to
repricing in the short-term have begun to earn higher yields. In contrast, the
prevailing market interest rates paid on deposit liabilities, the Bank's largest
source of funds and largest component of interest-bearing liabilities, have not
significantly increased. The Company anticipates that if market interest rates
continue to rise, the cost of interest-bearing deposits will increase, thereby
having a negative impact on the Bank's average interest rate spread and net
interest margin.
Non-performing Assets
At September 30, 1994, the Company had total non-performing assets in the amount
of $12.3 million, or 1.15% of total assets, including $8.0 million in
non-performing loans and $4.3 million in real estate owned and in-substance
foreclosures, net of reserves. Loan loss reserves totaled $8.3 million, or 104%
of non-performing loans. Most of the real estate owned and in-substance
foreclosures are in residential properties except for three local pieces of
commercial real estate with an aggregate book balance of $486,000. Loan
delinquencies (greater than 60 days) totaled $9.5 million, or 1.17% of total
loans, at September 30, 1994 compared to $8.9 million, or 1.36% of total loans,
at September 30, 1993. At September 30, 1993 the Company had total
non-performing assets in the amount of $12.0 million, or 1.51% of total assets,
including $6.5 million in non-performing loans and $5.5 million in real estate
owned and in- substance foreclosures. During fiscal 1994, non-performing loans
increased by $1.5 million while total non-performing assets increased by
$356,000.
The increase in both non-performing loans and non-performing assets in 1994 is
attributable to $2.8 million of non-performing assets purchased in the June,
1994 Bank of Hartford acquisition. As part of the acquisition, Eagle acquired
$80.8 million of loans, as well as an allowance for loan losses of $3.5 million.
Eagle's total non-performing assets at September 30, 1994 excluding assets
acquired in The Bank of Hartford transaction were $9.1 million, or .85% of total
assets, compared to $12.0 million, or 1.51% of total assets, at September 30,
1993.
The following table represents a breakdown of non-performing assets at the dates
indicated. At each date indicated, Eagle had no accruing loans 90 days or more
past due:
<TABLE>
<CAPTION>
At September 30,
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
1 - 4 family residential $ 6,596 $ 5,407 $ 2,801
Multi-family and commercial 169 196 513
Consumer loans 17 18 49
Home equity loans 1,227 871 633
Real estate acquired through foreclosure and
in-substance foreclosures, net 4,310 5,471 6,403
- ---------------------------------------------------------------------------------------------------------
Total non-performing assets $12,319(a) $11,963 $10,399
- ---------------------------------------------------------------------------------------------------------
Non-performing assets to loans receivable, net and real estate owned 1.51% 1.81% 1.81%
Non-performing assets to total assets 1.15% 1.51% 1.38%
Net charge-offs to average loans receivable, net (for the period) 0.20% 0.11% 0.19%
<FN>
(a) September 30, 1994 non-performing assets include $3.2 million related to The
Bank of Hartford transaction.
</TABLE>
Management added $1.2 million to the Bank's allowance for loan losses in fiscal
1994. Management monitors the adequacy of the allowances for losses on loans and
real estate owned on an ongoing basis. While management uses available
information to recognize losses on loans and real estate owned, future additions
to the allowances may be necessary based on changes in economic conditions,
particularly in Connecticut. In connection with the determination of the
allowances for loan losses and real estate owned, management obtains independent
appraisals for significant properties.
<PAGE>
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated:
<TABLE>
<CAPTION>
Years Ended September 30,
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 5,005 $ 4,011 $ 1,544
Loans charged-off:
1 - 4 family mortgage loans (942) (271) (891)
Multi family, commercial real estate and land loans (496) (521) (249)
Consumer loans (68) (166) (10)
- --------------------------------------------------------------------------------------------------------------
Total loans charged-off (1,506) (958) (1,150)
Recoveries:
1 - 4 family mortgage loans 110 224 192
Multi family, commercial real estate and land loans 0 7 18
Consumer loans 2 13 2
- --------------------------------------------------------------------------------------------------------------
Total recoveries 112 244 212
Provision for loan losses 1,200 1,708 1,646
Allowance acquired through purchase 3,500 0 1,759
- --------------------------------------------------------------------------------------------------------------
Balance at end of period $ 8,311 $ 5,005 $ 4,011
==============================================================================================================
Ratio of net charge-offs to average loans outstanding during the period 0.20% 0.11% 0.19%
Allowance for loan losses to loans receivable (at period end) 1.03% 0.76% 0.70%
Allowance for loan losses to non-performing loans (at period end) 104% 77% 100%
</TABLE>
<PAGE>
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for losses on
loans and real estate owned. Such agencies may require the Bank to recognize
additions to the allowances based on their judgments of information available to
them at the time of their examination. The OTS completed a regularly scheduled
examination of Eagle Federal during 1994 and no changes to the allowance for
loan losses were required at that time.
Financial Accounting Standards Board Releases
In February 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes , relating to the method of accounting for deferred income taxes.
Implementation of SFAS No. 109 was required for fiscal years beginning after
December 15, 1992. SFAS No. 109 requires companies to take into account changes
in tax rates when valuing the deferred income tax amounts recorded on the
balance sheet. SFAS No. 109 also requires that deferred taxes be provided for
all differences between financial statement and tax basis. Previously timing
differences were recognized for financial statement and tax purposes which were
covered by prior accounting rules.
Adoption of SFAS No. 109 resulted in a $1.27 million increase in the Company's
consolidated net income for the year ended September 30, 1994 and is a component
of the amount shown as cumulative effect of accounting changes.
In December 1991, the FASB issued SFAS No. 106, "Accounting for Postretirement
Benefits Other Than Pensions." Under this SFAS, the cost of postretirement
benefits other than pensions must be recognized on an accrual basis as employees
perform services to earn benefits, similar to current standards on accounting
for pensions. The Company adopted SFAS No. 106 in 1994 which resulted in a $1.3
million decrease in net income for the year ended September 30, 1994
representing the immediate recognition of the accumulated postretirement benefit
obligation of $2.19 million less an income tax benefit of $891,000. On a
combined basis, the adoption of both SFAS No. 106 and No. 109 in fiscal 1994 did
not have a significant overall impact on net income.
In May 1993, the FASB issued SFAS No. 115,"Accounting for Certain Investments in
Debt and Equity Securities." Eagle will adopt this Statement in the first
quarter of fiscal 1995 and it is expected that approximately 60% of its
investment securities will be classified as held to maturity at that time. See
Note 19 in the Consolidated Financial Statements for a discussion on SFAS No.115
SFAS No. 114, Accounting by Creditors for Impairment of a Loan was issued in May
1993 and amended by SFAS No. 118 in October 1994. SFAS No. 114 and 118, which
are effective for fiscal years beginning after December 15, 1994 require that
creditors evaluate the collectibility of both contractual interest and
contractual principal of all loans when assessing the need for a loss accrual.
See Note 19 in the Consolidated Financial Statements for a discussion on SFAS
No. 114 and 118.
Comparison of Years Ended September 30, 1994 and 1993
Net Income - Net income for the year ended September 30, 1994 was $7.6 million,
or $2.34 per share, compared to $6.2 million, or $1.97 per share, for the year
ended September 30, 1993. Net interest income for the current year increased
$3.8 million, or 14%, over the prior twelve months. Other income increased
$662,000, or 26%, in 1994, while operating expenses increased $3.8 million, or
23%.
Interest Income - Interest income increased $4.3 million, or 8%, during fiscal
1994 as a result of a $113 million increase in average interest- earning assets
which was partially offset by a drop in the average yield on interest-earning
assets from 7.43% in 1993 to 6.96% in 1994. The growth in interest-earning
assets is attributable to a high level of loan originations in 1994 funded with
deposits, FHLB advances and principal amortization and maturity of investments.
Also contributing to the growth in interest-earning assets for part of the year
was The Bank of Hartford transaction in June, 1994.
Interest Expense - Interest expense was $29.0 million in fiscal 1994, an
increase of $547,000, or 2%, over fiscal 1993. The relatively small increase was
due primarily to a drop in the cost of funds from 4.03% in 1993 to 3.55% in
1994, which substantially offset a $111 million increase in average deposits and
borrowed money in 1994.
Net Interest Income - Net interest income increased by $3.8 million, or 14%, in
fiscal 1994. The increase was largely driven by growth in interest-earning
assets while the average interest rate spread was relatively stable. The average
interest rate spread increased only slightly from 3.40% to 3.41% while the net
interest margin declined from 3.64% to 3.60%.
Provision for Loan Losses - Eagle added provisions of $1.2 million to its
allowance for loan losses in fiscal 1994 compared to $1.7 million in fiscal
1993. Net charge-offs for 1994 were $1.5 million, or .21% of average loans
receivable. The decreased provision in 1994 reflects management's analysis of
the risk elements of the loan portfolio, current delinquency and payment trends
and the overall adequacy of the allowance for loan losses. At September 30,
1994, Eagle's allowance for loan losses was $8.3 million, or 1.03% of loans
receivable compared to $5.0 million, or .76%, one year earlier. The allowance
for loan losses at September 30, 1994 includes $3.5 million added to the
allowance as part of The Bank of Hartford transaction.
Other Income - Non-interest income increased $662,000, or 26%, during the twelve
month period ended September 30, 1994 versus the same period of 1993 and
represents increases in fees for various services relating to loan and deposit
products, as well as an increase in the number of loan and deposit accounts
relating to The Bank of Hartford transaction. In addition, the increase includes
a $120,000 net gain on sale of mortgage loans.
Other Expenses - Non-interest expenses increased $3.8 million, or 23%, to $20.1
million in 1994 compared to $16.3 million in 1993. Compensation and benefits
expenses were higher by $2.3 million, or 31%, and include $740,000, before
taxes, of expenses relating to the retirement of two senior officers in 1994.
Other factors contributing to the higher compensation and benefits were an
increase in pension costs in 1994 because the Company's pension plan was
over-funded for part of 1993, higher post-retirement benefits expenses relating
to the adoption of Statement of Accounting Standards No. 106 (see Note 16 in the
Consolidated Financial Statements), and higher compensation relating to
additional staffing as a result of The Bank of Hartford transaction. Higher
provisions for losses on real estate owned in 1994 reflects Eagle's current
strategy to sell properties more aggressively than in the past. Higher office
occupancy costs are due in part to the operation of six former Bank of Hartford
branches for part of the year. The Bank of Hartford transaction also resulted in
higher operating expenses in a number of other areas including federal deposit
insurance, data processing expenses, office supplies, postage, telephone and
amortization of intangible assets.
Income Taxes - Income tax expense was $5.4 million in fiscal 1994 versus $5.6
million in fiscal 1993. Notwithstanding the higher income during the 1994 period
as compared to the 1993 period, income tax expense was $284,000 less for the
1994 period. As a result of the adoption of Statement of Accounting Standard
No.109 (See Note 16 in the Consolidated Financial Statements), Eagle is
permitted a tax benefit for certain real estate owned and loan loss provisions
that was not allowed under prior accounting rules. Also, the Company benefited
from a change in tax regulations with respect to deductibility of amortization
of intangibles.
Comparison of Years Ended September 30, 1993 and 1992
Net Income - Net income for the year ended September 30, 1993 was $6.2 million,
or $1.97 per share, compared to $5.2 million, or $1.70 per share, for the year
ended September 30, 1992. The $1.0 million, or 19.1% increase, in net income is
primarily attributable to higher net interest income in 1993. Net interest
income for the fiscal 1993 year increased by $5.1 million, or 23.0%, over the
prior 12 months. The provision for loan losses and other income each remained
relatively stable during fiscal 1993, increasing $62,000 and $42,000,
respectively, from 1992 levels, while other expenses increased $3.4 million,
25.9%, and income taxes increased $737,000, or 15.0%.
Interest Income - Interest income increased by $3.9 million, or 7.5%, during
fiscal 1993, as a result of a $132 million increase in average interest-earning
assets, which was somewhat offset by a decrease in the average yield on
interest-earning assets from 8.39% in fiscal 1992 to 7.43% in fiscal 1993. The
increase in average interest-earning assets includes a $120.7 million increase
in average loans receivable and a $17.8 million increase in average
mortgage-backed securities. The growth in the average loan portfolio during
fiscal 1993 reflects strong loan origination activity of $209.9 million,
principally in 1 - 4 family loans.
Interest Expense - Interest expense was $28.5 million, in fiscal 1993, a
decrease of $1.2 million, or 4%, from $29.7 million, in fiscal 1992. This
decrease was due, primarily, to a decline in the average cost of deposits and
borrowed money, from 5.13% in 1992 to 4.03% in 1993, while the average balance
of these funds increased $127 million.
Net Interest Income - Net interest income increased $5.1 million, or 23.0%, to
$27.3 million for fiscal 1993, compared to $22.2 million for fiscal 1992. The
increase is attributable to a $132 million increase in average interest-earning
assets and, to a lesser degree, to an increase in the average interest rate
spread from 3.26% in fiscal 1992 to 3.40% in fiscal 1993, and an increase in the
net interest margin from 3.59% to 3.64% for such periods.
Provision for Loan Losses - The provision for loan losses totaled $1.7 million
in fiscal 1993 compared to $1.6 million in fiscal 1992. At September 30, 1993,
Eagle's allowance for loan losses was $5.0 million, or 0.76% of total loans
receivable, compared to $4.0 million, or 0.70%, at September 30, 1992. The level
of provisions reflects management's determination as to the adequacy of the
allowance for loan loss reserves based on, among other things, an analysis of
the risk elements of the loans receivable portfolio, current trends related to
loan payments and general economic conditions, as well as volume, growth and
composition of the loan portfolio.
<PAGE>
Other Income - Other income was $2.5 million for both fiscal 1993 and 1992.
Customer service fee income, the largest component of other income, was $1.7
million and $1.3 million in fiscal 1993 and fiscal 1992, respectively. These fee
income increases are attributable both to increased checking account activity as
well as growth in Eagle's deposits, primarily as a result of the Danbury Federal
Savings and Loan and Brookfield Bank acquisitions in 1992. Other non-interest
income was $764,000 in fiscal 1993 versus $1.2 million in fiscal 1992. Included
in 1992 non-interest income was $112,500 received in settlement of a lawsuit
regarding four real estate owned properties disposed of in prior years plus
$120,000 of one-time loan servicing fees resulting from a temporary loan
servicing arrangement with the Resolution Trust Corp. as part of the Danbury
Federal acquisition.
Other Expenses - Non-interest expenses increased $3.4 million, or 26%, to $16.3
million in 1993 compared to $12.9 million in 1992. The largest contributing
factor to the increase relates to the acquisitions of Danbury Federal Savings
and Loan and the Brookfield Bank in the middle of fiscal 1992. Fiscal 1993
results include a full twelve months of operating expenses from those
acquisitions. Compensation, payroll taxes and benefits increased $1.4 million to
$7.4 million for fiscal 1993 from $6.0 million for fiscal 1992, and occupancy
expenses increased $391,000 to $1.9 million for fiscal 1993 from $1.5 million
for fiscal 1992, due primarily to staffing and operating the seven acquired
banking offices. An increase of $125,000 in advertising relates to the promotion
of the acquisitions in the greater Danbury area, as well as marketing of new
product lines. An increase of $233,000 in federal insurance premiums reflects an
increase in insurable deposits acquired, as well as growth in the savings
portfolio, excluding the acquisitions. Data processing increased $194,000, of
which approximately two-thirds relates to servicing the loan and deposit
products acquired. In general, most operating expenses such as office supplies,
postage and telephone all increased due to operating an additional seven branch
offices. Expenses relating to the operation of real estate acquired in
settlement of loans increased $189,000 and includes both carrying and
acquisition/disposal costs while the provision for real estate owned losses
increased $48,000 between periods based on an ongoing assessment of the
properties owned.
The following table sets forth certain information relating to the Company's
average interest-earning assets and interest-bearing liabilities and reflects
the average yield on assets and the average cost of liabilities for the periods
and at the date indicated. During the periods indicated, non-accrual loans are
included in the net loans receivable category:
<TABLE>
<CAPTION>
Years Ended September 30,
1994 1993 1992
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Cost Balance Expense Cost Balance Expense Cost
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(a) $711,302 $51,250 7.21% $625,446 $48,614 7.77% $504,789 $45,404 8.99%
Mortgage-backed securities 38,760 2,645 6.82% 29,668 1,859 6.27% 11,841 820 6.93%
Securities available for sale 17,197 810 4.71% 11,191 478 4.27% 0 0 0%
Investment securities 94,013 5,272 5.61% 83,728 4,793 5.72% 100,605 5,616 5.58%
Federal funds sold 2,577 110 4.27% 320 10 3.13% 1,140 44 3.86%
- -----------------------------------------------------------------------------------------------------------------------------------
Total 863,849 60,087 6.96% 750,353 55,754 7.43% 618,375 51,884 8.39%
Interest-bearing liabilities:
Deposits(b) 792,833 27,648 3.49% 700,003 27,960 3.99% 570,103 29,026 5.09%
FHLB advances 21,968 1,266 5.76% 5,629 494 8.78% 7,706 634 8.23%
Other borrowings 2,450 102 4.16% 416 15 3.61% 1,112 38 3.42%
- -----------------------------------------------------------------------------------------------------------------------------------
Total $817,251 $29,016 3.55% $706,048 $28,469 4.03% $578,921 $29,698 5.13%
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $31,071 $27,285 $22,186
===================================================================================================================================
Average interest rate spread 3.41% 3.40% 3.26%
Net interest margin(c) 3.60% 3.64% 3.59%
<FN>
(a) Interest income includes fees of $937,000, $574,000, and $263,000 in 1994,
1993, and 1992, respectively.
(b) Includes non-interest bearing demand deposits which averaged $17.4 million, $10.8 million and $7.0 million for fiscal 1994,
1993 and 1992, respectively.
(c) Net interest income divided by average interest-earning assets.
</TABLE>
The following table allocates the period-to-period changes in the Company's
various categories of interest income and interest expense between changes due
to changes in volume (calculated by multiplying the change in average volume of
the related interest-earning asset or interest-bearing liability category by the
prior year's rate), changes due to changes in rate (change in rate multiplied by
prior year's volume) and changes due to changes in rate-volume (changes in rate
multiplied by changes in volume):
<TABLE>
<CAPTION>
Years Ended September 30,
1994 v. 1993 1993 v. 1992
Rate/ Rate/
(dollars in thousands) Rate Volume Volume Total Rate Volume Volume Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $(3,550) $6,673 $(487) $2,636 $(6,169) $10,853 $(1,474) $ 3,210
Mortgage-backed securities 165 570 51 786 (78) 1,234 (117) 1,039
Securities available for sale 49 256 27 332 0 478 0 478
Investment securities(a) (92) 588 (17) 479 141 (944) (22) (825)
Federal funds sold 4 70 26 100 (9) (32) 9 (32)
- -----------------------------------------------------------------------------------------------------------------------------------
Total (3,424) 8,157 (400) 4,333 (6,115) 11,589 (1,604) 3,870
Interest-bearing liabilities:
Deposits (3,549) 3,708 (471) (312) (6,255) 6,614 (1,425) (1,066)
FHLB advances (170) 1,434 (492) 772 42 (171) (11) (140)
Other borrowings 3 73 11 87 2 (24) (1) (23)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $(3,716) $5,215 $(952) $ 547 $(6,211) $ 6,419 $(1,437) $(1,229)
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in net interest income $ 292 $2,942 $ 552 $3,786 $ 96 $ 5,170 $ (167) $ 5,099
===================================================================================================================================
<FN>
(a) Investments include interest-bearing deposits, investment securities and FHL Bank stock.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
dollars in thousands, except for per share data) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 21,549 $ 12,462
Assets
Interest-bearing deposits 3,103 9,496
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 24,652 21,958
Securities available for sale
(market value: $16,936 in 1994 and $15,601 in 1993) 16,936 15,599
Investment securities
(market value: $95,228 in 1994 and $47,954 in 1993) 97,249 46,880
Mortgage-backed securities
(market value: $67,224 in 1994 and $26,748 in 1993) 68,706 25,953
Loans receivable, net of allowance for loan losses of
$8,311 in 1994 and $5,005 in 1993 810,705 656,344
Accrued interest receivable:
Loans 5,119 3,704
Investments 1,013 676
Real estate acquired in settlement of loans and in-substance
repossessed real estate, net 4,310 5,471
Stock in Federal Home Loan Bank of Boston, at cost 6,535 5,949
Premises and equipment, net 7,255 6,029
Prepaid expenses and other assets 27,796 3,905
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $1,070,276 $792,468
===================================================================================================================================
Liabilities and Shareholders' Equity
Liabilities:
Deposits $948,829 $706,214
Federal Home Loan Bank advances 31,775 15,500
Borrowed money 7,817 752
Advance payments by borrowers for taxes and insurance 5,522 3,577
Accrued expenses and other liabilities 10,057 6,018
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,004,000 732,061
Shareholders' Equity:
Serial preferred stock, $.01 par value,
2,000,000 shares authorized and unissued
Common stock, $.01 par value, 8,000,000 shares authorized; 3,174,977 and
3,097,547 shares issued at September 30, 1994 and 1993,
respectively, including 43,066 shares held in treasury 32 31
Additional paid-in capital 34,613 33,562
Retained earnings 33,139 27,928
Cost of common stock in treasury (362) (362)
Employee stock ownership plan stock (467) (752)
Unrealized securities losses, net (679) 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 66,276 60,407
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,070,276 $792,468
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
(dollars in thousands, except for per share data) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $51,250 $48,614 $45,404
Interest on mortgage-backed securities 2,645 1,859 820
Interest on Federal funds sold 110 10 0
Interest on investment securities 3,926 3,876 3,637
Dividends on investment securities 2,156 1,395 2,023
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 60,087 55,754 51,884
Interest expense:
Interest on deposits 27,648 27,960 29,026
Interest on Federal Home Loan Bank advances 1,266 494 634
Interest on borrowed money 102 15 38
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 29,016 28,469 29,698
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 31,071 27,285 22,186
Provision for loan losses 1,200 1,708 1,646
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 29,871 25,577 20,540
Other income:
Net gain on sale of investment securities 0 52 37
Net gain on sale of mortgage loans 120 0 0
Customer service fee income 2,096 1,688 1,268
Other 950 764 1,157
- -----------------------------------------------------------------------------------------------------------------------------------
Total other income 3,166 2,504 2,462
- -----------------------------------------------------------------------------------------------------------------------------------
33,037 28,081 23,002
Other expenses:
Compensation, taxes and benefits 9,703 7,398 5,956
Office occupancy 2,202 1,856 1,465
Advertising 571 534 409
Provision for losses on real estate
acquired in settlement of loans 675 287 239
Operation of real estate acquired
in settlement of loans 685 690 501
Federal insurance premium 1,597 1,459 1,226
Data processing expenses 1,257 1,076 882
Other 3,398 2,992 2,258
- -----------------------------------------------------------------------------------------------------------------------------------
Total other expenses 20,088 16,292 12,936
Income before income taxes and
cumulative effect of accounting changes 12,949 11,789 10,066
Income taxes 5,353 5,637 4,900
- -----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 7,596 6,152 5,166
Cumulative effect of accounting changes (30) 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 7,566 $ 6,152 $ 5,166
===================================================================================================================================
Net income per share before cumulative effect of accounting changes $ 2.35 $ 1.97 $ 1.70
Cumulative effect of accounting changes (0.01) 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per share $ 2.34 $ 1.97 $ 1.70
===================================================================================================================================
Weighted-average shares and common stock equivalents outstanding 3,228,625 3,128,220 3,046,335
Dividends per share $ 0.76 $ 0.63 $ 0.55
<FN>
Note: All per share data and the number of outstanding common shares for all
periods and dates prior to September 30, 1993 have been adjusted retroactively
to give effect to a 10% stock dividend to common shareholders of record on
August 16, 1993.
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Net
Unrealized
Cost of Loss on Employee
Additional Common Marketable Stock
Common Stock Paid-in Retained Stock in Equity Ownership
(dollars in thousands, except for per share data)Shares Amount Capital Earnings Treasury Securities Plan Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1991 2,694 $27 $27,298 $25,143 $(341) $ (47) $(1,188) $50,892
Net Income 5,166 5,166
Cash dividends declared, $0.55 per share (1,602) (1,602)
Reduction in debt related to Employee
Stock Ownership Plan 180 180
Exercise of stock options and other 37 348 348
Payment for fractional shares (6) (6)
Purchase of treasury stock (21) (21)
Decrease in net unrealized loss on
marketable equity securities 47 47
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1992 2,731 27 27,640 28,707 (362) 0 (1,008) 55,004
Net Income 6,152 6,152
Cash dividends declared, $0.63 per share (1,910) (1,910)
Reduction in debt related to Employee
Stock Ownership Plan 256 256
Exercise of stock options and other 79 1 694 695
Payment for fractional shares (8) (8)
Common stock dividend declared, 10% 273 3 5,009 (5,021) (9)
Dividend reinvestment plan 14 227 227
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1993 3,097 31 33,562 27,928 (362) 0 (752) 60,407
Net Income 7,566 7,566
Cash dividends declared, $0.76 per share (2,355) (2,355)
Reduction in debt related to Employee
Stock Ownership Plan 285 285
Exercise of stock options and other 48 1 486 487
Dividend reinvestment plan 30 565 565
Increase in net unrealized loss on
marketable equity securities (679) (679)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 3,175 $32 $34,613 $33,139 $(362) $(679) $ (467) $66,276
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended September 30,
(dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $7,566 $6,152 $5,166
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 1,200 1,708 1,646
Provision for losses on real estate
acquired in settlement of loans 675 287 239
Provision for depreciation and amortization 613 603 496
Accretion of discounts and fees on loans (937) (574) (263)
Amortization of premiums on loans,
mortgage-backed securities and investments 45 110 67
Amortization of core deposit and other intangibles 788 375 200
Increase in deferred income taxes (3,487) (223) (357)
Realized mortgage-backed and investment
security gains, net 0 (52) (37)
Realized mortgage loan gains (120) 0 0
Loan origination fees 1,016 1,318 974
Changes in assets and liabilities, net of acquisitions:
Decrease (increase) in accrued interest receivable (317) 146 (529)
Increase (decrease) in accrued interest payable (157) 153 345
Other, net (6,129) 6,253 (4,929)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 756 16,256 3,018
- ---------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Proceeds from sales of investment securities available for sale 2,800 7,998 0
Proceeds from sales of investment securities prior to maturity 0 4,032 8,161
Proceeds from maturities of investment securities 9,300 6,350 22,685
Proceeds from amortization of investment securities 20,530 19,526 15,956
Purchases of securities available for sale (4,800) (10,000) 0
Purchases of investment securities (61,474) (4,415) (92,706)
Net decrease in Federal funds sold 0 0 800
Principal payments on mortgage-backed securities 11,096 5,691 1,323
Purchases of mortgage-backed securities (7,135) 0 (32,819)
Proceeds from sales of mortgage-backed securities 0 0 5,122
Principal payments on loans receivable 129,877 115,111 102,045
Loan originations (219,904) (209,901) (163,478)
Loan purchases (2,507) 0 0
Proceeds from sales of loans 11,153 698 644
Proceeds from sales of real estate acquired in settlement
of loans 2,580 3,636 2,899
Purchases of premises and equipment (844) (729) (1,878)
Increase in investment in Federal Home Loan Bank stock (586) (1,610) (305)
Acquisition of loans, investments and other assets (155,724) 0 (87,093)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (265,638) (63,613) (218,644)
- ---------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase in passbook, NOW and
money market accounts 8,699 18,761 45,782
Net (decrease) increase in certificates of deposit (38,836) 1,554 (7,361)
Assumption of deposits and liabilities of acquired banks 275,986 8,198 185,949
Borrowings under Federal Home Loan Bank advances 53,275 10,000 0
Principal payments under Federal Home Loan Bank
advances (37,000) 0 (3,003)
Net increase (decrease) in borrowed money 7,065 (1,074) (739)
Net (decrease) increase in advance payments by borrowers
for taxes and insurance (311) (259) 1,891
Proceeds from exercise of stock options and dividends
reinvested 1,052 913 348
Acquisition of treasury stock 0 0 (21)
Cash dividends (2,354) (1,910) (1,602)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 267,576 36,183 221,244
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,694 (11,174) 5,618
Cash and cash equivalents at beginning of period 21,958 33,132 27,514
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $24,652 $21,958 $33,132
- ---------------------------------------------------------------------------------------------------------------------------------
Non-cash investing activities:
Transfers of loans to foreclosed real estate $ 3,130 $ 3,419 $ 6,048
=================================================================================================================================
Supplemental cash flow information:
Interest paid $29,159 $27,788 $29,140
Income taxes paid $ 6,078 $ 5,520 $ 5,370
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements September 30, 1994, 1993 and 1992
1 - Accounting Policies
Principles of Consolidation
Eagle Financial Corp. (the "Company") is the savings bank holding company for
Eagle Federal Savings Bank (the "Bank"), a federally-chartered savings bank.
Prior to January 1, 1993, the Company had two bank subsidiaries, Bristol Federal
Savings Bank and First Federal Savings and Loan Association of Torrington.
Effective January 1, 1993, the two bank subsidiaries were combined into one
subsidiary, Eagle Federal Savings Bank. All significant intercompany balances
and transactions have been eliminated.
Basis of Financial Statement Presentation
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ from those
estimates. Management believes that the financial position and results of
operations are fairly presented.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
loan losses and the valuation of foreclosed and in-substance repossessed real
estate, management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowance or write-downs may be
necessary based on changes in economic conditions, particularly in Connecticut.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses
and value of foreclosed real estate. Such agencies may require the Bank to
recognize additions to the allowance or write-downs based on their judgment of
information available to them at the time of their examination.
Investment and Mortgage-backed Securities
The Bank determines its accounting for debt and mortgage-backed securities based
upon its projected liquidity needs. Securities that will be "held to maturity"
are stated at cost, adjusted for amortization of premiums and accretion of
discounts over the estimated terms of the securities utilizing a method which
approximates the level yield method. Marketable equity securities and mutual
funds are classified as "available for sale" since they have no stated maturity
and are carried at the lower of aggregate cost or market value. A valuation
allowance is established and charged to shareholders' equity when the aggregate
market value of the available for sale securities portfolio is less than the
book value of the portfolio. Unrealized losses on investment securities that are
determined to be other than temporary are charged to operations. Gains or losses
on the sale of investment securities are computed by the specific identification
method.
Revenue Recognition
Interest on loans is accrued and credited to operations based upon the principal
amount outstanding. The accrual of interest income generally is discontinued
when a loan becomes 90 days past due as to principal or interest. Management may
elect to continue the accrual of interest when the estimated fair value of
collateral is sufficient to cover the principal balance and accrued interest.
Net premiums on loans purchased are recognized in interest income over the
estimated lives of the loans using a method that approximates a level yield.
Loan origination fees and direct loan origination costs are deferred and the net
amount amortized as an adjustment to the related loan's yield. The Company is
generally amortizing these amounts over the contractual life of the related
loans.
Loans Held for Sale
First mortgage loans held for sale in the secondary market are carried at the
lower of aggregate cost or market value. Management estimates the market value
of its portfolio held for sale based on outstanding investor commitments or
current investor yield requirements, whichever is more readily apparent.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb probable losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors. The
allowance is increased by provisions for loan losses charged against income.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation
computed generally by the straight-line method at rates based on estimated
useful lives. Amortization of leasehold improvements is computed on a
straight-line basis over the terms of related leases.
Real Estate Acquired in Settlement of Loans and In-Substance Repossessed Real
Estate
Real estate acquired in settlement of loans and in-substance repossessed real
estate is composed of properties acquired through foreclosure proceedings,
acceptance of a deed in lieu of foreclosure, or loans for which foreclosure
proceedings are imminent. These properties are carried at the lower of cost or
fair value, less selling costs. The Bank considers a property in-substance
foreclosed when it is determined that a borrower has little or no equity in a
property collateralizing a loan, proceeds for repayment of the loan can be
expected to come only from the operation or sale of the collateral, and it is
doubtful that the equity can be rebuilt in the foreseeable future. At the time
these properties are foreclosed or are designated in-substance repossessed real
estate, they are recorded at the lower of cost or fair value, less selling
costs, through a direct charge against the allowance for loan losses. Losses in
value subsequent to foreclosure or in-substance repossession classification are
recorded through the adjustment of an allowance for losses by a provision
(charge) against income.
Excess Cost Over Net Assets of Acquisitions
The excess cost over net assets of acquired entities (goodwill) is being
amortized on a straight-line basis over periods of 15 years or less. On a
periodic basis, the Company will review goodwill for events or changes in
circumstances that may indicate that the carrying amount of goodwill may not be
recoverable. Such amounts are included in other assets.
Other Intangible Assets
The excess of the purchase price over the fair value of the tangible net assets
of certain acquisitions has been allocated to core deposits (core deposit
intangible), based upon valuations, and is being amortized over a period no
greater than the estimated remaining life of the existing deposit base assumed.
Intangible assets are included in other assets.
Income Taxes
In February 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for
Income Taxes." This Statement requires a change from the deferred method of
accounting for income taxes to the asset and liability method of accounting for
income taxes. Under the asset and liability method of this Statement, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under the Statement, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company adopted SFAS No. 109 on October 1,
1993 and has reported the cumulative effect of that change in the statement of
income for the year ended September 30, 1994. The Company files consolidated
state and federal income tax returns.
Prior to adoption of SFAS No. 109, the Company recognized income taxes under the
deferred method of APB Opinion 11. Items of income and expenses recognized in
different time periods for financial reporting purposes and for purposes of
computing income taxes currently payable gave rise to deferred income taxes.
Fair Value of Financial Instruments
Financial instruments include cash and cash equivalents, investments,
mortgage-backed securities, loans, deposits, borrowings and certain
off-balance-sheet items. Other assets that are not considered financial
instruments and are excluded from fair value disclosures include real estate
owned and premises and equipment.
Fair value estimates are made at a specific point in time based on market
information, where available, or other more subjective information if a market
for the financial instrument does not exist. These estimates incorporate
assumptions and other matters of judgment and may not reflect the true financial
impact that could result from selling the entire portfolio of a financial
instrument on one date, including any income tax consequences.
Cash Flows
Cash and cash equivalents include cash and amounts due from depository
institutions and interest-bearing deposits.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted-average
common shares outstanding during the year, increased by the number of shares
issuable on the exercise of stock options, if dilutive, based on the treasury
stock method. The dilutive effect of stock options was not material for 1994,
1993 and 1992. All share data for all periods prior to September 30, 1993 have
been adjusted retroactively to give effect to a 10% stock dividend to common
shareholders of record on August 16, 1993.
Reclassification
Certain 1993 and 1992 amounts have been reclassified to conform to the 1994
presentation for comparative purposes. Such reclassifications had no effect on
net income.
2 - Acquisitions
On March 13, 1992, Bristol Federal Savings Bank purchased certain assets and
assumed all insured deposits of Danbury Federal Savings and Loan Association (
"Danbury"), Danbury, Connecticut, from the Resolution Trust Corporation ("RTC").
On May 8, 1992, Bristol Federal Savings Bank acquired certain assets and assumed
all insured deposits of Brookfield Bank ("Brookfield"), Brookfield, Connecticut,
from the Federal Deposit Insurance Corporation ("FDIC"). On June 10, 1994, Eagle
Federal acquired certain assets and assumed all insured deposits of The Bank of
Hartford ("Hartford") from the FDIC. The acquisitions have been accounted for by
the purchase method of accounting and, accordingly, the assets acquired and
liabilities assumed were recorded based on estimated fair values at the dates of
acquisition. The estimated fair values of assets acquired and liabilities
assumed at the dates of acquisition are summarized as follows:
<TABLE>
<CAPTION>
Danbury Brookfield Hartford
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 4,960,000 $ 1,428,000 $ 4,933,000
Interest-bearing deposits 14,000,000 0 25,503,000
Investments and mortgage-backed securities 0 0 72,667,000
Loans 86,752,000 0 80,776,000
Allowance for loan losses (1,759,000) 0 (3,500,000)
Other assets 302,000 1,000 2,330,000
Core deposit and other intangibles 1,236,000 561,000 11,276,000
Deposits (113,655,000) (66,485,000) (272,752,000)
Other liabilities (5,687,000) (122,000) (3,234,000)
- ----------------------------------------------------------------------------------------------------------
Cash received or receivable from FDIC/RTC $ 13,851,000 $ 64,617,000 $ 82,001,000
=========================================================================================================
</TABLE>
In accordance with the Purchase and Assumption Agreement between the RTC and
Bristol Federal Savings Bank, Bristol Federal Savings Bank had the option, until
October 7, 1993, to put back or return to the RTC for cash, loans acquired in
the Danbury transaction if certain documentation deficiencies existed. Bristol
Federal Savings Bank exercised this option and put back $4.0 million assets to
the RTC.
The operating results of these acquisitions are included in the Company's
statement of income from the dates of acquisition.
3 - Investment Securities
The aggregate carrying amounts and market values of investment securities are as
follows :
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Market
(in thousands) Value Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1994:
Investment securities:
U.S. Treasury securities $ 12,834 $ 3 $ 38 $ 12,799
Obligations of other U.S. Government agencies 14,018 10 157 13,871
Collateralized mortgage obligations 47,357 32 1,398 45,991
Corporate and other securities 23,040 18 491 22,567
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities 97,249 63 2,084 95,228
Securities available for sale(a):
Mutual fund investments 17,599 0 781 16,818
Marketable equity securities 16 102 0 118
Net unrealized loss (679) (102) (781) 0
- --------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 16,936 0 0 16,936
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities
and securities available for sale $114,185 $ 63 $2,084 $112,164
================================================================================================================================
<FN>
(a) At September 30, 1994 net unrealized losses on securities available for sale in the amount of $679,000 are included as a
reduction to total shareholders' equity.
</TABLE>
<TABLE>
<CAPTION>
September 30, 1993:
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury securities $ 4,098 $ 67 $ 0 $ 4,165
Obligations of other U.S. Government agencies 8,993 319 0 9,312
Collateralized mortgage obligations 23,223 351 35 23,539
Corporate and other securities 10,566 372 0 10,938
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities 46,880 1,109 35 47,954
Securities available for sale:
Mutual fund investments 15,599 22 20 15,601
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities
and securities available for sale $ 62,479 $1,131 $ 55 $ 63,555
================================================================================================================================
</TABLE>
Market values of investment securities are based on quoted market prices or
dealer quotes on similar instruments.
The carrying value and estimated market value of debt securities at September
30, 1994, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Carrying Market
(in thousands) Value Value
- -------------------------------------------------------------------
Due in one year or less $ 9,840 $ 9,848
Due after one year through five years 28,585 28,293
Due after five years through ten years 1,826 1,770
Due after ten years 9,641 9,326
Collateralized mortgage obligations 47,357 45,991
- -------------------------------------------------------------------
$97,249 $95,228
There were no debt securities sold in 1994. Proceeds from sales of investments
in debt securities were $3,932,000 and $6,108,000 in 1993 and 1992,
respectively. Gross gains of $38,000 and $2,000 were realized on the 1993 and
1992 sales, respectively. No losses were realized on the sales in 1993 and 1992.
Proceeds from sales of securities available for sale were $2,800,000 and
$7,998,000 in 1994 and 1993, respectively. Gross realized gains and losses on
the sales of securities available for sale were $15,000 and $1,000,
respectively, in 1993. There were no realized gains or losses on sales of
securities available for sale in 1994 and 1992.
Investment securities with a book value of $3,300,000 and $3,750,000 were
pledged as collateral to secure public deposits at September 30, 1994 and 1993,
respectively.
As required by the Federal Home Loan Bank, the Bank must hold FHLB stock equal
to at least 5% of outstanding advances. At September 30, 1994 and 1993, the Bank
was in compliance with the Federal Home Loan Bank stock requirement.
4 - Mortgage-backed Securities
The aggregate carrying amounts and market values of mortgage-backed securities
are as follows:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------
Book Market Book Market
Value Value Value Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FHLMC $53,382 $52,547 $12,237 $12,608
FNMA 14,712 14,053 12,459 12,786
GNMA 470 487 1,053 1,151
Other 142 137 204 203
- -----------------------------------------------------------------------------------------------
Total mortgage-backed securities $68,706 $67,224 $25,953 $26,748
===============================================================================================
</TABLE>
The gross unrealized gains and gross unrealized losses on mortgage-backed
securities were $44,000 and $1,526,000, respectively, at September 30, 1994. The
gross unrealized gains and gross unrealized losses on mortgage-backed securities
were $798,000 and $3,000, respectively, at September 30, 1993.
5 - Loans
Loans consisted of the following:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate mortgage loans:
Residential $722,427 $591,797
Residential construction 7,103 5,739
Commercial 15,862 11,268
Land 6,551 5,735
- --------------------------------------------------------------------------------------------------------------------------------
751,943 614,539
- --------------------------------------------------------------------------------------------------------------------------------
Consumer loans:
Home equity loans 62,977 43,864
Other 6,252 5,804
- --------------------------------------------------------------------------------------------------------------------------------
69,229 49,668
- --------------------------------------------------------------------------------------------------------------------------------
Less:
Unearned discounts and premiums 183 3
Loans in process 0 (600)
Deferred loan origination fees (2,339) (2,261)
Allowance for loan losses (8,311) (5,005)
- --------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net $810,705 $656,344
</TABLE>
The Company sold $10 million of 30-year fixed rate loans to the Federal Home
Loan Mortgage Corporation in October 1993. This transaction resulted in a gain
of approximately $120,000.
At September 30, 1994, 1993 and 1992, loans serviced for the benefit of others
approximated $95.1 million, $11.8 million and $13.2 million, respectively.
Included in the September 30, 1994 balance of loans serviced for the benefit of
others are approximately $80.5 million of mortgage loans for which the Company
purchased servicing rights in connection with the former Bank of Hartford
acquisition.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $5,005 $4,011 $1,544
Charge-offs (1,506) (958) (1,150)
Recoveries 112 244 212
Provisions for loan losses 1,200 1,708 1,646
Allowance from acquired bank 3,500 0 1,759
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $8,311 $5,005 $4,011
================================================================================================================================
</TABLE>
Non-performing loans, which consist of loans delinquent 90 days or more,
approximated $8.0 million and $6.5 million as of September 30, 1994 and 1993,
respectively. If these loans had been current, in accordance with their original
terms, additional interest income would have been recorded in the amounts of
$503,000 and $310,000 for 1994 and 1993, respectively. Total non-performing
loans at September 30, 1994 included $3.0 million of loans acquired as part of
The Bank of Hartford transaction in June 1994. The allowance for loan losses was
increased in 1994 by $3.5 million and in 1992 by $1.8 million as a result of the
acquisition of certain loans and related allowances for loan losses of The Bank
of Hartford and Danbury Federal Savings and Loan Association, respectively.
The following table presents fair value information for the Bank's loan
portfolio:
<TABLE>
<CAPTION>
Allowance Estimated
(in thousands) Principal and Other Carrying Fair
September 30, 1994: Amount Adjustments Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate mortgage loans $751,943 $ 9,190 $742,753 $ 732,164
Consumer loans 69,229 1,277 67,952 68,416
- --------------------------------------------------------------------------------------------------------------------------------
Total $821,172 $10,467 $810,705 $ 800,580
================================================================================================================================
September 30, 1993:
Real estate mortgage loans $614,539 $ 7,415 $607,124 $630,046
Consumer loans 49,668 448 49,220 50,824
- --------------------------------------------------------------------------------------------------------------------------------
Total $664,207 $ 7,863 $656,344 $680,870
================================================================================================================================
</TABLE>
In developing the estimated fair values above, the Bank's loan portfolio was
segregated by type of loan, performing status and interest method (fixed or
variable). In general, fair value was estimated by discounting contractual cash
flows adjusted for prepayment estimates using discount rates developed in the
secondary market.
Assumptions have been made in developing these fair values based on historical
experience and market conditions. Because there is no immediate market for many
of the above loans, there is no basis for determining whether the fair value
presented above would be indicative of the value negotiated in an actual sale.
6 - Loans to Related Parties
The Bank has granted loans to officers and directors of the Bank and the Company
and to their associates. Related party loans are made on substantially the same
terms as those prevailing at the time for comparable transactions with unrelated
persons, except that prior to fiscal year 1991 officers and directors were
granted a 1% discount on the interest rate for mortgage and property improvement
loans. Management believes that these loans do not involve more than normal risk
of collectibility.
The aggregate dollar amount of loans to officers and directors (exclusive of
loans to any such persons which in the aggregate did not exceed $60,000 during
the year) amounted to $2,552,000 and $2,936,000 at September 30, 1994 and 1993,
respectively. During 1994, $287,000 of new loans were made and repayments
totaled $671,000. During 1993, $556,000 of new loans were made and repayments
totaled $523,000. All loans to officers and directors were current at September
30, 1994.
7 - Real Estate Acquired in Settlement of Loans and In-substance Repossessed
Real Estate
Real estate acquired in settlement of loans and in-substance repossessed real
estate is stated net of a related allowance. Changes in the allowance were as
follows:
<TABLE>
<CAPTION>
Years Ended September 30,
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 35 $ 40 $ 34
Charge-offs, net of recoveries (245) (292) (233)
Provisions for losses 675 287 239
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $465 $ 35 $ 40
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 - Premises and Equipment
The following is a summary of the premises and equipment accounts:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 688 $ 688
Premises and leasehold improvements 6,887 5,066
Furniture, fixtures and equipment 4,495 4,477
- --------------------------------------------------------------------------------------------------------------------------------
12,070 10,231
Less accumulated depreciation and amortization (4,815) (4,202)
- --------------------------------------------------------------------------------------------------------------------------------
$ 7,255 $ 6,029
</TABLE>
The Company leases various office space for its branch office sites under
operating lease arrangements. Certain of the lease arrangements provide for
renewal options. Rental expense for leased branches included in operating
expenses was $470,000, $352,000 and $281,000 for 1994, 1993 and 1992,
respectively.
In 1992, Bristol Federal entered into two lease agreements for office space and
a branch site with a director-related corporation. The leases were for an
initial term of five years and seven years, respectively, and have renewal
options which extend for an additional five years. Total lease expense for the
office space and branch site was $69,017 for 1994 and $65,040 for 1993.
The future minimum rental commitments for the leased branches as of September
30, 1994 were as follows:
<TABLE>
<C> <C>
1995 $378,000
1996 275,000
1997 168,000
1998 53,000
1999 34,000
Thereafter 73,000
- -----------------------------------------------------------------------------------------------------
$981,000
=====================================================================================================
</TABLE>
9 - Prepaid Expenses and Other Asstes
A summary of prepaid expenses and other assets follows:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Core deposit intangibles $ 3,677 $1,861
Goodwill 7,834 0
Mortgage servicing rights 839 0
Deferred tax assets, net 3,947 0
Due from FDIC, net 7,605 0
Other Assets 3,894 2,044
- -------------------------------------------------------------------------------------------------------------------
$27,796 $3,905
===================================================================================================================
</TABLE>
Intangible assets, including core deposit intangibles, goodwill and purchased
mortgage servicing rights, increased significantly in 1994 reflecting the
additional intangible assets resulting from The Bank of Hartford acquisition.
The amount due from the FDIC represents net settlement items from that
acquisition due to be reimbursed by the FDIC.
The following table shows activity in goodwill and core deposit intangibles:
<TABLE>
<CAPTION>
Total
Goodwill &
Core Deposit Core Deposit Accumulated
(in thousands) Goodwill Intangibles Intangibles Amortization
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1991 $ 0 $ 541 $ 541 $ 213
Intangible assets acquired 0 1,797 1,797
Amortization of intangibles 0 200 200 200
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1992 0 2,138 2,138 413
Intangible assets acquired 0 98 98
Amortization of intangibles 0 375 375 375
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1993 0 1,861 1,861 788
Intangible assets acquired 7,995 2,402 10,397
Amortization of intangibles 161 586 747 747
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 $7,834 $3,677 $11,511 $1,535
=================================================================================================================================
</TABLE>
10 - Deposits
Deposit balances consisted of the following:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest bearing $ 22,101 % $ 12,999 %
Passbook accounts 162,344 1.99 117,847 2.50
NOW accounts 76,111 1.05 52,768 1.25
Money market accounts 151,290 2.67 135,413 2.90
- ---------------------------------------------------------------------------------------------------------------------------------
411,846 319,027
- ---------------------------------------------------------------------------------------------------------------------------------
Certificate accounts by original maturity:
Six months or less 107,722 3.27 82,890 3.50
Over six months to one year 110,928 3.77 79,396 3.62
Over one year to two years 113,970 4.37 78,086 4.75
Over two years 204,363 5.85 146,815 6.22
- ---------------------------------------------------------------------------------------------------------------------------------
536,983 387,187
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits $948,829 $706,214
</TABLE>
<TABLE>
<CAPTION>
Interest on deposits is summarized as follows:
Years Ended September 30,
(in thousands) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Passbook accounts $ 2,966 $ 3,228 $ 3,428
NOW accounts 777 1,054 1,198
Money market accounts 3,929 4,337 4,548
Certificate accounts 19,976 19,341 19,852
- ---------------------------------------------------------------------------------------------------------------------------------
Interest on deposits $27,648 $27,960 $29,026
=================================================================================================================================
</TABLE>
Interest forfeitures resulting from early withdrawals from certificate accounts
are credited to interest on deposits. Interest forfeitures reducing the cost of
interest on deposits amounted to $95,000, $91,000 and $71,000 for 1994, 1993 and
1992, respectively.
The estimated fair value of the Bank's deposit portfolio is as follows:
<TABLE>
<CAPTION>
September 30,
1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(in thousands) Amount Fair Value Amount Fair Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest bearing $ 22,101 $ 22,101 $ 12,999 $ 12,999
Passbook accounts 162,344 162,344 117,847 117,847
NOW accounts 76,111 76,111 52,768 52,768
Money market accounts 151,290 151,290 135,413 135,413
Certificate accounts 536,983 540,047 387,187 398,784
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits $948,829 $951,893 $706,214 $717,811
=================================================================================================================================
</TABLE>
The fair value of deposits with no stated maturity, such as passbook, NOW and
money market accounts, is equal to the amount payable on demand on September 30,
1994 and 1993. The fair value of time deposits is based on the discounted value
of contractual cash flows, using rates offered at September 30, 1994 and 1993
for deposits with similar remaining maturities.
The following table sets forth the maturities of deposit accounts in
denominations of $100,000 or more at September 30, 1994:
<TABLE>
<CAPTION>
(in thousands) Maturity Amount
- -----------------------------------------------------------------------------------------------------
<S> <C>
Under three months $ 17,796
Three to six months 12,558
Six to twelve months 5,905
Over twelve months 16,868
- -----------------------------------------------------------------------------------------------------
$ 53,127
</TABLE>
11 - Federal Home Loan Bank Advances and Borrowed Money
Federal Home Loan Bank advances and borrowed money consisted of the following:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank advances:
Due February 1994 - 7.61% $ $ 1,000
Due April 1994 - 7.56% 2,000
Due October 1994 - 5.04% 8,125
Due December 1994 - 5.12% 850
Due March 1995 - 6.07 and 8.01% 2,300 1,000
Due March 1996 - 5.02% 1,500
Due April 1996 - 8.10% 500 500
Due March 1997 - 5.38% 2,000
Due March 1997 - 5.68% 1,000
Due August 1996 - 4.52% 5,000 5,000
Due August 1998 - 5.19% 5,000 5,000
Due March 1999 - 6.10% 2,000
Due March 2000 - 6.48% 1,000
Due March 2001 - 6.83% 1,500
Due September 2001 - 8.20% 1,000 1,000
- ---------------------------------------------------------------------------------------------------------------------------------
$31,775 $15,500
=================================================================================================================================
Borrowed money:
Reverse repurchase agreement due October 26, 1994 at 5.09% $7,350 $ 0
Employee Stock Ownership Plan debt:
1987 Borrowing - 6.39% and 4.95% at September 30,
1994 and 1993, respectively 146 270
1992 Borrowing - 8.00% and 6.25% at September 30,
1994 and 1993, respectively 321 482
---------------------------------------------------------------------------------------------------------------------------------
$7,817 $752
</TABLE>
The fair value of short- and long-term borrowings, estimated using rates
currently available for debt of similar terms and remaining maturities, was $31
million and $16 million at September 30, 1994 and 1993, respectively.
In accordance with an agreement with the Federal Home Loan Bank of Boston
("FHLB"), the Bank is required to maintain qualified collateral, as defined in
the FHLB Statement of Credit Policy, free and clear of liens, pledges and
encumbrances, as collateral for the advances. The FHLB Statement of Credit
Policy grants members the ability to borrow up to the value of the member's
qualified collateral that has not been pledged to outside sources. Members whose
total indebtedness, including borrowings from outside sources, exceeds 30% of
assets are required to list and segregate collateral in a sufficient amount to
cover the amount of advances outstanding. The Bank has a capacity to borrow up
to $613 million in advances from FHLB as of September 30, 1994. The Bank has a
preapproved line up to 2% of total assets. Collateral for the $7.4 million
reverse repurchase agreement due October 26, 1994 includes $1.2 million FHLMC
mortgage-backed securities due June 1, 2022 and $6.2 million FNMA
mortgage-backed securities due March 1, 2014.
In connection with its purchase of the Company's common stock during 1987, the
Employee Stock Ownership Plan (the "Plan") borrowed $1,163,000 under a term note
maturing in 1997 with interest due quarterly at 82.5% of the lender's floating
prime rate. In 1991, the Plan borrowed $759,000 to purchase additional shares of
the Company's common stock under a term note maturing in 1997 with interest due
quarterly at the lender's floating prime rate plus .25%. Principal payments
ranging from $129,000 to $247,000 are due annually on March 31 until 1997 on the
outstanding borrowings. A total of 39,642 unallocated shares in the Plan Trust
at September 30, 1994 have been pledged as collateral in conjunction with the
Plan borrowings. The Company reflects the Plan debt as borrowed money and as a
reduction of shareholders' equity.
12 - Income Taxes
As discussed in Note 1, the Company has adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" as of October 1,
1993. The cumulative effect, determined as of October 1, 1993, of this change in
accounting for income taxes was a benefit of $1,273,000 and is a component of
the amount shown as the cumulative effect of accounting changes in the statement
of income for fiscal 1994. The effect on 1994 income tax expense of using the
SFAS No. 109 approach versus a prior approach is approximately an $80,000
decrease in income tax expense. Prior years' financial statements have not been
restated to apply to provisions of Statement No. 109.
Charges for income taxes in the consolidated statements of income comprised the
following:
<TABLE>
<CAPTION>
Years Ended September 30,
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $4,968 $4,169 $3,707
State 1,708 1,691 1,550
- --------------------------------------------------------------------------------------------------------------------------------
6,676 5,860 5,257
- --------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (998) (116) (252)
State (325) (107) (105)
- --------------------------------------------------------------------------------------------------------------------------------
(1,323) (223) (357)
- --------------------------------------------------------------------------------------------------------------------------------
Total:
Federal 3,970 4,053 3,455
State 1,383 1,584 1,445
- --------------------------------------------------------------------------------------------------------------------------------
$5,353 $5,637 $4,900
================================================================================================================================
</TABLE>
The actual income tax expense for 1994, 1993 and 1992 differs from the
"expected" income tax expense for those years (computed by applying the U.S.
Federal statutory corporate tax rate of 35%, 34% and 34%, respectively) as
follows:
<TABLE>
<CAPTION>
Years Ended September 30,
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax on income before income taxes $4,532 $4,008 $3,422
Increase (decrease) in income taxes resulting from:
Bad debt deduction -- 410 185
State income taxes, net of Federal income tax
benefit 898 1,045 922
Loss (gain)on sale of real estate owned (16) 173
Other, net (77) 190 198
- --------------------------------------------------------------------------------------------------------------------------------
$5,353 $5,637 $4,900
================================================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994
- -----------------------------------------------------------------------------------------------------
<S> <C>
Deferred tax assets:
Deferred loan fees $ 960
Postretirement benefits 948
Deferred compensation 656
Loans receivable, principally due to
allowance for loan losses 3,545
Intangibles 479
Other miscellaneous 31
- -----------------------------------------------------------------------------------------------------
Total gross deferred assets 6,619
- -----------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Premises and equipment, principally due to
differences in depreciation (842)
Tax discount on acquired loans (1,830)
- -----------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (2,672)
- -----------------------------------------------------------------------------------------------------
Net deferred tax asset $ 3,947
</TABLE>
The valuation allowance for deferred tax assets as of September 30, 1994 and
October 1, 1993 was $0. There was no change in the valuation allowance for the
year ended September 30, 1994.
In order to fully realize the net deferred tax asset, the Company will need to
either generate tax losses to carryback to recover taxes previously paid or
generate future taxable income. Based upon the Company's historical and current
pre-tax earnings, management believes it is more likely than not that the
Company will realize the net deferred tax asset.
Timing differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to significant portions of the
deferred taxes (benefit) related to the following:
<TABLE>
<CAPTION>
Years Ended September 30,
(in thousands) 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrual versus cash basis items $(205) $(166)
Loan origination fees (27) (284)
Other, net 9 93
- -----------------------------------------------------------------------------------------------------------------------------------
$(223) $(357)
===================================================================================================================================
</TABLE>
The Company has not provided deferred income taxes for the Bank's tax return
reserve for bad debts that arose in tax years beginning before September 30,
1987 because it is not expected that this difference will reverse in the
foreseeable future. The cumulative net amount of income tax temporary difference
related to the reserve for bad debts for which deferred taxes have not been
provided was approximately $8.9 million at September 30, 1993. If the Company
does not meet the income tax requirements necessary to permit it to claim a
percentage of taxable income and income loan loss deduction in the future, the
Bank, under certain circumstances could incur a tax liability for the previously
deducted tax return loan losses in the year in which such requirements are not
met. This potential liability for which no deferred income taxes have been
provided was approximately $3.7 million as of September 30, 1994.
13 - Stock Option Plans
At September 30, 1994, 1993 and 1992, 300,587, 348,824 and 493,752 shares,
respectively, were reserved for issuance in connection with incentive and
non-incentive stock option plans for the benefit of directors, officers and
other full-time employees.
Under the Company's stock option plans, options have been granted for terms up
to ten years at not less than the fair value of the shares at the dates of grant
and are exercisable at date of grant.
<TABLE>
<CAPTION>
Shares under
stock option Option price
plan per share
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding and exercisable at September 30, 1989 295,925 5.78 -- 9.51
Exercised (4,840) 5.78
Granted 33,516 9.66 -- 9.77
Canceled (33,516) 9.66 -- 9.77
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding and exercisable at September 30, 1990 291,085 5.78 -- 9.51
Granted 11,000 8.75
Canceled (4,364) 7.50
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding and exercisable at September 30, 1991 297,721 5.78 -- 9.51
Exercised (41,493) 5.78 -- 9.20
Granted 76,259 9.20 -- 13.98
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding and exercisable at September 30, 1992 332,487 5.78 -- 13.98
Exercised (79,483) 5.78 -- 13.98
Granted 41,953 15.34 -- 18.18
Canceled (10)
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding and exercisable at September 30, 1993 294,947
Exercised (48,226) 5.78 -- 15.34
Granted 46,750 19.375 -- 23.00
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding and exercisable at September 30, 1994 293,471
=================================================================================================================================
</TABLE>
14 - Restiction on Subsidiary Dividends
The Company's ability to pay dividends to shareholders is substantially
dependent on funds received from the Bank. Regulations governing the payment of
dividends by savings institutions, as set forth by the Office of Thrift
Supervision ("OTS"), establish three tiers of institutions for purposes of
determining the level of dividends that can be paid. Under these rules, the Bank
is able to pay dividends in an amount equal to one-half of their surplus capital
at the beginning of the year plus all net income for the calendar year. At
September 30, 1994, the Bank had approximately $15.6 million in excess
risk-based capital, one-half of which would be available for declaration of
dividends to the Company. The OTS regulations permit the OTS to prohibit capital
distributions in certain circumstances.
The Bank is required by the OTS to meet minimum capital requirements, which
include tangible capital, core capital and risk-based capital requirements. The
Bank's actual capital as reported to the OTS at September 30, 1994 exceeded all
three requirements.
15 - Employees Benefit Plans
The Bank maintains a noncontributory trusteed defined benefit pension plan
through the Financial Institutions Retirement Fund (the "Fund") covering all
eligible employees. The plan is part of a multi-employer plan in which details
as to the Bank's relative positions are not readily determinable. Therefore,
information relating to the value of vested and nonvested accumulated plan
benefits and assumed rates of return used in determining such values is not
disclosed. Employer contributions to the Fund in 1994, 1993 and 1992 were
$394,000, $172,000 and $206,000, respectively, and these amounts are expensed to
operations in the year contributed.
The Company sponsors an Employee Stock Ownership Plan (the "Plan") covering
substantially all full-time employees. The Plan, which is a tax qualified
employee benefit plan, was adopted by the Board of Directors to provide
retirement benefits for employees. Contributions are determined based upon the
principal and interest amounts due related to the Plan debt. Amounts for
principal and interest are expensed as accrued.
A summary of the components of Plan contribution expense incurred by the Company
for 1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Principal component $285 $258 $180
Interest component 42 54 62
- --------------------------------------------------------------------------------------------------------------------------------
Total contribution expense $327 $312 $242
================================================================================================================================
</TABLE>
Effective in the first quarter of fiscal 1995, the Bank established an employee
savings plan under Section 401 (k) of the Internal Revenue Code. Under the
savings plan, the Bank will match $0.25 for every $1.00 of the employee's
contribution which is not in excess of 4% of the employees total compensation.
16 - Other Postretirement Benefit Plans
In addition to the Company's defined benefit pension plan, the Company provides
medical and dental insurance programs to its retirees. The retiree programs are
first available to individuals reaching age 60 with 25 years of service or to
individuals reaching age 65 with 10 years of service. All covered retirees are
required to contribute to the cost of their coverage and the provisions may be
changed at the discretion of the Company.
In 1994, the Company adopted SFAS No.106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" , and elected the immediate
recognition of the transition obligation. Upon adoption, the Company recognized
the accumulated postretirement benefit obligation of $2,194,000 which, net of an
income tax benefit of $891,000, decreased 1994 net income by $1,303,000.
Postretirement benefit costs for prior years, which were expensed as paid, were
not restated. The effect on 1994 expenses is an increase of approximately
$98,000. The 1993 and 1992 expenses were $44,000 and $29,000, respectively,
under the prior method.
The following table sets forth the plans' funded status and amounts recognized
in the Company's Consolidated Balance Sheet:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ (544)
Fully eligible active plan participants (617)
Other active plan participants (301)
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation (1,462)
Plan assets at fair value --
Accumulated postretirement benefit obligation in excess
of plan assets (1,462)
Unrecognized prior service cost (658)
Unrecognized net gain (167)
Unrecognized transition obligation --
- --------------------------------------------------------------------------------------------------------------------------------
Net postretirement benefit liability included in
other liabilities $(2,287)
================================================================================================================================
</TABLE>
Subsequent to initial adoption of SFAS No. 106, the Company amended the medical
and dental insurance programs to its retirees which resulted in a reduction to
the accumulated postretirement benefit obligation. The impact of the amendment
is being amortized over twenty years and results in a reduction to the annual
postretirement expense.
Assumptions used in determining actuarial present value of postretirement
benefit obligation are as follows:
<TABLE>
<CAPTION>
September 30,
1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Rate of return plan assets N/A
Discount rate 8%
Rate of increase on health care costs:
Initial 13%
Ultimate 6%
The resulting net periodic postretirement benefit expense consisted of the
following components:
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
<S> <C>
(in thousands) 1994
Service cost - benefits earned during the period $ 56
Interest cost on accumulated postretirement benefit obligation 118
Actual return on plan assets --
Net amortization (32)
- --------------------------------------------------------------------------------------------------------------------------------
Net postretirement benefit expense $142
================================================================================================================================
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits is 8% for 1994 and is assumed to increase gradually to 13% in
1999 and remain at that level thereafter. This health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rates by one percentage point
would increase the accumulated postretirement benefit obligation as of September
30, 1994 by 20%, and the aggregate of the service and interest cost components
of net periodic postretirement benefit costs for 1994 by 23%.
17 - Commitments and Contingencies
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These instruments expose the Company to credit risk in excess of the amount
recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. Total credit exposure at September 30,
1994 related to these items is summarized below:
<TABLE>
<CAPTION>
Contract
(in thousands) Amount
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Loan commitments:
Approved loan commitments $14,102
Unadvanced portion of construction loans 7,026
Unadvanced portion of home equity lines of credit 24,899
</TABLE>
Loan commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract. Loan
commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held is primarily
residential property. Interest rates on approved loan commitments and home
equity lines of credit are a combination of fixed and variable. Interest rates
on unadvanced portions of construction loans are fixed rates which generally
mature within eighteen months.
Commitments outstanding at September 30, 1994 consist of adjustable and fixed
rate mortgages of $13.1 million and $1.0 million, respectively, at rates ranging
from 4.25% to 9.25%. Commitments to originate loans generally expire within 60
days. In addition, at September 30, 1994 and 1993 there were unused portions of
home equity credit lines extended by the Bank of $24.9 million and $19.5
million, respectively.
18 - Significant Group Concentrations of Credit Risk
The Company primarily grants residential and consumer loans to customers located
within its primary market area in the State of Connecticut. The majority of the
Company's loan portfolio is comprised of residential mortgages. At September 30,
1994, residential loans, including residential construction loans, totaled $792
million, excluding off-balance-sheet items. Such loans are collateralized by
real estate, of which approximately 96% is located in Connecticut.
19 - Recent Accounting Pronouncements
In May 1993, the FASB issued SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The SFAS generally requires investments to be
classified into one of three categories. Securities which an enterprise has the
positive intent and ability to hold to maturity are classified as "held to
maturity" securities and are accounted for at amortized cost. Securities which
are bought and held primarily for the purpose of sale in the near term are
classified as "trading" securities and are accounted for at market value with
unrealized gains and losses included in earnings. All other securities are
classified as "available for sale" securities, and are accounted for at market
value with unrealized gains and losses excluded from earnings, but reported as a
separate component of shareholders' equity.
The Company will adopt this Statement in the first quarter of fiscal 1995. It is
expected that approximately 50% of its investment securities portfolio will be
classified as held to maturity. The remaining portfolio will be classified as
available for sale and will be accounted for at market value with any unrealized
gains and losses, net of income taxes, shown as a separate component of
shareholder' equity. If this Statement had been adopted on September 30, 1994,
shareholders' equity would have been negatively impacted by approximately $1.0
million, net of income taxes, reflecting an unrealized loss on that portion of
the portfolio classified as "available for sale."
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", was issued in
May 1993 and amended by SFAS No. 118 in October 1994. The SFAS, which is
effective for fiscal years beginning after December 15, 1994, requires that
creditors evaluate the collectibility of both contractual interest and
contractual principal of all loans when assessing the need for a loss accrual.
When a loan is impaired, a creditor shall measure impairment based on the
present value of the expected future cash flows discounted at the loan's
effective interest rate, or the fair value of the collateral if the loan is
collateral-dependent. The creditor shall recognize an impairment by creating a
valuation allowance. SFAS No. 118 amends Statement No. 114 to allow creditors to
use existing methods for recognizing interest income on impaired loans. The
Company has not yet made a determination as to the impact, if any, the adoption
of SFAS 114 will have on its financial condition and results of operations.
In October 1994, the FASB issued SFAS No. 119, "Disclosure About Derivative
Financial Instruments" and Fair Value of Financial Instruments . The SFAS, which
is effective for fiscal years ending after December 15, 1994, requires
disclosures about derivative financial instruments futures, forwards, swap and
option contracts, and other financial instruments with similar characteristics.
As of September 30, 1994 the Company is not party to such instruments. The SFAS
also amends existing requirements of SFAS No. 107, "Disclosures About Fair Value
of Financial Instruments." SFAS No. 107 is amended to require fair value
information be presented together with the related carrying amounts in the body
of the financial statements, a single footnote, or a summary table in a form
that makes it clear whether the amounts represent assets or liabilities.
20 - Susequent Event
In the first quarter of fiscal 1995, the Company completed a common stock
offering which resulted in the sale of 862,310 shares of stock at a price of
$20.75. After deducting the underwriting discount and offering expenses, the net
proceeds to the Company were approximately $16.7 million. Substantially all of
these proceeds were contributed to the Bank as additional capital.
12 Eagle Financial Corp. (Parent Company Only) Condensed Financial Information
Balance Sheets
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Cash $ 84 $ 83
Interest-bearing deposits 375 1,575
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 459 1,658
Investment securities 85 85
Investment in Bank subsidiary 65,531 59,141
Other assets 236 100
- --------------------------------------------------------------------------------------------------------------------------------
$66,311 $60,984
================================================================================================================================
Liabilities and shareholders' equity:
Payable to Bank subsidiary $ 27 $ 23
Accrued expenses and other liabilities (459) (198)
Borrowed money 467 752
Shareholders' equity 66,276 60,407
- --------------------------------------------------------------------------------------------------------------------------------
$66,311 $60,984
================================================================================================================================
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on investments $ 31 $ 79 $ 111
Dividends from Bank subsidiary 1,000 1,000 2,500
Other expenses (857) (767) (717)
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed earnings
of Bank subsidiary 174 312 1,894
Income tax benefit 323 387 271
- --------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of Bank subsidiary 497 699 2,165
Equity in undistributed earnings of Bank subsidiary 7,069 5,453 3,001
- --------------------------------------------------------------------------------------------------------------------------------
Net income $7,566 $6,152 $5,166
================================================================================================================================
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
September 30,
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $7,566 $6,152 $5,166
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of Bank subsidiary (7,069) (5,453) (3,001)
Amortization of premiums on investments 0 2 4
Increase in other assets (136) (21) 348
Increase in accrued expenses and other liabilities, net (261) (312) (326)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 100 368 2,191
- --------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of investment securities (1,000) (85) 0
Proceeds from maturity of investment security 1,000 600 0
Decrease in federal funds sold 0 0 800
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 0 515 800
- --------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Cash dividends (2,355) (1,910) (1,602)
Acquisition of treasury stock 0 0 (21)
Proceeds from exercise of stock options and other 1,052 913 348
Increase (decrease) in payable to Bank subsidiary 4 (6) 6
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (1,299) (1,003) (1,269)
- --------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (1,199) (120) 1,722
Cash and cash equivalents at beginning of year 1,658 1,778 56
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 459 $1,658 $1,778
================================================================================================================================
</TABLE>
22 - Seleccted Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share data) Three Months Ended
Fiscal 1994 12/31/93 3/31/94 6/30/94 9/30/94(b) Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $13,750 $13,499 $14,826 $18,012 $60,087
Interest expense 6,706 6,418 7,085 8,807 29,016
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 7,044 7,081 7,741 9,205 31,071
Provision for loan losses 300 300 300 300 1,200
Net gain on sales of investment
securities 0 0 0 0 0
Other income 791 643 815 917 3,166
Other expenses 4,513 4,496 4,486 6,593(c) 20,088
Income tax provision 1,246 1,224 1,608 1,275 5,353
- --------------------------------------------------------------------------------------------------------------------------------
Net income before cumulative effect of
accounting changes 1,776 1,704 2,162 1,954 7,596
Cumulative effect of accounting changes (30)(a) (30)
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,746 $ 1,704 $ 2,162 $ 1,954 $ 7,566
================================================================================================================================
Net income per share before
cumulative effect of accounting changes $ 0.55 $ 0.53 $ 0.67 $ 0.60 $ 2.35
Cumulative effect of accounting changes (0.01) 0 0 0 (0.01)
Net income per share $ 0.54 $ 0.53 $ 0.67 $ 0.60 $ 2.34
================================================================================================================================
<FN>
(a) During the quarter ended December 31, 1993, the Company adopted SFAS No. 109 with a cumulative effect benefit of $ 1,273,000
and SFAS No. 106 with a cumulative effect charge $1,303,000.
(b) The quarter ended September 30, 1994 includes the impact of the acquisition and assumption on June 10, 1994 of certain assets
and liabilities of The Bank of Hartford.
(c) Includes compensation and benefit expenses of $740,000 related to the retirement of two senior officers.
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
Fiscal 1993 12/31/92 3/31/93 6/30/93 9/30/93 Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $14,180 $13,850 $13,910 $13,814 $55,754
Interest expense 7,436 7,302 6,829 6,902 28,469
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 6,744 6,548 7,081 6,912 27,285
Provision for loan losses 325 325 529 529 1,708
Net gain on sales of investment
securities 0 (1) 1 52 52
Other income 599 584 625 644 2,452
Other expenses 3,986 4,128 3,929 4,249 16,292
Income tax provision 1,442 1,175 1,618 1,402 5,637
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,590 $ 1,503 $ 1,631 $ 1,428 $ 6,152
================================================================================================================================
Net income per share $ 0 .51 $ 0.48 $ 0.52 $ 0.46 $ 1.97
</TABLE>
Note: All per share data and the number of outstanding common shares for all
periods and dates prior to September 30, 1993 have been adjusted retroactively
to give effect to a 10% stock dividend to common shareholders of record on
August 16, 1993.
Independent Auditors' Report
The Board of Directors and Shareholders
Eagle Financial Corp.:
We have audited the accompanying consolidated balance sheets of Eagle Financial
Corp. and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. The financial
statements of Eagle Financial Corp. and subsidiaries for the year ended
September 30, 1992 were audited by other auditors whose report thereon, dated
October 29, 1992, expressed an unqualified opinion on those statements.
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 1994 and 1993 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Eagle
Financial Corp. and subsidiaries as of September 30, 1994 and 1993, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note 16 to the consolidated financial statement, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," in 1994. As discussed in Notes 1
and 12 to the consolidated financial statements, the Company also changed its
method of accounting for income taxes in 1994 to adopt the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
KPMG PEAT MARWICK LLP
Hartford, CT
November 18, 1994
<PAGE>
Officers and Managers
Eagle Federal Savings Bank
Ralph T. Linsley
Chairman and
Chief Executive Officer
Robert J. Britton
Vice Chairman, President and Chief Operating Officer
Ercole J. Labadia
Executive Vice President,
Administration and Operations
Mark J. Blum
Senior Vice President,
Chief Financial Officer
Kenneth F. Burns
Senior Vice President,
Retail Banking and Marketing
James F. Donnelly
Senior Vice President,
Chief Lending Officer
John D. Buckley
Vice President, Internal Auditor
Donald E. Crandall, Jr.
Vice President, Loan Underwriting
Irene K. Hricko
Vice President, Corporate Secretary
Kathleen K. Leach
Vice President, Regional Lending Officer
Peter J. Leone
Vice President,
Western Regional Officer
Barbara S. Mills
Vice President, Treasurer
Diane J. Nameth
Vice President, Deposit Operations
Adele L. Reale
Vice President, Human Resources
Janet E. Recidivi
Vice President,
Retail Banking Administration
Louise D. Rohner
Vice President,
District Manager
Mark Shaw
Vice President, Central Regional Officer
Joan F. Warkoski
Vice President, Regional Lending Officer
Joyce M. Barbieri
Assistant Vice President
Carole S. Churchill
Assistant Vice President
Mary Corbo
Assistant Vice President
D. Frances Daley
Assistant Vice President
John S. Donovan
Assistant Vice President
Cheryl J. Federico
Assistant Vice President
Kristine L. Ginty
Assistant Vice President
Linda K. Hammond
Assistant Vice President
Judy Haskins-Conde
Controller
Edmund S. Howley
Assistant Vice President
Roberta V. Kruppa
Assistant Vice President
Donna J. Lillis
Assistant Vice President
Connie L. Morello
Assistant Vice President
Benjamin A. Ossola
Assistant Vice President
Patricia L. Roberts
Assistant Vice President
Kurt W. Robinson
Assistant Vice President
John G. Scapin
Assistant Vice President
Patricia Silvernail
Assistant Vice President
Phyllis Tucker
Assistant Vice President
Teresa L. Wright
Assistant Treasurer
Jill Zeneski
Assistant Vice President
Eagle Financial Corp.
John D. Buckley
Vice President, Internal Auditor
<PAGE>
Branch Locations
Bristol District
Main Office
222 Main Street
Bristol
Bristol Commons
99 Farmington Avenue
Bristol
Bristol Farms Plaza
1235 Farmington Avenue
Bristol
Center Square
115 Main Street
Terryville
Pine Plaza
Pine Street
Forestville
Hartford District
Caldor Shopping Center
255 Main Street
Avon
38 Tunxis Avenue
Bloomfield
Canton Village
Route 44
Canton
108 Farminton Avenue
Hartford
324 Franklin Avenue
Hartford
West Hill Center
53 New Britain Avenue
Rocky Hill
75 Park Road
West Hartford
Torrington District
Main Office
50 Litchfield Street
Torrington
1180 East Main Street
Torrington
West Street
Litchfield
Shops at Ledgebrook
Route 44
Winsted
Danbury District
Main Office
158 Main Street
Danbury
Mill Plain Office Park
32 Mill Plain Road
Danbury
Commerce Plaza
71 Newtown Road
Danbury
2 Prospect Street
Ridgefield
Inters. Rt. 37 & Rt. 39
New Fairfield
247 Federal Road
Brookfield
20 Church Hill Road
Newtown
<PAGE>
Annual Meeting
Tuesday, January 24, 1995
11:00 a.m.
Eastwood Country Club
1301 Torringford West Street
Torrington, CT 06790
Executive Offices
Eagle Financial Corp.
222 Main Street
P.O. Box 1157
Bristol, CT 06010
(203) 584-6300
Independent Auditors
KPMG Peat Marwick LLP
City Place II
Hartford, CT 06103-4103
Registrar and Transfer Agent
First National Bank of Boston
Shareholder Services
Mail Stop: 45 02 09
P.O. Box 644 Boston, MA 02102 0644
(617) 575 3170
(800) 730-4001 Outside MA
Legal Counsel
Hogan & Hartson
Columbia Square
555 Thirteenth Street NW
Washington, DC 20004 1109
Anderson, Alden, Hayes & Ziogas LLC
238 Main Street
Bristol, CT 06010
Form 10-K
A copy of Eagle Financial Corp.'s annual report on Form 10-K (without exhibits)
filed with the Securities and Exchange Commission for fiscal 1994 may be
obtained from the Company without charge. Please send a written request to:
Irene K. Hricko
Vice President, Secretary
Eagle Financial Corp.
222 Main Street
Bristol, CT 06010
Common Stock Information
Eagle Financial Corp. common stock is listed on the NASDAQ National Market
System under the symbol EGFC. As of September 30, 1994 there were 3,174,977
shares of common stock outstanding, including 43,066 shares held in treasury,
and approximately 1,800 shareholders of record.
<PAGE>
Quarterly Stock Quotations and Stock Information
<TABLE>
<CAPTION>
Cash
Dividends
Quarter Paid Per
Ended High Low Share
<S> <C> <C> <C>
Dec. 31, 1990 $ 8.750 $ 8.000 $.125
Mar. 31, 1991 9.625 8.000 .125
Jun. 30, 1991 10.250 8.875 .130
Sep. 30, 1991 10.250 8.500 .130
Dec. 31, 1991 11.875 9.625 .130
Mar. 31, 1992 17.500 11.750 .130
Jun. 30, 1992 16.375 14.000 .130
Sep. 30, 1992 16.375 15.000 .130
Dec. 31, 1992 17.375 15.000 .150
Mar. 31, 1993 20.250 16.750 .150
Jun. 30, 1993 19.250 16.250 .150
Sep. 30, 1993 19.875 16.625 .150
Dec. 31, 1993 21.625 18.750 .170
Mar. 31, 1994 20.625 19.125 .170
Jun. 30, 1994 23.625 19.125 .170
Sep. 30, 1994 23.625 19.875 .170
</TABLE>
<PAGE>
Exhibit 22
SUBSIDIARIES OF REGISTRANT
Jurisdiction of
Name of Subsidiary Incorporation
Eagle Federal Savings Bank United States
Eagle Service Corp.(*) Connecticut
______________________
(*) Subsidiary of Eagle Federal Savings Bank.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Eagle Financial Corp. of our report dated October 29, 1992 included in
Exhibit 99.1 to this Annual Report.
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 33-28403) and Form S-8 (No. 33-46092) of our report dated October
29, 1992, with respect to the consolidated financial statements of Eagle
Financial Corp. incorporated by reference in the Annual Report (Form 10-K) for
the year ended September 30, 1994.
ERNST & YOUNG LLP
Hartford, Connecticut
December 27, 1994
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the filing of our report dated November 18, 1994, relating to the
consolidated balance sheets of Eagle Financial Corp. and Subsidiaries as of
September 30, 1993 and 1994, and the related consolidated statements of income,
shareholders' equity, and cash flows for the years then ended, as an Exhibit to,
and incorporation by reference into, the September 30, 1994 annual report on
Form 10-K of Eagle Financial Corp., and to the incorporation by reference of
such report into the registration statements on Form S-8 (No. 33-28403) and Form
S-8 (No. 33-46092) of Eagle Financial Corp.
Our report dated November 18, 1994, contains a paragraph that states that the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, in 1994 and that the Company also
changed its method of accounting for income taxes in 1994 to adopt the
provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
KPMG PEAT MARWICK LLP
Hartford, CT
December 27, 1994
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 21,549
<INT-BEARING-DEPOSITS> 3,103
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,936
<INVESTMENTS-CARRYING> 165,955
<INVESTMENTS-MARKET> 162,452
<LOANS> 819,016
<ALLOWANCE> 8,311
<TOTAL-ASSETS> 1,070,276
<DEPOSITS> 948,829
<SHORT-TERM> 18,625
<LIABILITIES-OTHER> 15,579
<LONG-TERM> 20,967
<COMMON> 32
0
0
<OTHER-SE> 66,244
<TOTAL-LIABILITIES-AND-EQUITY> 1,070,276
<INTEREST-LOAN> 314
<INTEREST-INVEST> 8,837
<INTEREST-OTHER> 2,732
<INTEREST-TOTAL> 31,071
<INTEREST-DEPOSIT> 27,648
<INTEREST-EXPENSE> 1,368
<INTEREST-INCOME-NET> 29,871
<LOAN-LOSSES> 1,200
<SECURITIES-GAINS> 120
<EXPENSE-OTHER> 20,088
<INCOME-PRETAX> 12,949
<INCOME-PRE-EXTRAORDINARY> 7,596
<EXTRAORDINARY> 0
<CHANGES> (30)
<NET-INCOME> 7,566
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.34
<YIELD-ACTUAL> 6.96
<LOANS-NON> 12,319
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,005
<CHARGE-OFFS> 1,506
<RECOVERIES> 112
<ALLOWANCE-CLOSE> 8,311
<ALLOWANCE-DOMESTIC> 8,311
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<PAGE>
</TABLE>
Exhibit 99.1
Report of Independent Auditors
The Board of Directors and Shareholders
Eagle Financial Corp.:
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of Eagle Financial Corp. for the year ended
September 30, 1992. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations, shareholders'
equity and cash flows of Eagle Financial Corp. for the year ended September 30,
1992, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Hartford, Connecticut
October 29, 1992
<PAGE>
Exhibit 99.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Eagle Financial Corp.:
We have audited the accompanying consolidated balance sheets of Eagle Financial
Corp. and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated 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 provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eagle Financial
Corp. and subsidiaries as of September 30, 1994 and 1993, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in Note 16 to the consolidated financial statement, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, in 1994. As discussed in Notes 1
and 12 to the consolidated financial statements, the Company also changed its
method of accounting for income taxes in 1994 to adopt the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
KPMG PEAT MARWICK LLP
Hartford, CT
November 18, 1994
