UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
-----------------------------------------------
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.)
P.O. Box 1157, Bristol, Connecticut, 06010
-------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(203) 589-4600
-------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 the number of shares outstanding for the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (par value $0.01) 3,085,017
----------------------------- --------------------------
(class) (Approximate No. of Shares
Outstanding at 1/31/94,
Excluding Treasury Stock)
<PAGE>
EAGLE FINANCIAL CORP
--------------------
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets at December 31, 1993
and September 30, 1993................................. 2
Consolidated Statements of Income for the Three
Months Ended December 31, 1993 and 1992................ 3
Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 1993 and 1992................ 4-5
Notes to Consolidated Financial Statements............. 6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 10-14
PART II - OTHER INFORMATION 15
SIGNATURES 16
<PAGE>
EAGLE FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1993 1993
------------------------------------- ---------- ----------
<S> <C> <C>
Cash and amounts due from depository institutions.................. $14,022 $12,462
Interest-bearing deposits.......................................... 15,942 9,496
-------- --------
CASH AND CASH EQUIVALENTS................................ 29,964 21,958
Securities available for sale (market value $19,459 at
December 31, 1993 and $15,601 at September 30, 1993)............ 19,415 15,599
Investment securities (market value $50,913 at December 31,
1993 and $47,954 at September 30, 1993)......................... 50,498 46,880
Mortgage-backed securities (market value $22,760 at December 31,
1993 and $26,748 at September 30, 1993)......................... 22,143 25,953
Loans receivable, net of allowance for loan losses of $5,075
at December 31, 1993 and $5,005 at September 30, 1993........... 656,595 656,344
Accrued interest receivable........................................ 4,193 4,380
Real estate acquired in settlement of loans
and in-substance repossessed real estate, net................... 3,905 5,471
Stock in Federal Home Loan Bank of Boston, at cost................. 5,949 5,949
Premises and equipment, net........................................ 6,025 6,029
Prepaid expenses and other assets.................................. 6,159 3,905
-------- --------
TOTAL ASSETS............................................. $804,846 $792,468
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
LIABILITIES
Deposits........................................................... $712,687 $706,214
Federal Home Loan Bank advances.................................... 15,500 15,500
Borrowed money..................................................... 752 752
Advance payments by borrowers for taxes and insurance.............. 7,005 3,577
Accrued expenses and other liabilities............................. 7,050 6,018
-------- --------
TOTAL LIABILITIES........................................ 742,994 732,061
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; 3,125,883 and 3,097,547
shares issued at December 31, 1993 and September 30, 1993,
respectively, including 43,066 shares held in treasury.......... 31 31
Additional paid-in capital........................................ 33,846 33,562
Retained earnings.................................................. 29,089 27,928
Cost of common treasury stock...................................... (362) (362)
Employee Stock Ownership Plan stock................................ (752) (752)
-------- --------
TOTAL SHAREHOLDERS' EQUITY............................... 61,852 60,407
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $804,846 $792,468
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
EAGLE FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------- -------
1993 1992
------- ------
<S> <C> <C>
Interest Income:
Interest and fees on loans.................. $12,249 $12,145
Interest on mortgage-backed securities...... 385 506
Interest on investment securities........... 691 1,154
Dividends on investment securities.......... 425 375
------ ------
Total interest income.................... 13,750 14,180
Interest Expense:
Interest on deposits........................ 6,471 7,320
Interest on Federal Home Loan Bank advances. 234 109
Interest on borrowed money.................. 1 7
------ ------
Total interest expense................... 6,706 7,436
------ ------
Net interest income...................... 7,044 6,744
------ ------
Provision for loan losses...................... 300 325
------ ------
Net interest income after provision for
loan losses........................... 6,744 6,419
------ ------
Other income:
Net gain on sale of investment securities... 0 0
Net gain on sale of loans................... 119 0
Customer service fee income................. 490 427
Other....................................... 182 172
------ ------
Total other income....................... 791 599
------ ------
7,535 7,018
Other expenses: ------ ------
Compensation, payroll taxes and benefits.... 2,105 1,747
Office occupancy............................ 458 425
Advertising................................. 138 67
Provision for losses on real estate
acquired in settlement of loans............ 253 98
Operation of real estate acquired in
settlement of loans........................ 283 188
Federal insurance premium................... 291 360
Data processing expenses.................... 272 263
Other....................................... 713 838
------ ------
Total other expenses..................... 4,513 3,986
------ ------
Income before income taxes and cumulative
effect of accounting changes............ 3,022 3,032
Income taxes................................... 1,246 1,442
------ ------
Income before cumulative effect of
accounting changes...................... 1,776 1,590
Cumulative effect of accounting changes........ 30 0
------ ------
Net Income............................... $1,746 $1,590
====== ======
Net income per share before cumulative effect
of accounting change......................... $0.55 $0.51
Cumulative effect of accounting change......... $0.01 $0.00
------ ------
Net Income per share........................... $0.54 $0.51
====== ======
Weighted average shares outstanding............3,207,742 3,096,235
Dividends per share............................ $0.19 $0.15
</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.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------
1993 1992
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income....................................................... $1,746 $1,590
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses................................ 300 324
Provision for losses on real estate acquired
in settlement for loans............................... 253 98
Provision for depreciation and amortization.............. 135 156
Accretion of discounts and fees on loans................. (387) (86)
Amortization of premiums (accretion of discounts)
on mortgage-backed securities........................ (6) 4
Amortization of premiums (accretion of discounts)
on investments....................................... 47 25
Amortization of core deposit intangibles................. 102 83
Realized mortgage-backed and investment
Realized mortgage loan losses (gains), net............... (119) 0
Decrease (increase) in accrued interest receivable....... 187 72
Increase (decrease) in accrued interest payable.......... (858) (869)
Loan origination fees.................................... 361 561
Other, net............................................... (206) 4,602
------- -------
Net Cash Provided by Operating Activities................ 1,555 6,560
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities................ 500 3,750
Proceeds from amortization of investment securities.............. 5,812 6,108
Purchases of securities available for sale....................... (3,800) 0
Purchases of investment securities............................... (9,993) (1,664)
Principal payments on mortgage-backed securities................. 3,816 827
Principal payments on loans receivable........................... 41,873 27,202
Loan originations................................................ (52,410) (60,850)
Proceeds from sales of loans..................................... 9,918 0
Proceeds from sales of real estate acquired in
settlement of loans........................................... 1,266 613
Purchases of premises and equipment.............................. (131) (204)
-------- --------
Net Cash Used by Investing Activities.................... (3,149) (24,218)
FINANCING ACTIVITIES:
Net increase in Passbook, NOW and Money
Market Accounts................................................ 10,969 15,242
Net increase (decrease) in certificate accounts.................. (4,496) 5,923
Net decrease in borrowed money................................... 0 (2)
Net increase in advance payments by borrowers
for taxes and insurance........................................ 3,428 2,808
Proceeds from exercise of stock options and dividends reinvested. 284 215
Cash dividends................................................... (585) (462)
-------- --------
Net Cash Provided by Financing Activities................ 9,600 23,724
-------- --------
Increase (decrease) in cash and cash equivalents......... 8,006 6,066
Cash and cash equivalents at beginning of period................. 21,958 33,132
-------- --------
Cash and cash equivalents at end of period............... $29,964 $39,198
======== ========
NON-CASH INVESTING ACTIVITIES:
Transfers of loans to foreclosed real estate..................... $213 $1,468
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
EAGLE FINANCIAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1993 AND 1992
(1) Basis of Presentation
---------------------
Eagle Financial Corp ("Eagle Financial") is a savings bank holding
company with a single subsidiary, Eagle Federal Savings Bank ("Eagle
Federal"). Eagle Federal serves customers from seventeen branch
offices located in Hartford, Litchfield and northern Fairfield counties.
The accompanying unaudited, consolidated financial statements in-
clude all adjustments of a normal, recurring nature which are, in
the opinion of management, necessary for a fair presentation. The
results of operations for the three-month periods ended December 31,
1993 and 1992 are not necessarily indicative of the results which
may be expected for the entire fiscal year. The accompanying finan-
cial statements should be read in conjunction with the financial
statements contained in the Company's 1993 annual report on Form 10-K.
(2) Accounting Pronouncements
--------------------------
In February, 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 109
"Accounting for Income Taxes." This SFAS 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, 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 SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax
rate is recognized in income in the period that includes the enactment
date.
The Company adopted SFAS No. 109 as of October 1, 1993. The cumulative
effect of this change in accounting for income taxes of $1,273,000
as of October 1, 1993 is included in a separate line in the statement
of operations for the quarter ended December 31, 1993. Prior periods'
financial statements have not been restated to apply the provisions
of SFAS No. 109.
At December 31, 1993, the Company has a net deferred tax asset of
approximately $2.6 million. In order to fully realize the net
deferred tax asset, the Company must 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.
However, there can be no specific assurance that the Company will
generate any specific level of continuing earnings.
<PAGE>
(2) Accounting Pronouncements
(Continued)
--------------------------
The Company had taxable income, pre-tax book income and taxes paid
for the periods presented as follows:
1993 1992 1991
---------------------------------------
(In thousands)
Taxable income $11,358 $10,600 $ 7,834
Pre-tax book income 11,789 10,066 7,392
Federal taxes paid 3,934 3,614 2,671
The primary differences between taxable income and pre-tax book
income relate to the provisions for loan losses and charge-offs.
The Company would expect these differences to continue in the future.
For the quarter ended December 31, 1993, income tax expense attribu-
table to income from continuing operations consists of:
Current Deferred Total
-----------------------------------------
(In thousands)
Federal $ 919 $ 7 $ 926
State 319 1 320
----- ----- -----
$ 1,238 $ 8 $ 1,246
===== ===== =====
<PAGE>
(2) Accounting Pronouncements
(Continued)
--------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 and October 1, 1993 are presented below: (In thousands)
Dec.31, 1993 Oct. 1, 1993
Deferred tax assets: --------------------------
Deferred loan fees $896 $907
Post-retirement benefits 911 891
Deferred compensation 202 190
Loans receivable, principally 2,126 2,046
due to allowance for loan losses
Other miscellaneous 76
--------------------------
Total gross deferred assets $4,135 $4,110
Less valuation allowance 0 0
--------------------------
Net deferred tax asset $4,135 $4,110
--------------------------
Deferred tax liabilities:
Premises and equipment, princi-
pally due to differences in
depreciation ($777) ($772)
Tax discount on acquired loans (536) (714)
Other miscellaneous (206)
--------------------------
Total gross deferred tax
liabilities ($1,519) ($1,486)
--------------------------
Net deferred tax asset $2,616 $2,624
==========================
The valuation allowance for deferred tax assets as of December 31
and October 1, 1993 was $-0-. There was no change in the
valuation allowance for the quarter ended December 31, 1993.
The actual income tax expense for the quarters ended December 31,
1993 and December 31, 1992 differs from the "expected" income tax
expense for the same periods (computed by applying the U.S.Federal
statutory corporate tax rate of 35% and 34%, respectively) as follows:
1993 1992
--------------------------
(In thousands)
Expected income tax on income before $1,058 $1,031
income taxes
State income taxes, net of Federal
income tax benefit 208 244
Other,net (20) 167
--------------------------
$48,594 $54,796
==========================
Eagle Federal has not provided deferred income taxes for Eagle Federal's tax
return reserve for bad debts that arose in tax years beginning before December
31, 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 December 31, 1993. If
Eagle Federal does not meet the income tax requirements necessary to permit it
to claim a percentage of taxable 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 $3,700,000 as of December 31, 1993.
<PAGE>
(2) Accounting Pronouncements
(Continued)
--------------------------
On October 1, 1993, the Company also adopted SFAS No. 106,
"Accounting for Post-retirement Benefits Other Than Pensions."
The accumulated post-retirement benefit obligation ("APBO")
existing at time of adoption was approximately $2,194,000 before
income taxes of $891,000. The $1,303,000 reduction in income net
of taxes was recognized as the cumulatulative effect of a change
in accounting method and is reported in a separate line in the
statement of operations for the quarter ended December 31, 1993.
The Company provides health benefits for future retirees within
certain limits and for current retirees. The Company does not have
any assets specifically segregated for the payment of health
benefits.
The following is a summary of the obligation to provide health benefits:
Accumulated post-retirement benefit obligation
related to active employees $1,594
Accumulated post-retirement benefit related
to retirees 600
--------
Total accumulated post-retirement benefit obligation
and amount recognized in statement of condition $2,194
=======
Net periodic post-retirement benefit cost for the year
ended September 30, 1994 is expected to approximate:
Service cost $89,000
Interest on APBO 135,000
Amortization of APBO (a) (28,000)
--------
Total cost $196,000
=======
(a) Amortization to reflect changes in Eagle Financial post-retirement
benefits plan made subsequent to October 1, 1993.
The Company has used a composite health care cost trend rate of seven
percent to measure the expected cost benefits. The weighted average
discount rate is also seven percent.
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL - Eagle Financial Corp. (the "Company") is a $805 million unitary
savings bank holding company and parent to Eagle Federal Savings Bank (the
"Bank"). The Bank is a federally chartered savings bank headquartered in
Bristol, Connecticut , which conducts business from 17 banking offices
located in Hartford, Litchfield, and northern Fairfield Counties. The
primary 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.
LIQUIDITY - As a member of the Federal Home Loan Bank System, the Bank is
required to maintain liquid assets at 5% of its net withdrawable deposits
plus short-term borrowings. At December 31, 1993, Eagle Federal was in
compliance with the Federal Home Loan Bank liquidity requirements having a
liquidity ratio of 7.58% compared to 7.63% at September 30, 1993.
The Bank's principal sources of funds include deposits, loan payments
(including interest, amortization of principal and prepayments), earnings
and amortization on investments, maturing investments and Federal Home
Loan Bank advances. While the Bank historically has not been an active
seller of loans, it did sell approximately $10 million of fixed rate,
residential mortgage loans during the first quarter of fiscal 1994.
Proceeds from the loan sale were used to fund loan originations. Principal
uses of funds include loan originations and investment purchases, payments
of interest on deposits and payments to meet operating expenses. At
December 31, 1993, the Bank had approximately $45 million in loan
commitments outstanding, including $19.5 million in available home equity
lines of credit and $4.1 million in amounts due borrowers for construction
loan advances. It is expected that these and future loans will be funded
by deposits, loan repayments, investment maturities and amortization and
borrowings. The Bank has the capacity to borrow up to approximately $460
million in advances from the Federal Home Loan Bank of Boston and will
continue to consider this source of funds for lending. Federal Home Loan
Bank advances at December 31, 1993 were $15.5 million and reflect no
change from September 30, 1993.
Loan originations for the three months ended December 31, 1993 were $52.4
million compared to $60.9 million for the same period in 1992 and there
were no loans purchased in either period. Loans sold during the three
month period ended December 31, 1993 totaled $9.9 million while no loans
were sold in the same period of 1992.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
It is the Banks 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 Company'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. Debt securities are also classified as
"available for sale" when appropriate and accounted for at the lower of cost
or market. When a security available for sale is sold, the proceeds are used
to fund loans when deposit inflows are not adequate, the rates offered on
Federal Home Loan Bank advances are not favorable, and liquidity ratios support
such sales. The Bank also occasionally sells securities available
for sale to restructure an asset/liability mismatch. There were no debt
securities sold during the three month period ended December 31, 1993 or
December 31, 1992. Equity securities are generally acquired for
liquidity purposes and have been accounted for at lower of cost
or market value.
REGULATORY CAPITAL REQUIREMENTS - The Bank is required by the Office of
Thrift Supervision ("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
December 31, 1993 exceeded the currently applicable tangible, core and
risk-based capital requirements as the following chart indicates (in
thousands):
OTS Requirement Actual Excess
Tangible Capital $12,029 $59,225 $47,196
Core Capital 24,111 59,597 35,486
Risk-based Capital 34,286 62,675 28,389
ASSET/LIABILITY MANAGEMENT - The primary component of Eagle Financial's
earnings is net interest income. Eagle's asset/liability management
strategy is to maximize net interest income over time by reducing the
impact of fluctuating interest rates. This is accomplished by matching
the mix and maturities of its assets and liabilities. At the same time
Eagle's asset/liability strategies for managing interest rate risk must
also accommodate customer demands for particular types of deposit and loan
products. Eagle uses various asset/liability management techniques in an
attempt to maintain a profitable mix of financial assets and liabilities,
provide deposit and loan products that meet the needs of its market area,
and maintain control over interest rate risk resulting from changes in
interest rates.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
Strategies employed by Eagle to manage the rate sensitivity of its assets
include origination of adjustable rate mortgage and consumer loans and
purchase of short-term and adjustable rate investments. Eagle Financial
also attempts to reduce the rate sensitivity of its liabilities by
emphasizing core deposits, which are less sensitive to changes in interest
rates, attracting longer term certificates of deposits when the market
permits, and using long term Federal Home Loan Bank advances. Management
will continue to monitor the impact of its borrowing and lending policies
on Eagle Financial's interest rate sensitivity.
NON-PERFORMING ASSETS - At December 31, 1993, Eagle Financial had total
non-performing assets in the amount of $10.4 million, or 1.29% of total
assets, including $6.5 million in non-performing loans and $3.9 million in
real estate owned and in-substance foreclosures. Loan loss reserves
totaled $5.1 million, or 78% of total non-performing loans. Most of the
real estate owned is in residential properties except for three local
pieces of commercial real estate valued at $589,000. At September 30,
1993, Eagle Financial 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. Total non-performing assets decreased by $1.6
million during the current quarter, primarily as a result of the
disposition of 17 real estate owned properties. Eagle Financial's loan
delinquencies greater than 60 days totaled $8.7 million, or 1.32% of total
loans, at December 31, 1993 compared to $8.9 million, or 1.36% of total
loans, at September 30, 1993. The following table represents a breakdown
of non-performing assets as of December 31,, 1993 (in thousands):
Foreclosed
Real Estate & Total
Non-performing In-substance Non-performing % of
Loans Foreclosure Assets Total
Mortgage Loans -
Residential $5,826 $3,144 $ 8,970 86.4%
Commercial R.E. 0 589 589 5.7%
Land Development 0 0 0 .0%
Consumer loans 39 0 39 .4%
Home equity loans 606 172 778 7.5%
Total $6,471 $3,905 $10,376 100.0%
============== ============= ============== ======
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
Management continued to add to the loan loss allowance during the quarter
ended December 31, 1993 based upon continued uncertainty in the local
economy. Provisions for loan losses totaled $300,000 for the quarter.
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 losses on loans and real estate owned,
management obtains independent appraisals for significant properties.
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 the examination.
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1993 AND 1992
GENERAL - Eagle Financial's net income for the three month period ended
December 31, 1993 was $1,746,000, or $.54 per share, a 9.8% increase over
the same period in 1992. Net interest income increased $300,000, or 4.4%,
in the 1993 period compared to the three months ended December 31, 1992.
Non-interest income increased $192,000, or 32.0%, in the three months
ended December 31, 1993 and includes a $119,000 net gain on sales of
mortgage loans. Other expenses increased $527,000, or 13.2% in the first
quarter of fiscal 1993, largely the result of a $250,000 increase in real
estate owned provisions and expenses and a $358,000 increase in
compensation and benefits. Net income for the current quarter was reduced
$30,000 resulting from the net cumulative effect of adopting two accounting
pronouncements.
INTEREST INCOME - Interest income from interest-earning assets decreased
$430,000, or 3.0%, for the three months ended December 31, 1993 compared
to the same period in 1992. The decrease was attributable to a drop in
the average yield on loans and investments of 63 basis points which more
than offset a $41 million increase in average interest earnings assets.
INTEREST EXPENSE - Interest expense on interest-bearing liabilities
decreased $730,000, or 9.8%, for the three months ended December 31, 1993
compared to the same period in 1992. The $32 million increase in average
deposits and borrowed money between periods was more than offset by a 59
basis point decrease in the average cost of these funds.
NET INTEREST INCOME - Net interest income increased $300,000, or 4.4%, for
the first quarter of fiscal 1994 compared to the first quarter of fiscal
1993. While the average interest rate spread dropped by 4 basis points,
this was more than offset by growth in loans and investments.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
PROVISION FOR LOAN LOSSES - The provision for loan losses totaled
$300,000 in the three month period ended December 31, 1993 compared to
$325,000 in the three month period ended December 31, 1992. Management
monitors the adequacy of the allowance for loan losses and periodically
makes additions 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 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. Management believes it to be prudent to increase the loss
allowance for loans in response to the current market and economic
environment. Eagle Financial's allowance for loan losses is currently
$5.1 million, which represents 78% of total non-performing loans.
OTHER INCOME - Non-interest income increased $192,000, or 32.0%, for the
three months ended December 31, 1993 versus the same period in the prior
year. The increase is attributable to a $119,000 net gain on sale of
mortgage loans and to higher fee income on deposit accounts.
OTHER EXPENSES - Non-interest expenses increased $527,000, or 13.2%,
during the three months ended December 31, 1993 compared to the three
months ended December 31, 1992. The largest contributing factors to the
increase include higher real estate owned provisions and expenses and
increased compensation and benefits. Real estate owned provisions and
expenses were $250,000 higher in the current quarter, partly due to the
sale of seventeen properties, while compensation and benefits increased by
$358,000. Partly offsetting these increases were a $114,000 adjustment
that reduced federal insurance premiums in the current quarter and
$130,000 of other expenses in the quarter ended December 31, 1992 relating
to the consolidation of Eagle's two bank subsidiaries into a single
subsidiary.
CUMULATIVE EFFECT OF ACCOUNTING CHANGES - Eagle was required to adopt two
accounting pronouncements in the first quarter of fiscal 1994. The
cumulative effect of these accounting changes, net of related tax
benefits, was to reduce net income by approximately $30,000.
The adoption of SFAS No. 109, "Accounting for Income Taxes", resulted in a
tax benefit of approximately $1,273,000 in the quarter. The amount of the
benefit was less than the previous estimate of $1.7 million. SFAS No. 109
also allows for a tax benefit to be recognized for certain real estate
owned and loan loss provisions that was not recognized under the prior
accounting method. The adoption of SFAS No. 106 "Accounting for
Postretirement Benefits Other than Pensions", resulted in a one-time,
cumulative catch-up adjustment that, net of the related tax benefit,
reduced net income in the first quarter by approximately $1,303,000. The
SFAS No. 106 adjustment was in line with previous estimates.
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1992
GENERAL - Eagle Financial had net income of $4,725,000 for the nine months
ended June 30, 1993, an increase of $964,000, or 25.6%, compared to the
same period of 1992. Net interest income increased $4.5 million,or 28.5%,
in the 1993 period. Other income increased $4,000, or .2%, for the nine
months ended June 30, 1993 and other expenses increased $3.1 million, or
34.0%.
INTEREST INCOME - Interest income increased $4.3 million, or 11.5%, in the
nine months ended June 30, 1993. While average interest-earning assets
increased $161.6 million, the average yield on loans and investments was
109 basis points lower in the 1993 period.
INTEREST EXPENSE - Interest expense decreased $201,000, or .9%, in the
nine month period ended June 30, 1993. Average interest-bearing
liabilities increased $160.0 million whereas the cost of these funds was
substantially lower, from 5.34% for the nine months ended June 30, 1992 to
4.09% for the nine months ended June 30, 1993.
NET INTEREST INCOME - Net interest income increased $4.5 million, or
28.5%, for the nine months ended June 30, 1993 compared to the same period
in 1992. The interest rate spread increased from 3.26% to 3.42%, while
the net interest margin increased 2 basis points, from 3.63% to 3.65%.
PROVISION FOR LOAN LOSSES - Because of the increase in non-performing
loans and uncertainty in the real estate sector, management has determined
that the prudent course was to add $725,000 to the general reserves and
$453,000 to specific reserves for the nine month period ended June 30,
1993. This compares to $1,321,000 in general loan loss provisions for the
nine months ended June 30, 1992.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
OTHER INCOME - Other income increased $4,000, or .2%, during the nine
month period ended June 30, 1993 over the same period of 1992 and includes
increases in fees of $348,000 for various services relating to loan and
deposit products. The 1992 period includes several non-recurring income
items such as a $112,500 settlement of a lawsuit regarding four real
estate owned properties disposed of in prior years, a $37,500 profit on
the sale of a mortgage backed security, and $93,000 in fees for loans
serviced for the RTC regarding an interim arrangement.
OTHER EXPENSES - Other expenses for the 1993 period increased $3.1
million, or 34.0%, compared to the nine month period ended June 30, 1992.
The largest contributing factor to the increase relates to the acquisition
of Danbury Federal Savings and Loan in March of 1992. Fiscal 1993 results
include a full nine months of operating expenses from that acquisition.
Compensation, payroll taxes and benefits increased $1.3 million due, in
most part, to staffing seven branch offices acquired and occupancy expense
increased $332,000, again, mostly due to the offices acquired. An
increase of $101,000 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 $187,000 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 $202,000, 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 offices. Expenses relating to the
operation of real estate acquired in settlement of loans increased
$296,000 and includes both carrying and acquisition/disposal costs while
the provision for real estate owned losses decreased $25,000 between
periods based on an ongoing assessment of the properties owned.
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1992 AND 1991
GENERAL - Eagle Financial had net income of $3,761,000 for the nine months
ended June 30, 1992, an increase of $744,000, or 24.7%, compared to the
same period of 1991. Net interest income increased $3.6 million, or
29.3%, in the 1992 period. Non-interest income increased $705,000, or
63.9%, for the nine months ended June 30, 1992 and other expenses
increased $2,031,000, or 29.2%, while income tax expense increased $1.2
million or 51.5%.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
INTEREST INCOME - Interest income increased $2.1 million, or 5.9%, in the
nine months ended June 30, 1992. While average interest-earning assets
increased $103.3 million, the average yield on loans and investments was
127 basis points lower in the 1992 period. The Danbury and Brookfield
acquisitions contributed the largest share of the increase in average
interest-earning assets during the nine month period ended June 30, 1992.
INTEREST EXPENSE - Interest expense decreased $1.5 million, or 6.4%, in
the nine month period ended June 30, 1992. While average interest-bearing
liabilities increased $102.5 million, the cost of these funds was
substantially lower, from 7.03% for the nine months ended June 30, 1991 to
5.34% for the nine months ended June 30, 1992. The Danbury and Brookfield
acquisitions contributed the largest share of the increase in average
interest-bearing liabilities during the nine month period ended June 30,
1992.
NET INTEREST INCOME - Net interest income increased $3.6 million, or
29.3%, for the nine months ended June 30, 1992 compared to the same period
in 1991. The interest rate spread increased 43 basis points, from 2.83%
to 3.26%, while the net interest margin increased 22 basis points, from
3.41% to 3.63%.
PROVISION FOR LOAN LOSSES - Because of the ongoing uncertainty in the real
estate sector, management has determined that the prudent course was to
add $1.3 million to the loan loss reserves for the nine month period ended
June 30, 1992 compared to $1.0 million for the same nine months of fiscal
1991. Eagle's strategy is to gradually increase general reserves even
though the majority of the loan portfolio is secured by one-to-four
family, owner-occupied homes with adequate loan to value ratios.
OTHER INCOME - Non-interest income increased $705,000, or 63.9%, during
the nine month period ended June 30,1992 over the same period of 1991 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 Danbury and Brookfield offices. In addition, the
increase includes $112,500 in settlement of a lawsuit regarding four real
estate owned properties disposed of in prior years and $37,500
representing a profit on the sale of a mortgage backed security.
OTHER EXPENSES - Non-interest expenses for the 1992 period increased $2.0
million, or 29.2%, compared to the nine month period ended June 30, 1991.
The largest contributing factor was an increase of $616,000 for compensa-
tion, payroll taxes and benefits and relates, primarily, to the acquisi-
tion and staffing of the seven Danbury and Brookfield offices. Also
contributing to the increase was $264,000 for office occupancy pertaining
partly to the relocation of an existing branch office and the opening of a
new branch office, but in most part to the offices acquired. Increases of
$207,000 for federal insurance premiums and $109,000 for data processing
expense both relate to a larger savings deposit base. Marketing expense
for new savings products, as well as for promotion of the new, relocated,
and acquired branch offices increased $75,000. The provision for real
estate owned losses increased $203,000 between periods and is based on an
ongoing assessment of the properties owned. Other expense increased
$557,000 and includes an increase of $243,000 for expenses associated with
foreclosed real estate, both carrying and acquisition/disposal costs. In
general, most operating expenses such as office supplies, postage and
telephone all increased due to operating the additional seven offices.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
INTEREST INCOME - Interest income increased $1,l82,000, or 3.4%, in the
nine months ended June 30, 1991. Average interest earning assets increased
$28.6 million while the average yield on loans and investments was 28
basis points lower in the 1991 period.
INTEREST EXPENSE - Interest expense decreased $78,000, or .3%, in the nine
month period ended June 30, 1991. Average interest-bearing liabilities
increased $28.6 million but was more than offset by a lower cost of these
funds by 48 basis points, from 7.51% for the nine months ended June 30,
1990 to 7.03% for the nine months ended June 30, 1991. Federal Home Loan
Bank advances and other borrowed money decreased $7.4 million in the nine
month period ended June 30, 1991 and the interest expense relating to
these funds decreased $485,000 during the same time period.
NET INTEREST INCOME - Net interest income increased $1,260,000, or 11.4%,
for the nine months ended June 30, 1991 compared to the same period in
1990. The interest rate spread increased 20 basis points, from 2.63% to
2.83%, while the net interest margin increased 16 basis points, from 3.25%
to 3.41%.
PROVISION FOR LOAN LOSSES - Because of the increase in non-performing
loans and uncertainty in the real estate sector, management has determined
that the prudent course was to add $1,023,000 to our general reserves for
the nine month period ended June 30, 1991 compared to $181,000 for the
same nine months of fiscal 1990.
OTHER INCOME - Other income increased $197,000, or 21.7%, during the nine
month period ended June 30, 1991 over the same period of 1990. $51,000 in
interest on a federal income tax refund and an increase in fees for
various services relating to loan and deposit products contributed to the
increase in other income during the 1991 period.
OTHER EXPENSES - Other expenses for the 1991 period decreased $418,000, or
5.7%, compared to the nine month period ended June 30, 1990. The largest
contributing factors relate to two specific events in 1990: merger
expenses of $419,000 relating to the termination of the proposed merger
with Webster Financial Corporation and a write-off of $272,000 on Eagle's
portion of a participation loan foreclosed on in 1986. Excluding these
factors, other expenses would have increased $273,000 in 1991. The
principal items contributing to this increase are compensation, payroll
taxes and benefits which increased $153,000, or 4.5%, and a pre-tax
write-down of $120,000 on common stock. Federal insurance premiums on
insurable savings deposits which increased $98,000, or 17.4%, and relates
to a larger savings deposit base as well as an increase in the premium
from $.208 per $100 of deposits to $.23 per $100 of deposits which became
effective on January 1, 1991.
<PAGE>
EAGLE FINANCIAL CORP.
---------------------
PART II
---------------------
Item 1 Legal Proceedings
--------------------------
Not applicable
Item 2 Changes in Securities
------------------------------
Not applicable
Item 3 Defaults upon Senior Securities
----------------------------------------
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The annual meeting of shareholders of Eagle Financial Corp. was held
on January 25, 1994, at which time the following proposals were con-
sidered and voted upon: the election of three directors, each for a
three-year term (Proposal One); ratification of the appointment
by the Board of Directors of the firm of KPMG Peat Marwick as independent
auditors of the Company for the fiscal year ending September 30, 1994
(Proposal Two).
With respect to Proposal One, the following votes were cast in the elec-
tion of directors:
WITHHOLD AUTHORITY
NOMINEES FOR TO VOTE
-------------------- --------- ------------------
Theodore M. Donovan 2,586,727 41,332
Ralph T. Linsley 2,587,537 40,522
John F. McCarthy 2,587,937 40,122
With respect to Proposal Two, 2,597,011 votes (84.2% of the total eligible
votes) were cast FOR ratification of the appointment of the firm of KPMG
Peat Marwick as independent auditors of the Company, 12,929 votes (.42%
of the total eligible votes) were cast AGAINST ratification and 18,119
votes (.58% of the total eligible votes) were abstentions.
Item 5 Other Information
--------------------------
Not applicable
Item 6 Exhibits and Reports on Form 8-K
-----------------------------------------
A) Exhibits:
Not applicable
B) Reports on Form 8-K
On November 12, 1993, Eagle filed a report on Form 8-K which reported
under Item 5. - Other Events, an announcement that the Board of
Directors had set January 25, 1994 as the date for the 1993 annual
meeting of shareholders.
In addition, the Company also reported under Item 5. - Other Events,
that the Board of Directors of Eagle had adopted certain amendments
to Eagle's Bylaws, amending Article III thereof to add a new Section
14 and amending the first paragraph of Section 1 of Article III.
<PAGE>
EAGLE FINANCIAL CORP.
--------------------
SIGNATURES
----------
Pursuant to the requirements of The Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Eagle Financial Corp.
(Registrant)
Date: February 10, 1994 By: /s/ Ralph T. Linsley
-------------------------- ------------------------------
President and Chief
Executive Officer
Date: February 10, 1994 By: /s/ Mark J. Blum
-------------------------- ------------------------------
Vice President and Chief
Financial Officer
