<PAGE>
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 March 31, 1995
-------------------------------------------------
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 (I.R.S. Employer
of incorporation or organization) identification No.)
P.O. Box 1157, Bristol, CT 06010
(Address of principal executive offices)
(203) 584-6300
(Registrant's telephone number, including area code)
Not Applicable
(Former name, address and fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and 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) 4,422,178
------------------------------ --------------------------------
(Class) (Approximate No. of Shares
Outstanding at May 8, 1995)
(Excluding Treasury Stock)
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
INDEX
PART I -FINANCIAL INFORMATION
Consolidated Balance Sheets at March 31, 1995 (unaudited)
and September 30, 1994 2
Consolidated Statements of Income for the Three and Six Months
Ended March 31, 1995 and 1994 (unaudited) 3
Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 1995 and 1994 (unaudited) 4-5
Notes to Consolidated Financial Statements 6-8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-15
PART II OTHER INFORMATION 16
SIGNATURES 17
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
March 31, September 30,
1995 1994
Assets (Unaudited)
- ---------------------------------------------------------- ------------------------------
<S> <C> <C>
Cash and amounts due from depository institutions $25,193 $21,549
Interest-bearing deposits 10,431 3,103
------------ ------------
Cash and cash equivalents 35,624 24,652
Investment securities available for sale (amortized cost $58,516
at March 31, 1995 and $17,615 at September 30, 1994) 57,042 16,936
Investment securities (market value $44,716 at March 31, 1995
and $95,228 at September 30, 1994) 46,829 97,249
Mortgage-backed securities available for sale (amortized cost
$37,898 at March 31, 1995) 37,751 -
Mortgage-backed securities (market value $90,010 at March
31, 1995 and $67,224 at September 30, 1994) 89,984 68,706
Loans receivable, net of allowance for loan losses of $8,365
at March 31, 1995 and $8,311 at September 30, 1994 838,508 810,705
Accrued interest receivable:
Loans 4,304 5,119
Investments 2,788 1,013
Real estate owned, net 2,755 4,310
Stock in Federal Home Loan Bank of Boston, at cost 6,535 6,535
Premises and equipment, net 7,876 7,255
Prepaid expenses and other assets 18,871 26,623
------------ ------------
Total Assets $1,148,867 $1,069,103
============ ============
Liabilities and Shareholders' Equity
- ----------------------------------------------------------
Deposits $947,989 $948,829
Federal Home Loan Bank advances 56,715 31,775
Borrowed money 41,377 7,817
Advance payments by borrowers for taxes and insurance 6,339 5,522
Accrued expenses and other liabilities 9,482 8,884
------------ ------------
Total Liabilities 1,061,902 1,002,827
------------ ------------
Shareholders' Equity (a)
- ----------------------------------------------------------
Serial preferred stock, $.01 par value
2,000,000 shares authorized and unissued - -
Common stock, $.01 par value
8,000,000 shares authorized; 4,466,731 shares issued at
March 31, 1995 and 3,492,475 shares issued at September 30,
1994, including 47,373 shares held in treasury 45 32
Additional paid-in capital 59,003 34,613
Retained earnings 29,709 33,139
Cost of common treasury stock (362) (362)
Employee stock ownership plan stock (467) (467)
Unrealized securities losses, net (963) (679)
------------ ------------
Total Shareholders' Equity 86,965 66,276
------------ ------------
Total Liabilities and Shareholders' Equity $1,148,867 $1,069,103
============ ============
<FN>
a) Shareholders' equity at March 31, 1995 includes 862,310 new shares of
common stock (or 948,541 after giving effect to the 10% stock dividend)
sold during the quarter ended December 31, 1994 resulting in $16.7 million
net proceeds.
</TABLE>
NOTE: All share data and the number of outstanding common shares for all periods
and dates above have been adjusted retroactively to give effect to a 10% stock
dividend to common shareholders of record on February 15, 1995.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for share data, unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- --------------------
3/31/95 3/31/94 3/31/95 3/31/94
------------------- --------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $16,139 $12,045 $31,507 $24,294
Interest on mortgage-backed securities 2,149 344 3,373 729
Interest on investment securities 1,502 675 3,142 1,366
Dividends on investment securities 552 435 1,070 860
------------------- --------------------
Total interest income 20,342 13,499 39,092 27,249
------------------- --------------------
Interest expense:
Interest on deposits 8,680 6,157 16,941 12,628
Interest on Federal Home Loan Bank advances 777 260 1,255 494
Interest on borrowed money 651 1 800 2
------------------- --------------------
Total interest expense 10,108 6,418 18,996 13,124
------------------- --------------------
Net interest income 10,234 7,081 20,096 14,125
Provision for loan losses 225 300 450 600
------------------- --------------------
Net interest income after provision for loan losses 10,009 6,781 19,646 13,525
------------------- --------------------
Noninterest income:
Net loss on sale of securities - - (104) -
Net gain on sale of loans - - - 119
NOW account service fees 487 318 985 691
Other customer service fees 174 109 335 227
Other income 355 216 777 397
------------------- --------------------
Total noninterest income 1,016 643 1,993 1,434
------------------- --------------------
11,025 7,424 21,639 14,959
------------------- --------------------
Noninterest expenses:
Compensation, payroll taxes and benefits 2,812 2,192 5,487 4,297
Office occupancy 670 536 1,297 994
Advertising 233 149 465 287
Net cost of real estate owned operations (note 5) 113 257 224 793
Federal deposit insurance premiums 613 407 1,104 698
Service bureau processing fees 358 251 696 497
Amortization of intangible assets 412 101 817 203
Other expenses 941 603 1,756 1,240
------------------- --------------------
Total noninterest expenses 6,152 4,496 11,846 9,009
------------------- --------------------
Income before income taxes and cumulative effect of
accounting changes 4,873 2,928 9,793 5,950
Income taxes 2,027 1,224 4,067 2,470
------------------- --------------------
Income before cumulative effect of accounting changes 2,846 1,704 5,726 3,480
Cumulative effect of accounting changes - - - 30
------------------- --------------------
Net income $2,846 $1,704 $5,726 $3,450
=================== ====================
Income per share:
Primary:
Income before cumulative effect of accounting changes $0.63 $0.48 $1.27 $0.99
Cumulative effect of accounting changes - - - $0.01
------------------- --------------------
Net income $0.63 $0.48 $1.27 $0.98
=================== ====================
Fully Diluted:
Income before cumulative effect of accounting changes $0.62 $0.48 $1.27 $0.98
Cumulative effect of accounting changes - - - $0.01
------------------- --------------------
Net income $0.62 $0.48 $1.27 $0.97
=================== ====================
Average number of shares and equivalent shares:
Primary 4,551,170 3,541,196 4,504,480 3,531,936
Fully Diluted 4,565,794 3,548,306 4,525,116 3,545,450
Dividends per share $0.21 $0.17 $0.40 $0.34
</TABLE>
<PAGE>
NOTE: All per share data and the number of outstanding shares for all periods
and dates above have been adjusted retroactively to give effect to a 10% stock
dividend to common shareholders of record on February 15, 1995.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(dollars in thousands, unaudited) Six Months Ended March 31,
------------------------
1995 1994
------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $5,726 $3,450
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 450 600
Provision for losses on real estate owned 36 355
Provision for depreciation and amortization 341 278
Accretion of fees on loans (22) (638)
Amortization of premiums (accretion of discounts) on
investment and mortgage-backed securities (506) 89
Amortization of core deposit and other intangibles 817 203
Realized (gain) loss on sale of real estate owned, net (41) 30
Realized (gain) loss on sale of securities, net 104 -
Gain on sale of mortgage loans - (119)
Decrease (increase) in accrued interest receivable (960) 166
Decrease (increase) in prepaid expenses and other assets 7,593 (2,460)
Loan origination fees 118 686
Increase (decrease) in accrued expenses and other
liabilities 598 428
------- ------
Net Cash Provided by Operating Activities 14,254 3,068
------- ------
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available
for sale 2,210 2,800
Proceeds from maturities of investment securities 10,200 3,500
Proceeds from amortization of securities available for sale 2,442 -
Proceeds from amortization of investment securities 2,624 12,663
Purchases of investment securities available for sale - (9,030)
Purchases of investment securities (7,892) (22,182)
Principal payments on mortgage-backed securities available
for sale 1,448 -
Principal payments on mortgage-backed securities 5,252 6,173
Purchases of mortgage-backed securities available for sale (20,807) -
Purchases of mortgage-backed securities (48,764) (7,100)
Proceeds from sales of mortgage-backed securities prior
to maturity 4,032 -
Principal payments on loans receivable 38,809 78,028
Loan originations (68,267) (104,377)
Proceeds from sales of loans 354 10,800
Decrease in real estate owned 431 852
Proceeds from sales of real estate owned 1,884 1,589
Purchases of premises and equipment (962) (315)
Increase in investment in Federal Home Loan Bank stock - (586)
------- ------
Net Cash Used by Investing Activities (77,006) (27,185)
------- ------
FINANCING ACTIVITIES:
Net increase (decrease) in Passbook, NOW and Money
Market accounts (40,434) 24,751
Net increase (decrease) in certificate accounts 39,594 (4,229)
Borrowings under Federal Home Loan Bank advances 64,510 18,650
Principal payments under Federal Home Loan Bank advances (39,570) (1,000)
Net increase in borrowed money 33,560 -
Net increase in advance payments by borrowers for taxes
and insurance 817 396
Proceeds from exercise of stock options and dividends
reinvested 361 492
Proceeds from sale of common stock 16,658 -
Cash dividends (1,772) (1,172)
------- ------
Net Cash Provided by Financing Activities 73,724 37,888
------- ------
Increase in cash and cash equivalents 10,972 13,771
Cash and cash equivalents at beginning of period 24,652 21,958
------- ------
Cash and cash equivalents at end of period $35,624 $35,729
======= ======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
<TABLE>
<CAPTION>
(dollars in thousands, unaudited) Six Months Ended March 31,
------------------------
1995 1994
---------- ------------
<S> <C> <C>
NON-CASH INVESTING ACTIVITIES:
Transfer of investment securities to investment securities
available for sale $53,124 -
Transfer of mortgage-backed securities to mortgage-backed
securities available for sale 18,529 -
Transfer of loans to real estate owned 755 $1,581
========== =========
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $5,950 $3,350
Interest paid 19,174 13,669
========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
Eagle Financial Corp. (the "Company") is the holding company and parent
of Eagle Federal Savings Bank (the "Bank"). Eagle Federal serves
customers from twenty three branch offices located in Hartford,
Litchfield and northern Fairfield counties.
The accompanying unaudited, consolidated financial statements include
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 and six month periods ended March 31, 1995 and
1994 are not necessarily indicative of the results which may be
expected for the entire fiscal year. The accompanying unaudited,
consolidated financial statements should be read in conjunction with
the consolidated financial statements contained in the Company's 1994
annual report on Form 10-K.
(2) Accounting Pronouncements
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires that
debt and equity securities that have readily determinable fair values
be carried at fair value unless they are classified as held to
maturity. Securities can be classified as held to maturity and carried
at amortized cost only if the reporting entity has a positive intent
and ability to hold those securities to maturity. If not classified as
held to maturity, such securities would be classified as trading
securities or securities available for sale. Unrealized gains or losses
for trading securities are included in earnings. Unrealized holding
gains or losses for securities available for sale are excluded from
earnings and reported as an increase or decrease in shareholders'
equity, net of estimated income taxes.
Upon adoption of SFAS No. 115, $71.7 million of investment and
mortgage-backed securities were classified as available for sale which
resulted in the net unrealized loss on those securities of $1.1
million, net of an income tax benefit of $358,000, being shown as a
reduction to shareholders' equity. No investment or mortgage-backed
securities were classified as trading securities.
6
<PAGE>
At March 31, 1995, the Company had investment and mortgage-backed
securities totaling $57.0 million and $37.8 million, respectively,
classified as available for sale. The net unrealized loss on these
securities of $963,000, net of income tax benefits of $658,000, has
been shown as a reduction to shareholders' equity.
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, as amended, 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 SFAS
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 No. 114
will have on its financial condition and results of operations.
(3) Shareholders' Equity
In the first quarter of fiscal 1995, the Company completed a common
stock offering in which 862,310 new shares of common stock were sold
(or 948,541 shares sold after giving effect to a 10% stock dividend
declared in January, 1995), resulting in net proceeds of approximately
$16.7 million. 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 new capital should also increase the market
liquidity of the Company's stock and may assist the Company in future
acquisition activity.
(4) Allowance for Loan Losses
The following is a summary of the activity in the allowance for loan
losses for the periods indicated (dollars in thousands):
7
<PAGE>
Six months ended March 31,
1995 1994
---- ----
Balance, beginning of
period $ 8,311 $ 5,005
Provisions charged to
operations 450 600
Charge-offs (474) (1,036)
Recoveries 78 1
------- -------
Balance, end of period $ 8,365 $ 4,570
======= =======
(5) Net Cost of Real Estate Owned Operations
The net cost of real estate owned operations is summarized as follows
for the periods indicated (dollars in thousands):
Six months ended March 31,
1995 1994
---- -----
Net (gain) loss on sales
of real estate owned $ (41) $ 30
Provision for losses
charged to operations 37 355
Expenses of holding real
estate owned, net of
rental income 228 408
----- -----
$ 224 $ 793
===== =====
8
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
GENERAL - Eagle Financial Corp. (the "Company") is a $1.15 billion
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 23
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.
The Bank's earnings depend largely on its net interest income, which is
the difference between interest earned on its loans and investments
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.
On January 23, 1995, the Company declared a 10% stock dividend in
addition to its regular quarterly cash dividend of $0.21 per share. As
a result of the stock dividend, each shareholder received one
additional share of the Company common stock for every ten shares owned
on February 15, 1995. The $0.21 per share cash dividend is based upon
the new, increased number of shares held.
At March 31, 1995, the Company had total assets of $1.15 billion
compared to $1.07 billion at September 30, 1994, an increase of $80
million or 7.5%. Loans receivable, net, increased $27.8 million to
$838.5 million at March 31, 1995 from the September 30, 1994 total of
$810.7 million. Total deposits remained fairly stable declining only
$840,000 from September 30, 1994 to March 31, 1995, a decline of less
than 0.1%, to close the period at $949.0 million. The growth in total
assets is driven primarily by an increase in mortgage-backed
securities, including securities classified as available for sale and
held to maturity, of $59.0 million to $127.7 million at March 31, 1995.
This increase represents the implementation of a strategy of structured
growth whereby selected security purchases are matched against funding
sources with similar repricing characteristics in order to obtain a
desired interest rate spread. This strategy, which is used to
supplement local loan origination activity, serves to increase overall
net interest income and take advantage of the flexibility the Company
has in leveraging the balance sheet. At March 31, 1995, shareholders'
equity represented 7.57% of total assets compared to 6.20% at September
30, 1994.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 March 31, 1995, the Bank was in
compliance with the Federal Home Loan Bank liquidity requirements
having a liquidity ratio of 8.00% compared to 7.72% at September 30,
1994.
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 and other borrowings. The Bank
historically has not been an active seller of loans. Principal uses of
funds include loan originations and investment purchases, payments of
interest on deposits and payments to meet operating expenses. At March
31, 1995, the Bank had approximately $40.1 million in loan commitments
outstanding, including $24.7 million in available home equity lines of
credit and $6.3 million in amounts due borrowers for construction loan
advances. It is expected that these and future loans will be funded by
deposits, investment maturities and amortization, loan repayments, and
borrowings. The Bank has the capacity to borrow up to approximately
$669 million in advances from the Federal Home Loan Bank of Boston and
will continue to consider this source of funds for lending and
investment purchases. Federal Home Loan Bank advances at March 31, 1995
were $56.7 million compared to $31.8 million at September 30, 1994, an
increase of 78.5%. Other borrowed money increased $33.6 million to
$41.4 million at March 31, 1995 compared to $7.8 million at September
30, 1994. The majority of the increase in both Federal Home Loan Bank
advances and other borrowings represents the funding source for the
structured growth strategy previously discussed.
Loan originations for the six months ended March 31, 1995 were $68.3
million compared to $104.4 million for the same period in 1994. No
loans were purchased in either period. Total loans sold declined from
$10.1 million for the six month period ended March 31, 1994 to $354,000
for the six month period ended March 31, 1995.
It has been the Company's general policy to purchase debt securities
(including mortgage-backed securities) with the intent to hold to
maturity for purposes of earning interest income and meeting regulatory
liquidity requirements. Various factors are considered when determining
whether debt securities
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
are classified as either available for sale or held to maturity,
including: repricing characteristics, liquidity needs, expected
security life, yield and overall asset/liability strategies. Events
which may be reasonably anticipated are considered when determining the
Company's ability to hold debt securities to maturity. For those debt
securities for which the Company has determined it has both the intent
and ability to hold to maturity, a classification of held to maturity
is made. Other debt securities are classified as available for sale.
When a security available for sale is sold, the proceeds are generally
used to fund loans when either deposit inflows have not been adequate,
the rates offered on Federal Home Loan Bank advances are not favorable,
or liquidity ratios support such sales. The Bank may also occasionally
sell securities available for sale to restructure an asset/liability
mismatch. There were $6.2 million of securities sold during the six
month period ended March 31, 1995 compared to $2.8 million for the same
period in 1994. Included in the $6.2 million of securities sold is a
$4.0 million transaction representing a mortgage-backed security
classified as held to maturity prior to sale. The security was sold due
to the discovery of a broker error in properly identifying the
security's repricing characteristics when purchased in December 1994.
The security's actual repricing characteristics did not match the
asset/liability parameters outlined by the Company and, as a result,
was repurchased by the broker.
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 March
31, 1995 exceeded the currently applicable tangible, core and
risk-based capital requirements as the following chart indicates
(dollars in thousands):
<TABLE>
<CAPTION>
OTS Requirement Actual Excess
--------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Tangible Capital $ 17,069 1.5 $ 74,074 6.51% $ 57,005
Core Capital 34,139 3.0 74,074 6.51% 39,935
Risk-based Capital 44,169 8.0 77,639 14.06% 33,470
</TABLE>
ASSET/LIABILITY MANAGEMENT - The primary component of the Company's
earnings is net interest income. The Company'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 the Company's asset/liability strategies for managing
interest rate risk must also accommodate customer demands for
particular types of deposit and loan products. The Company 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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 March 31, 1995, the Company had total
non-performing assets in the amount of $12.4 million, or 1.08% of total
assets, including $9.7 million in non-performing loans and $2.7 million
in real estate owned and in-substance foreclosures. Loan loss reserves
totaled $8.4 million or 86% of total non-performing loans. The
Company's real estate owned is made up of residential properties with
the exception of three pieces, a commercial property with a carrying
value of $160,000, net of loss reserves, and two parcels of land
totaling $39,000, net of loss reserves. 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. The following table represents a breakdown of
non-performing assets as of March 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Real Estate
Owned &
In-substance Total Non-
Non-performing Foreclosures, performing % of
Loans Net Assets Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Loans -
Residential $7,989 $2,555 $10,544 84.8%
Commercial R.E. 0 160 160 1.3
Land Development 179 39 218 1.8
Consumer loans 17 0 17 .1
Home equity loans 1,499 0 1,499 12.0
------------------------------------------------------------------------------------------------
Total $9,684 $2,754 $12,438 100.0%
================================================================================================
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Loans delinquent between 30 and 90 days totaled $20.4 million at March
31, 1995 compared to $19.9 million at September 30, 1994. This
represents an increase of $500,000 during the period, however the
percentage of loans delinquent between 30 and 90 days to gross loans
receivable remained consistent at 2.4%. Loans delinquent between 30 and
60 days represented 86.4% of the $20.4 million as of March 31,1995.
Management maintained the level of the loan loss allowance during the
six months ended March 31, 1995 based upon ongoing uncertainty in the
local economy. Provisions for loan losses totaled $450,000 for the six
month period. Management monitors the adequacy of the allowances for
losses on loans and real estate owned on a continual 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 allowances 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.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED
MARCH 31, 1995 AND 1994
GENERAL - Net income increased $1.1 million, or 67%, to $2.8 million
for the three months ended March 31, 1995 from $1.7 million in the
comparable period in 1994. The increase was due to a $3.1 million
increase in net interest income offset by a $1.7 million increase in
noninterest expenses for the quarter ended March 31, 1995 versus the
quarter ended March 31,1994. Net income for the six month period ended
March 31, 1995 also increased compared to the same period in 1994 by
$2.3 million, or 66%, to $5.7 million. Higher net interest income of
$20.1 million, a $6.0 million increase above the total for the six
months ended March 31, 1994 of $14.1 million, represented the primary
reason for the improved net income. Fully diluted earnings per share
were $0.62 and $1.27 for the three and six month periods ended March
31, 1995, respectively, compared to $0.48 and $0.97 for the similar
periods in 1994.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NET INTEREST INCOME - Net interest income increased $3.1 million to
$10.2 million for the three months ended March 31, 1995 from $7.1 for
the same quarter in 1994. For the six months ended March 31, 1995, the
increase in net interest income was $6.0 million, or 42.3%, for a total
of $20.1 million compared to $14.1 million for the six months ended
March 31, 1994. The increases in both periods can be primarily
attributed to two factors; one, the increase in the net interest spread
and two, the increase in the average balance of interest earning
assets.
The net interest spread for the three and six month periods ended March
31, 1995 was 3.61% and 3.63%, respectively, compared to 3.41% and 3.40%
for the comparable three and six month periods, respectively, in 1994.
The total average balance of interest earning assets increased by $296
million for the three months ended March 31, 1995 compared to the same
period in 1994. Although the average balance of interest bearing
liabilities used to fund the asset growth increased by a similar amount
during the period, the overall asset yield increased more than the cost
of funds. The asset yield increased 65 basis points from the March 1994
quarter to the March 1995 quarter while the cost of funds increased
only 44 basis points during the same period. For the six months ended
March 31, 1995 compared to the six months ended March 31, 1994, the
asset yield increased 42 basis points while the cost of funds increased
19 basis points.
PROVISION FOR LOAN LOSSES - The provision for loan losses totaled
$225,000 for the quarter ended March 31, 1995 compared to $300,000 for
the quarter ended March 31, 1994 and $450,000 for the six months ended
March 31, 1995 versus $600,000 for the comparable six month period in
1994. Various factors are evaluated by management in determining the
level of the provisions for loan losses and the adequacy of the loan
loss allowance. The adequacy of the allowance and related provisions is
computed quarterly and encompasses a critical review of the loan
portfolio. The loan loss allowance at March 31, 1995 was $8.4 million
and represents 86% of non-performing loans and 1.0% of loans
receivable, net.
NONINTEREST INCOME - For the three months ended March 31, 1995
noninterest income increased $373,000 to $1,016,000, or 58%, from
$643,000 during the quarter ended March 31, 1994. The increase was
primarily the result of higher fee income on NOW accounts created by a
larger volume of activity from the inclusion of the accounts acquired
in the Bank of Hartford transaction. Noninterest income was $2.0
million for the six months ended March 31, 1995 compared to $1.4
million for the similar 1994 period, an increase of $559,000 or 39%.
The increase is largely
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
attributable to the increased fee income resulting from the acquired
Bank of Hartford accounts but was offset by two events. First, a loss
on the sale of securities of $104,000 in the six months ended March 31,
1995 and, second, a gain from the sale of loans of $119,000 recorded
during the six months ended March 31, 1994.
NONINTEREST EXPENSES - Noninterest expenses for the quarter ended March
31,1995 increased $1.7 million, or 37%, to $6.2 million compared to
$4.5 million during the March 31, 1994 quarter. The increase is a
result of the impact of the Bank of Hartford acquisition on all expense
categories, most notably compensation and benefits, which increased
$620,000, or 28%, and deposit insurance premiums, which increased
$206,000 or 51%. The increase in deposit insurance premiums was
unfavorably affected by a temporary increase in the assessment rate,
which was determined based on capital levels immediately following the
Bank of Hartford acquisition. The temporary assessment rate increase
effects only the March 31, 1995 and June 30, 1995 quarters and will be
readjusted effective July 1, 1995. The impact from the amortization of
intangibles, recorded as a result of the Bank of Hartford acquisition,
increased expenses by $311,000 to $412,000 for the quarter ended March
31, 1995 versus the March 31, 1994 quarter. Offsetting the increases in
expenses was a decrease in the net cost of real estate owned operations
from $257,000 for the three months ended March 31, 1994 to $113,000 for
the three months ended March 31, 1995, a change of $144,000 or 56%. The
decrease was primarily the result of lower provisions for losses and
reduced carrying costs.
Noninterest expenses for the six months ended March 31, 1995 totaled
$11.8 million, a $2.8 million increase over the $9.0 million recorded
during the six months ended March 31, 1994. The majority of the
increase in expenses can be attributed to the Bank of Hartford
acquisition when comparing the March 31, 1995 and 1994 six month
periods. The net cost of real estate owned operations declined
$569,000, or 72%, to $224,000 for the six months ended March 31, 1995
versus the six months ended March 31, 1994. The decrease can be
attributed to substantially lower loss provisions, lower carrying costs
and improved results from the sale of properties.
INCOME TAXES - Income taxes increased $803,000 to $2.0 million during
the quarter ended March 31, 1995 and $1.6 million to $4.1 million
during the six months ended March 31, 1995 principally due to higher
pre-tax income when compared to the similar periods in the previous
year. The effective tax rate for both the three and six month periods
ended March 31, 1995 was 41.5%.
15
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
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 Matter to a Vote of Security Holders
Herein incorporated by reference information disclosed in Part II Item 4 of
Eagle Financial Corp.
Form 10-Q for the quarterly period ended December 31, 1994.
Item 5 - Other Information
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
On January 30, 1995, Eagle Financial Corp. filed a report on Form 8-K which
reported under Item 5 - Other Events, an announcement that the Board of
Directors of Eagle Financial Corp. declared a 10% stock dividend and a
regular quarterly cash dividend of $0.21 per share. Both dividends are
payable on March 1, 1995 to shareholders of record at the close of business
on February 15, 1995.
16
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
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.
Date: May 12, 1995 By: /s/ Mark J. Blum
--------------------------------------
Mark J. Blum
Vice President and Chief Financial Officer
Date: May 12, 1995 By: /s/ Barbara S. Mills
--------------------------------------
Barbara S. Mills
Vice President, Treasurer
17
<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
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