<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 June 30, 1995
Eagle Financial Corp.
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(Exact name of Registrant as specified in its charter)
Delaware 06-1194047
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
P.O. Box 1157, Bristol, CT 06010
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(Address of principal executive offices)
(203) 589-6300
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(Registrant's telephone number, including area code)
Not Applicable
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(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) 4,448,649
(Class) (Approximate No. of Shares
Outstanding at August 3,
1995)(Excluding Treasury
Stock)
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
INDEX
PART I -FINANCIAL INFORMATION
Consolidated Balance Sheets at June 30, 1995 (unaudited)
and September 30, 1994 2
Consolidated Statements of Income for the Three and Nine Months
Ended June 30, 1995 and 1994 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 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 9-16
PART II OTHER INFORMATION 17
SIGNATURES 18
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
June 30, September
1995 1994
----------- ---------
Assets (Unaudited)
<S> <C> <C>
Cash and amounts due from depository institutions $20,289 $21,549
Interest-bearing deposits 5,491 3,103
Cash and cash equivalents 25,780 24,652
Investment securities available for sale (amortized cost $60,670 at June 30, 1995 and
$17,615 at September 30, 1994) 59,940 16,936
Investment securities (market value $45,263 at June 30, 1995 and $95,228 at
September 30, 1994) 45,852 97,249
Mortgage-backed securities available for sale (amortized cost $126,165 at June 30, 1995) 126,475
Mortgage-backed securities (market value $88,945 at June 30, 1995 and $67,224 at
September 30, 1994) 87,234 68,706
Loans held for sale 52,485
Loans receivable, net of allowance for loan losses of $7,697 at June 30, 1995 and
$8,311 at September 30, 1994 798,121 810,705
Accrued interest receivable:
Loans 5,139 5,119
Investment and mortgage-backed securities 2,625 1,013
Real estate owned, net 2,770 4,310
Stock in Federal Home Loan Bank of Boston, at cost 8,945 6,535
Premises and equipment, net 7,979 7,255
Prepaid expenses and other assets 17,269 26,623
Total Assets 1,240,614 1,069,103
Liabilities and Shareholders' Equity
Deposits $952,310 $948,829
Federal Home Loan Bank advances 83,265 31,775
Borrowed money 67,677 7,817
Advance payments by borrowers for taxes and insurance 11,564 5,522
Accrued expenses and other liabilities 36,013 8,884
Total Liabilities 1,150,829 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; 4,489,832 shares issued at June 30, 1995 and 3,492,475
shares issued at September 30, 1994, including 47,373 shares held in treasury 45 32
Additional paid-in capital 59,296 34,613
Retained earnings 31,296 33,139
Cost of common treasury stock (362) (362)
Employee stock ownership plan stock (240) (467)
Unrealized securities losses, net (250) (679)
Total Shareholders' Equity 89,785 66,276
Total Liabilities and Shareholders' Equity 1,240,614 1,069,103
a) Shareholders' equity at June 30, 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.
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.
</TABLE>
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 Nine Months Ended
June 30, June 30,
--------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 16,643 $ 12,540 $ 48,150 $ 36,834
Interest on mortgage-backed securities 2,836 628 6,209 1,357
Interest on investment securities 1,446 1,164 4,584 2,530
Dividends on investment securities 734 494 1,808 1,354
Total interest income 21,659 14,826 60,751 42,075
Interest expense:
Interest on deposits 9,556 6,649 26,497 19,277
Interest on Federal Home Loan Bank advances 1,178 402 2,433 896
Interest on borrowed money 817 34 1,617 36
Total interest expense 11,551 7,085 30,547 20,209
Net interest income 10,108 7,741 30,204 21,866
Provision for loan losses 525 300 975 900
Net interest income after provision for loan losses 9,583 7,441 29,229 20,966
Noninterest income:
Net loss on sale of securities (10) (114) --
Net gain on sale of loans 119
NOW account service fees 501 410 1,486 1,101
Other customer service fees 190 136 525 242
Other income 372 269 1,149 787
Total noninterest income 1,053 815 3,046 2,249
10,636 8,256 32,275 23,215
Noninterest expense:
Compensation, payroll taxes and benefits 2,957 2,094 8,444 6,391
Office occupancy 672 535 1,969 1,529
Advertising 238 138 703 425
Net cost of real estate owned operations (note 4) 243 239 467 1,032
Federal deposit insurance premiums 613 408 1,717 1,106
Service bureau processing fees 397 322 1,177 874
Amortization of intangible assets 402 101 1,218 304
Other expense 871 649 2,544 1,834
Total noninterest expense 6,393 4,486 18,239 13,495
Income before income taxes and cumulative effect of
accounting changes 4,243 3,770 14,036 9,720
Income taxes 1,728 1,608 5,795 4,078
Income before cumulative effect of accounting changes 2,515 2,162 8,241 5,642
Cumulative effect of accounting changes 30
Net income $ 2,515 $ 2,162 $ 8,241 $ 5,612
Income per share:
Primary:
Income before cumulative effect of accounting changes $ 0.55 $ 0.61 $ 1.82 $ 1.59
Cumulative effect of accounting changes $ 0.01
Net income $ 0.55 $ 0.61 $ 1.82 $ 1.58
Fully Diluted:
Income before cumulative effect of accounting changes $ 0.54 $ 0.61 $ 1.79 $ 1.59
Cumulative effect of accounting changes $ 0.01
Net income $ 0.54 $ 0.61 $ 1.79 $ 1.58
Average number of shares and equivalent shares:
Primary 4,588,996 3,563,210 4,528,248 3,541,131
Fully Diluted 4,623,361 3,567,260 4,591,337 3,555,060
Dividends per share $ 0.21 $ 0.17 $ 0.61 $ 0.52
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.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(dollars in thousands, unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1995 1994
OPERATING ACTIVITIES: -------- -------
<S> <C> <C>
Net income $8,241 $5,612
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 975 900
Provision for losses on real estate owned 159 435
Provision for depreciation and amortization 524 419
Accretion of fees on loans (138) (763)
Amortization of premiums (accretion of discounts) on investment
and mortgage-backed securities (961) 103
Amortization of core deposit and other intangibles 1,218 361
Realized (gain) loss on sale of real estate owned, net (69) 29
Realized loss on sale of securities, net 114 -
Gain on sale of loans (119)
Increase in accrued interest receivable (1,632) (776)
Decrease in prepaid expenses and other assets 8,306 9,875
Loan origination fees 224 981
Increase in accrued expenses and other liabilities (309) 5,267
Net Cash Provided by Operating Activities 16,652 22,324
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale 2,210 2,800
Proceeds from maturities of investment securities 12,200 8,000
Principal payments on investment securities available for sale 4,016 -
Principal payments on investment securities 3,618 17,297
Purchases of investment securities available for sale (5,742) (4,800)
Purchases of investment securities (7,892) (38,685)
Principal payments on mortgage-backed securities available for sale 2,632 -
Principal payments on mortgage-backed securities 8,444 8,902
Purchases of mortgage-backed securities available for sale (82,820) -
Purchases of mortgage-backed securities (48,764) (7,135)
Proceeds from sales of mortgage-backed securities prior to maturity 4,032 -
Principal payments on loans receivable 59,042 108,815
Loan originations (101,770) (164,068)
Proceeds from sales of loans 354 10,980
Decrease in real estate owned 437 648
Proceeds from sales of real estate owned 2,425 2,187
Purchases of premises and equipment (1,248) (522)
Increase in investment in Federal Home Loan Bank stock (2,410) (586)
Acquisition of loans, investments and other assets (185,280)
Net Cash Used by Investing Activities (151,236) (241,447)
FINANCING ACTIVITIES:
Net increase (decrease) in Passbook, NOW and Money Market accounts (46,058) 23,688
Net increase (decrease) in certificate accounts 49,539 (20,056)
Assumption of deposits and liabilities of acquired banks 275,986
Borrowings under Federal Home Loan Bank advances 133,425 31,950
Principal payments under Federal Home Loan Bank advances (81,935) (23,700)
Net increase in borrowed money 60,087 7,140
Net increase in advance payments by borrowers for taxes and insurance 6,042 2,956
Proceeds from exercise of stock options and dividends reinvested 654 853
Proceeds from sale of common stock 16,658 -
Cash dividends (2,700) (1,763)
Net Cash Provided by Financing Activities 135,712 297,054
Increase in cash and cash equivalents 1,128 77,931
Cash and cash equivalents at beginning of period 24,652 21,958
Cash and cash equivalents at end of period $25,780 $99,889
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
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(dollars in thousands, unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
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 loans held for sale 52,485 -
Transfer of loans to real estate owned 1,412 $1,760
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $7,490 $4,630
Interest paid 30,346 20,587
</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"). The Bank 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 nine month periods ended June 30, 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 financial consolidated 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.
At June 30, 1995, the Company had investment and mortgage-backed securities
totaling $59.9 million and $126.5 million, respectively, classified as available
for sale. The net unrealized loss on these securities of $250,000, which is net
of an income tax benefit of $170,000, 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
6
<PAGE>
9
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 114 will have on
its financial condition and results of operations.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," was issued in May 1995
and is effective for fiscal years beginning after December 15, 1995. Earlier
application is permitted. SFAS No. 122 requires the capitalization of mortgage
servicing rights acquired through either purchase of mortgage loan servicing or
origination and sale or securitization of mortgage loans with retention of
servicing. SFAS No. 122 also requires the analysis of capitalized mortgage
servicing rights for potential impairment based on the fair value of the rights.
The Company has not decided whether the SFAS No. 122 will be adopted prior to
the required transition date. The effect of adoption on the Company will vary
based on the extent of mortgage servicing rights existing upon adoption and
mortgage servicing rights acquired subsequent to adoption.
(3) 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):
Nine months ended June 30,
1995 1994
-------------------------
Balance, beginning of period $ 8,311 $ 5,005
Provisions charged to operations 975 900
Charge-offs (1,667) (1,036)
Recoveries 78 1
Allowance from acquired bank - 3,500
-------------------------
Balance, end of period $ 7,697 $ 8,370
=========================
7
<PAGE>
(4) 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):
Nine months ended June 30,
1995 1994
-----------------------------
Net (gain) loss on sales of
real estate owned $ (69) $ 30
Provision for losses charged
to operations 159 435
Expenses of holding real
estate owned, net of rental
income 377 567
-----------------------------
$ 467 $ 1,032
=============================
(5) 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 the substantial increase in asset size as a result
of the Bank of Hartford acquisition.
8
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL - Eagle Financial Corp. (the "Company") is a $1.24 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 or, when loan demand is low, in
mortgage-backed securities with similar characteristics. 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.
At June 30, 1995, the Company had total assets of $1.24 billion compared to
$1.07 billion at September 30, 1994, an increase of $170 million or 15.9%. Total
outstanding loans, which includes loans receivable, net, and loans held for
sale, increased $39.9 million to $850.6 million at June 30, 1995 from $810.7
million at September 30, 1994. Total deposits increased a modest 0.4%, or $3.5
million, from $948.8 million at September 30, 1994 to $952.3 million at June 30,
1995. At June 30, 1995, shareholders' equity represented 7.24% of total assets
compared to 6.20% at September 30, 1994. Prepaid expenses and other assets
declined $9.4 million from September 30, 1994 to June 30, 1995 largely as a
result of final settlement payments from the Federal Deposit Insurance
Corporation related to the Bank of Hartford acquisition. The $27.1 million
increase in accrued expenses and other liabilities is principally due to amounts
payable to investment brokers for purchases of mortgage-backed securities
scheduled to settle in the next quarter.
Approximately 64% of the increase in total assets during the nine months ended
June 30, 1995 can be attributed to the purchase of adjustable rate U.S.
Government agency mortgage-backed securities, predominately classified as
available-for-sale, totalling $108.3 million. The purchases represent 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. Since most of the local loan
origination activity is fixed rate mortgage loans, the strategy also enables the
Company to add rate sensitive, adjustable rate assets to its portfolio. The
implementation of the strategy has occurred throughout each of the three
quarters of the current fiscal year with purchases of the following amounts:
$24.8 million in the first quarter, $47.1 million in the second quarter and
$36.4 million in the third quarter.
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 June 30, 1995, the Bank was in compliance with the
Federal Home Loan Bank liquidity requirements having a liquidity ratio of 5.73%
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), interest and principal
amortization on debt securities, 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 June 30, 1995, the Bank had approximately $43.9 million
in loan commitments outstanding, including $24.6 million in available home
equity lines of credit and $6.1 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 principal amortization, loan
repayments, and borrowings. The Bank has the capacity to borrow an additional
$470.2 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 June 30, 1995 were $83.3 million compared to
$31.8 million at September 30, 1994, an increase of $51.5 million. Other
borrowed money increased $59.9 million to $67.7 million at June 30, 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 nine months ended June 30, 1995 were $101.8 million
compared to $164.1 million for the same period in 1994. The decline in loan
originations of $62.3 million from 1994 to 1995 is the result of sharply lower
loan refinancing activity. No loans were purchased in either 1995 or 1994 nine
month period. Total loans sold have declined from $10.1 million for the nine
month period ended June 30, 1994 to $354,000 for the nine month period ended
June 30, 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 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
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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
nine month period ended June 30, 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 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, the security 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 June 30, 1995 exceeded the currently
applicable tangible, core and risk-based capital requirements as the following
chart indicates (dollars in thousands):
<TABLE>
<CAPTION>
Required Actual Excess
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tangible Capital $ 18,435 1.5% $ 77,327 6.29% $ 58,892
Core Capital 36,871 3.0% 77,327 6.29% 40,456
Risk-based Capital 45,231 8.0% 80,104 14.17% 34,873
</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 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 when such rates are competitive. Management will continue to monitor
the impact of its borrowing and lending policies on Eagle Financial's interest
rate sensitivity.
During the quarter ended June 30, 1995, Eagle took steps ways to reposition the
balance sheet to provide greater flexibility in the event of interest rate
fluctuations. Management has a pool of thirty year monthly and bi-weekly fixed
rate mortgage loans, totalling approximately $150 million, under consideration
for possible securitization into mortgage-backed securities. The securitization
process is expected to be completed by mid August. The balance sheet at June 30,
1995 reflects mortgage loans available for sale of approximately $52.5 million
which represent commitments to sell mortgage-backed securities. The sales
currently committed to will result in a modest gain. Upon securitization, any
resultant remaining mortgage-backed securities will be classified as available
for sale.
Proceeds from the sales of the securities created will be initially invested in
shorter life, adjustable rate investment alternatives. Principally
mortgage-backed securities and, to a lesser extent, adjustable rate mortgage
loans originated in the Company's market area.
NON-PERFORMING ASSETS - At June 30, 1995, the Company had total non-performing
assets of $13.8 million, or 1.11% of total assets, including $11.0 million in
non-performing loans and $2.8 million in real estate owned and in-substance
foreclosures. The allowance for loan losses totaled $7.7 million or 70% of total
non-performing loans at June 30, 1995. Information regarding non-performing
assets and other asset quality data for June 30, 1995 and September 30, 1994 is
as follows (dollars in thousands):
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
June 30, 1995 September 30, 1994
-----------------------------------------------------
<S> <C> <C>
Non-performing loans $ 11,012 $ 8,009
Real estate owned, net 2,770 4,310
-----------------------------------------------------
Non-performing assets $ 13,782 $ 12,319
=====================================================
Restructured loans
One-to-four family $ 5,005 0
Multi-family 331 0
=====================================================
Non-performing assets/total assets 1.11% 1.15%
Non-performing loans/loans receivable 1.29% 0.99%
Allowance for loan losses/non-performing loans 70% 104%
</TABLE>
The Company's non-performing assets are almost exclusively residential in
nature. Assets secured by residential property account for more than 99% of
non-performing assets at June 30, 1995.
While total non-performing assets increased by 12% or $1.46 million
non-performing loans increased by 38% or $3.00 million. The increase in
non-performing loans can be attributed to the continued weak real estate market
in Connecticut which has negatively effected property values and demand for
rentals, unemployment brought on by job layoffs and the overall weak economy and
the inability of some borrowers to maintain payments on adjustable rate
mortgages at higher interest rates. Real estate owned has decreased by 36% or
$3.08 million as properties have been sold faster than properties have been
acquired through foreclosure.
The Company makes every effort to work with borrowers and negotiate an
affordable payment schedule. This strategy has been more prevalent in hardshaip
cases where rates have adjusted upward one or more times on adjustable rate
mortgages. During the year a total of $5.3 million in loans were restructed. The
terms of the restructures were primarily reductions in interest rates to a rate
approximating the current rate on newly originated one year adjustable rate
mortgage loans. The rate reduction is generally in effect for a period of six to
twelve months and is then subject to review. Loans secured by one to four family
residential properties represents $5.0 million or 95% of the restructured loans
of which $3.4 million are owner occupied primary residences. The largest loan is
$251,000 and the average balance is $113,000. All non-performing assets and
restructured loans are reviewed quarterly as part of the internal review
process.
Loans delinquent between 30 and 89 days totaled $5.4 million at June 30, 1995
compared to $4.8 million at September 30, 1994.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The following table represents a breakdown of non-performing assets as of June
30, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Total non-
Non-performing Real estate performing % of
loans owned, net assets Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential mortgage loans
One to four family $ 9,708 $ 2,062 $ 11,770 85.4%
Multi-family 90 634 724 5.2%
Building lot loans 33 74 107 0.8%
Consumer loans 0 0 0 0.0%
Home equity loans 1,181 0 1,181 8.6%
-------------------------------------------------------------------------------------------
Total $ 11,012 $ 2,770 $ 13,782 100.0%
===========================================================================================
</TABLE>
The allowance for loan losses declined to $7.7 million at June 30, 1995 from
$8.3 million at September 30, 1994 due principally to charge-offs of
approximately $1.7 million for the nine month period ended June 30, 1995. The
charge-offs in 1995 compare to charge-offs of $1.3 million for the same period
in 1994. The increase in charge-offs is evidence of the Company's aggressive
stance in dealing with non-performing loan situations and in assessing the
collectibility of the asset balances. Provisions for loan losses were $975,000
for the nine months ended June 30, 1995 compared to $900,000 for the nine months
ended June 30, 1994. 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 here in Connecticut. In connection with the
determination of the allowances for losses on loans and real estate owned,
management reviews and grades all adversely classified loans as part of its
internal loan review process. Each loan is reviewed to determine loss exposure
and the borrowers ability to pay. Management obtains independent apprasials or
estimates of market value on all 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.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED
JUNE 30, 1995 AND 1994
GENERAL - Net income increased $0.3 million, or 16%, to $2.5 million for the
three months ended June 30, 1995 from $2.2 million in the comparable period in
1994. The increase was primarily due to a $2.4 million increase in net interest
income offset by a $200,000 increase in the provision for loan losses and a $1.9
million increase in noninterest expense. Net income for the nine month period
ended June 30, 1995 increased compared to the same period in 1994 by $2.6
million, or 46%, to $8.2 million. Net interest income of $30.2 million, an $8.3
million increase above the $21.9 million total for the nine months ended June
30, 1994, fueled the improvement in net income. An increase of $4.7 million in
noninterest expense to $18.2 million for the nine months ended June 30, 1995
versus the same period in 1994 partially offset the gain in net interest income.
Fully diluted earnings per share were $0.54 and $1.79 for the three and nine
month periods ended June 30, 1995, respectively, compared to $0.61 and $1.58 for
the similar periods in 1994. Earnings per share in 1995 reflect an increase in
average shares outstanding in fiscal 1995 due largely to a secondary stock
offering in the first quarter of the year that resulted in the issuance of
approximately 862,000 new shares of common stock.
NET INTEREST INCOME - For the three months ended June 30, 1995 net interest
income was $10.1 million, an increase of $2.4 million from the $7.7 million
generated during the quarter ended June 30, 1994. The increase is attributable
to growth in interest earning assets caused by two separate factors; first, the
impact of the acquisition of the Bank of Hartford in June, 1994 was fully
incorporated in 1995 results, second, the effects of the structured growth
strategy which was now in it's third quarter of implemention.
Net interest income totalled $30.2 million for the nine months ended June 30,
1995 compared to $21.9 million for the nine months ended June 30, 1994, a 38%
increase. The growth is primarily attibutable to the increase in interest
earning assets caused by the Bank of Hartford acquisition and the structured
growth. The increase was also impacted by an improved interest rate spread of
3.52% for the nine month period ended June 30, 1995 versus 3.39% for the
comparable period in 1994, a 13 basis point increase.
PROVISION FOR LOAN LOSSES - The provision for loan losses totaled $525,000 for
the quarter ended June 30, 1995 compared to $300,000 for the quarter ended 1994
and $975,000 for the nine months ended June 30, 1995 versus $900,000 for the
comparable nine 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 allowance for loan losses. The adequacy of the allowance and
related provision is computed quarterly and encompasses a critical review of the
loan portfolio. The loan loss allowance at June 30, 1995 was $7.7 million and
represented 70% of non-performing loans and 0.90% of total loans receivable.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NONINTEREST INCOME - For the three months ended June 30, 1995 noninterest income
increased $238,000, or 29%, to $1,053,000, versus the quarter ended June 30,
1994. The increase was primarily the result of customer service fees created by
a larger volume of activity from the inclusion of the accounts acquired in the
Bank of Hartford transaction. The Bank of Hartford acquisition was only
partially reflected in the three months ended June 30, 1994 as the date of
acquisition was June 10, 1994. Noninterest income was $3.0 million for the nine
months ended June 30, 1995 compared to $2.2 million for the similar 1994 period,
an increase of $797,000, or 35%. The increase, which is largely attributable to
the increased fee income resulting from the acquired Bank of Hartford accounts,
was partly offset by two events. First, a loss on the sale of securities of
$114,000 in the nine months ended June 30, 1995 and, second, a gain from the
sale of loans of $119,000 recorded during the nine months ended June 30, 1994.
NONINTEREST EXPENSE - Noninterest expense for the quarter ended June 30, 1995
increased $1.9 million, or 42%, to $6.4 million compared to $4.5 million during
the June 30, 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 $863,000 or 41%, amortization of intangibles, which
increased $301,000 or 298%, and deposit insurance premiums, which increased
$205,000 or 51%. The increase in deposit insurance premiums was also 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 effected only the March 31, 1995 and June
30, 1995 quarters and will be readjusted effective July 1, 1995.
Noninterest expense for the nine months ended June 30, 1995 totaled $18.2
million, a $4.7 million increase over the $13.5 million recorded during the nine
months ended June 30, 1994. The majority of the increase in expense can be
attributed to the Bank of Hartford acquisition. The amortization of intangibles
significally impacted the change in total noninterest expense with an increase
of $914,000 from $304,000 for the nine months ended June 30, 1994 to $1,218,000
for the nine months ended June 30, 1995. The increased amortization relates to
intangibles recorded as part of the Bank of Hartford acquisition. The net cost
of real estate owned operations declined $565,000, or 55%, to $467,000 for the
nine months ended June 30, 1995 versus the nine months ended June 30, 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 $120,000 during the quarter ended June 30,
1995 and $1.7 million during the nine months ended June 30, 1995 principally due
to higher pre-tax income when compared to the similar periods in the previous
year. The effective tax rates for the three and nine month periods ended June
30, 1995 were 40.7% and 41.3% respectively.
16
<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
Not applicable
Item 5 - Other Information
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
Not applicable
17
<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: August 14, 1995 By: /s/ Mark J. Blum
------------------- ---------------------------------------------
Mark J. Blum
Vice President and Chief Financial Officer
Date: August 14, 1995 By: /s/ Barbara S. Mills
------------------- ---------------------------------------------
Barbara S. Mills
Vice President, Treasurer
18
<PAGE>
