UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
For the quarterly period ended March 31, 1996
Eagle Financial Corp.
OF THE SECURITIES EXCHANGE ACT OF 1934
(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.)
222 Main Street, Bristol, CT 06010
(Address of principal executive offices)
(860) 314-6400
(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) 4,492,893
------------------------------------------------------------------------------
(Class) (Approximate No. of Shares
Outstanding at May 13, 1996
(Excluding Treasury Stock)
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
INDEX
PART 1 - FINANCIAL INFORMATION
Consolidated Balance Sheets at March 31, 1996
(unaudited) and September 30, 1995 2
Consolidated Statements of Income for the Three and Six Months
Ended March 31, 1996 and 1995 (unaudited) 3
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 1996 and 1995 (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
1
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
<S> <C> <C>
3/31/96 9/30/95
Assets (Unaudited)
----------- -----------
Cash and amounts due from depository institutions 22,594 22,670
Interest-bearing deposits 29,485 40,637
------ ------
Cash and cash equivalents 52,079 63,307
Trading securities 3,645 -
Investment securities available for sale (amortized cost $24,613 at
March 31, 1996 and $54,386 at September 30, 1995 24,657 53,816
Investment securities held to maturity (market value $1,040 at
March 31, 1996 and $2,543 at September 30, 1995) 981 2,476
Mortgage-backed securities available for sale (amortized cost $398,576
at March 31, 1996 and $231,145 at September 30, 1995) 398,761 232,160
Mortgage-backed securities held to maturity (market value $81,526 at
March 31, 1996 and $124,763 at September 30, 1996) 82,495 123,625
Loans held for sale 11,933 2,467
Loans receivable, net of allowance for loan losses of $9,673
at March 31, 1996 and $7,457 at September 30, 1995 782,219 713,856
Accrued interest receivable:
Loans 4,881 4,900
Investment securities 1,857 972
Mortgage-backed securities 2,444 2,608
Real estate owned, net 2,660 2,128
Stock in Federal Home Loan Bank of Boston, at cost 10,061 8,945
Premises and equipment, net 8,993 8,066
Prepaid expenses and other assets 40,563 17,960
------ ------
Total Assets $1,428,229 $1,237,286
========== ==========
Liabilities and Shareholders' Equity
Liabilities
Deposits $1,058,007 $ 951,751
Federal Home Loan Bank advances 177,380 73,150
Reverse repurchase agreements and other borrowed mone 47,684 82,317
Advance payments by borrowers for taxes and insurance 6,708 5,498
Accrued expenses and other liabilities 36,751 32,110
------ ------
Total Liabilities 1,326,530 1,144,826
--------- ---------
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; 4,538,866 shares issued at March
31, 1996 and 4,507,107 shares issued at September 30, 1995, including
47,373 shares held in treasury 45 45
Additional paid-in capital 59,962 59,514
Retained earnings 41,997 33,092
Cost of common treasury stock (362) (362)
Employee stock ownership plan stock (94) (94)
Net unrealized gain on available for sale securities 151 265
--------- ---------
Total Shareholders' Equity 101,699 92,460
--------- ---------
Total Liabilities and Shareholders' Equity $1,428,229 $1,237,286
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for share data)
Three Months Ended Six Months Ended
------------------- -----------------
3/31/96 3/31/95 3/31/96 3/31/95
------- ------- ------- -------
Interest income:
Interest and fees on loans $15,059 $16,139 $29,548 $31,507
Interest on mortgage-backed
securities 6,901 2,906 12,922 4,903
Interest on investment securities 458 745 1,190 1,612
Dividends on investment securities 1,602 552 2,509 1,070
----- --- ----- -----
Total interest income 24,020 20,342 46,169 39,092
------ ------ ------ ------
Interest expense:
Interest on deposits 11,761 8,680 22,025 16,941
Interest on Federal Home Loan Bank
advances 1,884 777 3,087 1,255
Interest on reverse repurchase
agreements and other borrowed money 874 651 2,155 800
--- --- ----- ---
Total interest expense 14,519 10,108 27,267 18,996
------ ------ ------ ------
Net interest income 9,441 10,234 18,842 20,096
Provision for loan losses 1,366 225 1,591 450
----- --- ----- ---
Net interest income after provision 8,075 10,009 17,251 19,646
----- ------ ------ ------
Non-interest income:
Net gain (loss) on sale of securities (1,163) - (532) (104)
Loss from mortgage banking activities (1,740) - (1,734) -
Gain on sale of deposits 15,904 - 15,904 -
NOW account service fees 617 487 1,234 985
Other customer service fees 225 174 436 335
Other income 321 355 759 777
--- --- --- ---
Total non-interest income 14,164 1,016 16,067 1,993
------ ----- ------ -----
22,239 11,025 33,318 21,639
------ ------ ------ ------
Non-interest expense:
Compensation, payroll taxes and
benefits 3,417 2,812 6,138 5,487
Office occupancy 891 670 1,570 1,297
Advertising 674 233 941 465
Net cost of real estate owned operations 576 113 798 224
Federal deposit insurance premiums 375 613 811 1,104
Service bureau processing fees 455 358 860 696
Amortization of intangible assets 646 412 993 817
Other expense 1,875 941 2,780 1,756
------ ------ ------ ------
Total non-interest expense 8,909 6,152 14,891 11,846
------ ------ ------ ------
Income before income taxes 13,330 4,873 18,427 9,793
Income taxes 5,290 2,027 7,463 4,067
----- ----- ----- -----
Net Income $8,040 $2,846 $10,964 $5,726
===== ===== ====== =====
Net Income per share:
Primary $1.72 $0.63 $2.35 $1.27
==== ==== ==== ====
Fully Diluted $1.72 $0.62 $2.35 $1.27
==== ==== ==== ====
Average number of shares and equivalent
shares:
Primary 4,673,496 4,551,170 4,670,698 4,504,480
Fully Diluted 4,674,790 4,565,794 4,674,288 4,525,116
Dividends per share $0.23 $0.21 $0.46 $0.40
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Net income $10,964 $5,726
OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided (used)
by operating activities
Provision for loan losses 1,591 450
Provision for losses on real estate owned 409 36
Provision for depreciation and amortization 474 341
Accretion of fees on loans (235) (22)
Amortization of premiums (accretion of discounts) on investment
and mortgage-backed securities 481 (506)
Gain on sale of deposits (15,904) -
Amortization of core deposit and other intangibles 993 817
Loss on trading securities 24 -
Realized (gain) loss on sale of real estate owned, net (54) (41)
Realized (gain) loss on sale of securities, net 532 104
Loss on mortgage banking activities 1,734 -
Origination of loans held for sale (40,227) -
Proceeds from sales of loans held for sale 9,417 -
Decrease (increase) in accrued interest receivable (469) (960)
Decrease (increase) in prepaid expenses and other assets (3,693) 7,593
Loan origination fees 692 118
Increase (decrease) in accrued expenses and other liabilities 3,111 598
-------- --------
Net cash provided (used) by operating activities (30,160) 14,254
-------- --------
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale 19,808 2,210
Proceeds from maturities of investment securities 13,500 10,200
Principal payments on securities available for sale 2,360 2,442
Principal payments on investment securities - 2,624
Purchases of investment securities available for sale (15,017) -
Purchases of investment securities - (7,892)
Proceeds from sales of mortgage-backed securities available
for sale 144,483 -
Principal payments on mortgage-backed securities available
for sale 52,315 1,448
Principal payments on mortgage-backed securities 4,835 5,252
Purchases of mortgage-backed securities available for sale (268,929) (20,807)
Purchases of mortgage-backed securities (48,445) (48,764)
Proceeds from sales of mortgage-backed securities prior
to maturity - 4,032
Principal payments on loans receivable 59,188 38,809
Loan originations (81,309) (68,267)
Proceeds from sales of loans 999 354
Decrease in real estate owned - 431
Proceeds from sales of real estate owned 1,485 1,884
Acquisition of loans and other assets (39,109) -
Purchases of premises and equipment (939) (962)
Increase in investment in Federal Home Loan Bank stock (1,116) -
Proceeds from sales of premises and equipment 713 -
-------- --------
Net cash used by investing activities (155,178) (77,006)
FINANCING ACTIVITIES:
Net increase (decrease) in Passbook, NOW and Money
Market accounts (24,342) (40,434)
Net increase (decrease) in certificate accounts 61,869 39,594
Assumption of deposits and liabilities of acquired branches 235,893 -
Sale of deposits (168,506) -
Borrowings under Federal Home Loan Bank advances 300,535 64,510
Payments of Federal Home
Loan Bank Advances (196,305) (39,570)
Net increase in borrowed money (34,633) 33,560
Net increase in advance payments by borrowers for taxes and
insurance 1,210 817
Proceeds from exercise of stock options and dividends reinvested 448 361
Proceeds from sale of common stock - 16,658
Cash dividends (2,059) (1,772)
-------- --------
Net cash provided by financing activities 174,110 73,724
-------- --------
Increase (decrease) in cash and cash equivalents (11,228) 10,972
Cash and cash equivalents at beginning of period 63,307 24,652
-------- --------
Cash and cash equivalents at end of period $52,079 $35,624
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
NON-CASH INVESTING ACTIVITIES:
Transfer of investment securities held to maturity
to investment securities available for sale $ - $53,124
Transfer of mortgage-backed securities held to maturity to
mortgage-backed securities available for sale 90,603 18,529
Securitization of loans held for sale into trading securities 3,669 -
Transfer of loans held for sale to loans held for portfolio 15,941 -
Transfer of loans to real estate owned 2,372 755
====== ======
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $ 6,400 $ 5,950
Interest paid 27,462 19,174
====== ======
</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 nineteen
branch offices located in Hartford and eastern Litchfield 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, 1996 and 1995 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 1995 annual report on Form 10-K.
(2) Accounting Pronouncements
Effective October 1, 1995, the Bank adopted Statements of Financial Accounting
Standards ("SFAS") No. 114 "Accounting by Creditors for Impairment of a Loan"
and No. 118 "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." SFAS No. 114 and SFAS No. 118 require that
creditors evaluate the collectability of both contractual interest and
contractual principal of all loans when identifying impaired loans. Impaired
loans shall have impairment measured based on the present value of the expected
future cash flows discounted at the loan's effective interest rate, the
observable market price of the loan, or the fair value of the collateral if the
loan is collateral-dependent. SFAS No. 114 and SFAS No. 118 allow the exclusion
of large groups of small-balance homogenous loans that are collectively
evaluated for impairment such as residential and consumer loans. As a result of
this allowable exclusion the requirements of these statements have been applied
to the following loan types within the loan portfolio; construction loans, land
loans, commercial mortgages, multi-family loans and commercial loans.
The adoption of these statements had no impact on the results of operations. At
March 31, 1996, the Bank had $5.4 million of impaired loans, of which $1.6
million had allowances for loan losses of $582,000 attributed to them. The
allowance for loan losses on impaired loans represents an allocation from the
existing allowance for loan losses.
The Bank's method of recognizing interest income is to generally discontinue the
accrual of interest when a loan becomes 90 days past due as to principal or
interest. Upon adoption of SFAS No. 114 and SFAS No. 118, the Bank's method for
recognition of interest income on impaired loans is consistent with the method
for recognition of interest income on all loans. Interest income recognized on
impaired loans totaled $76,539 for the six months ended March 31, 1996.
6
<PAGE>
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 to be based on the fair value of the
rights. The Company has not decided whether SFAS No. 122 will be adopted prior
to the required effective date. The effect of adoption by the Company will vary
based on the extent of mortgage servicing rights existing upon adoption and
mortgage servicing rights acquired subsequent to adoption. At this time, the
adoption of SFAS No. 122 is not expected to have a material effect on the
Company's financial position or results of operations.
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
Special Report, A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities that provides additional
guidance relating to the application of SFAS No. 115. In connection with the
issuance of this Special Report the FASB allowed all organizations the ability
to review the current portfolio classification between held to maturity,
available for sale and trading and make a one-time reclassification of
securities between categories during the period from November 15, 1995 to
December 31, 1995.
Effective December 1, 1995, the Bank made a one-time reclassification of
securities from the held to maturity classification to the available for sale
classification in accordance with the Special Report. A total of $90.6 million
of mortgage-backed securities were reclassified.
7
<PAGE>
(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):
Six months ended March 31,
--------------------------
1996 1995
---- ----
Balance, beginning of period $ 7,457 $8,311
Provisions charged to operations 1,591 450
Charge-offs (1,249) (474)
Recoveries 3 78
Additions to allowance for purchased loans 1,871 -
------ ------
Balance, end of period $ 9,673 $8,365
====== ======
(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):
Six months ended March 31,
--------------------------
1996 1995
---- ----
Net (gain) loss on sales of real estate owned $(54) $(41)
Provision for losses charged to operations 409 37
Expenses of holding real estate owned,
net of rental income 443 228
--- ---
$798 $224
==== ====
(4) Restatement of Quarter Ended March 31, 1996
Results for the quarter ended March 31, 1996 have been restated to reflect
adjustments primarily related to errors in the calculation of accrued interest
on certain loans acquired as part of the Fleet/Shawmut transaction. The effect
of the restatement is as follows (in thousands, except per share data):
Three months ended Six months ended
March 31, 1996 March 31, 1996
-------------- --------------
Net interest income ($389) ($389)
Net income ($229) ($229)
Net income per share:
Primary ($0.05) ($0.05)
Fully diluted ($0.04) ($0.04)
The result of the restatement is as follows (in thousands, except per share
data):
Three months ended Six months ended
March 31, 1996 March 31, 1996
-------------- --------------
Net interest income $9,441 $18,842
Net income $8,040 $10,964
Net income per share:
Primary $1.72 $2.35
Fully diluted $1.72 $2.35
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 $1.43 billion savings bank
holding company and parent to Eagle Federal Savings Bank (the "Bank"). The Bank
is a federally chartered savings bank headquarters in Bristol, Connecticut,
which conducts business from 19 banking offices located in Hartford and
Litchfield 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,
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.
At March 31, 1996, the Company had total assets of $1.43 billion compared to
$1.24 billion at September 30, 1995, an increase of $191 million or 15.5%. Total
outstanding loans, which includes loans receivable, net, and loans held for
sale, increased $78.2 million to $794.2 million at March 31, 1996 from $716.0
million at September 30, 1995. Total deposits increased 11.2%, or $106.3
million, from $951.8 million at September 30, 1995 to $1.06 billion at March 31,
1996. At March 31, 1996 shareholders' equity represented 7.14% of total assets
compared to 7.47% at September 30, 1995. Total securities, including
mortgage-backed securities, were $510.5 at March 31, 1996 compared to $412.1
million at September 30, 1995, an increase of $98.5 million or 23.9%.
On January 19, 1996, the Bank completed the acquisition of five branch offices,
related deposits and certain other assets and liabilities from Fleet Bank, N.A.
and Shawmut Bank Connecticut, N.A. The following assets and liabilities were
recorded as a result of the transactions (in thousands):
Cash $196,785
Loans Receivable 35,720
Goodwill 19,527
Other Assets 1,681
-------
Total Assets $253,713
=======
Deposits $253,139
Other Liabilities 574
-------
Total Liabilities $253,713
=======
On March 1, 1996, the Bank completed the sale of seven branch offices and
related deposits to Union Savings Bank of Danbury. Deposits totaling $184
million were sold in the transaction. Also included were loans receivable of
$999,000 and premises and equipment of $713,000. The Bank received a premium on
the deposits of 9% that resulted in a gain of $15.9 million being recorded in
the second quarter of fiscal 1996.
In addition to the above mentioned branch related transactions, on March 1,
1996 the Bank closed two branch offices that were in close proximity to two of
the branch offices acquired from Fleet/Shawmut. All accounts related to the
closed branches were transferred to the newly acquired branches.
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, 1996, the Bank was in compliance with the
Federal Home Loan Bank liquidity requirements having an average liquidity ratio
of 10.80% for the three months ended March 31, 1996.
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. Principal uses of funds include loan originations
and investment purchases, payments of interest on deposits and payments to meet
operating expenses. At March 31, 1996, the Bank had approximately $73.1 million
in loan commitments outstanding, including $34.2 million in available home
equity lines of credit and $8.9 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
$555 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, 1996 were $177.4 million compared
to $73.2 million at September 30, 1995, an increase of $104.2 million. Other
borrowed money decreased $34.6 million to $47.4 million at March 31, 1996
compared to $82.3 million at September 30, 1995.
Loan origination's for the six months ended March 31, 1996 were $121.5 million
compared to $68.3 million for the same period in 1995.
It has been the Company's general policy to purchase debt securities (including
mortgage-backed securities) for purposes of earning interest income and meeting
regulatory liquidity requirements. At date of purchase, a decision is made to
classify debt securities as either held to maturity or available for sale.
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 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 $164.6 million of
securities sold during the six months ended March 31, 1996 compared to $6.2
million for the same period in 1994.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The high level of security sales during the first six months of fiscal 1996 can
be primarily attributed to two distinct management decisions. The first
decision, which was consummated in the first quarter of fiscal 1996, was to sell
$58.8 million of fixed rate mortgage-backed securities created from the
securitization in the prior year of certain mortgage loans within the Bank's
loan portfolio. The sales represent the final step of a balance sheet
restructuring which converted approximately $150 million of fixed rate mortgage
loans into adjustable rate mortgage related securities. The sales resulted in a
realized gain of $631,000. The second decision, which occurred in March 1996,
was to dispose of approximately $92 million of the Bank's lowest yielding
securities and reinvest the proceeds in securities that will generate on
estimated improvement in yield of between 125 to 175 basis points. The March
1996 sales resulted in a realized loss of $1.2 million.
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, 1996 exceeded the currently
applicable tangible, core and risk-based capital requirements as the following
chart indicates (dollars in thousands):
Required Actual Excess
-------- ------ ------
Tangible Capital 20,988 1.50% 72,199 5.16% 51,211
Core Capital 41,976 3.00% 72,199 5.16% 30,223
Risk-based Capital 52,511 8.00% 78,330 11.93% 25,819
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.
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 borrowings and lending policies on Eagle's sensitivity to
interest rate fluctuations.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
NON-PERFORMING ASSETS - At March 31, 1996, the Company had total non-performing
assets of $13.1 million, or 0.92% of total assets, including $10.5 million in
non-performing loans and $2.7 million in real estate owned. The allowance for
loan losses totaled $9.7 million or 92% of total non-performing loans at March
31, 1996. Information regarding non-performing assets and other asset quality
data for March 31, 1996 and September 30, 1995 is as follows (dollars in
thousands):
March 31, 1996 September 30, 1995
-------------- ------------------
Non-performing loans $10,483 $11,130
Real estate owned, net 2,660 2,439
----- -----
Non-performing assets $13,143 $13,569
====== ======
Restructured loans $ 4,394 $ 2,653
===== =====
Impaired loans:
Non-performing (1) $ 2,205
Performing $ 3,145
=====
Non-performing assets/total assets 0.92% 1.10%
Non-performing loans/gross loans receivable 1.32% 1.54%
Allowance for loan losses/non-performing lo 92% 67%
(1) Non-performing impaired loans are included in the non-performing loans total
of $10,483,000.
The Company's non-performing assets are almost exclusively residential in
nature. Assets secured by residential property account for approximately 97% of
the non-performing assets at March 31, 1996.
The Company makes every effort to work with delinquent borrowers to negotiate an
affordable payment schedule. This strategy has been more prevalent in hardship
cases where rates have adjusted upward one or more times on adjustable rate
mortgages. 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 $3.9 million or 90% of
restructured loans. Approximately $2.2 million restructured loans are owner
occupied primary residences. All non-performing assets and restructured loans
are reviewed quarterly as part of the internal review process.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Loans delinquent between 30 and 90 days totaled $5.9 million at March 31, 1996
compared to $5.1 million at September 30, 1995.
The following table represents a breakdown of non-performing assets as of March
31, 1996 (dollars in thousands):
Non- Real Total non-
performing state performing % of
loans owned, net assets Total
----- ------ ------ -----
Residential mortgage loans
One to four family $ 8,903 $2,426 $11,329 86.20%
Multi-family 361 209 570 4.34%
Land loans - 25 25 0.19%
Commercial loans 277 - 277 2.11%
Consumer loans 7 - 7 0.05%
Home equity loans 935 - 935 7.11%
------ ----- ------ ------
Total $10,483 $2,660 $13,143 100.00%
======= ====== ======= ======
The allowance for loan losses increased to $9.7 million at March 31, 1996 from
$7.5 million at September 30, 1995 due to provisions of $1.6 million and a
purchase accounting adjustment of $1.9 million related to the loans acquired in
the Fleet/Shawmut transaction. The loan loss provision of $1.6 million on the
existing portfolio for the six months ended March 31, 1996 increased $1.1
million when compared to the six months ended March 31, 1995. The majority of
the provision was recognized in the quarter ended March 31, 1996. This increase
can be attributed to a number of factors.
The most significant factor leading to the provision was an increase in the
general loan loss allowance allocation percentage on two specific loan
categories. These loan categories have evidenced a trend in recent quarters of
an increased charge-off to loan balance ratio and, as a result the allowance
allocation was increased to compensate for the higher charge-off ratio. In
addition, a number of properties foreclosed on during the quarter ended March
31, 1996 resulted in larger than expected charge-offs due to property valuations
obtained in the foreclosure proceedings being lower than previous valuations.
The final factor contributing to the increased provision was an overall increase
in delinquent, non-performing and restructured loans during the three months
ended March 31, 1996 as a result of the weak economic conditions which persist
in Connecticut.
Management monitors the adequacy of the allowances for loan and real estate
owned losses 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 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 appraisals for significant properties.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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, 1996 and 1995.
GENERAL
Net income increased $5.4 million to $8.3 million for the three months ended
March 31, 1996 compared to the net income of $2.8 million for the comparable
period in 1995. The principal component of the increase was a $15.9 million gain
on the sale of seven branch offices and related deposits. This gain was offset
by several non-recurring items during the quarter including; a $1.2 million loss
on the sale of securities, a $1.7 million unrealized loss on loans classified
held for sale, a $1.1 million increase in the provision for loan losses and
additional charges of a non-recurring nature totaling $1.2 million. Net income
for the six months ended March 31, 1996 was $11.2 million compared to $5.7
million for the six months ended March 31, 1995. Principally the same factors
attributed to the quarter were the cause of the increase in net income for the
six month period.
NET INTEREST INCOME
Net interest income for the three months ended March 31, 1996 was $9.8 million,
a $400,000 decrease from the $10.2 million recorded in the comparable period in
1995. Net interest income declined $900,000 to $19.2 million for the six months
ended March 31, 1996 from $20.1 million for the six months ended March 31, 1995.
The decline in net interest income is attributable to a significant decrease in
the net interest spread for both the three and six month periods despite an
increase in the average balance of interest earning assets.
The net interest spread for the three and six month periods ended March 31, 1996
was 2.77% and 2.86%, respectively, compared to 3.61% and 3.63% for the
comparable periods in 1995. The principal factor contributing to the decline was
an increase in the overall cost of deposits of 53 basis points from the March 95
quarter to March 96 quarter and 65 basis points for the six month periods. The
yield on interest earning assets was negatively impacted due to the investment
of funds received in the Fleet/Shawmut transaction in lower yielding, liquid
investments, for approximately 40 days, in order to fund the branch and deposit
sale that occurred later in the quarter.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased by $1.1 million from $225,000 for the
quarter ended March 31, 1995 to $1.4 million for the quarter ended March 31,
1996. For the six months ended March 31, 1996, the provision for loan losses was
$1.6 million, a $1.1 million increase from the comparable period in 1995. The
increase in the provision resulted from several factors, see "Non-Performing
Assets".
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
NON-INTEREST INCOME
Several factors contributed to an increase of $13.2 million in non-interest
income for the three months ended March 31, 1996 compared to the three months
ended March 31, 1995. The gain on the sale of deposits of $15.9 million was
offset by losses generated from security sales of $1.2 million and an unrealized
loss of $1.7 million on loans held for sale. These items also effected the
comparison of the six months ended March 31, 1996 versus March 31, 1995.
Recurring non-interest income increased $147,000 to $1.2 million for the three
months ended March 31, 1996 and increased $332,000 to $2.4 million for the six
months ended March 31, 1996 due primarily to higher NOW account service fees.
NON-INTEREST EXPENSE
Non-interest expense increased $2.8 million to $8.9 million during the three
months ended March 31, 1996 from $6.2 million during the three months ended
March 31, 1995. Non-recurring expenses of $1.2 million during the March 1996
quarter, principally related to a special marketing promotion following the
Fleet/Shawmut transaction and certain consulting charges incurred during the
quarter, are partly responsible for the increase. Maintaining an expanded branch
network for a portion of the quarter also helped to increase non-interest
expense, particularly with respect to compensation and office occupancy which
increased $605,000 and $221,000, respectively. Increases in the net cost of real
estate owned operations and the amortization of intangible assets of $463,000
and $234,000, respectively, when comparing the March 96 and March 95 quarters
were offset by a decrease in Federal deposit insurance premiums of $238,000.
Non-interest expense for the six months ended March 31, 1996 was $14.9 million,
a $3.1 million increase from the $11.8 million reported for the six months ended
March 31, 1995. The non-recurring expenses and operation costs related to the
expanded branch network contributed to the increase as did a $176,000 increase
in amortization of intangible assets and a $554,000 increase in the net cost of
real estate owned operations. An increase in provisions for real estate owned
losses of $372,000 was the primary factor leading to the increased net cost of
real estate owned operations.
INCOME TAXES
Income taxes increased $3.4 million to $5.5 million during the quarter ended
March 31, 1996 and $3.6 million to $7.6 million during the six months ended
March 31, 1996 principally due to higher pre-tax income when compared to the
similar periods in the previous year. The effective tax rate for the three and
six month periods ended March 31, 1996 was 39.7% and 40.5%, respectively.
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
The annual meeting of shareholders of Eagle Financial Corp. was held on January
23, 1996, at which time the following proposals were considered and voted upon;
(1) the election of four directors, three for a three-year term and one for a
two-year term; and (2) the 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, 1996.
With respect to Proposal One, the following votes were cast in the election of
directors:
Withhold Authority
Nominees For To Vote
- ---------------------------------------------------------------------
George T. Carpenter 3,420,021 57,690
Thomas V. LaPorta 3,423,350 54,361
Steven E. Lasewicz, Jr. 3,422,501 55,210
Robert J. Britton 3,423,469 54,242
With respect to Proposal Two, 3,446,647 votes were cast FOR ratification of the
appointment of the firm of KPMG Peat Marwick as independent auditors of the
Company, 17,063 votes were against such ratification, and 13,501 votes, were
abstention.
Item 5 - Other Information
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
On February 29, 1996 Eagle filed a report on Form 8-K which reported under Item
5 - Other Events, an announcement that Eagle had entered into a definitive
agreement with Union Savings Bank of Danbury to sell seven branch banking
offices and the related deposit liabilities in the Danbury Market area.
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 15, 1996 By: /s/ Mark J. Blum
--------------------------------------
Mark J. Blum
Vice President, Chief Financial Officer
Date: May 15, 1996 By: /s/ Barbara S. Mills
--------------------------------------
Barbara S. Mills
Vice President, Treasurer
17
<PAGE>
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