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, 1997
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.)
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 data.
Common Stock (par value $0.01) 6,292,819
- -------------------------------------------------------------------------------
(Class) (Approximate Number Of Shares
Outstanding at August 11, 1997)
(Excluding Treasury Stock)
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Consolidated Balance Sheets at June 30, 1997 (unaudited) and September 30, 1996 2
Consolidated Statements of Income for the Three and Nine Months Ended
June 30, 1997 and 1996 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 1997 and 1996 (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
EXHIBIT INDEX 18
</TABLE>
1
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
Assets June 30, September 30,
1997 1996
- ------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 28,435 $ 26,341
Interest-bearing deposits 42,716 31,523
----------- -----------
Cash and cash equivalents 71,151 57,864
Investment securities available for sale (amortized cost: $35,998 at
June 30, 1997 and $26,526 at September 30, 1996) 35,398 26,532
Investment securities held to maturity (market value: $25,443 at
September 30, 1996) -- 25,531
Mortgage-backed securities available for sale (amortized cost:
$676,458 at June 30, 1997 and $375,010 at September 30, 1996) 678,554 372,018
Mortgage-backed securities held to maturity (market value: $90,238 at
September 30, 1996) -- 90,290
Loans held for sale 1,240 705
Loans receivable, net of allowance for loan losses of $9,841 at
June 30, 1997 and $10,507 at September 30, 1996 1,129,064 1,094,656
Accrued interest receivable:
Loans 6,549 6,637
Investment securities 900 1,209
Mortgage-backed securities 4,108 3,363
Real estate owned, net 4,685 5,384
Stock in Federal Home Loan Bank of Boston, at cost 22,770 13,100
Premises and equipment, net 12,578 13,897
Intangible assets 30,304 32,488
Prepaid expenses and other assets 16,058 16,038
----------- -----------
Total Assets $ 2,013,359 $ 1,759,712
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 1,385,431 $ 1,368,703
Federal Home Loan Bank advances 409,558 217,158
Repurchase agreements and other borrowed money 1,251 14,670
Advance payments by borrowers for taxes and insurance 12,701 6,631
Accrued expenses and other liabilities 17,315 16,558
----------- -----------
Total Liabilities 1,826,256 1,623,720
----------- -----------
Corporation obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely junior subordinated debentures
of the Corporation. 48,858 --
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; 6,326,378 shares issued at June 30, 1997 and
6,288,967 shares issued at September 30, 1996, including 47,373
shares held in treasury 63 63
Additional paid-in capital 78,589 77,627
Retained earnings 59,072 60,426
Cost of common stock in treasury (362) (362)
Net unrealized gain (loss) on available for sale securities 883 (1,762)
----------- -----------
Total Shareholders' Equity 138,245 135,992
----------- -----------
Total Liabilities and Shareholders' Equity $ 2,013,359 $ 1,759,712
=========== ===========
</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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
6/30/97 6/30/96 6/30/97 6/30/96
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 22,159 $ 20,693 $ 65,219 $ 60,468
Interest on mortgage-backed securities 10,643 8,294 27,367 21,732
Interest on investment securities 513 916 1,801 3,751
Interest on overnight investments 598 724 1,656 3,471
Dividends on investment securities 507 414 1,198 455
----------- ----------- ----------- -----------
Total interest income 34,420 31,041 97,241 89,877
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits 13,899 13,849 41,453 41,467
Interest on Federal Home Loan Bank advances 5,016 2,646 11,966 6,009
Interest on repurchase agreements and other
borrowed money 47 656 349 2,905
----------- ----------- ----------- -----------
Total interest expense 18,962 17,151 53,768 50,381
----------- ----------- ----------- -----------
Net interest income 15,458 13,890 43,473 39,496
Provision for loan losses 7,278 659 8,678 2,541
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 8,180 13,231 34,795 36,955
----------- ----------- ----------- -----------
Non-interest income:
Net gain (loss) on sale of securities (65) 64 (35) (468)
Gain (loss) from mortgage banking activities 16 255 52 (1,479)
Gain on sale of deposits 546 -- 546 15,904
Loss on disposal of premises and equipment (912) -- (912) --
NOW account service fees 886 761 2,605 2,455
Other customer service fees 171 142 600 404
Other income 536 574 1,491 1,452
----------- ----------- ----------- -----------
Total non-interest income 1,178 1,796 4,347 18,268
----------- ----------- ----------- -----------
Non-interest expense:
Compensation, payroll taxes and benefits 4,437 4,283 12,700 12,653
Office occupancy 1,402 1,226 4,106 3,500
Advertising 919 386 1,541 1,435
Net cost of real estate owned operations 1,046 430 1,687 1,524
Federal deposit insurance premium 142 395 525 1,387
Service bureau processing fees 574 483 1,599 1,573
Amortization of intangible assets 742 861 2,257 2,098
Cost of Corporation obligated mandatorily
preferred securities 1,260 -- 1,260 --
Merger expense 3,499 -- 3,499 --
Other expense 1,554 1,323 4,063 4,877
----------- ----------- ----------- -----------
Total non-interest expense 15,575 9,387 33,237 29,047
----------- ----------- ----------- -----------
Income (loss) before income taxes (6,217) 5,639 5,905 26,176
Income taxes (benefit) (1,902) 2,072 3,057 10,388
----------- ----------- ----------- -----------
Net income (loss) $ (4,315) $ 3,567 $ 2,848 $ 15,788
=========== =========== =========== ===========
Net income per share:
Primary $ (0.67) $ 0.56 $ 0.44 $ 2.49
Fully Diluted $ (0.67) $ 0.56 $ 0.44 $ 2.47
=========== =========== =========== ===========
Average number of shares and equivalent shares:
Primary 6,464,540 6,347,597 6,453,835 6,334,049
Fully Diluted 6,486,064 6,388,426 6,481,196 6,380,430
Dividends per share $ 0.23 $ 0.23 $ 0.69 $ 0.69
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
---------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net Income $ 2,848 $ 15,788
OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided (used)
by operating activities
Provision for loan losses 8,678 2,541
Provision for losses on real estate owned 683 619
Provision for depreciation and amortization 1,330 858
Amortization of premiums (accretion of discounts) on loans 261 (544)
Amortization of premiums (accretion of discounts) on investment
and mortgage-backed securities 1,100 769
Amortization of intangible assets 2,257 2,098
Gain on sale of deposits (546) (15,904)
Gain on trading securities -- (40)
Proceeds from sale of trading securities -- 16,928
Realized loss (gain) on sale of real estate owned, net 65 (139)
Realized loss on sale of securities, net 35 532
Loss on disposal of premises and equipment 912 --
Loss (gain) from mortgage banking activities (52) 1,437
Origination of loans held for sale (8,465) (55,983)
Proceeds from sales of loans held for sale 7,982 17,020
Decrease (increase) in accrued interest receivable (348) 29
Decrease (increase) in prepaid expenses and other assets (1,930) (5,730)
Loan origination fees (50) 693
Increase (decrease) in accrued expenses and other liabilities 757 (770)
--------- ---------
Net cash provided (used) by operating activities 15,517 (19,798)
--------- ---------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities available for sale 22,200 21,000
Proceeds from maturities of investment securities held to maturity 1,931 --
Proceeds from sales of investment securities available for sale 17,578 81,646
Principal payments on investment securities available for sale 819 2,810
Purchases of investment securities available for sale (26,421) (84,775)
Proceeds from sales of mortgage-backed securities available for sale 7,186 144,483
Principal payments on mortgage-backed securities available for sale 49,819 77,149
Principal payments on mortgage-backed securities held to maturity 7,339 7,786
Purchases of mortgage-backed securities available for sale (273,819) (304,454)
Purchases of mortgage-backed securities held to maturity (2,866) (54,030)
Principal payments on loans receivable 136,215 125,583
Loan originations (179,266) (158,092)
Purchases of loans (3,263) (20,656)
Proceeds from sales of loans -- 9,799
Proceeds from sales of real estate owned 2,995 4,400
Investment in real estate owned (27) (357)
Purchases of premises and equipment (923) (1,732)
Proceeds from sales of premises and equipment -- 721
Increase in investment in Federal Home Loan Bank stock (9,670) (1,116)
Acquisition of loans and other assets -- (39,109)
-------- ---------
Net cash used by investing activities (250,173) (188,944)
-------- ---------
</TABLE>
4
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES
Net increase (decrease) in Passbook, NOW and Money Market accounts $ 16,300 $ (19,352)
Net increase in certificate accounts 10,153 72,690
Assumption of deposits and liabilities of acquired branches -- 235,893
Sales of deposits (9,179) (168,506)
Borrowings under Federal Home Loan Bank advances 1,353,475 381,785
Repayment of Federal Home Loan Bank advances (1,161,075) (275,605)
Net decrease in borrowed money (13,419) (51,828)
Net increase in advance payments by borrowers for taxes and insurance 6,070 7,045
Proceeds from issuance of Corporation obligated mandatorily redeemable
preferred securities 48,858 --
Proceeds from exercise of stock options and dividends reinvested 962 1,010
Cash dividends (4,202) (3,947)
----------- -----------
Net cash provided by financing activities 247,943 179,185
----------- -----------
Increase (decrease) in cash and cash equivalents 13,287 (29,557)
Cash and cash equivalents at beginning of period 57,864 72,615
----------- -----------
Cash and cash equivalents at end of period $ 71,151 $ 43,058
=========== ===========
NON-CASH INVESTING ACTIVITIES:
Transfer of mortgage-backed securities held to maturity to mortgage-
backed securities available for sale $ 85,720 $ 90,603
Transfer of investment securities held to maturity to investment
securities available for sale 23,609 --
Securitization of loans held for sale into trading securities -- 16,888
Transfer of loans held for sale to loans held for portfolio -- 21,879
Transfer of loans to real estate owned 3,017 4,685
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $ 2,281 $ 12,702
Interest paid 53,625 50,250
=========== ===========
</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 "Holding Company") is a unitary savings bank holding
company and parent of Eagle Bank (the "Bank") (collectively known as the
"Company"). The Bank is a federally chartered savings bank headquartered in
Bristol, Connecticut and conducts business from twenty-six traditional branch
offices and four in-store supermarket 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 nine month periods ended June 30, 1997 and 1996 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 1996 Annual Report on Form 10-K.
(2) ACCOUNTING PRONOUNCEMENTS
Effective October 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of." SFAS No. 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. The Company has
made no adjustments to the carrying value of any long-lived assets during the
nine months ended June 30, 1997.
Effective October 1, 1996, the Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." 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. Effective January 1, 1997, the Company adopted SFAS No. 125 "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which supersedes SFAS No. 122. SFAS No. 125 provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a financial
components approach that focuses on control of the underlying assets or
liabilities transferred. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS No. 125 became effective
for transfers of financial assets made after December 31, 1996 except for those
transfers relating to secured borrowings, repurchase agreements and similar
transactions which are effective after December 31, 1997. During the nine months
ended June 30, 1997, the Company capitalized approximately $45,000 of servicing
rights related to the origination and sale of mortgage loans.
SFAS No. 123 "Accounting for Stock-Based Compensation" became effective October
1, 1996. SFAS No. 123 establishes a fair value based method of accounting for
stock-based compensation plans. This statement also establishes fair value as
the measurement basis for transactions in which an entity acquires goods or
services from non-employees in exchange for equity instruments. The Company will
continue to follow the accounting requirements of APB Opinion No. 25 and will
provide the pro forma financial disclosure required by SFAS No. 123 in the 1997
Annual Report.
6
<PAGE>
The Financial Accounting Standards Board has recently issued SFAS No. 128,
"Earnings per Share." This statement simplifies the computation of earnings per
share (EPS) by replacing the presentation of primary EPS with basic EPS. Under
the new statement, dual presentation of basic and diluted EPS is required on the
face of the income statement for entities with complex capital structures. A
reconciliation of the numerator and denominator used in the basic EPS
computation to the diluted EPS computation's numerator and denominator is also
required. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. The Company believes
that the effect of the adoption of SFAS No. 128 will not be material to its
disclosure of earnings per share.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued. The
objective of SFAS No. 130 is to report comprehensive income which is defined as
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This Statement
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods, provided for
comparative purposes, is required.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" was issued. SFAS No. 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement is
effective for financial statements for periods beginning after December 15,
1997. The Company does not believe that the application of this Statement will
have a material impact on the operations of the Company.
(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):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 10,521 $ 11,505 $ 10,507 $ 9,611
Provisions charged to operations 7,278 659 8,678 2,541
Charge-offs (7,992) (1,617) (9,449) (3,486)
Recoveries 34 33 105 43
Additions to allowance for purchased loans -- -- -- 1,871
-------- -------- -------- --------
Balance, end of period $ 9,841 $ 10,580 $ 9,841 $ 10,580
======== ======== ======== ========
</TABLE>
(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):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- ------------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net (gain) loss on sales of real estate owned $ 50 $ (56) $ 65 $ (139)
Provision for losses charged to operations 530 67 683 619
Expenses of holding real estate owned,
net of rental income 466 419 939 1,044
------- ------- ------- -------
$ 1,046 $ 430 $ 1,687 $ 1,524
======= ======= ======= =======
</TABLE>
7
<PAGE>
(5) MERGER ACTIVITY
On May 31, 1997, the Company completed its acquisition of MidConn Bank
("MidConn") through a tax-free stock for stock exchange. The Company issued
approximately 1,708,000 common shares in exchange for all the common shares of
MidConn. The transaction has been accounted for as a pooling of interests
combination and, accordingly, the consolidated financial statements for periods
prior to the combination have been restated to include the accounts and results
of operations of MidConn.
The results of operations previously reported by the separate entities and the
combined amounts presented in the accompanying consolidated financial statements
are summarized below:
Six Months Ended Nine Months Ended
3/31/97 6/30/96
----------------- -----------------
Net interest income
Eagle Financial $ 21,185 $ 29,341
MidConn 6,829 10,155
----------- -----------
Combined $ 28,014 $ 39,496
=========== ===========
Net Income
Eagle Financial $ 5,735 $ 13,882
MidConn 1,428 1,906
----------- -----------
Combined $ 7,163 $ 15,788
=========== ===========
(6) Capital Securities
On April 1, 1997 the Company completed a $50 million private placement of 10%
capital securities due March 15, 2027. The securities were issued by the Holding
Company's recently formed subsidiary, Eagle Financial Capital Trust I, and are
fully and unconditionally guaranteed by the Holding Company. Proceeds from the
issue were invested by Eagle Financial Capital Trust I in Junior Subordinated
Debentures issued by the Holding Company which represent the sole assets of
Eagle Financial Capital Trust I. The Junior Subordinated Debentures have a
principal amount of $50,398,000, hear interest at 10% and mature on April 1,
2027. Net proceeds from the sale of the debentures will be used for general
corporate purposes, including capital contributions to the Bank.
(7) Branch Sale
On June 28, 1997 the Company completed the sale of the Middlefield, Connecticut
branch office, which had been acquired in the MidConn Bank transaction, to
Liberty Bank. As a result of the sale of the Company recorded a gain on the sale
of deposits of approximately $546,000 based on a 6% deposit premium applied to
total deposits of approximately $9.7 million. The deposits sold represent 3.2%
of the deposits assumed in the acquisition of MidConn and 0.7% of total deposits
at June 30, 1997.
(8) Security Portfolio Transfer
On June 30, 1997 the Company transferred $85.7 million of mortgage-backed
securities and $23.6 million of investment securities from held to maturity to
available for sale. The transfer resulted in an unrealized gain of approximately
$299,000, net of income tax expense of approximately $200,000, being recorded as
an increase to shareholder's equity. The securities were transferred due to a
change in intent with respect to holding the securities to maturity precipitated
by changes in the Company's balance sheet following the acquisition of MidConn.
The Company does not currently intend to purchase securities for classification
as held to maturity.
8
<PAGE>
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL - The Bank conducts business from twenty-six traditional banking offices
and four in-store supermarket branch offices located in Hartford and Litchfield
Counties. 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.
On May 31, 1997 the Company completed the acquisition of MidConn and has
accounted for the transaction as a pooling of interests. The financial
information for periods and dates prior to the combination has been restated to
include the accounts and results of operations of MidConn. At the date of the
acquisition, MidConn had total assets of $356.2 million, total securities of
$34.8 million, total loans receivable of $274.4 million, total deposits of
$308.5 million and total equity of $34.7 million.
At June 30, 1997, the Company had total assets of $2.01 billion compared to
$1.76 billion at September 30, 1996, an increase of $254 million, or 14.4%.
Total outstanding loans, which includes loans receivable, net, and loans held
for sale, increased $34.9 million to $1.13 billion at June 30, 1997 from $1.09
billion at September 30, 1996. Total securities, including mortgage-backed
securities, were $713.9 million at June 30, 1997 compared to $514.4 million at
September 30, 1996, an increase of $199.5 million, or 38.8%. Total deposits
increased $16.7 million, from $1.37 billion at September 30, 1996 to $1.39
billion at June 30, 1997. Total borrowings were $410.8 million at June 30, 1997,
an increase of $179.0 million, or 77.2%, from the September 30, 1996 total of
$231.8 million. At June 30, 1997 shareholders' equity represented 6.87% of total
assets compared to 7.73% at September 30, 1996.
LIQUIDITY - The Holding Company's liquidity and ability to pay dividends to its
shareholders is primarily derived from and dependent on the ability of its Bank
subsidiary to pay dividends to the Holding Company. Under current Office of
Thrift Supervision ("OTS") regulations, because the Bank meets the OTS capital
requirements, it may pay out the higher of 100% of net income to date over the
calendar year and 50% of surplus capital existing at the beginning of the
calendar year, or 75% of its net income over the most recent four-quarter
period, without regulatory supervisory approval. In general, the Bank pays
dividends to the Holding Company only to the extent that funds are needed to
cover operating expenses and dividends paid to shareholders. At June 30, 1997,
the Bank had approximately $89 million in excess capital over the OTS risk-based
requirement, one half of which would be available for declaration of dividends
to the Holding Company. The OTS regulations permit the OTS to prohibit capital
distribution under certain circumstances.
As a member of the Federal Home Loan Bank ("FHLB") system, the Bank is required
to maintain liquid assets at 5% of its net withdrawable deposits plus short-term
borrowings. At June 30, 1997, the Bank was in compliance with the applicable
liquidity requirements having an average liquidity ratio of 6.78% for the three
months ended June 30, 1997.
The Bank's principal sources of funds include deposits, loan payments (including
interest, amortization of principal and prepayments), interest and principal
amortization on investment and mortgage-backed securities, maturing investments,
Federal Home Loan Bank advances and other borrowings. Principal uses of funds
include loan originations, investment purchases, payments of interest on
deposits and borrowed money and payments to meet operating expenses. At June 30,
1997, the Bank had approximately $85.7 million of loan commitments outstanding,
including $56.0 million in available lines of credit. 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 an additional $457 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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
During the nine months ended June 30, 1997 the Bank originated loans totaling
$187.7 million compared to $214.1 million for the same period in 1996. Principal
repayments on loans totaled $136.2 million and $125.6 million for the nine
months ended June 30, 1997 and 1996, respectively. The Bank purchased $297.2
million and $443.3 million of securities during the nine months ended June 30,
1997 and 1996, respectively. The security purchases were offset by sales,
maturities and principal payments of $81.5 million and $334.9 million for the
nine months ended June 30, 1997 and 1996, respectively.
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. On June 30, 1997 the Company transferred $85.7 million of
mortgage-backed securities and $23.6 million of investment securities from held
to maturity to available for sale. The securities were transferred due to a
change in intent with respect to holding the securities to maturity precipitated
by changes in the Company's balance sheet following the acquisition of MidConn.
The Company does not currently intend to purchase securities for classification
as held to maturity.
Other debt securities are classified as available for sale. When an available
for sale security 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. Sales of securities totaled $18.5 million for the
nine months ended June 30, 1997 compared to $226.1 million for the nine months
ended June 30, 1996.
The significant level of security sales during the nine months ended June 30,
1996 can be attributed to two initiatives designed to restructure the balance
sheet. The first initiative is represented by the sale of $58.8 million of fixed
rate mortgage-backed securities created from the securitization in August 1995
of certain mortgage loans within the Bank's loan portfolio. The sales
represented the final step of a balance sheet restructuring which converted
approximately $150 million of fixed rate mortgage loans into adjustable rate
mortgage-backed securities. The sales resulted in a realized gain of $631,000.
The second initiative involved the sale of approximately $100 million of the
Bank's lowest yielding securities resulting in a loss of $1.2 million. The
proceeds from the sale were reinvested in securities that, on average,
represented an improvement in yield of approximately 150 basis points.
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, 1997 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> <C>
Tangible Capital $ 29,689 1.5% $ 152,216 7.69% $ 122,527 6.19%
Core Capital $ 59,378 3.0% $ 152,216 7.69% $ 92,838 4.69%
Risk-based Capital $ 72,490 8.0% $ 161,544 17.83% $ 89,054 9.83%
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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 the Company to manage the rate sensitivity of its assets
include origination of adjustable rate mortgage and consumer loans and purchase
of adjustable rate and short average life fixed rate investments. The Company
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
the Company's sensitivity to interest rate fluctuations.
NON-PERFORMING ASSETS - At June 30, 1997, the Company had total non-performing
assets of $8.9 million, or .44% of total assets, including $4.2 million in
non-performing loans and $4.7 million in real estate owned. The allowance for
loan losses totaled $9.8 million, or 233% of total non-performing loans, at June
30, 1997. Information regarding non-performing assets and other asset quality
data for June 30, 1997 and September 30, 1996 is as follows (dollars in
thousands):
June 30, September 30,
1997 1996
-------- -------------
Non-performing loans $ 4,221 $ 11,870
Real estate owned, net 4,685 5,384
------ ---------
Non-performing assets $ 8,906 $ 17,254
====== =========
Impaired loans:
Non-performing (1) $ 645 $ 6,134
Performing 1,488 4,799
====== =========
Non-performing assets/total assets 0.44% 0.98%
Non-performing loans/gross loans receivable 0.37% 1.07%
Allowance for loan losses/non-performing loans 232.6% 88.5%
(1) Non-performing impaired loans are included in total non-performing loans.
The Company's non-performing assets are predominately residential in nature.
Assets secured by residential property account for approximately 82% of the
non-performing assets at June 30, 1997. All non-performing assets and impaired
loans are reviewed quarterly as part of the internal review process.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Non-performing loans decreased $7.6 million from $11.9 million at September 30,
1996 to $4.2 million at June 30, 1997. The decline is attributable to the sale
of approximately $17.7 million of troubled loans during the quarter ended June
30, 1997. Approximately $10.9 million, or 62%, of the $17.7 million loan total
were classified as non-performing. In connection with the loan sale, the Bank
recorded charge-offs of approximately $5.8 million, which included approximately
$2.4 million of reserves previously allocated to the loans and approximately
$3.4 million of reserves established through the additional provision made to
reduce the carrying value of the loans to the sales price.
The following table represents a breakdown of non-performing assets as of June
30, 1997 (dollars in thousands):
Non- Total non-
performing Real estate performing % of
loans owned, net assets Total
---------- ----------- ---------- -------
Mortgage loans:
One to four family $2,987 3,450 6,437 72.3%
residential
Multi-family residential -- 128 128 1.4
Land -- 25 25 0.3
Commercial 508 1,082 1,590 17.8
Non-mortgage loans:
Commercial 32 -- 32 0.4
Consumer -- -- -- --
Home Equity 694 -- 694 7.8
------ ------ ------ -----
Total $4,221 4,685 8,906 100%
====== ====== ====== =====
The allowance for loan losses decreased to $9.8 million at June 30, 1997 from
$10.5 million at September 30, 1996. The loan loss provision was $8.7 million
for the nine months ended June 30, 1997, an increase of $6.3 million from the
provision for loan losses a year earlier. The provision for loan losses for the
nine months ended June 30, 1997 includes $2.7 million related to the merger with
MidConn Bank and $3.4 million related to the sale of troubled loans. The $2.7
million resulted from applying the Bank's method of calculating the loan loss
allowance requirements to the acquired MidConn Bank portfolio. The allowance for
loan losses decreased despite the above mentioned provisions primarily due to
the charge-offs of approximately $5.8 million relating to the troubled loan
sale.
At June 30, 1997, the Bank's ratio of allowance for loan losses to
non-performing loans increased significantly to 233% from 89% at September 30,
1996 and the ratio of non-performing assets to total assets declined to 0.44% at
June 30, 1997 from 0.98% as of September 30, 1996. The change in both ratios is
principally the result of the troubled loan sale.
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 on loans and real estate owned, management reviews and grades all
adversely classified assets as part of its internal loan review process. Each
loan is reviewed to determine loss exposure and the borrower's ability to pay.
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.
12
<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, 1997 and 1996.
GENERAL
The Company reported a net loss of $4.3 million for the quarter ended June 30,
1997 compared to net income of $3.6 million for the quarter ended June 30, 1996.
Fully diluted earnings per share declined from $0.56 for the three months ended
June 30, 1996 to a loss of $0.67 in the most recent quarter. The net loss of
$4.3 million was a result of several non-recurring factors, net expenses and
provisions associated with the acquisition of MidConn totaling $6.5 million, and
a $3.4 million provision for loan loss recorded from the sale of troubled loans
and $1.0 million of other non-recurring expenses.
The MidConn acquisition net expenses include a $2.7 million provision for loan
loss, a $488,000 loss on the disposal of premises and equipment, $477,000 in
charges on real estate owned and $3.5 million of other merger related expenses,
offset by a $546,000 gain on the sale of deposits.
Net income for the nine months ended June 30, 1997 declined $12.9 million to
$2.8 million, or $0.44 per fully diluted share, from $15.8 million, or $2.47 per
fully diluted share, for the nine months ended June 30, 1996. The MidConn
acquisition net expenses of $6.5 million, the $3.4 million loss on sale of
troubled loans and $1.0 million of other non-recurring expenses contributed to
the lower earnings for the nine months ended June 30, 1997. Net income for the
nine months ended June 30, 1996 included a $15.9 million gain on the sale of
deposits offset by a loss of $1.5 million from mortgage banking operations,
$468,000 of losses from sales of securities and $1.2 million of non-recurring
expenses.
NET INTEREST INCOME
Net interest income was $15.5 million for the quarter ended June 30, 1997
compared to $13.9 million, during the three months ended June 30, 1996, an
increase of $1.6 million. The increase in net interest income is the result of a
$201 million increase in the average balance of interest earning assets partly
offset by a 15 basis point decline in net interest spread to 2.90% for the three
months ended June 30, 1997 versus 3.05% for the quarter ended June 30, 1996. The
security portfolio accounted for $110.7 million of the growth on the asset side
while the majority of the $136.2 million increase in average interest bearing
liabilities was funded from a $123.9 million increase in borrowed funds. The 15
basis point decline in net interest spread is a combination of a seven basis
point decline in the yield on average earning assets and an eight basis point
increase in the cost of interest bearing liabilities.
Net interest income for the nine months ended June 30, 1997 was $43.5 million, a
$4.0 million increase from the $39.5 million reported for the nine months ended
June 30, 1996. The increase is almost entirely attributable to a $137.5 million
increase in average interest earning assets between the comparative nine month
periods. Net interest spread increased slightly to 2.96% for the nine months
ended June 30, 1997 from 2.95% for the nine months ended June 30, 1996.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
PROVISION FOR LOAN LOSSES
The provision for loan losses totaled $7.3 million for the quarter ended June
30, 1997 compared to $659,000 for the June 30, 1996 quarter. The provision for
loan losses increased $6.2 million to $8.7 million for the nine months ended
June 30, 1997 from $2.5 million for the nine months ended June 30, 1996. The
provision of $3.4 million resulting from the sale of the troubled loans and the
$2.7 million charge taken in order to consistently apply the Bank's loan loss
allowance calculation methodology to the acquired MidConn loan portfolio were
the principal factors responsible for the increases in both comparative periods.
NON-INTEREST INCOME
Non-interest income declined $618,000 to $1.2 million for the three months ended
June 30, 1997 from $1.8 million for the quarter ended June 30, 1996 due to a
loss of $912,000 from the disposal of premises and equipment partially offset by
a $546,000 gain on the sale at deposits during the three months ended June 30,
1997. Of the total loss on premises and equipment, $488,000 relates to the
MidConn acquisition.
Non-interest income for the nine months ended June 30, 1997 was $4.3 million
compared to $18.3 million for the nine months ended June 30, 1996, a decrease of
$13.9 million. The decrease is primarily attributable to the $15.9 million gain
on deposits offset by the $1.5 million loss from mortgage banking expenditures
and a $468,000 loss on the sale of securities reported during the nine months
ended June 30, 1996.
NON-INTEREST EXPENSE
Non-interest expense totaled $15.6 million for the quarter ended June 30, 1997,
a $6.2 million increase from the $9.4 million reported for the three months
ended June 30, 1996. Increases in the June 30, 1997 quarter compared to the June
30, 1996 quarter of $154,000 in compensation and benefits, $176,000 in office
occupancy, $533,000 in advertising and $616,000 in the net cost of real estate
operations, in addition to the merger expense of $3.5 million and the cost of
the Corporation obligated mandatorily redeemable preferred securities of $1.3
million, were the factors contributing to the increase.
Operation of the supermarket branches during the June 30, 1997 quarter
contributed to the increases in compensation and benefits and office occupancy.
Advertising expenses during the three months ended June 30, 1997 include
$300,000 related to a name recognition campaign and $167,000 directly
attributable to the name change of the banking subsidiary from Eagle Federal
Savings Bank to Eagle Bank. The net cost of real estate owned operations
includes $477,000 of charges reflecting the Bank's disposition strategy for
several properties obtained in the acquisition of MidConn and a $161,000
increase from the June 30, 1996 quarter to the June 30, 1997 quarter in
non-acquisition related provisions for real estate owned losses.
Non-interest expense increased $4.2 million to $33.2 million for the nine months
ended June 30, 1997 from $29.0 million during the nine months ended June 30,
1996. The MidConn merger expenses, cost of Corporation obligated mandatorily
redeemable preferred securities and a $606,000 increase in office occupancy
expenses were responsible for the overall increase, offset by a $862,000
decrease in Federal deposit insurance premiums. Office occupancy expenses were
higher due to the operation of the supermarket branches during the 1997 nine
month period and the operation of a smaller but more costly branch network
throughout the nine months ended June 30, 1997 compared to the nine months ended
June 30, 1996. The decrease in Federal deposit insurance premiums was a result
of the recapitalization of the Savings Association Insurance Fund in September
1996 which lowered the premium rate.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The $3.5 million of merger expenses include $1.6 million of compensation related
expenses including the severance amounts paid to former MidConn employees, $1.7
million of legal, accounting and other professional fees and approximately
$200,000 of other miscellaneous expenses.
INCOME TAXES
The Company recorded an income tax benefit of $1.9 million for the three months
ended June 30, 1997 compared to tax expense of $2.1 million for the three months
ended June 30, 1996. Income tax expense totaled $3.1 million for the nine months
ended June 30, 1997 compared to $10.4 million in the comparative period prior
year. The effective tax rate was 30.6% for the quarter ended June 30, 1997 and
51.8% for the nine months ended June 30, 1997. The effective tax rates were
impacted by $1.7 million of non-deductible merger related expenses.
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 SECURITIES HOLDERS
A special meeting of the shareholders of Eagle Financial Corp. was held on
May 28, 1997, at which time the following proposal was considered and voted
upon: (1) the approval and issuance of up to 1,752,077 shares of the Company
common stock in connection with the transactions contemplated by the
Agreement and Plan of Merger, dated as of January 27, 1997, by and among the
Company, Eagle Bank and MidConn Bank.
With respect to Proposal One, 2,912,697 votes were cast FOR approval of the
issuance of stock in connection with the acquisition of MidConn Bank, 172,682
votes were cast against such approval and 15,656 votes abstained.
ITEM 5 - OTHER INFORMATION
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2 Bylaws, as amended on June 24, 1997
27 Financial Data Schedule
99 Press Release dated July 24, 1997.
(b) Reports on Form 8-K.
On April 8, 1997 the Company filed a report on Form 8-K which reported under
Item 5 - Other Events, an announcement that the Company had completed a $50
million private placement of 10% capital securities due March 15, 2027. The
securities were issued by the Holding Company's recently formed subsidiary,
Eagle Financial Capital Trust I.
On May 8, 1997, the Company filed a report on Form 8-K which reported under
Item 5 - Other Events, an announcement that the Company had entered into a
Purchase and Assumption agreement to sell one of the branch offices to be
acquired as part of the transaction with MidConn Bank.
On June 13, 1997 the Company filed a report on Form 8-K which reported under
Item 5 - Other Events, an announcement that the Company had completed its
previously announced acquisition of MidConn Bank on May 31, 1997.
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: August 14, 1997 By: /s/ Mark J. Blum
-------------------------------------------
Mark J. Blum
Vice President, Chief Financial Officer
Date: August 14, 1997 By: /s/ Barbara S. Mills
-------------------------------------------
Barbara S. Mills
Vice President, Treasurer
17
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit No. Exhibit Numbered Page
- ---------- ------- -------------
3.2 Bylaws, as amended on June 24, 1997
27 Financial Data Schedule
99 Press Release dated July 24, 1997
18
BYLAWS
OF
EAGLE FINANCIAL CORP.
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the city of Wilmington, county of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1 Place of Meetings. Meetings of shareholders for the election of
directors or for any other purpose shall be held at such time and place, either
within or without the State of Delaware, as shall be designated from time to
time by the board of directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meetings of shareholders shall be
held at 50 Litchfield Street, Torrington, Connecticut on the third Wednesday of
January at 11:00 a.m. commencing in January 1988, or at such other place, date
and hour as shall be designated from time to time by the board of directors and
stated in the notice of the meeting, at which meetings the shareholders shall
elect by a plurality vote a board of directors and transact such other business
as may properly be brought before the meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
shareholder entitled to vote at such meeting not less than 10 nor more than 60
days before the date of the meeting, except as otherwise required by law. The
notice shall also set forth the purpose or purposes for which the meeting is
called.
Section 3. Business at Annual Meeting. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the meeting by a
shareholder.
For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 30 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 45 days' notice or prior
public disclosure
1
<PAGE>
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meetings, (b) the name and address,
as they appear on the Corporation's books, of the shareholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, and (d) any material interest of the
shareholder in such business. Notwithstanding anything in these bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 3. The chairman of an
annual meeting shall, if the facts warrant, determine and declare to the annual
meeting that a matter of business was not properly brought before the meeting in
accordance with the provisions of this Section 3, and if he should so determine,
he shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
Section 4. Special Meetings. Special meetings of shareholders for any
purpose may be called only as provided in the Certificate of Incorporation.
Written notice of a special meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
given, except as otherwise required by law, not less than 10 nor more than 60
days before the date of the meeting to each shareholder entitled to vote at such
meeting.
Section 5. Quorum. The holders of one-third of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder entitled to vote at the
meeting.
Section 6. Voting. Except as otherwise required by law, the Certificate of
Incorporation or these bylaws, any matter brought before any meeting of
shareholders shall be decided by the affirmative vote of the majority of the
votes cast on the matter. Each shareholder represented at a meeting of
shareholders shall be entitled to cast one vote for each share of the capital
stock entitled to vote thereat held by such shareholder. The board of directors,
in its discretion, may require that any votes cast at such meeting shall be cast
by written ballot.
Section 7. List of Shareholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of shareholders, a complete
list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of shares registered in the name of each shareholder. Such list shall be open to
the examination of any
2
<PAGE>
shareholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
shareholder of the Corporation who is present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the shareholders entitled to examine the list
required by Section 7 of this Article II or to vote in person or by proxy at any
meeting of shareholders.
Section 9. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or his duly authorized
attorney-in-fact. Proxies solicited on behalf of the board of directors shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power.
Section 10. Voting of Shares in the Name of Two or More Persons. If shares
or other securities having voting power stand of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or if two or more
persons have the same fiduciary relationship respecting the same shares, unless
the secretary of the Corporation is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect: (1) if only one votes, his act binds all; (2) if more
than one vote, the act of the majority so voting binds all; (3) if more than one
vote, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or any person voting the shares,
or a beneficiary, if any, may apply to the Court of Chancery of the State of
Delaware or such other court as may have jurisdiction to appoint an additional
person to act with the persons so voting the shares, which shall then be voted
as determined by a majority of such persons and the person appointed by the
Court. If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this subsection shall be
a majority or even-split in interest.
Section 12. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name. Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer into his name if authority so to do
is contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares unless in the
3
<PAGE>
transfer by the pledgor on the books of the Corporation he has expressly
empowered the pledgee to vote thereon, in which case only the pledgee, or his
proxy, may represent such stock and vote thereon.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. The number of inspectors shall be either one or three. If the board of
directors so appoints either one or three such inspectors, that appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, and on the request of
not less than ten percent of the votes represented at the meeting shall, make
such appointments at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or by the chairman of the board or the
president.
Unless otherwise prescribed by law, the duties of such inspectors shall
include: determining the number of shares of stock entitled to vote, the voting
power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or the vote with fairness to all shareholders.
Section 14. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with rules prescribed by the presiding officer of the
meeting, unless otherwise prescribed by law or these bylaws.
The board of directors shall designate, when present, either the chairman
of the board or the president to preside at such meetings.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The number of directors shall
be ten. Directors need not be residents of the State of Delaware. Each director
must be a resident of the State of Connecticut and be regularly employed on a
substantially full time basis in the State of Connecticut; provided, that such
requirements as to residence and employment shall not apply prior to the 1995
annual meeting of the Corporation to a director serving at the time of adoption
of this By-law.
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Directors shall be elected only by shareholders at annual meetings of
shareholders, other than the initial board of directors and except as provided
in Section 2 of this Article III in the case of vacancies and newly created
directorships. Each director elected shall hold office for the term for which he
is elected and until his successor is elected and qualified or until his earlier
resignation or removal. After the Corporation becomes publicly-owned, each
director is required to own not less than 100 shares of the common stock of the
Corporation.
Section 2. Classes; Terms of Office; Vacancies. The board of directors
shall divide the directors into three classes; and, when the number of directors
is changed, shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided, further, that no
decrease in the number of directors shall affect the term of any director then
in office. At each annual meeting of shareholders, directors elected to succeed
those whose terms are expiring shall be elected for a term of office to expire
at the third succeeding annual meeting of shareholders and when their respective
successors are elected and qualified.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled, for the unexpired term, by the
concurring vote of a majority of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office for the remainder of the
full term of the class of directors in which the new directorship was created
for the vacancy occurred and until such director's successor shall have been
elected and qualified.
Section 3. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the board of directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these bylaws
directed or required to be exercised or done by the shareholders.
The board of directors shall annually elect a chairman of the board and a
president from among its members and shall designate, when present, either the
chairman of the board or the president to preside at its meetings.
Section 4. Meetings. The board of directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The annual regular meeting of the board of directors shall be held
without other notice than this bylaw immediately after, and at the same place
as, the annual meeting of the shareholders. Additional regular meetings of the
board of directors shall be held monthly, and may be held without notice at such
time and at such place as may from time to time be determined by the board of
directors. Special meetings of the board of directors may be called by the
chairman of the board, the president or a majority of directors then in office.
Notice thereof stating the place, date and hour of the meeting shall be given to
each director either by mail not less than 48 hours before the date of the
meeting, or by telephone or telegram on 24 hours' notice.
Section 5. Quorum. Except as may be otherwise specifically provided by law,
the Certificate of Incorporation or these bylaws, at all meetings of the board
of directors, a majority of the directors then in office shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
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the board of directors. If a quorum shall not be present at any meeting of the
board of directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 6. Actions Without Meeting. Any action required or permitted to be
taken at any meeting of the board of directors or of any committee thereof may
be taken without a meeting, if all the members of the board of directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board of directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Members of the board
of directors of the Corporation, or any committee designated by the boards of
directors, may participate in a meeting of the board of directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
Section 8. Compensation. The board of directors shall have the authority to
fix the compensation of directors. The directors may be paid their reasonable
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a reasonable fixed sum for actual attendance at each meeting of the
board of directors. Directors, as such, may receive a stated salary for their
services. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation
for attending committee meetings.
Section 9. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board of directors or committee thereof which
authorized the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the board of directors or the committee, and the board of directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the board of directors,
a committee thereof or the shareholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or transaction.
Section 10. Corporate Books. The directors may keep the books of the
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Corporation outside of the State of Delaware at such place or places as they may
from time to time determine.
Section 11. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any matter is
taken shall be presumed to have assented to the action taken unless his dissent
or abstention shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation within five days after the
date he receives a copy of the minutes of the meeting. Such right to dissent
shall not apply to a director who voted in favor of such action.
Section 12. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the chairman of the board or the president
of the Corporation. Unless otherwise specified therein such resignation shall
take effect upon receipt thereof by the chairman of the board or the president.
More than three consecutive absences from regular meetings of the board of
directors, unless excused by resolution of the board of directors, shall
automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 13. Nominees. Only persons who are nominated in accordance with the
procedures set forth in this Section 13 shall be eligible for election as
directors. Nominations of persons for election to the board of directors of the
Corporation may be made at a meeting of shareholders by or at the direction of
the board of directors or by any shareholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 13. Such nominations, other than those made
by or at the direction of the board of directors, shall be made pursuant to
timely notice in writing to the secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 30 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 45 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 15th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person, and (iv) any other information relating to such person that is
required to be disclosed in solicitations or proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including without limitation such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and (b) as to the shareholder giving
notice (i) the name and address, as they appear on the Corporation's books, of
such shareholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such shareholder. At the request of the board of
directors, any person nominated by the board of directors for election as a
director shall furnish to the secretary of the Corporation that information
required to be set forth in a shareholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
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Corporation unless nominated in accordance with the procedures set forth in this
Section 13. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with
procedures prescribed by the bylaws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
Section 14. Age Limitation. No person of an age 70 years or older will be
eligible for election, reelection, appointment or reappointment to the Board of
Directors of the Corporation and no director shall serve as such beyond the
annual meeting of the Corporation immediately following such director's
attainment of age 70 years; provided, that such limitation as to service shall
not apply prior to the 1995 annual meeting of the Corporation to a director
serving at the time of adoption of this By-law.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more other directors to constitute an executive committee. The chairman of the
board shall serve as the chairman of the executive committee, unless a different
director is designated as chairman by the board of directors. The designation of
any committee pursuant to this Article IV and the delegation of authority
thereto shall not operate to relieve the board of directors, or any director, of
any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors
is not in session, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it, except to the extent, if any, that such powers and
authority shall be limited by the resolution appointing the executive committee;
and except also that the executive committee shall not have the power or
authority of the board of directors with reference to amending the Certificate
of Incorporation; adopting an agreement of merger or consolidation; recommending
to the shareholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets; recommending to the shareholders a
dissolution of the Corporation or a revocation of a dissolution; amending the
bylaws of the Corporation; filling a vacancy or creating a new directorship; or
approving a transaction in which any member of the executive committee, directly
or indirectly, has any material beneficial interest; and unless the resolution
or bylaws expressly so provide, the executive committee shall not have the power
or authority to declare a dividend or to authorize the issuance of stock or
securities convertible into or exercisable for stock.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
annual regular meeting of the board of directors following his designation and
until his successor is designated as a member of the executive committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution.
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Special meetings of the executive committee may be called by the chairman of the
executive committee, the chief executive officer or any two members thereof upon
not less than one day's notice stating the place, date and hour of the meeting,
which notice may be written or oral. Any member of the executive committee may
waive notice of any meeting and no notice of any meeting need be given to any
member thereof who attends in person. The notice of a meeting of the executive
committee need not state the business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee and the writing or writings are filed
with the minutes of the proceedings of the committee.
Section 7. Vacancies. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the chairman of the board or the president of the Corporation. Unless otherwise
specified therein, such resignation shall take effect upon receipt. The
acceptance of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee may fix its own rules of
procedure which shall not be inconsistent with these bylaws. It shall keep
regular minutes of its proceedings and report the same to the full board of
directors for its information at the meeting thereof held next after the
proceedings shall have been taken.
Section 10. Other Committees. The board of directors by resolution shall
establish an audit committee and a stock option committee, composed in each case
only of directors who are not employees of the Corporation or any subsidiary
thereof. The board of directors by resolution may also establish such other
committees composed of directors as they may determine to be necessary or
appropriate for the conduct of the business of the Corporation and may prescribe
the duties and powers thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the Corporation shall include a
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president
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shall be the chief executive officer, unless the board of directors designates
the chairman of the board as the chief executive officer. The president shall be
a director of the Corporation. The offices of the secretary and treasurer may be
held by the same person and a vice president may also be either the secretary or
the treasurer.
The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the Corporation may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election. The board of directors at its first meeting held after
the annual meeting of shareholders shall elect annually the officers of the
Corporation who shall exercise such powers and perform such duties as shall be
set forth in these bylaws and as determined from time to time by the board of
directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the board of directors may be removed at any
time by the affirmative vote of a majority of the board of directors. Any
vacancy occurring in any office of the Corporation shall be filled by the board
of directors. The salaries of all officers of the Corporation shall be fixed by
the board of directors.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contract rights, if any, of the person so removed.
Section 4. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the president or any vice president, and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and powers incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The board of directors may, by resolution, from time to time confer
like powers upon any other person or persons.
ARTICLE VI
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by (i) the chairman of the board or the president and (ii) by the
secretary or an assistant secretary of the corporation, representing the number
of shares registered in certificate form.
Section 2. Signatures. Any or all of the signatures on a certificate may be
facsimile. In
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case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of issue.
Section 3. Lost Certificates. The president or any vice president may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the president or any vice president may, in his discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificate, or his legal representative, to advertise the
same in such manner as such officer may require and/or to give the Corporation a
bond in such sum as he may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these bylaws. Transfers of stock shall be made
on the books of the Corporation only by the person named in the certificate or
by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
Section 5. Record Date. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than 60 days nor less than 10 days before the date
of any such meeting, nor more than 60 days prior to any other action for which
the record date is established. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting. In order that the Corporation
may determine the shareholders entitled to consent to corporate action in
writing without a meeting, the board of directors may fix, in advance, a record
date, which shall not be more than 10 days after the date upon which the
resolution fixing the record date is adopted by the board of directors.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not the Corporation shall
have express or other notice thereof except as otherwise required by law.
ARTICLE VII
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these bylaws to be given to any director, member
of a committee or shareholder,
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such notice may be given by mail, addressed to such director, member of a
committee or shareholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Written notice may also be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these bylaws to be given to any director, member
of a committee or shareholder, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting with the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of the shareholders, directors, or members of a committee of directors need be
specified in any other waiver of notice unless so required by the Certificate of
Incorporation or these bylaws.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation and the laws of
the State of Delaware, may be declared by the board of directors at any regular
or special meeting, and may be paid in cash, in property, or in shares of
capital stock of the Corporation.
Subject to the provisions of the General Corporation Law of the State of
Delaware, such dividends may be paid either out of surplus, out of the net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
September 30.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than
Those by or in the Right of the Corporation. Subject to Section 3 of this
Article IX, the Corporation shall
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indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, and any
appeal therein, whether civil, criminal, administrative, arbitrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, trustee, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines, penalties and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding, and any appeal therein, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding, and any appeal therein, by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Corporation. Subject to Section 3 of this Article IX, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, trustee, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against amounts paid in
settlement and expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit, if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the bests interests of the Corporation; provided, however,
that no indemnification shall be made against expenses in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the Corporation or against amounts paid in settlement unless and only to the
extent that there is a determination (as set forth in Section 3 of this Article
IX) that despite the adjudication of liability or the settlement, but in view of
all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses or amounts paid in settlement.
Section 3. Authorization of Indemnification. Any indemnification under this
Article IX (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, trustee, employee or agent is proper in the circumstances
because such director, officer, trustee, employee or agent has met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
Article IX and, if applicable, is fairly and reasonably entitled to indemnity as
set forth in the proviso in Section 2 of this Article IX, as the case may be.
Such determination shall be made (i) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suitable proceeding, (ii) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the shareholders. To the extent,
however, that a director, officer, trustee, employee or agent of the Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense
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of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case. No director, officer, trustee, employee or agent of the Corporation shall
be entitled to indemnification in connection with any action, suit or proceeding
voluntarily initiated by such person unless the action, suit or proceeding was
authorized by a majority of the entire board of directors.
Section 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article IX, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any association, partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent. The provisions
of this Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Sections 1 or 2 of this Article IX, as the
case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director,
officer, trustee, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article IX. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because he has met the applicable standards of conduct set
forth in Sections 1 and 2 of this Article IX, as the case may be. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. Notwithstanding any of
the foregoing, unless otherwise required by law, no director, officer, trustee,
employee or agent of the Corporation shall be entitled to indemnification in
connection with any action, suit or proceeding voluntarily initiated by such
person unless the action, suit or proceeding was authorized by a majority of the
entire board of directors.
Section 6. Expenses Payable in Advance. Expenses incurred in connection
with a threatened or pending action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, trustee, employee or agent to repay such amount if it shall be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article IX.
Section 7. Contract, Non-exclusivity and Survival of Indemnification. The
indemnification provided by this Article IX shall be deemed to be a contract
between the Corporation and each director, officer, employee and agent who
serves in such capacity at any time
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<PAGE>
while this Article IX is in effect, and any repeal or modification thereof shall
not affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any action, suit or proceeding theretofore
or thereafter brought based in whole or in part upon any such state of facts.
Further, the indemnification and advancement of expenses provided by this
Article IX shall not be deemed exclusive of any other rights to which those
seeking indemnification and advancement of expenses may be entitled under any
certificate of incorporation, bylaw, agreement, contract, vote of shareholders
or disinterested directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that, subject to the limitation
in Section 3 of this Article IX concerning voluntary initiation of actions,
suits or proceedings, indemnification of the persons specified in Sections 1 and
2 of this Article IX shall be made to the fullest extent permitted by law. The
provisions of this Article IX shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article IX but whom the Corporation has the power or obligation to indemnify
under the provisions of the law of the State of Delaware. The indemnification
and advancement of expenses provided by, or granted pursuant to, this Article IX
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, trustee, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
Section 8. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, trustee, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liabililty under the
provisions of this Article IX.
Section 9. Meaning of "Corporation" for Purposes of Article IX. For
purposes of this Article IX, references to "the Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article IX with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
15
<PAGE>
ARTICLE X
AMENDMENTS
The board of directors or the shareholders may from time to time amend the
bylaws of the Corporation. Such action by the board of directors shall require
the affirmative vote of at least two-thirds of the directors then in office at a
duly constituted meeting of the board of directors called for such purpose. Such
action by the shareholders shall require the affirmative vote of at least
two-thirds of the total votes eligible to be voted at a duly constituted meeting
of shareholders called for such purpose.
Article II, Section 2. Amended April 13, 1988
Article II, Section 4. Amended April 13, 1988
Article VI, Section 5. Amended April 13, 1988
Article III, Section 1. Amended August 25, 1988
Article III, Section 1. Amended July 26, 1990
Article III, Section 1. Amended September 28, 1993
Article III, Section 14. Amended September 28, 1993
Article III, Section 1. Amended December 15, 1994
Article III, Section 1. Amended June 24, 1997
The foregoing bylaws were originally adopted by the board of directors on
September 18, 1986.
-----------------------------
Corporate Secretary
16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 28,435
<INT-BEARING-DEPOSITS> 42,716
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 713,952
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,130,304
<ALLOWANCE> 9,841
<TOTAL-ASSETS> 2,013,359
<DEPOSITS> 1,385,431
<SHORT-TERM> 230,537
<LIABILITIES-OTHER> 30,016
<LONG-TERM> 229,130
0
0
<COMMON> 63
<OTHER-SE> 138,182
<TOTAL-LIABILITIES-AND-EQUITY> 2,013,359
<INTEREST-LOAN> 22,159
<INTEREST-INVEST> 11,663
<INTEREST-OTHER> 598
<INTEREST-TOTAL> 34,420
<INTEREST-DEPOSIT> 13,899
<INTEREST-EXPENSE> 18,962
<INTEREST-INCOME-NET> 15,458
<LOAN-LOSSES> 7,278
<SECURITIES-GAINS> (65)
<EXPENSE-OTHER> 15,575
<INCOME-PRETAX> (6,217)
<INCOME-PRE-EXTRAORDINARY> (6,217)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,315)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
<YIELD-ACTUAL> 7.37
<LOANS-NON> 4,221
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,488
<LOANS-PROBLEM> 1,488
<ALLOWANCE-OPEN> 10,521
<CHARGE-OFFS> 7,992
<RECOVERIES> 34
<ALLOWANCE-CLOSE> 9,841
<ALLOWANCE-DOMESTIC> 9,841
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
NEWS RELEASE
EAGLE FINANCIAL CORP.
Contact: ROBERT J. BRITTON
President & Chief Executive Officer
860 - 314-6411
MARK J. BLUM
CHIEF FINANCIAL OFFICER
860 - 314-6410
EAGLE'S CORE EARNINGS CONTINUE TO GROW AS ASSETS HIT $2 BILLION
Bristol, CT/ July 24, 1997 -- Eagle Financial Corp. (NASDAQ:EGFC), the
holding company for Eagle Bank, reached the $2 billion asset level for the
first time with the completion of the MidConn Bank acquisition in May 1997.
At June 30, 1997 the Company also reported an increase in core operating
results but an overall net loss in the quarter due to the one-time expenses
related to the acquisition and a bulk sale of problem loans.
The Company posted a net loss of $4.3 million, or $0.67 per fully diluted
share, for the three months ended June 30, 1997, compared to net income of
$3.6 million, or $0.56 per share, for the same quarter in 1996. Earnings on
a core basis, which factor out the impact of non-recurring items, were $3.3
million, or $0.51 per share, in the quarter ended June 30, 1997 versus $3.1
million, or $0.48 per share, in the quarter ended June 30, 1996. The
increase in core operating earnings was driven by a $1.6 million, or 11%,
increase in net interest income, the primary component of Eagle Financial's
revenue.
The MidConn transaction was accounted for as a pooling-of-interests and
therefore all financial data for Eagle Financial prior to the acquisition
on May 30, 1997 has been restated to include MidConn Bank's past financial
results.
The current quarters results were reduced due to $10.9 million of net
non-recurring items before income taxes including $6.5 million directly
related to the MidConn acquisition, $3.4 million from a bulk sale of $17.7
million of problem loans, and $1.0 million of other non-recurring expenses
Items related to the MidConn transaction include legal, accounting and
other professional fees, severance payments, writedowns of fixed assets,
additions to the allowance for loan losses, and the net costs associated
with the disposition of three branch offices. Loans in the bulk sale
included $10.9 million of non-performing loans and $6.8 million of
additional problem loans. Of the total loans sold, $5.8 million, or 33%,
were loans acquired in the MidConn transaction or other earlier
acquisitions made by Eagle.
-- MORE --
<PAGE>
EAGLE FINANCIAL CORP.
THIRD QUARTER EARNINGS
Page 2
Eagle Financial also announced that it is increasing its quarterly cash dividend
to $0.25 per common share, a 9% increase from $0.23 per share. The dividend is
payable on September 2, 1997 to shareholders of record on August 15, 1997. This
represents Eagle's 40th consecutive quarterly dividend.
Robert J. Britton, President and Chief Executive Officer, commented, "We are
extremely pleased that operating earnings are higher for the quarter and look
forward to further operating efficiencies that will occur as a result of the
acquisition. The increase in our quarterly dividend is our response to the
continued increase in core earnings and our confidence in Eagle's prospects for
the future."
Britton added, "Our goal for the quarter was to complete most of the integration
of MidConn Bank into Eagle's operations and to make the transition as smooth as
possible to customers. The assimilation is now largely complete including the
conversion of MidConn's data processing system, the closing of two MidConn
branch offices that were in close proximity to Eagle branches, and the sale of a
third MidConn branch."
As a result of the bulk sale of $17.7 million of problem loans, total
non-performing assets, which include non-performing loans and foreclosed real
estate, declined from $20.3 million, or 1.09% of total assets, at March 31, 1997
to $8.9 million, or 0.44% of total assets, at June 30, 1997. The allowance for
loan losses at June 30, 1997 was $9.8 million, or 233% of total non-performing
loans.
Mark J. Blum, Eagle's Chief Financial Officer, said, "While the bulk sale of
loans this quarter further improves asset quality, it will also enhance earnings
going forward by increasing the total amount of earning assets and reducing the
significant expenses related to non-performing assets."
Total assets at the Company now exceed $2.0 billion, making Eagle Bank the fifth
largest Connecticut based bank. Total loans receivable and deposits at the end
of the quarter were $1.1 billion and $1.4 billion, respectively. Shareholders'
equity was $138.2 million, or 6.87% of total assets, at June 30, 1997, while
book value per share totaled $22.02.
Eagle Bank offers a full array of innovative products and services for the
retail and commercial market including 24-hour telephone banking, loans by
phone, cash management services, debit cards, alternative investment products
and a full line of deposit and loan products. With the MidConn acquisition
completed, Eagle Bank now operates 26 traditional branch offices and 4
supermarket branch offices, in Hartford and eastern Litchfield counties.
-- MORE --
<PAGE>
SECOND QUARTER EARNINGS
EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
Page 3
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
6/30/97 3/31/97 9/30/96 6/30/96
------- ------- ------- -------
ASSETS
Cash and amounts due from depository
institutions $28,435 $29,768 $27,025 $31,398
Investment securities (b) 100,884 96,132 96,002 107,618
Mortgage-backed securities 678,554 539,665 462,308 483,135
Loans held for sale 1,240 464 705 1,184
Loans receivable , net 1,129,064 1,129,449 1,094,656 1,064,189
Real estate owned, net 4,685 5,122 55,384 5,956
Premises and equipment, net 12,578 13,616 13,897 13,763
Intangible assets 30,304 31,046 32,488 33,205
Other asssets 27,615 26,860 27,247 27,593
---------- ---------- ---------- ----------
Total Assets $2,013,359 $1,872,122 $1,759,712 $1,768,041
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $1,385,431 $1,395,300 51,3S8,703 $1,385,146
Borrowed money 410,809 294,301 231,828 219,875
Other liabilities 30,016 42,398 23,189 25,749
Corporation obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely junior
subordinated debentures of the Corporation 48,858 - - -
Shareholders' equity 138,245 140,123 135,992 137,271
---------- ---------- ---------- ----------
Total Liabilities and Shareholders' Equity $2,013,359 $1,872,122 $1,759,712 $1,768,041
========== ========== ========== ==========
Book value per share $22.02 $22.47 $21.94 $22.29
Tangible book value per share $17.19 $17.49 $16.70 $16.90
Total shares outstanding (net of treasury) 6,279,005 6,235,504 6,199,029 6,159,396
Equity to assets at end of period 6.87% 7.48% 7.73% 7.76%
(a) All financial data prior to the consummation of the MidConn
acquisition have been restated to give effect to the transaction.
(b) Investment securities - includes interest-bearing deposits, investment
securities, and Federal Home Loan Bank stock
ASSET OUALITY DATA 6/30/97 3/31/97 9/30/96 6/30/96
------- ------- ------- -------
Non-performing loans $4,221 $15,200 $11,870 $12,216
Non-performing assets $8,906 20,322 17,254 18,172
Non-performing assets to total assets 0.44% 1.09% 0.98% 1.03%
Impaired loans - non~performing (c) $645 6,569 6,134 4,959
- performing $1,488 4.452 4,799 4,462
Allowance for loan losses $9,841 10,521 10,507 10,580
Allnwance for loan losses to loans receivable 0.86% 0.92% 0.95% 0.98%
Allowance for loan losses to non-performing loans 233% 69% 89% 87%
</TABLE>
- MORE -
(c) Non-performing impaired loans are included in total non-performing
loans.
<PAGE>
<TABLE>
<CAPTION>
SECOND QUARTER EARNINGS EAGLE FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Page 4 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $34,420 $31,041 $97,241 $89,877
Interest expense 18,962 17,151 53,768 5,381
------- ------- ------- -------
Net interest income 15,458 13,890 43,473 39,496
Provision for loan losses 7,278 659 8,678 2,541
Net gain (loss) on sale of securities (65) 64 (35) (468)
Net gain (loss) from mortgage banking activities 16 255 52 (1,479)
Gain on sale of deposits 546 - 546 15,904
Loss on disposal of premises and equipment (912) - (912) -
Non-interest income 1,593 1,476 4,696 4,311
Net cost of real estate owned operations 1,046 430 1,687 1,524
Capital securities expense 1,260 - 1,260 -
Non-interest expense 13,269 8,957 30,290 27,523
------- ------- ------- -------
Income before income taxes (6,217) 5,639 5,905 26,176
Income taxes (1,902) 2,072 3,057 10,388
------- ------- ------- -------
Net income. ($4,315) $3,567 $2,848 $15,788
======= ======= ======= =======
Net income per share:
Primary ($0.67) $0.56 $0.44 $2 49
Fully diluted ($0.67) $0.56 $0.44 $2.47
Average number of shares and equivalent shares;
Primary 6,464,540 6,347,597 6,453,835 6,334,049
Fully diluted 6,486,064 6,388,426 6,481,196 6,380,430
Dividends per share $0.23 $0.23 $0.69 $0.69
OPERATING RATIOS
Average interest rate spread 2.84% 2.99% 2.95% 2.94%
Net Interest margin 3.31% 3.33% 3.30% 3.25%
Return on average assets (0.88%) 0.80% 0.21% 1.84%
Return on average equity (12.36%) 10.38% 2.73% 15.96%
Efficiency ratio 78% 58% 63% 63%
</TABLE>
(a) All financial data prior to the consummation of the MidConn
acquisition have been restated to give effect to the transaction.
MARKET MAKERS
Keefe, Bruyette & Woods, Inc.; Sandler O'Neill & Partners; First
Albany Corp.; Herzog, Heine, Geduld: Tucker Anthony Inc. and M.A.
Shapiro & Co., Inc.
- END -
