<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-15311
EAGLE FINANCIAL CORP.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1194047
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Main Street, Bristol, Connecticut 06010
- ------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 314-6400.
Securities registered pursuant to Section 12(b) of the Act:
(Not applicable)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
Based upon the closing price of the registrant's common stock as of
December 11, 1995, the aggregate market value of the voting stock held by
non-affiliates of the registrant is $98.8 million.*
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is:
Class: Common Stock, par value $.01 per share.
Outstanding at December 11, 1995: 4,476,691 shares.
Documents Incorporated By Reference:
Part II:
Annual report to shareholders for the fiscal year ended September 30,
1995.
Part III:
Portions of the definitive proxy statement for the Annual Meeting of
Shareholders to be held on January 23, 1996.
* Solely for purposes of this calculation, all executive officers and
directors of the registrant, Employee Stock Ownership Plan and all
shareholders reporting beneficial ownership of more than 5% of the
registrant's common stock are considered to be affiliates.
<PAGE>
PART I
Item 1. Business
General
Eagle Financial Corp. ("Eagle" or the "Company") is the holding company
of Eagle Federal Savings Bank ("Eagle Federal" or the "Bank"). Eagle was
organized in 1986 under Delaware law for the purpose of becoming the holding
company of First Federal Savings and Loan Association of Torrington, Connecticut
("Torrington") upon its conversion to a stock company in 1987. In 1988, BFS
Bancorp, Inc., the holding company of Bristol Federal Savings Bank, Bristol,
Connecticut ("Bristol"), merged into Eagle in a combination structured as a
merger of equals and accounted for as a pooling-of-interests. Bristol had
converted to a stock company in 1987. Torrington and Bristol have operated as
savings institutions since 1919 and 1924, respectively. In January 1993, Eagle
merged Bristol with Torrington under the new name Eagle Federal Savings Bank.
Unless otherwise stated, all references herein to Eagle or the Company include
Eagle Federal and other subsidiaries on a consolidated basis.
Eagle, at September 30, 1995, had total assets of $1.2 billion, net
loans receivable of $716.0 million, deposits of $951.8 million and shareholders'
equity of $92.5 million. Through Eagle Federal, the Company provides consumer
banking services through 23 banking offices in Connecticut, serving the
Torrington, Bristol, Danbury and Hartford market regions. As a community
oriented savings bank, Eagle Federal focuses on the financial needs of its
customers in these local markets, seeking to develop long-term deposit and
lending relationships. Deposit accounts at the Bank are insured by the Federal
Deposit Insurance Corporation (the "FDIC").
Eagle's net income has increased each of the previous seven fiscal years
from $3.5 million, or $1.06 per share, in fiscal 1989 to $11.0 million, or $2.38
per share, in fiscal 1995. Eagle intends to continue to concentrate on
increasing its earnings, maintaining high asset quality, meeting customer needs
in its existing local markets and expanding through selected future
acquisitions.
The following table indicates selected ratios for the periods indicated:
For the year ended
September 30,
1995 1994 1993
Return on average assets 0.95% 0.85% 0.79%
Return on equity (a) 12.68% 11.99% 10.69%
Dividend payout ratio 34.5% 32.5% 32.2%
Average equity to average assets ratio (b) 7.51% 7.05% 7.41%
(a) If the effect of the unrealized gains and losses on securities available
for sale had been excluded, the return on equity ratio would have been
12.55% for the year ended September 30, 1995.
(b) If the effect of the unrealized gains and losses on securities available
for sale had been excluded, the average equity to average assets ratio
would have been 7.58% for the year ended September 30, 1995.
Eagle's principal executive office is located at 222 Main Street,
Bristol, Connecticut 06010 and its telephone number is (860) 314-6400.
Acquisitions. In recent periods, Eagle has significantly expanded its
operations through three federally assisted acquisitions in which Eagle Federal
acquired certain assets and assumed deposit liabilities from the FDIC or the
Resolution Trust Corporation ("RTC"), as shown below. Substantially all of the
loans acquired in these acquisitions consisted of 1-4 family residential first
mortgage loans and home equity loans. In The Bank of Hartford, Inc. ("Bank of
Hartford") acquisition, Eagle Federal also acquired $72.7 million of investment
securities, substantially all of which were U.S. Treasury and government agency
obligations, and loan servicing rights on $80.5 million of loans with an average
loan servicing fee of 0.375%. In addition to these assisted acquisitions, Eagle
Federal in July 1993 purchased from another savings institution a banking office
in Brookfield, Connecticut with $8.2 million in deposits, and relocated its
previously acquired Brookfield office to that location.
<PAGE>
<TABLE>
<CAPTION>
Banking
Assisted Deposits Loans Intangible Net Cash Offices Acquisition
Acquisition Assumed Acquired Assets Received Acquired Date
<S> <C> <C> <C> <C> <C> <C>
Danbury Federal Savings $113.7 $86.8 $1.2 $32.8 6 March 13, 1992
and Loan Association million million million million
("Danbury Federal")
Danbury, CT
Brookfield Bank $66.5 --- $561,000 $66.0 1 May 8, 1992
Brookfield, CT million million
Bank of Hartford $272.8 $80.8 $11.3 $82.0 6 June 10, 1994
Hartford, CT million million million million
</TABLE>
Eagle has pursued acquisitions which complement its existing operations
and market area. Each of the assisted acquisitions made by the Bank has had an
immediate positive impact on the Company's net income and allowed it to maintain
asset quality. By primarily pursuing assisted acquisitions involving the FDIC or
the RTC, the Company believes that it has successfully expanded at a reasonable
cost and without dilution to shareholder value.
Eagle's expansion strategy was reflected in its acquisition of the Bank
of Hartford, which represented a natural extension of Eagle's existing markets
since many residents of Bristol and Torrington commute to the Hartford area. The
Hartford market area is contiguous to Eagle's current market areas, and has a
higher population density and is generally more affluent than the Bristol and
Torrington markets. The Company believes that its expansion into the Hartford
market area creates an additional opportunity for loan originations.
Subsequent to the September 30, 1995 fiscal year end, the Company
announced two events that will reshape its geographical branch office structure
and allow the Company to focus on its core market area. In October 1995 the
Company announced that it has entered into definitive agreements with Fleet
Financial Group ("Fleet") and Shawmut Bank Connecticut ("Shawmut") to purchase
certain loans and assume all deposits related to four current Shawmut branch
offices and one current Fleet branch office in the Hartford market. In December
1995, the Company announced that it had entered into a definitive agreement with
Union Savings Bank of Danbury ("Union") to sell the seven branch banking offices
in the Danbury market area.
The Fleet/Shawmut transaction, which is expected to be completed in
January 1996 subject to all required approvals and closing conditions, will
result in the assumption of approximately $290 million in deposits and the
purchase of approximately $50 million in loans. The loans to be purchased are
predominately secured by commercial real estate with the remainder being home
equity and other consumer loans. Commercial real estate loans represent 80% of
the total loans to be purchased. The consideration to be paid to consummate the
Fleet/Shawmut transaction approximates a deposit premium of 6.75%. The addition
of the five Fleet/Shawmut branch offices will result in the closing of two
current Eagle branch offices that overlap the direct market vicinity of two of
the branch offices to be acquired. The exact timing of these closings has yet to
be finalized .
Union will assume approximately $181 million of deposits, purchase all
branch real property and assume all lease obligations related to the seven
offices. The Company is not selling any assets as part of this transaction
except for deposit secured loans and checking account credit lines related to
the deposits being assumed. Eagle will receive consideration for the deposit
liabilities that will result in a gain of approximately $16 million before
income taxes. The Company expects the Union transaction to be completed shortly
after the completion of the Fleet/Shawmut transaction.
Business. As a holding company, the business operations of Eagle are
conducted through the Bank. The Bank primarily is engaged in the business of
accepting deposits from the general public and using such funds in the
origination of first mortgage loans for the purchase, refinance or construction
of 1-4 family homes. At September 30, 1995, 90.6%, or $654.3 million, of the
Bank's $722.0 million total gross loans receivable was secured by real estate.
The Bank's real estate loans included $603.7 million of first mortgage loans
secured by 1-4 family residential real estate (83.6% of total gross loans
receivable) and $50.5 million of multi-family, construction, commercial real
estate, and land loans (7.0% of total gross loans receivable). The remaining
$67.7 million of loans (9.4% of total gross loans receivable) includes $34.5
million of home equity lines of credit (4.8% of total gross loans receivable)
and $21.8 million of second mortgage loans (3.0% of total gross loans
receivable) with the remainder of the loans being primarily loans secured by
deposits and personal loans. This total also included $592,000 of non-real
estate secured commercial loans.
<PAGE>
Eagle has experienced decreased loan originations, with $155.7 million
of originations in fiscal 1995, compared to $219.9 million in fiscal 1994. The
decline in loan origination activity during fiscal 1995 is due in part to the
significant level of refinancings of mortgage loans in reaction to generally low
market interest rates which helped to increase the level of activity in fiscal
1994. Although residential mortgage lending will continue to be Eagle Federal's
main focus, the Bank is moving forward with its strategy to add diversity to the
loan portfolio by originating commercial real estate and small business loans
within its primary market area. The Bank started this process in 1995 by hiring
several people with experience in commercial loan products and will further
expand in this area in 1996. Eagle also intends to increase the emphasis on its
multi-family and consumer lending programs. The marketing of these loans will
focus on Eagle's existing customer base, customers acquired as part of the
Fleet/Shawmut acquisition and new relationships within Eagle's primary market
areas. See "Lending Activities - General."
Based on its lending strategy, Eagle has been able to maintain
relatively stable asset quality. Total non-performing assets of Eagle were $12.0
million at September 30, 1993, $12.3 million at September 30, 1994 and $13.6
million at September 30, 1995. At those dates, non-performing assets constituted
1.81%, 1.51% and 1.89%, respectively, of total loans receivable and real estate
owned. At September 30, 1995, Eagle's allowance for loan losses totaled $7.5
million, or 67% of total non-performing loans.
Eagle Federal's funding strategy is focused primarily on developing core
deposits such as regular savings and checking accounts, and attracting long-term
certificates of deposit.
Eagle also makes available to its customers various investment products
through Liberty Securities Corporation, a registered broker-dealer not
affiliated with Eagle. These products include mutual funds, unit investment
trusts and fixed- and variable-rate annuity contracts, as well as discount
brokerage services.
Regulation. Eagle, as a unitary thrift holding company, and Eagle
Federal, as its wholly-owned subsidiary, are subject to comprehensive
regulation, supervision and examination by the Office of Thrift Supervision
("OTS"), as the primary federal regulator of the Bank. The FDIC also has
significant regulatory authority over the Bank. The Board of Governors of the
Federal Reserve System ("Federal Reserve") has regulatory authority as to
certain matters concerning the Bank. Eagle Federal is a member of the Federal
Home Loan Bank ("FHLB") System. FHLB advances are a source of funds for the
Bank. See "Regulation."
Lending Activities
General. Eagle traditionally has concentrated its lending activities on
the origination and purchase of loans secured by first mortgage liens for the
purchase, refinancing or construction of residential real property. At September
30, 1995, mortgage loans, including those secured by 1-4 family residential
units, multi-family residential units, commercial real estate and land,
aggregated $654.3 million or 90.6% of Eagle's gross loans receivable portfolio.
At September 30, 1994 and 1993, such mortgage loans aggregated $751.9 million,
or 91.6%, and $614.5 million, or 92.5%, respectively. The remaining loans in
Eagle's portfolio consist of consumer, primarily home equity loans, and
commercial loans. At September 30, 1995, over 96% of Eagle's loans secured by
real estate were secured by property located in Connecticut. Substantially all
of the remaining real estate secured loans, on properties outside of
Connecticut, were originated prior to 1982.
At September 30, 1995, the Company's largest loan relationship
aggregated $6.3 million. That relationship represents five loans, of which $2.7
million are secured by multi-family properties and $3.6 million are secured by
commercial properties. At that date, the next largest lending relationship was
$3.0 million, representing four loans, of which $2.8 million are secured by
multi-family properties. Each other lending relationship aggregated less than
$2.5 million.
At September 30, 1995, 69.9% of Eagle's net loans receivable portfolio
consisted of adjustable-rate mortgage and home equity loans, compared to 57.1%
and 59.0% at September 30, 1994 and 1993, respectively.
In fiscal 1996, Eagle intends to further implement strategies which
will put more emphasis on originating commercial real estate and small business
loans. This will involve hiring additional personnel with proven experience in
commercial real estate loan products. Eagle also intends to put more emphasis on
its multi-family and consumer lending programs. By increasing originations of
commercial real estate, multi-family and consumer loans, Eagle's goal is to
increase the yield on its loan portfolio while offsetting the anticipated
decline in 1-4 family residential loan originations. Eagle also anticipates that
these loan products generally will be more interest-rate sensitive, with rates
typically adjusting monthly, quarterly, or annually.
At September 30, 1995 commercial real estate loans totaled $15.0
million, consisting of 84 loans with an average balance of $185,000 and secured
by a mix of retail and professional office properties. The Bank has progressed
in
<PAGE>
enhancing its commercial lending strategies by hiring individuals with
commercial lending experience. Additional personnel will be added in order to
manage the commercial portfolio being acquired from Fleet/Shawmut and to
continue to grow the Bank's lending base for this type of loan product. At
September 30, 1995, the Company had a total of $592,000 of non-real estate
commercial loans outstanding.
At September 30, 1995, consumer loans totaled $67.1 million and
multi-family loans totaled $16.7 million. Eagle intends to continue emphasizing
home equity lines of credit (51% of consumer loans at September 30, 1995), as
well as automobile and personal loans. The increase in multi-family loans is
expected to develop from an increase in demand for rental units in Eagle's
primary market areas. As to both consumer and multi-family lending, Eagle
intends to utilize its existing credit programs and personnel, although
multi-family lending personnel will be supplemented by the credit analyst
hired for commercial real estate lending.
The following tables set forth the composition of the total loan
portfolio of Eagle, in dollar amounts and in percentages at the dates shown, and
a reconciliation of loans receivable, net.
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------------- --------------- -------------- ----------- --------------
Amount % Amount % Amount % Amount % Amount %
------ -- ------ -- ------ -- ------ -- ------ --
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conventional mortgage loans:
1-4 family units:
Permanent $603,728 83.6% $704,912 85.8% $573,165 86.3% $481,804 83.5% $365,159 85.3%
Construction 12,014 1.7 7,103 0.9 5,739 0.9 13,225 2.3 8,380 1.9
Multi-family units 16,694 2.3 17,513 2.2 18,629 2.8 16,709 2.9 15,453 3.5
Commercial real estate 15,025 2.1 15,862 1.9 11,268 1.6 11,455 2.0 7,260 1.7
Land (a) 6,804 0.9 6,551 0.8 5,735 0.9 4,517 0.8 3,969 0.9
------- --- ------- --- ----- --- ----- --- ----- ---
Total conventional loans 654,265 90.6 751,941 91.6 614,536 92.5 527,710 91.4 400,221 91.5
FHA/VA mortgage loans 1 -- 2 -- 3 -- 5 -- 8 --
------- ---- ------- ---- ------- ---- ------- ---- ------ ----
Total mortgage loans 654,266 90.6 751,943 91.6 614,539 92.5 527,715 91.4 400,229 91.5
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Commercial loans 592 0.1 -- -- -- -- -- -- -- --
------- --- ------- ---- ------- ---- ------- ---- -------- ---
Consumer loans:
Secured by deposits 4,283 0.6 3,322 0.4 3,490 0.5 3,485 0.6 2,878 0.7
Second mortgages 21,751 3.0 21,734 2.6 13,227 2.0 14,297 2.5 14,327 3.3
Home equity lines of credit 34,510 4.8 38,246 4.7 31,039 4.7 29,006 5.0 18,028 4.1
Education 16 -- 140 0.1 250 0.1 555 0.1 486 0.1
Personal 6,208 0.8 4,147 0.5 1,488 0.2 1,693 0.3 1,064 0.2
Automobile 357 -- 128 -- 174 -- 379 0.1 489 0.1
------ --- ------ --- ------ --- ------ --- ------ ---
Total consumer loans 67,125 9.3 69,229 8.4 49,668 7.5 49,415 8.6 37,272 8.5
------ --- ------ --- ------ --- ------ --- ------ ---
Total loans receivable
(before net items) 721,983 100% 821,172 100% 664.207 100.0% 577,130 100.0 437,501 100.0%
------- === ------- === ------- ===== ------- ===== ------- =====
Add (deduct):
Unearned discounts and
premiums 137 183 3 4 5
Loans in process - - (600) (3,518) (2,685)
Allowance for loan losses (7,457) (8,311) (5,005) (4,011) (1,544)
Deferred loan origination
fees (1,118) (2,339) (2,261) (1,481) (770)
-------- -------- ------- -------- --------
Total loans receivable $713,545 $810,705 $656,344 $568,124 $432,507
======== ======== ======== ======== ========
- -----------------------------------
<FN>
(a) Loans for developed building lots, acquisition and development of land and unimproved land.
</FN>
</TABLE>
<PAGE>
The following table sets forth certain information at September 30,
1995 regarding the dollar amount of loans maturing in Eagle's loan portfolio
based on scheduled payments to maturity. Demand loans and loans having no stated
schedule of repayments and no stated maturity are reported as due in one year or
less.
<TABLE>
<CAPTION>
Due Due Due
Within 1 to After
1 Year 5 Years 5 Years Total
------ ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Commercial real estate loans $ 167 $ 313 $ 14,545 $ 15,025
Residential construction loans 12,014 -- -- 12,014
Conventional 1-4 family, multi-family and
land mortgages 1,161 2,969 623,097 627,227
Commercial 37 115 440 592
Consumer loans 912 13,202 53,011 67,125
------ ------ ------- -------
Total $ 14,291 $ 16,599 $ 691,093 $ 721,983
====== ====== ======= =======
</TABLE>
The following table sets forth as of September 30, 1995 the dollar
amount of all loans of Eagle due after one year which have predetermined
interest rates and floating or adjustable interest rates.
<TABLE>
<CAPTION>
Due 1 to 5 Years Due After 5 Years Total
---------------- ----------------- -----
(In thousands)
Floating or Floating or Floating or
Predetermined Adjustable Predetermined Adjustable Predetermined Adjustable
Rates Rates Rates Rates Rates Rates
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial real
estate loans $ 117 $ 196 $ 2,910 $ 11,635 $ 3,027 $ 11,831
Conventional 1-4
family, multi-family
and land mortgages 2,294 675 258,661 364,436 260,955 365,111
Commercial loans 25 90 -- 440 25 530
Consumer loans 5,013 8,189 15,979 37,032 21,992 45,221
----- ----- ------ ------ ------ ------
Total $7,449 $9,150 $277,550 $413,543 $284,999 $422,693
====== ====== ======== ======== ======== ========
</TABLE>
One- to-Four Family First Mortgage Loans. At September 30, 1995, first
mortgage loans (including construction loans) secured by one-to four-family
homes comprised 85.3% of Eagle's portfolio, before net items. Management
believes that the loan prepayment experience of Eagle has approximated a 12-year
average loan life assumption. From time to time Eagle has experienced more rapid
loan prepayments, primarily during periods of, and as a result of, a rapid
decline in mortgage interest rates.
Federally chartered institutions, such as Eagle Federal, have
substantial flexibility in structuring the terms of mortgage loans to adjust to
changes in interest rates. Federal regulations permit mortgage loans to be
written for varying maturities and at adjustable and fixed interest rates. See
"Lending Activities -- Purchase and Sale of Loans and Loan Servicing."
Eagle currently offers a variety of adjustable rate loans including, a
one-year adjustable rate loan with a limit on the maximum change per interest
rate adjustment of 2% and several adjustable loans that have fixed rates for an
initial period, from 3 to 10 years, and adjust annually thereafter with a
maximum interest rate change of 2% per year. In addition, Eagle's adjustable
rate loans have limits on the total interest rate adjustments during the life of
the loan ranging from 4.0% to 6.0% depending upon the initial rate and type of
the loan. Interest rate adjustments currently are based on changes in the rates
on comparable maturity U.S. Treasury securities. There are no prepayment
penalties for any of these adjustable rate loans. Origination fees ranging from
no fees to 2% of the loan amount are charged on such loans.
<PAGE>
Although adjustable rate mortgage loans allow Eagle to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest-sensitivity is limited by the interest-rate "caps" contained in
adjustable-rate loans. The terms of such loans may also increase the likelihood
of delinquencies in periods of high interest rates, particularly if such loans
are originated at discounted interest rates. Under regulations adopted by the
Federal Reserve, although no specific interest rate limit is set, lenders are
required to impose interest-rate caps on all adjustable-rate mortgage loans and
all dwelling-secured consumer loans, including home equity loans, which provide
for interest rate adjustments.
The rates offered on adjustable rate mortgage loans are set at levels
that are intended to be competitive in the market areas served by Eagle and to
produce a yield that provides an acceptable first-year profit margin over the
cost of funds. Eagle from time to time offers mortgage loans at an initial,
discounted interest rate (i.e., a rate which is less than the then-current index
plus margin) until the first loan repricing period, at which time the interest
rate generally is adjusted to equal the index plus margin. Eagle generally
qualifies the borrower at the rate which would be in effect after one year,
assuming the maximum upward adjustment. At September 30, 1993, Eagle did not
have residential mortgage loans with balloon payments or any negative
amortization or equity participation loans in its portfolio.
Most of the fixed rate mortgage loans originated by Eagle include a
"due-on-sale" clause, which is a provision giving Eagle the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid. Due- on-sale clauses are an important means
of increasing the rate on existing fixed rate mortgage loans during periods of
rising interest rates, and Eagle actively enforces such clauses.
Multi-Family Residential and Commercial Mortgage Loans. Eagle also
makes loans secured by mortgages on multi-family residential and commercial
properties. At September 30, 1995, these loans totalled $31.7 million or 4.4% of
the total loan portfolio, before net items. Multi-family residential loans
generally are originated on a one-year, adjustable rate basis. Commercial real
estate loans, secured by properties such as office buildings, are generally
one-year or three-year adjustable rate loans, and the interest rates and fees
are often negotiated with the borrower.
Loans secured by commercial and multi-family residential properties can
involve greater risks than single-family residential mortgage lending. Such
loans generally are substantially larger than single-family residential mortgage
loans, and repayment of the loan generally depends on cash flow generated by the
property. Because the payment experience on loans secured by such property is
often dependent on successful operation or management of the security property,
repayment of the loan may be subject to a greater extent to adverse conditions
in the real estate market or the economy generally than is the case with one- to
four-family residential mortgage loans. The commercial real estate business is
cyclical and subject to downturns, overbuilding and local economic conditions.
Eagle seeks to limit these risks in a variety of ways, including, among others,
limiting the size of its commercial and multi-family real estate loans,
generally requiring a personal guaranty from the borrower, limiting such loans
to a lower maximum loan-to-value ratio and generally lending on the security of
property located within its market areas. At September 30, 1995, multi-family
residential and commercial real estate loans comprised 2.3% and 2.1%,
respectively, of the total loan portfolio, before net items, compared to 2.2%
and 1.9%, respectively, at September 30, 1994.
Construction Loans. Eagle makes construction loans to individuals and,
to a lesser extent, to professional builders who wish to construct one-to-
four family residential properties, either as a primary residence or for
investment or resale. The construction loans made by Eagle are typically
construction/permanent loans that automatically convert to a permanent first
mortgage loan at the end of the construction phase. At September 30, 1995,
construction loans totalled $12.0 million or 1.7% of the total mortgage loan
portfolio of Eagle, before net items, compared to $7.1 million or 0.9% at
September 30, 1994.
Consumer Loans. At September 30, 1995, the consumer loan portfolio of
Eagle included loans secured by deposit accounts, home equity lines of credit,
second mortgages, education, personal and automobile loans and totaled $67.1
million or 9.3% of the total loan portfolio of Eagle before net items. The home
equity loans and home improvement loans are secured by the equity in a
borrower's home.
<PAGE>
Loan Originations. Loan originations come from a number of sources.
Residential loan originations are attributable to walk-in customers, referrals
from real estate brokers and builders', loan originators, as well as independent
mortgage brokers in Connecticut.
Eagle's adjustable rate mortgage loans are secured by property located
primarily in Connecticut and are serviced by Eagle Federal. Multi-family and
commercial real estate loan originations are currently obtained primarily from
direct contacts with Eagle. Eagle seeks to attract consumer loans by direct
advertising and solicitation of its customers. Loan originations (excluding
purchased loans and participations) were $155.7 million for the year ended
September 30, 1995 compared to $219.9 million in fiscal 1994. Loan originations
decreased during 1995 as the high level of refinanced loan activity prompted by
the low interest rate market was not sustained during 1995 as it was during
1994. Approximately 67%, or $43.1 million, of the decline can be attributed to
fixed rate mortgage loan originations. The decline in adjustable rate mortgage
loans originations of $20.8 million was mitigated by the introduction of a new
loan product which has a fixed rate of interest for a ten year period then
adjusts annually. This 10-1 adjustable rate loan accounted for $13.9 million of
fiscal 1995 originations. Construction loan originations have increased
substantially during the last two years reaching $27.1 million for the year
ended September 30, 1995 compared to $19.7 million and $3.1 million for the
years ended September 30, 1994 and 1993, respectively. The increase can be
attributed to more favorable loan terms on construction loans compared to other
financial institutions in addition to strong referral activity from independent
brokers.
Eagle makes single-family conventional first mortgage loans with up to
a 95% loan-to-value ratio. In the case of loans with a higher loan-to-value
ratio than 80%, the policy of Eagle is to require private mortgage insurance for
a specified percentage of the amount of the outstanding principal balance of the
loan. Eagle makes multi-family and commercial real estate loans with up to a 75%
loan-to-value ratio. See "Lending Activities -- Purchase and Sale of Loans and
Loan Servicing."
All property securing real estate loans originated by Eagle is
appraised by one of several professionally qualified appraisers who have been
pre-approved by Eagle. For all real estate loans, Eagle requires the borrower to
obtain fire and extended casualty insurance and, where appropriate, flood
insurance and loss of rents coverage. Eagle also requires either title insurance
or a title opinion from an attorney experienced with title matters.
Eagle issues 30 to 90-day commitments to prospective borrowers to make
loans subject to various conditions. Loan commitments generally are issued for
long-term loans to finance residential properties and for construction and
combined construction/permanent loans secured by multi-family residential and
commercial properties. With respect to adjustable rate, single-family
residential loans, it is the practice of Eagle to make commitments to lend at
the rate of interest and the loan origination fee quoted to the borrower at the
time of application. The proportion of the total amount of commitments derived
from any particular category of loan varies from time to time and depends on
market conditions. At September 30, 1995 and 1994, loan commitments of $49.4
million and $46.0 million, respectively, were outstanding. These amounts include
approximately $23.5 million and $24.9 million, respectively, in unadvanced home
equity credit lines.
Eagle encounters certain environmental risks in its lending activities.
Under federal and state environmental laws, lenders may become liable for the
costs of cleaning up hazardous materials found on security properties. Certain
states may also impose liens with higher priorities than first mortgages on
properties to recover funds used in such efforts. Although the foregoing
environmental risks are more usually associated with industrial and commercial
loans, environmental risks may be substantial for residential lenders, like
Eagle Federal, since environmental contamination may render the security
property unsuitable for residential use. In addition, the value of residential
properties may become substantially diminished by contamination of nearby
properties. In accordance with the guidelines of Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"),
appraisals for single-family homes on which Eagle Federal lends include comment
on environmental influences and conditions. Eagle attempts to control its
exposure to environmental risks with respect to loans secured by larger
properties by training its underwriters to recognize the signs of environmental
problems when they inspect properties; by requiring borrowers to represent and
warrant that properties securing loans do not contain hazardous waste, asbestos
or other such substances; by requiring borrowers to indemnify the lending bank,
with personal recourse, against environmental losses; by obtaining environmental
reviews and tests on all loans secured by nonresidential properties. No
assurance can be given, however, that the value of properties securing loans in
Eagle's portfolio will not be adversely affected by the presence of hazardous
materials or that future changes in federal or state laws will not increase
Eagle's exposure to liability for environmental cleanup.
<PAGE>
Purchase and Sale of Loans and Loan Servicing. Because available funds
may from time to time exceed local loan demand, Eagle purchases mortgage loans
and loan participations secured primarily by one-to four family residential
properties throughout the United States although loan purchases in recent years
have been minimal. The purchase of loans reduces certain administrative costs
related to originating and servicing loans, and the purchase of adjustable rate
loans has increased the interest sensitivity of the loan portfolio of Eagle. In
fiscal 1994, Eagle Federal acquired from The Bank of Hartford, $80.8 million of
loans (substantially all of which were 1-4 family first mortgage and home equity
loans) and an additional $3.5 million allowance for loan losses was recorded in
connection with such loans. Additionally, there were $2.5 million of loans
purchased in fiscal 1994 and no loans purchased in fiscal 1993. Eagle purchased
$130,000 of loans in 1995. At September 30, 1995, $27.9 million, or 3.9% of
total loans receivable, before net items, consisted of purchased loans and loan
participations, compared to 3.6% at September 30, 1994 and 5.3% at September 30,
1993.
There can be significant risks associated with the purchase of loans
secured by properties located outside a savings institution's local lending
territory. The purchaser may be unfamiliar with the local economy in the area
where the security properties are located and is generally dependent on the loan
seller to service the loan and deal with delinquencies and foreclosures. In
order to reduce the risks associated with purchased loans, Eagle employs a
variety of criteria in evaluating the possible purchases of loans. Under such
criteria, Eagle seeks to purchase loans: (i) in diverse geographic areas; (ii)
secured by one-to-four family, owner-occupied residences; and (iii) generally in
accordance with underwriting standards set by FNMA and . Each loan proposed for
purchase is generally reviewed to determine whether the loan complies with
underwriting practices, and a physical inspection of properties is made where
management believes such inspection is warranted. In addition, loans are
generally purchased from many different sellers, including other savings
institutions and mortgage companies.
In recent years, Eagle generally has discontinued its practice of
purchasing real estate development loans and participations. A limited amount of
loans of this type were purchased in 1984, and at September 30, 1994 real estate
owned included no property resulting from these out-of-state real estate
development loan purchases. Of the $24.5 million of purchased loans and loan
participations in Eagle's loan portfolio at September 30, 1995, approximately
$21.5 million or 87.8% were secured by one- to-four family residential
properties. As of September 30, 1995, $24.5 million, or 3.4%, of Eagle's total
loan portfolio was serviced by others.
In addition to servicing its own loans, Eagle services loans owned by
others, which loans had a balance at September 30, 1995 and 1994 of $234.8
million and $95.1 million, respectively. The increase in loans serviced for
others resulted from the securitization of loans during fiscal 1995. Servicing
fees have not historically been a significant source of income for Eagle but
will become an area of focus for increasing revenue in the future.
While Eagle has not sold a significant amount of loans in recent years,
the Company sold $10.0 million of residential, fixed rate mortgage loans to the
FHLMC in fiscal 1994. During fiscal 1995, the Company completed the
securitization of $154.2 million of fixed rate loans into FHLMC mortgage-backed
securities and subsequently sold $95 million of the securities. This
securitization and sale allowed the Company to eliminate a portion of the
long-term interest rate risk inherent in the balance sheet by replacing fixed
rate assets with adjustable rate assets.
<PAGE>
The table below shows Eagle's mortgage loan origination, purchase, sale
and repayment activities for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
1995 1994 1993
(In thousands)
<S> <C> <C> <C>
Mortgage loan originations and purchases:
Loans originated:
Permanent:
1-4 family units $ 84,901 $ 138,779 $152,292
Multi-family units 729 316 4,293
Non-residential 643 -- 2,299
Land 2,502 2,836 1,903
------ ------- -------
Total permanent loans 88,775 141,931 160,787
------ ------- -------
Refinancing * 23,806 42,705 29,189
------ ------- -------
Construction:
1-4 family units 27,086 19,166 3,068
Non-residential -- 500 --
------ ------- -------
Total construction loans 27,086 19,666 3,068
------ ------- -------
Total mortgage loans originated 139,667 204,302 193,044
------- ------- -------
Loans purchased:
Participations 130 2,507 --
Whole loans -- ----- --
Loans purchased through acquisition -- 60,180 --
------ ------- -------
Total loans purchased 130 62,687 --
------ ------- -------
Total mortgage loans originated and purchased 139,797 266,989 193,044
------- ------- -------
Mortgage loans sold, securitized and principal reductions:
Loans sold -- 10,009 --
Loans securitized 154,194 -- --
Principal reductions 83,280 113,240 98,507
------ ------- -------
Total mortgage loans sold, securitized and principal reductions 237,474 123,249 98,507
------ ------- -------
Increase (decrease) in mortgage loans receivable (before net items) $ (97,677) $ 143,740 $ 94,537
====== ======= ======
- -----------------------
<FN>
* Consists of loans originated in connection with the refinancing of existing
loans from Eagle. The corresponding pay-off of the original loan is
included in the table under "principal reductions."
</FN>
</TABLE>
<PAGE>
Consumer Loan Activities. The following table shows consumer loan
originations and principal reductions of Eagle for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loan originations:
Secured by deposits $ 3,599 $ 2,219 $2,655
Home improvement 283 236 113
Home equity 9,824 11,510 12,472
Education -- 6 182
Automobile and personal 2,351 1,631 1,435
------ ------ ------
Total originations 16,057 15,602 16,857
Loans purchased through acquisition -- 20,596 --
------ ------ ------
Total loans originated and purchased 16,057 36,198 16,857
------ ------ ------
Loan principal reductions:
Secured by deposits 2,638 2,387 2,650
Home improvement 201 180 122
Home equity 13,543 11,653 11,500
Education* 124 116 487
Automobile and personal 1,435 2,301 1,845
------ ------ ------
Total principal reductions 17,941 16,637 16,604
------ ------ ------
Increase (decrease) in consumer loans $(1,884) $19,561 $ 253
======= ======= =======
- -----------------------
<FN>
* Includes loans sold of $152,000 in fiscal 1995, $1,087,000 in fiscal 1994
and $698,000 in fiscal 1993.
</FN>
</TABLE>
Fee Income from Lending Activities. Currently, Eagle charges
origination fees ranging from no fee to 2% of the amount of the loan, depending
on the type of loan involved. Higher fees may be charged for construction
financing or for loans secured by properties which are not owner-occupied. Fees
for loan modifications, late payments, changes of property ownership and for
related miscellaneous services are also charged. Income realized from these
activities can vary significantly with the volume and type of loans in the
portfolio and in response to competitive factors.
Loan origination fees and certain direct loan origination costs are
being deferred and the net amount amortized as an adjustment to the related
loan's yield. This amount is generally amortized over the contractual life of
the related loans. At September 30, 1995, Eagle had deferred net loan fees of
$1.1 million.
Usury Limitations. Federal legislation first enacted in 1980 has
preempted all state usury laws concerning residential first mortgage loans
unless the state legislature acted to override the preemption by April 1, 1983.
The Connecticut State Legislature did not act to override the federal
preemption. Connecticut law imposes no ceiling on interest rates on the types of
loans currently originated by Eagle Federal.
Non-performing Assets
All loans generally are placed on a non-accrual basis when a loan is
contractually delinquent for more than three complete calendar months, when full
collection is in doubt or when legal action has been instituted. Management may
elect to continue the accrual of interest when the estimated fair value of
collateral is sufficient to cover the principal balance and accrued interest.
At September 30, 1995, the Company's total non-performing assets,
including non-performing (or non-accrual) loans and real estate owned, was $13.6
million or 1.10% of total assets. This compares to non-performing assets of
$12.3 million, or 1.15% of total assets, at September 30, 1994 and $12.0
million, or 1.51% of total assets, at September 30, 1993. Despite a modest
increase as of September 30, 1995, non-performing assets have remained
relatively stable over the past two years. This is a reflection of the
sluggishness of Connecticut's economy which continues to struggle in recovering
from the prior recessionary cycle.
<PAGE>
The following table sets forth information regarding Eagle's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Residential $ 9,419 $ 6,596 $ 5,407 $ 2,801 $ 4,997
Multi-family and commercial 597 169 196 513 --
Home equity lines of credit 1,094 1,227 871 633 673
and second mortgages
Consumer loans 20 17 18 49 20
Real estate owned 2,439 4,310 5,471 6,403 3,811
------- ------- ------- ------- -------
Total $13,569 $12,319 $11,963 $10,399 $ 9,501
======= ======= ======= ======= =======
Restructured loans $ 2,653 $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Non-performing assets to loans
receivable, net and real estate owned 1.89% 1.51% 1.81% 1.81% 2.18%
Non-performing assets to total assets 1.10% 1.15% 1.51% 1.38% 1.81%
Net charge-offs to average loans
receivable, net (for the period) 0.28% 0.20% 0.11% 0.19% 0.14%
</TABLE>
Non-performing loans increased $3.1 million, or 38%, from September 30,
1994 to September 30, 1995. This increase is primarily attributable to the
overall weakness in the Connecticut economy which continues to affect borrowers'
ability to repay their debt. Of the total $11.1 million of non-performing loans,
$1.3 million of these loans are less than 90 days past due and represent loan
relationships that have had their original loans restructured. However, due to
various factors including the terms of the restructure, the borrowers current or
past financial position or the borrowers performance history, management does
not consider it appropriate to return these loans to accrual status. There were
no such loans included in the non-performing loan totals at September 30, 1994
and 1993.
In consideration of the increase in non-performing loans, management
expects a number of the non-performing loans to become real estate owned. The
overall level of real estate owned will depend on the number of loans which can
be resolved prior to foreclosure and the ability of Eagle to sell properties
which it owns. The Company strives to aggressively market properties and has
been able to decrease the level of real estate owned during the past three
fiscal years.
With respect to mortgage loans, when a borrower fails to make a required
payment by the 15th day after payment is due, Eagle attempts to cause the
deficiency to be cured by corresponding with the borrower. If the deficiency
continues, Eagle corresponds further with the borrower and through telephone
calls and letters, attempts to determine the reason for and cure the
delinquency. If the deficiency cannot be cured, Eagle generally institutes
appropriate legal action through an approved collection attorney. Real estate
acquired through foreclosure or by deed in lieu of foreclosure is placed on the
books at the lower of the carrying value of the loan or the fair market value of
the real estate based upon a current appraisal, less selling costs. Any
reduction below the value previously recorded on the books is charged against
income or against a valuation reserve. Any loss in excess of the reserve is
charged against income. With respect to consumer loans, the borrower receives
correspondence from Eagle after the loan is 10 to 15 days past due. If it
appears, after further communications with the borrower, that the delinquency
cannot be cured, legal action is instituted. These procedures may be accelerated
further in certain cases, such as chronic delinquencies or unsecured loans.
In addition to non-performing loans, the Company has $2.7 million of
loans at September 30, 1995 which were classified as restructured loans.
Restructured loans are the result of loan modifications with borrowers that meet
the following criteria; loan terms, particularly interest rate, that are
consistent with those terms on newly
<PAGE>
originated loans, standard underwriting criteria such as income guidelines and
loan-to-value ratios and consistent, on-time, monthly payments. Based on the
borrowers meeting the above criteria, management considers it appropriate to
continue the accrual of interest on these loans. The majority of these borrowers
have had short-term financial difficulties and do not represent chronically
delinquent or slow-paying customers.
The Company's non-performing assets are predominately residential in
nature with $12.4 million secured by one-to-four family residential properties,
including $1.1 million of non-performing home equity loans, and $1.2 million
secured by multi-family or commercial real estate.
Allowance for Loan Losses
At September 30, 1995, Eagle's allowance for loan losses totaled $7.5 million,
compared to $8.3 million at September 30, 1994, and $5.0 million at September
30, 1993. Eagle added $1.5 million in provisions for loan losses to the
allowance during fiscal 1995 compared to provisions of $1.2 million and $1.7
million during the years ended September 30, 1994 and 1993, respectively.
The following is a summary of activity in the allowance for loan losses
for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $8,311 5,005 $ 4,011 $ 1,544 $ 484
Charge-offs:
1-4 family mortgage loans (1,729) (1,033) (271) (891) (502)
Multi-family, commercial real estate
and land loans (381) (405) (521) (249) (70)
Consumer loans (366) (68) (166) (10) (49)
------ ----- ---- ----- ----
(2,476) (1,506) (958) (1,150) (621)
------ ----- ---- ----- ----
Recoveries:
1-4 family mortgage loans 92 107 224 192 23
Multi-family, commercial real estate
and land loans 29 3 7 17 6
Consumer loans 1 2 13 3 --
------ ------ ---- ----- ----
122 112 244 212 29
------ ------ ---- ----- ----
Net charge-offs (2,354) (1,394) (714) (938) (592)
Allowance acquired through purchase -- 3,500 -- 1,759 --
Provision for loan losses 1,500 1,200 1,708 1,646 1,652
------ ------ ----- ----- -----
Balance at end of period $7,457 8,311 $ 5,005 $ 4,011 $ 1,544
======= ====== ========= ========= =========
Ratio of net charge-offs to average
loans outstanding, net 0.28% 0.20% 0.11% 0.19% 0.14%
</TABLE>
A general reserve has been established for commercial real estate mortgage
loans, residential mortgage and consumer loans. At September 30, 1995, Eagle had
$7.5 million in loan loss reserves established for commercial real estate
mortgage loans, residential mortgage and consumer loans. This reserve is
maintained at a level believed adequate by management to absorb probable losses
in the loan portfolio. Management's determination of the adequacy of the
allowance at a particular time is based on an evaluation of the portfolio, past
loan loss experience, then-current economic conditions, volume, growth and
composition of the loan portfolio, and other relevant factors. The allowance is
increased by provisions for loan losses charged against income.
<PAGE>
Management monitors the adequacy of the allowance for loan losses and
periodically makes additions in the form of provisions for loan losses based
upon an ongoing assessment of the loan portfolio. These provisions are based on
an evaluation of the loan portfolio, past loan loss experience, current market
and economic conditions, volume, growth and composition of the loan portfolio,
and other relevant factors. The provisions are computed quarterly based on a
review of the loan portfolio. The additional $3.5 million and $1.8 million of
allowance for loan losses that were recorded as part of The Bank of Hartford and
Danbury Federal transactions, respectively, were based on management's
evaluation of the loans acquired in these transactions. Such evaluation included
an analysis of the loss on all delinquent loans as well as the risk of the
remaining 1-4 family and consumer loans acquired. The additional allowances were
accounted for as an adjustment to the premium paid by Eagle in The Bank of
Hartford and Danbury Federal transactions.
The following table presents an allocation of Eagle's allowance for
loan losses by loan category and presents the percent of each loan category to
the total loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
1-4 family mortgage loans $5,581 $6,231 $4,234 $3,438 $ 885
85.3% 86.7% 87.2% 85.8% 87.2%
Multi-family, commercial real estate
and land loans 927 803 492 319 399
5.3% 4.9% 5.3% 5.7% 6.1%
Consumer loans 890 1,277 279 254 260
9.3% 8.4% 7.5% 8.6% 8.5%
Commercial Loans 59 -- -- -- --
0.1% -- -- -- --
---- --- --- --- ---
Total allowance for loan losses $7,457 $8,311 $5,005 $4,011 $1,544
===== ===== ===== ===== =====
</TABLE>
The ratio of allowance for loan losses to non-performing loans was 67%,
104% and 77% at September 30, 1995, 1994 and 1993, respectively. This coverage
ratio will vary from time to time based upon the composition of, and
management's analysis of the risk elements in the loan portfolio, as well as the
composition of problem loans. The allowance for loan losses is not based on a
percentage of non-performing loans, but on the total portfolio classified by
risk group plus estimated losses on individual problem loans. A factor that
contributed to the decrease in the ratio of allowance for loan losses to
non-performing loans was the increase in net loan charge-offs during fiscal 1995
versus prior periods. The increased charge-offs related to the loans acquired in
the Bank of Hartford transaction for which reserves had been established upon
acquisition in 1994.
The following table sets forth the amount of accruing loans delinquent
60-89 days, the amount of non-accrual loans, the balance of the Company's
allowance for loan losses and the coverage ratio of the allowance to the total
of such loans at the dates indicated. See "-Non-performing Assets" above for
definition of non-accrual loans.
At September 30,
1995 1994 1993
---- ---- ----
(In thousands)
Accruing loans delinquent 60-89 days $ 1,211 $ 1,480 $ 2,412
Non-accrual loans 11,130 8,009 6,492
------ ----- -----
Total $ 12,341 $ 9,489 $ 8,904
====== ===== =====
Allowance for loan losses $ 7,457 $ 8,311 $ 5,005
Coverage ratio 60.4% 87.6% 56.2%
Various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for losses on loans and real
estate owned. Such agencies may require the Bank to recognize additions to the
allowances based on their judgments of information available to them at the time
of their examination. The OTS
<PAGE>
completed a regularly scheduled examination of the Bank during 1995 and no
changes to the allowance for loan losses were required at that time.
Investment Activities
Federally chartered savings institutions have authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of federal agencies, certificates of deposit of federally insured
banks and savings institutions, bankers' acceptances and federal funds. Subject
to various restrictions, federally chartered savings institutions may also
invest a portion of their assets in commercial paper, corporate debt securities,
and mutual funds whose assets conform to the investments that a federally
chartered savings institution is otherwise authorized to make directly. Federal
laws and regulations also require savings institutions to maintain liquid assets
at minimum levels which vary from time to time. See "Regulation -- Savings
Institution Regulation -- Liquidity."
Eagle, as a Delaware corporation, has authority to invest in any type
of investment permitted under Delaware law. As a savings and loan holding
company, however, Eagle's investments are subject to certain regulatory
restrictions described under "Regulation -- Savings and Loan Holding Company
Regulation." Eagle Federal maintains an investment portfolio that provides not
only a source of income but also a source of liquidity to meet lending demands
and fluctuations in deposit flows. The relative mix of investment securities and
loans in these investment portfolios is dependent upon management's judgment
from time to time as to the attractiveness of yields available on loans as
compared to investment securities. Neither Eagle, nor Eagle Federal invest in
below-investment grade corporate bonds and notes.
The Company's total holdings of mortgage-backed and investment
securities increased to $412.1 million at September 30, 1995 from $182.9 million
at September 30, 1994. The increase is due to the purchase of $125.3 million of
mortgage-backed securities and collateralized mortgage obligations funded by
FHLB advances and reverse repurchase agreements pursuant to the implementation
of a growth strategy in addition to the securitization of approximately $154.2
million of fixed-rate loans into mortgage-backed securities. Of the total
securitized, $95 million were sold in fiscal 1995 and reinvested in adjustable
rate securities. The remainder of the securities are held in portfolio at
September 30, 1995, and classified as available for sale.
The Company's security portfolio at September 30, 1995 was comprised
primarily of mortgage-backed securities and collateralized mortgage obligations.
Mortgage-backed securities are investments secured by pools of fixed rate or
adjustable rate mortgage loans. Mortgage-backed securities represent $302.5
million, or 73.4%, of the total security portfolio with $182.8 million secured
by pools of adjustable rate mortgage loans and $119.7 million secured by pools
of fixed rate loans. The fixed rate amount decreased by $58.8 million in October
1995 due to the sale of the remaining securities created from the securitization
of a portion of the Bank's fixed rate mortgage loan portfolio. The payments of
interest and principal on such loans are passed through to the securities
holders after deducting a servicing fee. The collateralized mortgage obligation
portion of the investment portfolio, 12.9% of the total, contains no derivative
investment securities such as interest only tranches, principal only tranches or
strips. The mortgage-backed securities and collateralized mortgage obligations
held by Eagle are subject to interest rate and prepayment risks customarily
associated with such securities. The weighted average life of mortgage-backed
securities and collateralized mortgage obligations will differ from contractual
maturities of the underlying mortgages, depending upon the rate of prepayments.
Borrowers on the underlying mortgages may have the right to prepay their loans
with or without prepayment penalties. In a declining interest rate environment,
more borrowers than would otherwise be anticipated may prepay their loans in
order to refinance the loans at lower rates. As a result, the actual yield on
mortgage-backed securities may be less than the expected yields based upon
prepayment experience.
At September 30, 1995, the following details investments in any issuer
where the aggregate book value exceeded 10% of Eagle's shareholders' equity.
Aggregate Aggregate
Book Value Market Value
----------- ------------
(In thousands)
FHLMC $229,227 $232,066
FNMA 90,878 90,836
-------- --------
$320,105 $322,902
======== ========
<PAGE>
The following table sets forth the composition of Eagle's
mortgage-backed and investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1995 1994 1993
Carrying % of Carrying % of Carrying % of
Value Portfolio Value Portfolio Value Portfolio
----- --------- ----- --------- ----- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment Securities
U.S. Treasury securities $ 6,325 1.5% $ 12,834 7.0% $ 4,098 4.6%
U.S. government agencies
and corporations 22,001 5.4 14,018 7.7 8,993 10.2
Collateralized mortgage
obligations 53,323 12.9 47,357 25.9 23,223 26.3
Other bonds and notes 13,001 3.2 23,040 12.6 10,566 11.9
Mutual fund and marketable
equity securities, 14,965 3.6 16,936 9.3 15,599 17.7
Mortgage-backed securities: 302,462 73.4 68,70 37.5 25,953 29.3
------- ------ ---- ------ ----
Total carrying value of
portfolio $ 412,077 100% $182,891 100% $88,432 100.0%
======= ==== ======= === ====== =====
Total market value of
portfolio $ 413,282 $179,388 $90,303
======= ======= ======
</TABLE>
The following table sets forth the contractual maturities of Eagle's
mortgage-backed and investment securities at September 30, 1995 and the weighted
average yields of such securities. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Mortgage-backed
securities and collateralized mortgage obligations are presented in accordance
with date of final maturity without consideration of schedule amortization or
anticipated prepayments.
<TABLE>
<CAPTION>
Within One Year Within Five Years Within 10 Years After 10 Years Total
--------------- --------------- --------------- -------------- -----
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $5,008 6.20% $1,317 6.20% $ -- -- % $ -- -- % $ 6,325 6.20%
U.S. government agencies
and corporations 6,016 6.35 5,988 6.40 9,997 7.12 -- -- 22,001 6.71
Collateralized mortgage
obligations -- -- 2.883 6.02 -- -- 50,440 6.71 53,323 6.67
Other bonds and notes 627 8.37 6,022 5.99 891 7.89 5,461 5.44 13,001 6.00
Mutual fund and marketable
equity securities -- -- -- -- -- -- -- -- -- --
Mortgage-backed securities -- -- 6,735 6.44 10,673 7.63 285,054 7.46 302,462 7.45
------ ---- ------ ---- ------ ---- ------- ---- ------- ----
Total $11,651 6.39% $22,945 6.25% $21,561 7.40% $340,955 7.32% $397,112 7.23%
====== ==== ====== ==== ====== ==== ======= ==== ======= ====
</TABLE>
<PAGE>
Sources of Funds
General. Deposits are the primary source of funds for use in the lending and
investment activities of Eagle. In addition, funds are derived from loan
payments (including interest, scheduled amortization of principal and
prepayments), earnings on investments, amortization of investments and
mortgage-backed securities, maturing investments and FHL Bank advances.
Historically, Eagle has not relied on sales of loans and investment securities
as sources of funds. Loan repayments are a relatively stable source of funds,
while deposit inflows and outflows are significantly influenced by prevailing
interest rates on alternative products and general economic conditions.
Borrowings may be used on a short-term basis to compensate for reductions in
normal sources of funds or on a longer term basis to support expanded lending or
investing activities.
Deposits increased slightly to $951.2 million at September 30, 1995 from
$948.8 million at September 30, 1994, an increase of $2.4 million or .25%. Total
borrowings increased by $115.9 million to $155.5 million at September 30, 1995.
This increase reflects the use of this source of funds to match the purchase of
adjustable rate investment and mortgage-backed securities during fiscal 1995.
Deposit Activities. Eagle has developed a variety of deposit products ranging
in maturity from demand-type accounts to certificates with maturities of up to
five years. Deposits are primarily derived from the areas in which the offices
of Eagle Federal's are located. Eagle does not actively solicit deposits outside
the State of Connecticut or use brokers to obtain deposits. Eagle does
occasionally use premiums and promotions to attract deposits.
The deregulation of various federal controls on insured deposits has allowed
Eagle to be more competitive in the acquisition and retention of funds, but has
also resulted in a more volatile cost of funds. Federal regulations no longer
require Eagle to impose interest penalties for early withdrawal of deposits.
However, to assist in maintaining the maturity and cost structure of their
deposits, Eagle continues to impose such penalties. The deposit accounts offered
by Eagle are reviewed on a systematic basis in order to determine whether such
accounts continue to meet asset liability management goals. Eagle attempts to
control the flow of funds in its deposit accounts according to the need for
funds and the cost of alternative sources of funds. The flow of funds is
controlled primarily by the pricing of deposits, which is influenced to a large
extent by competitive factors in the market area. Interest rates paid by Eagle
generally are competitive with the rates offered by other institutions in its
primary market areas. The net deposit outflow, before interest credited, that
occurred in fiscal 1995 is attributed to run-off of deposits assumed from the
Bank of Hartford and is consistent with that experienced from previous
acquisitions. Eagle has maintained a strong liquidity position and has generally
maintained its deposit base, but has not actively competed for deposits when
funds were available from other sources or when its existing funds were
sufficient to meet its liquidity needs.
<PAGE>
The following table describes the deposit accounts offered by Eagle at
September 30, 1995.
Minimum Interest
Type or Minimum Term Deposit Rate
-------------------- ------- -----
Passbook $ 10 2.00%
NOW 500 .50
Money market accounts 1,000 2.50
Market-rate certificates:
91 day 500 3.44
Six months 500 4.90
One year 500 5.37
Two years 500 5.65
Three years 500 5.75
Five years 500 5.98
IRA certificates:
1-1/2 year (variable rate) 50 4.90
1-1/2 year (fixed rate) 500 5.46
Five years (fixed rate) 500 5.75
Eagle prices its deposits to take advantage of opportunities for
profitable investment of the funds through regular lending activities, and to a
lesser amount to encourage deposits in longer term accounts. Interest rates are
primarily based on prevailing market conditions, the need for funds and ability
to pay.
The following table sets forth the deposit flows for Eagle during the
periods indicated.
Year Ended September 30,
1995 1994 1993
(In thousands)
Deposits acquired through acquisitions $ -- $ 272,752 8,198
Deposits 1,893,451 1,455,747 1,416,543
Withdrawals 1,932,822 1,513,532 1,424,188
Net cash inflow (outflow) (39,371) 214,967 553
Interest credited 36,449 27,648 27,960
Net increase in deposits $ 2,922 $ 242,615 $ 28,513
The following table provides detail regarding the Bank's deposit
accounts for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
1995 1994 1993
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand accounts $ 99,266 .72 $ 79,635 .98 $ 61,910 1.70
Passbook accounts 151,170 1.98 134,731 2.20 111,238 2.90
Money market accounts 129,260 2.67 144,478 2.72 139,318 3.11
Certificate accounts 566,675 5.19 433,989 4.60 387,537 4.99
</TABLE>
<PAGE>
The following table sets forth the deposit accounts of Eagle in dollar
amounts and as percentages of total deposits at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1995 1994 1993
Weighted % of Weighed % of Weighted % of
average total average total average total
rate Amount deposits rate Amount deposits rate Amount deposits
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Balance by account type:
Non-interest bearing 0.00% $ 27,913 2.9% 0.00% $ 22,101 2.3% 0.00% $ 12,999 1.8%
Passbook accounts 1.99 143,271 15.1 1.99 162,344 17.1 2.50 117,847 16.7
NOW accounts 1.04 80,625 8.5 1.05 76,111 8.0 1.25 52,768 7.5
Money market accounts 2.71 104,428 11.0 2.67 151,290 16.0 2.90 135,413 19.2
------- ---- ------- ---- ------- ----
356,237 37.5 411,846 43.4 319,027 45.2
------- ---- ------- ---- ------- ----
Certificate accounts with
original maturities of:
Six months or less 4.64 57,383 6.0 3.27 107,722 11.4 3.50 82,890 11.7
Over six months to
one year 5.69 178,098 18.7 3.77 110,928 11.7 3.62 79,396 11.2
Over one year to
two years 5.57 145,895 15.3 4.37 113,970 12.0 4.75 78,086 11.1
Over two years 6.09 214,138 22.5 5.85 204,363 21.5 6.22 146,815 20.8
------- ---- ------- ---- ------- ----
595,514 62.5 536,983 56.6 387,187 54.8
------- ---- ------- ---- ------- ----
$ 951,751 100.0% $ 948,829 100.0% $ 706,214 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
The following table presents, by various interest rate categories, the
amounts of certificate accounts at Eagle as of the dates indicated.
At September 30,
---------------
1995 1994
---- ----
In thousands)
Less than 4.01% $ 11,484 $228,638
4.01 - 6.00% 369,885 253,076
6.01-10.00% 214,145 55,629
------- -------
$595,514 $536,983
======= =======
The following table sets forth the amount and remaining maturities by
interest rate of certificate accounts at September 30, 1995.
One to After
Less Than Three Three
One Year Years Years Total
-------- ----- ----- -----
(In thousands)
Less than 4.01% $ 11,467 $ 17 $ -- $ 11,484
4.01- 6.00% 260,796 79,115 29,974 369,885
6.01-10.00% 103,760 71,625 38,760 214,145
------- ------ ----- -------
Total $376,023 $150,757 $ 68,734 $595,514
======== ======= ======== ========
<PAGE>
Certain information regarding the deposit accounts at Eagle in amounts
of $100,000 or more at September 30, 1995 is shown in the table below.
<TABLE>
<CAPTION>
Total Over Over
Deposits Three Months Six Months
of $100,000 Three Months through through Over % of Total
or more or less Six Months One Year One Year Deposits
------- ------- ---------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
$56,145 $11,766 $17,026 $10,146 $17,207 5.89%
</TABLE>
Borrowings. The FHL Bank System functions in a reserve credit capacity
for savings institutions and certain other home financing institutions. Members
of the FHL Bank System are required to own capital stock in the FHL Bank.
Members are authorized to apply for advances on the security of such stock and
certain of their home mortgages and other assets (principally securities which
are obligations of, or guaranteed by, the United States) provided certain
creditworthiness standards have been met. See "Regulation -- Federal Home Loan
Bank System." Under its current credit policies, the FHL Bank limits advances
based on the value of a member's qualified collateral that has not been pledged
to outside sources. Historically, Eagle Federal has not relied on FHL Bank
advances and other borrowings to any significant extent as a source of funds. At
September 30, 1995, Eagle Federal had authority to borrow up to $655.2 million
from the FHL Bank of Boston, and will continue to use this source of funds to
take advantage of lending and investment opportunities. Outstanding FHL Bank
advances at September 30, 1995 totaled $73.2 million compared to $31.8 million
at September 30, 1994 and $15.5 million at September 30, 1993. The weighted
average interest rate on FHL Bank advances outstanding at September 30, 1995,
1994 and 1993 was 5.96%, 5.44% and 5.91% respectively.
On a consolidated basis, Eagle had other borrowed money in the amount
of $82.3 million at September 30, 1995 compared to $7.8 million at September 30,
1994. Reverse repurchase agreements constitute $82.2 million and $7.4 million of
the other borrowed money total at September 30, 1995 and 1994, respectively. The
weighted average interest rate on other borrowed money at September 30, 1995,
and 1994 was 5.89% and 5.20%, respectively. In April 1987, Eagle's ESOP borrowed
$1.2 million to fund the purchase of 100,000 shares of newly issued Eagle stock.
The term note matures in 1997 with interest due quarterly at 82.5% of the
lender's floating prime rate. In 1991, the ESOP borrowed an additional $759,000
to purchase shares of the Company's outstanding common stock under a term note
maturing in 1997 with interest due quarterly at the lender's floating prime rate
plus .25%. Eagle, and Eagle Federal have the discretion to make contributions to
the ESOP each year. Eagle Federal intends to make annual contributions to the
ESOP equal to the debt service of the borrowings by the ESOP. Eagle has
guaranteed the payment of the loans and secured that guarantee with certain
marketable securities.
The following tables provide detail regarding the Bank's short-term
borrowings for the periods or dates indicated:
At September 30,
1995 1994 1993
(In thousands)
Federal Home Loan Bank Advances:
Amount outstanding $53,650 $11,275 $ 3,000
Weighted average interest rate 5.83% 5.26% 7.58%
Reverse Repurchase Agreements:
Amount outstanding $82,223 $ 7,350 --
Weighted average interest rate 5.89% 5.09% --
Year Ended September 30,
1995 1994 1993
(In thousands)
Federal Home Loan Bank Advances:
Average amount outstanding $35,343 $ 3,900 $ 8,500
Weighted average interest rate 5.83% 5.26% 7.58%
Maximum amount outstanding
at any month-end $63,665 $10,650 $ 4,000
Reverse Repurchase Agreements:
Average Amount outstanding $44,481 $2,456 --
Weighted average interest rate 5.89% 5.02% --
Maximum amount outstanding
at any month-end $84,202 $13,300 --
<PAGE>
Interest Rate Risk Measurement
A method used to measure the interest rate risk exposure of the
Company's balance sheet is the interest rate sensitivity "gap", which is the
difference between rate sensitive assets and rate sensitive liabilities
repricing or maturing within specific time periods. A gap is considered positive
when the amount of interest rate sensitive assets exceeds the amount of interest
rate sensitive liabilities, and is considered negative when the amount of
interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets.
The following table shows the estimated maturity/repricing structure of
the interest-earning assets and interest-bearing liabilities of Eagle at
September 30, 1995:
<PAGE>
<TABLE>
<CAPTION>
Repricing Repricing Repricing Repricing
Percent Within Within Within Over
Amount of Total 0-3 Mos. 4-12 Mos. 1-3 Yrs. 3 Years
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans receivable, net (a) $ 710,990 61% $ 87,857 315,847 128,237 179,049
Mortgage-backed securities (b) 302,462 26% 17,477 170,495 8,386 106,104
Investment securities (c) 118,560 10% 23,130 19,479 8,890 67,061
Interest-bearing deposits 40,637 3% 40,637 -- -- --
--------- ---- ------ ------- ------- ------
Total interest-earnings assets 1,172,649 100% 169,101 505,821 145,513 352,214
========= === ------- ------- ------- -------
Interest-earning liabilities
Passbook accounts $ 143,271 13% 7,432 17,563 40,173 78,103
Certificate accounts 595,514 54% 91,672 284,351 150,757 68,734
Other deposits 212,966 19% 14,152 26,763 48,122 123,929
FHLB advances 73,150 7% 25,950 27,700 14,000 5,500
Other borrowings 82,317 7% 58,819 23,498 -- --
--------- ---- ------ -------- ------- -------
Total interest-earning liabilities 1,107,218 100% 198,025 379,875 253,052 276,266
========= === ------- ------- ------- -------
Periodic repricing difference
(periodic gap) (28,924) 125,946 (107,539) 75,948
======= ======== ======= =======
Cumulative repricing difference
(cumulative gap) (28,924) 97,022 (10,517) 65,431
======= ======== ======= =======
Cumulative gap to total assets (2.34%) 7.84% (0.85%) 5.29%
<FN>
(a) Loans are net of non-performing loans, undisbursed portion of loans due
borrowers and unearned discounts and premiums.
(b) Mortgage-backed securities include mortgage-backed securities held to
maturity and mortgage-backed securities available for sale.
(c) Investment securities include investment securities held to maturity,
investment securities available for sale and FHL Bank stock.
</FN>
</TABLE>
The following assumptions were determined by management in order to
prepare the gap table set forth above. Non-amortizing investment securities are
shown in the period in which they contractually mature. Prepayment rates on
loans, amortizing investment securities and mortgage-backed securities are based
upon a combination of market consensus and formulas derived by the OTS.
Estimated decay rates on all deposit accounts are based primarily the the
formula derived by the OTS.
The interest rate sensitivity of the Company's assets and liabilities
could vary substantially if different assumptions were used or if actual
experience differs from the assumptions used. For example, if all passbook
deposits were assumed to reprice in one year or less, the Company's one-year
cumulative gap to total assets would be negative 1.72%.
Service Corporation Activities
Federal regulations permit a federally chartered savings institution to
invest an amount up to 2% of its assets in the stock, paid-in surplus, and
unsecured obligations of subsidiary service corporations engaged in certain
activities, and an additional 1% of its assets when the additional funds are
used primarily for community or inner-city development or investment. In
addition, federal regulations generally authorize such institutions which meet
minimum regulatory capital requirements to invest up to 50% of regulatory
capital in conforming first mortgage loans to service corporations. At September
30, 1995, Eagle Federal's direct investment (capital stock) in its service
corporation, Eagle Service Corp., was $ 1,000. Eagle Service Corp. administers
the securities brokerage and investment services made available to Eagle
Federal's customers.
<PAGE>
Employees
At September 30, 1995, Eagle had 365 employees (including 86 part-time
employees), all of whom are employed by Eagle Federal. None of these employees
are represented by a collective bargaining group. Employee benefits for
full-time employees include reimbursement of approved, business-related
educational expenses, a pension plan and life, health and disability insurance.
Management considers that Eagle's relations with its employees are good.
MARKET AREA AND COMPETITION
Eagle Federal is headquartered in Bristol, Connecticut and conducts
business from four offices in Bristol, two offices in Hartford, and one office
each in Avon, Bloomfield, Canton, Rocky Hill and West Hartford (all of which are
in Hartford County), three offices in Danbury, two offices in Torrington, one
office each in Litchfield, Terryville and Winsted (all of which are in
Litchfield County), and one office each in Brookfield, New Fairfield, Ridgefield
and Newtown, (all of which are in Fairfield County).
On October 1, 1995, Eagle Federal executed definitive purchase and
assumption agreements with Shawmut and Fleet to acquire five branch banking
offices in Bloomfield, Hartford, Manchester, Simsbury and West Hartford. The OTS
approved these branch acquisitions on December 22, 1995, and Eagle Federal
anticipates consummating the acquisitions in January 1996. On December 18, 1995,
Eagle Federal entered into a definitive agreement with Union to sell the
deposits and certain deposit related loans for seven branch offices located in
Brookfield, Danbury (3), New Fairfield, Newtown and Ridgefield, Connecticut (the
"Danbury Transaction"). Eagle Federal anticipates consummating the branch sale
after the Shawmut/Fleet acquisitions early in the first quarter of 1996.
Bristol, located in central Connecticut 18 miles west of Hartford, is a
city of approximately 60,000 people with a broad-based economy. Over 100
manufacturing firms of all sizes operate in or near Bristol. The city of
Torrington is located 27 miles west of Hartford at the northern end of the Route
8 corridor which runs from the northwest corner of Connecticut to the New Haven
and Bridgeport metropolitan areas. Torrington has an estimated population of
30,000 and is the largest city in Litchfield County. Torrington benefits from
its close proximity to the Hartford metropolitan area. Danbury is located in the
far western portion of Fairfield County. Danbury has a population of
approximately 60,000 and has a broad-based economy. Hartford, the capital of
Connecticut, has a population of approximately 140,000 and is the governmental
and economic center of Central Connecticut.
Eagle Federal faces substantial competition for deposits and loans
throughout its market area. The primary factors stressed by Eagle Federal in
competing for deposits are interest rates, personalized services, the quality
and range of financial services, convenience of office locations and office
hours. Competition for deposits comes primarily from other savings institutions,
commercial banks, credit unions, money market funds and other investment
alternatives. The primary factors in competing for loans are interest rates,
loan origination fees, the quality and range of lending services and
personalized service. Competition for origination of first mortgage loans comes
primarily from other savings institutions, mortgage banking firms, commercial
banks and insurance companies.
Connecticut law now permits Connecticut bank holding companies to
engage in stock acquisitions of depository institutions in other New England
states that maintain reciprocal legislation. All New England states currently
have some form of reciprocal legislation. As a result, bank holding companies
from any state in New England can establish non-bank offices (including loan
production offices) in Connecticut on a limited basis. The impact may be to
significantly increase the competition faced by Eagle. The Connecticut
legislature also has enacted legislation which reduces the home office
protection enjoyed by Connecticut-chartered savings institutions and commercial
banks. This and other legislative and regulatory changes may increase the size
of the banking institutions competing in the general market area of Eagle.
<PAGE>
Effective September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("IBBEA"), amended the Bank Holding Company Act
of 1956 (the "BHCA") to permit a bank holding company to acquire a bank located
in any state, provided that the acquisition does not result in the bank holding
company controlling more than 10% of the deposits in the United States, or 30%
of deposits in the state in which the bank to be acquired is located (unless the
state waives the 30% deposit limitation). Individual states are permitted to
restrict the ability of an out-of-state bank holding company or bank to acquire
an in-state bank that has been in existence for less than five years and to
establish a state concentration limit of less than 30% if such reduced limit
does not discriminate against out-of-state bank holding companies or banks.
Effective June 1, 1997, an "adequately capitalized" bank, with the
approval of the appropriate federal banking agency, may merge with another
adequately capitalized bank in any state that has not opted out of interstate
branching and operate the target's offices as branches if certain conditions are
satisfied. The same national (10%) and state (30%) deposit concentration limits
and any applicable state minimum-existence restrictions (up to a maximum of 5
years) apply to interstate mergers as to interstate acquisitions. The applicant
also must comply with any nondiscriminatory host state filing and notice
requirements and demonstrate a record of compliance with applicable federal and
state community reinvestment laws. A state may opt out of interstate branching
by enacting a law between September 29, 1994 and June 1, 1997 expressly
prohibiting interstate merger transactions.
The resulting bank to an interstate merger may establish or acquire
additional branches at any location in a state where any of the banks involved
in the merger could have established or acquired a branch. A bank also may
acquire one or more branches of an out-of-state bank without acquiring the
target out-of-state bank if the law of the target's home state permits such a
transaction. In addition, a bank may establish a de novo branch in another state
if the host state by statute expressly permits de novo interstate branching.
Furthermore, a bank subsidiary of a bank holding company to act as
agent for other depository institutions owned by the same holding company for
purposes of receiving deposits, renewing time deposits, closing or servicing
loans, and receiving loan payments effective as of September 29, 1995. A savings
association may perform similar agency services for affiliated banks to the
extent that the savings association was affiliated with a bank on July 1, 1994
and satisfies certain additional requirements.
OTS also has adopted a statement of policy on branching by federally
chartered savings institutions providing that the OTS will generally permit such
institutions to branch or merge across state lines to the same extent permitted
under state law to a state-chartered institution provided that the federal
association continues to meet the domestic building and loan test as set forth
in the Internal Revenue Code. See "Regulation -- Savings and Loan Holding
Company Regulation."
The foregoing provisions are expected to further increase competition
within Eagle's existing market area.
REGULATION
General
As discussed in detail in previous filings, the Company, as a savings
institution holding company, and the Bank, as a federally chartered savings
bank, are subject to extensive regulation, supervision and examination by the
OTS as their primary federal regulator. The Bank is also subject to regulation,
supervision and examination by the FDIC and as to certain matters by the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board").
In recent years there have been a significant number of changes in the
manner in which insured depository institutions and their holding companies are
regulated. Such changes have imposed additional regulatory restrictions
<PAGE>
on the operations of insured depository institutions and their holding
companies. In particular, regulatory capital requirements for insured depository
institutions have increased significantly. For example, the Federal Deposit
Insurance Corporation Improvement Act of 1991 amended the Federal Deposit
Insurance Act ("FDIA") to require that the bank regulatory agencies impose
certain sanctions on insured depository institutions which fail to meet minimum
capital requirements.
Savings and Loan Holding Company Regulation
Under the Home Owners Loan Act (the "HOLA"), the Director of the OTS
has regulatory jurisdiction over savings and loan holding companies. Eagle, as a
savings and loan holding company within the meaning of the HOLA, is subject to
regulation, supervision and examination by, and the reporting requirements of,
the Director of the OTS.
As a unitary holding company, the Company generally is not restricted
under existing laws as to the types of business activities in which it may
engage, provided that Eagle Federal continues to qualify as qualified thrift
lender ("QTL"). Eagle could be prohibited from engaging in any activity
(including those otherwise permitted under the HOLA) not allowed for bank
holding companies if Eagle Federal fails to constitute a QTL or if Eagle
subsequently becomes a multiple savings and loan holding company. See
"Regulation -- Savings Institution Regulation -- Qualified Thrift Lender
Requirement."
<PAGE>
Savings Institution Regulation
General. As a federally chartered savings institution, Eagle Federal is
subject to supervision and regulation by the Director of the OTS and by the FDIC
in its capacity as administrator of the SAIF. Under OTS regulations, Eagle
Federal is required to obtain audits by an independent accountant and to be
examined periodically by the Director of the OTS. Examinations must be conducted
no less frequently than every 12 months. Eagle Federal is subject to assessments
by the OTS and FDIC to cover the costs of such examinations. The OTS may revalue
assets of Eagle Federal, based upon appraisals, and require the establishment of
specific reserves in amounts equal to the difference between such revaluation
and the book value of the assets. The Director of the OTS also is authorized to
promulgate regulations to ensure the safe and sound operations of savings
institutions and may impose various requirements and restrictions on the
activities of savings institutions. See "Regulation -- Savings Institution
Regulation -- Safety and Soundness Guidelines." See "Regulation -- Savings
Institution Regulation -- Insurance of Deposits."
Capital Requirements. Eagle Federal is subject to the capital adequacy
regulations adopted by the OTS. Eagle Federal's ability to pay dividends to the
Company and expand its business can be restricted if its capital falls below
levels established by the OTS. Pursuant to OTS regulations, savings associations
are required to maintain (i) "leverage capital" in an amount not less than 3% of
total assets, (ii) "tangible capital" in an amount not less than 1.5% of total
assets, and (iii) risk-based capital equal to 8.00% of the risk-weighted assets.
The capital standards established by the OTS for savings institutions must
generally be no less stringent than those applicable to national banks of 4.0%.
<PAGE>
The following table sets forth the actual and required minimum levels
of regulatory capital for Eagle Federal under applicable OTS regulations as of
September 30, 1995.
<TABLE>
<CAPTION>
ACTUAL PERCENT REQUIRED PERCENT EXCESS
------ ------- -------- ------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Leverage $ 80,751 6.59% $ 36,787 3.0% $ 43,694
Tangible 80,751 6.59% 18,385 1.5% 62,366
Risk-based 86,196 15.31% 44,743 8.0% 41,453
</TABLE>
The following is a reconciliation of Eagle Federal's equity capital
under GAAP to regulatory capital at September 30, 1995.
<TABLE>
<CAPTION>
Leverage Tangible Risk-based
-------- -------- ----------
<S> <C> <C> <C>
GAAP capital $90,824 90,824 90,824
Less: Goodwill and other intangible assets (9,535) (9,535) (9,535)
Less: Unrealized gain in certain available for sale securities (466) (466) (466)
Less: Excess qualifying purchased mortgage loan servicing (72) (72) (72)
Add: General loan and lease valuation allowances -- -- 5,445
------ ------ ------
Regulatory capital $80,751 $80,751 $86,196
====== ====== ======
</TABLE>
Prompt Corrective Action. The federal banking agencies have established
by regulation, for each capital measure, the levels at which an insured
institution is well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized, and to take
prompt corrective action with respect to insured institutions which fall below
minimum capital standards. The degree of regulatory intervention mandated by
FDICIA is tied to an insured institution's capital category, with
<PAGE>
increasing scrutiny and more stringent restrictions being imposed as an
institution's capital declines. Any insured depository institution which falls
below the minimum capital standards must submit a capital restoration plan. Any
company that controls an undercapitalized institution, in connection with the
submission of a capital restoration plan by the savings institution, to
guarantee that the institution will comply with the plan and to provide
appropriate assurances of performance. As of September 30, 1995, Eagle Federal
was deemed to be well-capitalized. See "Regulation -- Savings Institution
Regulation -- Insurance of Deposits."
Safety and Soundness Guidelines. The OTS, along with the other federal
banking agencies, adopted safety and soundness guidelines in July 1995 relating
to (i) internal controls, information systems, and internal audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v)
asset growth; and (vi) compensation and benefit standards for officers,
directors, employees and principal shareholders. The HOLA requires that all
regulations and policies of the Director of the OTS for the safe and sound
operations of savings institutions to be no less stringent than those
established by the OCC for national banks. The foregoing operational, managerial
and compensation issues are set out in the safety and soundness guidelines that
the federal banking agencies issued to identify and address problems at
institutions before capital becomes impaired.
<PAGE>
Qualified Thrift Lender Requirement. Eagle Federal must maintain its
status as a "qualified thrift lender" ("QTL") in order to exercise the powers
granted to federally chartered savings institutions and to maintain full access
to FHL Bank advances. Eagle Federal will remain a QTL if its qualified thrift
investments continue to equal or exceed 65% of the savings association's
portfolio assets on a monthly average basis in 9 out of every 12 months, as
defined by HOLA and the rules and regulations of the OTS. At September 30, 1995,
qualified thrift investments as a percentage of portfolio assets for Eagle
Federal was 82.44%. The qualified thrift investments of Eagle Federal equaled or
exceeded 65% of its portfolio assets on a monthly average basis for at least 9
months during the fiscal year ended September 30, 1995.
The failure to maintain QTL status would require that Eagle Federal
convert to a bank charter and will result in a limitation in future investments
and activities including branching and payments of dividends. Eagle Federal also
would be required to repay all outstanding FHL Bank advances and dispose of or
discontinue any preexisting investment or activities not permitted for both
savings institutions and national banks. Further, within one year of the loss of
QTL status, the holding company of a savings institution that does not convert
to a bank charter must register as a bank holding company and will be subject to
all statutes applicable to bank holding companies.
Liquidity. Under applicable federal regulations, savings institutions
are required to maintain an average daily balance of liquid assets (including
cash, certain time deposits, certain bankers' acceptances, certain corporate
debt securities and highly rated commercial paper, securities of certain mutual
funds and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than a specified percentage
of the average daily balance of the savings institution's net withdrawable
deposits plus short-term borrowings. Under the HOLA, this liquidity requirement
may be changed from time to time by the Director of the OTS to any amount within
the range of 4% to 10% depending upon economic conditions and the deposit flows
of member institutions, and currently is 5%. Savings institutions are also
required to maintain an average daily balance of short term liquid assets at a
specified percentage (currently 1%) of the total of the average daily balance of
its net withdrawable deposits and short-term borrowings. At September 30, 1995,
Eagle Federal was in compliance with these liquidity requirements.
Restrictons on Dividends and Other Capital Distributions. Eagle Federal
is subject to limitations on the extent to it may pay dividends. Savings
institution subsidiaries of holding companies generally are required to provide
their OTS Regional Director with not less than 30 days' advance notice of any
proposed declaration of a dividend on the institution's stock.
Applicable OTS regulations impose limitations on all capital
distributions by savings associations (including dividends, stock repurchases
and cash-out mergers) based upon an institution's level of regulatory capital
both before and after giving effect to a proposed capital distribution. The FDIA
also prohibits an insured depository institution from declaring any dividend,
making any other capital distribution, or paying a management fee to a
controlling person if, following the distribution or payment, the institution
would be classified as undercapitalized, significantly undercapitalized or
critically undercapitalized.
<PAGE>
Insurance of Deposits. Deposits in the Bank are insured to a maximum of
$100,000 for each insured depositor by the FDIC. Although the Bank is considered
a SAIF-insured institution, as of September 30, 1995, approximatey 25% of its
deposits were BIF-insured.
Deposits insurance premiums for the SAIF and the BIF are set to
facilitate each fund achieving its designated reserve ratios. As each fund
achieves its designated reserve ratio, however, the FDIC has the authority to
lower the premium assessments for that fund to a rate that would be sufficient
to maintain the designated reserve ratio. In August 1995, the FDIC determined
that the BIF had achieved its designated reserve ratio and approved lower BIF
premium rates for deposit insurance by the BIF for all but the riskiest
institutions. On November 14, 1995, the FDIC determined that BIF deposit
insurance premiums for well-capitalzed banks would be further reduced to the
statutory minimum of $2,000 per institution per year, effective January 1, 1996.
Because the SAIF remains significantly below its designated reserve ratio,
insurance premiums for assessable SAIF deposits were not reduced in either FDIC
action.
However, as to the SAIF, its current financial condition has resulted
in proposed legislation to recapitalize the SAIF through a one-time special
assessment on SAIF deposits and ultimately to merge the SAIF into the BIF. Such
legislation, if enacted, would generally impose a special one-time assessment of
approximately 80 cents to 85 cents per $100 of assessable SAIF deposits, which
would apply retroactively to approximately $708 million of assessable SAIF
deposits at Eagle Federal. After the special assessment it is expected that SAIF
would achieve its designated reserve ratio and that SAIF premium rates would
then become the same as BIF rates pending a merger of the SAIF into the BIF.
Eagle Federal is unable to predict whether this legislation will be enacted or
the amount or applicable retroactive date of any one-time assessment or the
rates that would then apply to assessable SAIF deposits.
Elimination of Federal Savings Association Charter
Legislation has been proposed that could eliminate the federal savings
association charter. If such legislation is enacted, Eagle Federal would be
required to convert its federal savings bank charter to either a national bank
charter to a state depository institution charter. Pending legislation also may
provide relief as to recapture of the bad debt deduction for federal tax
purposes that otherwise would be applicable if Eagle Federal converted its
charter, provided that Eagle Federal meets a proposed residential loan
origination requirement. Pending legislation also may result in the Company
becoming regulated at the holding company level by the Board of Governors of the
Federal Reseve System ("Federal Reserve") rather than by the OTS. Regulation by
the Federal Reserve could subject the Company to capital requirements that are
not currently applicable to the Company as a holding company under OTS
regulation and may result in statutory limitations on the type of business
activities in which the Company may engage at the holding company level, which
business activities currently are not restricted. Eagle is unable to predict
whether such legislation will be enacted or, if enacted, whether it will contain
relief as to bad debt deductions previously taken.
Federal Home Loan Bank System
The Federal Home Loan Bank System consists of 12 regional FHL Banks,
each subject to supervision and regulation by the Federal Housing Finance Board
(the "FHFB"). The FHL Banks provide a central credit facility for member savings
institutions. Eagle Federal, as a member of the FHL Bank of Boston, is required
to own shares of capital stock in that FHL Bank in an amount at least equal to
1% of the aggregate principal
<PAGE>
amount of their unpaid residential mortgage loans, home purchase contracts and
similar obligations at the beginning of each year, or 1/20 of their advances
(borrowings) from the FHL Bank, whichever is greater. Eagle Federal is in
compliance with this requirement. The maximum amount which the FHL Bank of
Boston will advance fluctuates from time to time in accordance with changes in
policies of the FHFB and the FHL Bank of Boston, and the maximum amount
generally is reduced by borrowings from any other source. In addition, the
amount of FHL Bank advances that a savings institution may obtain will be
restricted in the event the institution fails to constitute a QTL. See
"Regulation -- Savings Institution Regulation -- Qualified Thrift Lender
Requirement."
Federal Reserve System
The Federal Reserve Board has adopted regulations that require savings
institutions to maintain nonearning reserves against their transaction accounts
(primarily NOW and regular checking accounts) and nonpersonal time deposits
(those which are transferable or held by a person other than a natural person)
with an original maturity of less than 1 1/2 years. At September 30, 1995, Eagle
Federal was in compliance with these requirements. These reserves may be used to
satisfy liquidity requirements imposed by the Director of the OTS. Because
required reserves must be maintained in the form of vault cash or a
non-interest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the amount of the institution's
interest-earning assets.
Savings institutions also have the authority to borrow from the Federal
Reserve "discount window." Federal Reserve Board regulations, however, require
savings institutions to exhaust all FHL Bank sources before borrowing from a
Federal Reserve Bank. A Federal Reserve Bank's ability to extend advances to
undercapitalized and critically undercapitalized depository institutions is
limited. A Federal Reserve Bank generally may not have advances outstanding to
an undercapitalized institution for more than 60 days in any 120-day period.
Taxation
Federal. Eagle, on behalf of itself and its subsidiaries, files a
September 30 tax year consolidated federal income tax return. Eagle and its
subsidiaries report their income and expenses using the accrual method of
accounting.
The Revenue Reconciliation Act of 1995, which has not yet been enacted
into law, includes provisions which will, if enacted, change the manner in which
entities such as the Company are taxed. The Company does not expect any material
financial statement impact if the bill is enacted as it is now drafted.
Savings institutions are generally taxed in the same manner as other
corporations. Unlike other corporations, however, qualifying savings
institutions such as Eagle Federal, that meet certain definitional tests
relating to the nature of their supervision, income, assets and business
operations are allowed to establish a reserve for bad debts and for each tax
year are permitted to deduct additions to that reserve for losses on "qualifying
real property loans" using the more favorable of the following two alternative
methods: (i) a method based on the institution's actual loss experience (the
"experience method") or (ii) a method based on a specified percentage of an
institution's taxable income (the "percentage of taxable income method").
"Qualifying real property loans" are, in general, loans secured by interests in
improved real property. The addition to the reserve for losses on nonqualifying
real property loans must be computed under the experience method.
The amount of the bad debt deduction that a savings institution may
claim with respect to additions to its reserve for bad debts is subject to
certain limitations. First, the percentage of taxable income or experience
method deduction will be eliminated entirely, the existing reserve will be
recaptured into taxable income and the institution will be permitted a deduction
only for specific charge-offs, unless at least 60% of the savings institution's
assets fall within certain designated categories. Second, the bad debt deduction
attributable to
<PAGE>
"qualifying real property loans" cannot exceed the greater of (i) the amount
deductible under the experience method or (ii) the amount which, when added to
the bad debt deduction for nonqualifying loans, equals the amount by which 12%
of the sum of the total deposits and the advance payments by borrowers for taxes
and insurance at the end of the taxable year exceeds the sum of the surplus,
undivided profits and reserves at the beginning of the taxable year. Third, the
amount of the bad debt deduction attributable to qualifying real property loans
computed using the percentage of taxable income method is permitted only to the
extent that the institution's reserve for losses on qualifying real property
loans at the close of the taxable year, taking into account the addition to that
reserve for that taxable year, does not exceed 6% of such loans outstanding at
such time. Fourth, the deduction is reduced, but not below zero, by the amount
of the addition to reserves for losses on nonqualifying loans for the taxable
year. Finally, a savings institution that computes its bad debt deduction using
the percentage of taxable income method and files its federal income tax return
as part of a consolidated group is required to reduce proportionately its bad
debt deduction for losses attributable to activities of nonsavings institution
members of the consolidated group that are "functionally related" to the savings
institution member. The savings institution member is permitted, however, to
proportionately increase its bad debt deduction in subsequent years to recover
any such reduction to the extent the nonsavings institution members realize
income in subsequent years from their "functionally related" activities. Eagle
Federal expects that these various restrictions will not operate to limit
significantly the amounts of their otherwise allowable bad debt deductions in
the near future.
To the extent that (i) the reserves for losses on qualifying real
property loans established by Eagle Federal exceeds the amount that would have
been allowed under the experience method and (ii) Eagle Federal makes
distributions to its shareholder that are considered to result in withdrawals
from that institution's excess bad debt reserve, then the amounts considered to
be withdrawn will be included in Eagle Federal's taxable income. The amount
considered to be withdrawn by a distribution will be the amount of the
distribution plus the amount necessary to pay the federal income tax with
respect to the withdrawal. Dividends paid out of Eagle Federal's current or
accumulated earnings and profits as calculated for federal income tax purposes,
however, will not be considered to result in withdrawals from its bad debt
reserve. Distributions in excess of Eagle Federal's current and accumulated
earnings and profits, distributions in redemption of stock, and distributions in
partial or complete liquidation, will be considered to result in withdrawals
from its bad debt reserve. At September 30, 1995, Eagle Federal had
approximately $8.9 million in earnings and profits for tax purposes that would
be unavailable for distribution to Eagle because of the imposition of this
additional tax on the institutions. Additionally, there are certain regulatory
restrictions on Eagle Federal's ability to pay dividends to Eagle.
The federal income tax returns for Eagle Federal's predecessor savings
institutions have been examined and audited or closed without audit by the IRS
for tax years through September 30, 1989.
Savings institutions are also entitled to limited special tax treatment
with respect to the deductibility of interest expense relating to certain
tax-exempt obligations. Savings institutions are entitled to deduct 100% of
their interest expense allocable to the purchase or carrying of tax-exempt
obligations acquired before 1983. The deduction is reduced to 80% with respect
to obligations acquired after 1982. For taxable years after 1986, the Tax Reform
Act of 1986 eliminates the deduction entirely for obligations purchased after
August 7, 1986 (except for certain issues by small municipal issuers).
Depending on the composition of its items of income and expense, a
savings institution may be subject to the alternative minimum tax. For tax years
beginning after 1986, a savings institution must pay an alternative minimum tax
equal to the amount (if any) by which 20% of alternative minimum taxable income
("AMTI"), as reduced by an exemption varying with AMTI, exceeds the regular tax
due. AMTI equals regular taxable income increased or decreased by certain
adjustments and increased by certain tax preferences. Adjustments and
preferences include depreciation deductions in excess of those allowable for
alternative minimum tax purposes, tax-exempt interest on most private activity
bonds issued after August 7, 1986 (reduced by any related interest expense
disallowed for regular tax purposes), the amount of the bad debt reserve
deduction claimed in excess of the deduction based on the experience method and,
for 1990 and succeeding years, 75% of the excess of adjusted current earnings
("ACE") over AMTI. ACE equals pre-adjustment AMTI ("PAMTI") increased or
decreased by certain ACE adjustments, which include tax-exempt interest on
municipal bonds for tax purposes, depreciation deductions in excess of those
allowable for ACE purposes and the dividend received deduction. PAMTI equals
<PAGE>
AMTI computed with all the preferences and adjustments other than the ACE
adjustment and the alternative minimum tax net operating loss (AMTNOL). AMTI may
be reduced only up to 90% by AMTNOL carryovers. The payment of alternative
minimum tax will give rise to a minimum tax credit which will be available with
an indefinite carry forward period available to reduce federal income taxes of
the institution in future years (but not below the level of alternative minimum
tax arising in each of the carry forward years).
State. State income taxation is in accordance with the corporate income
tax laws of Connecticut. As a thrift, Eagle Federal is required to pay taxes
equal to the larger of $250, 11.5% (scheduled to decrease in increments to 7.5%
by 2001) of the year's taxable income (which, with certain exceptions, is equal
to taxable income for federal purposes) or an amount equal to 4% for each year
of the amount of interest or dividends credited by them on savings accounts of
depositors or account holders during the taxable year preceding that in which
the tax becomes due, provided that, in determining such amount, interest or
dividends credited to the savings account of a depositor or account holder are
deemed to be the lesser of the actual interest or dividends credited or the
interest or dividend that would have been credited if it had been computed and
credited at the rate of one-eighth of 1% per annum.
Item 2. Properties
Eagle's twenty-three offices are located in Hartford, Litchfield and
northern Fairfield counties. Automated teller machines ("ATM") are located in
eighteen of the twenty-three offices. Eagle's ATM's participate in the "NYCE"
ATM network which permits access to funds at approximately 13,100 locations and
57,000 "point-of-sale" terminals throughout the Northeast. Data processing
services for Eagle are provided by Connecticut On-Line Computer Center, a data
processing company jointly owned by a number of New England savings institutions
(including Eagle Federal).
<PAGE>
The following table sets forth certain information concerning the
business offices of Eagle at September 30, 1995.
<TABLE>
<CAPTION>
Percent Owned Lease Lease
Year of Total or Expiration Renewal
Opened Deposits Leased Date Option
<S> <C> <C> <C> <C> <C>
Torrington Main Office 1945 13.1% Owned -- --
East Main Street - Torrington 1973 4.2% Owned -- --
Litchfield 1976 3.5% Owned -- --
Canton 1971 3.3% Leased 1996 Two 5-year
options
Winsted 1988 3.3% Leased 2006 Seven
Land Only 5-year
options
Bristol Main Office 1957 15.8% Owned -- --
Commons - Bristol 1972 3.3% Leased 2004 No renewal
option
Farms - Bristol 1983 4.8% Leased 1998 One 5-year
Land Only option
Forestville 1992 1.6% Leased 1998 One 5-year
option
Terryville 1984 2.6% Leased 1999 One 5-year
option
Danbury Main Office 1992 5.5% Owned -- --
Mill Plain - Danbury 1992 2.0% Owned -- --
Commerce Plaza - Danbury 1992 2.0% Leased 2000 No renewal
option
Ridgefield 1992 1.9% Leased 1997 None
New Fairfield 1992 1.9% Leased 1998 One 5-year
option
Brookfield 1992 3.7% Leased 1996 One 5-year
option
Newtown 1992 2.2% Leased 1997 No renewal
option
Hartford Main Office 1994 5.1% Owned
Franklin Avenue-Hartford 1994 5.4% Owned
West Hartford 1994 5.9% Owned
Rocky Hill 1994 4.4% Leased 1995 Two 5-year
options
Bloomfield 1994 2.9% Leased 1997 No renewal
option
Avon 1994 1.6% Leased 1998 One 3-year
option
</TABLE>
<PAGE>
The total net book value of properties owned and used for offices by
Eagle at September 30, 1995 and the aggregate net book value of leasehold
improvements on properties used for offices was $ 5.4 million.
Item 3. Legal Proceedings
As of September 30, 1995, there were no material pending legal
proceedings to which Eagle, Eagle Federal or Eagle Savings Corp. was a party or
to which any of their property was subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Eagle shareholders during the
fourth quarter of the fiscal year ended September 30, 1995.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Information as to the principal market on which the Company's common
stock is traded, the approximate number of holders of record as of September 30,
1995, the Company's dividend policy, and the high and low bid quotations or
sales prices, as applicable, for each calendar quarter during the two most
recent fiscal years is incorporated herein by reference to page 43 of the 1995
Annual Report to Shareholders.
Item 6. Selected Financial Data
Selected consolidated financial data for the five years ended September
30, 1995 on page 1 of the 1995 Annual Report to Shareholders is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results
of Operations on pages 8 to 17 of the 1995 Annual Report to Shareholders is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Certain of the information required by this Item is incorporated by
reference to pages 18 to 41 of the 1995 Annual Report to Shareholders. The
independent auditors' report of KPMG Peat Marwick LLP with respect to the
Company's balance sheets at September 30, 1995 and 1994 and the statements of
income, shareholders' equity and cash flows for the years ended September 30,
1995, 1994 and 1993 is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information set forth under the captions
"Election of Directors" and "Management -- Executive Officers" appearing in the
Company's definitive proxy statement dated December 27, 1995, which information
is incorporated herein by reference.
Item 11. Executive Compensation
Reference is made to the information set forth under the caption
"Management -- Executive Compensation" appearing in the Company's definitive
proxy statement dated December 27, 1995, which information is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information set forth under the captions
"Stock Owned by Management" and "Principal Holders of Voting Securities of
Eagle" appearing in the Company's definitive proxy statement dated December 27,
1995, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information set forth under the caption
"Management -- Certain Transactions" appearing in the Company's definitive proxy
statement dated December 27, 1995, which information is incorporated herein by
reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following consolidated financial statements of registrant
and its subsidiaries and report of independent auditors are included in
Item 8 hereof.
Independent Auditors' Report.
Consolidated Balance Sheets - September 30, 1995 and 1994.
Consolidated Statements of Income - Years Ended September 30, 1995,
1994 and 1993.
Consolidated Statements of Shareholders' Equity - Years Ended September
30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows - Years Ended September 30, 1995,
1994 and 1993.
Notes to Consolidated Financial Statements.
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(a)(3) The following exhibits are either filed with this Report or are
incorporated herein by reference:
3.1 Certificate of Incorporation, as amended, incorporated herein by
reference from Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 (No. 33-9166), filed with the SEC on
December 24, 1986.
3.2 Bylaws of the Company, as amended to date (incorporated by
reference from the Company's Current Report on Form 8-K dated November
12, 1993).
10.1 Eagle Financial Corp. Stock Option Plan (incorporated herein by
reference from the Company's Annual Report on Form 10-K for the year
ended September 30, 1987 as filed with the SEC on December 22, 1987).
10.2 BFS Bancorp, Inc. Stock Option Plan, (incorporated by reference
from the Company's Registration Statement on Form S-8 (No. 33-28403)
filed with the SEC on April 28, 1989.)
10.3 Eagle Financial Corp. 1988 Stock Option Plan (incorporated by
reference from the Company's definitive Proxy Statement dated December
21, 1988 for the 1989 Annual Meeting of Shareholders, as filed with the
SEC on December 22, 1988).
10.4 Employment Agreement dated April 1, 1994 among the Company, the
Bank and Ralph T. Linsley (incorporated by reference from Pre-effective
Amendment No. 1 to the Company's Registration Statement on Form S-2
(Reg. No. 33-54981) filed with the SEC on September 12, 1994).
10.5 Consulting Agreement dated August 25, 1988 between the Company
and Ralph T. Linsley (incorporated by reference from the Company's
Annual Report on Form 10-K for the year ended September 30, 1988, as
filed with the SEC on December 29, 1988).
10.6 Employment Agreement dated April 1, 1994 among the Company, the
Bank and Robert J. Britton (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration Statement
on Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12,
1994).
10.7 Employment Agreement dated April 1, 1994 among the Company, the
Bank and Ercole J. Labadia (incorporated by reference from the
Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed
with the SEC on August 9, 1994).
10.8 Employment Agreement dated April 1, 1994 among the Company, the
Bank and Mark J. Blum
<PAGE>
(incorporated by reference from the Company's Registration Statement on
Form S-2 (Reg. No. 33- 54981) filed with the SEC on August 9, 1994).
10.9 Employment Agreement dated April 1, 1994 among the Company, the
Bank and Irene K. Hricko (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the
SEC on August 9, 1994).
10.10 Employment Agreement dated April 1, 1994, among the Company, the
Bank and Barbara S. Mills (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33- 54981) filed with the
SEC on August 9, 1994).
10.11 The Bank deferred compensation plan (incorporated by reference
from Pre-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-4 (No. 33-21122) filed with the SEC on May 17,
1988).
10.12 Deferred Compensation Plan for Non-Employee Directors
(incorporated by reference from the Company's Annual Report on Form
10-K for the year ended September 30, 1988, as filed with the SEC on
December 29, 1988).
10.13 Outside Directors Post Retirement Plan, dated July 26, 1994
(incorporated by reference from the Company's Registration Statement on
Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.14 Guarantee and Pledge Agreement dated November 1, 1990 between
the Company and Bank of Boston Connecticut (incorporated by reference
from the Company's Annual Report on Form 10-K for the year ended
September 30, 1990, as filed with the SEC on December 28, 1990).
10.15 Annual Incentive Plan (incorporated by reference from the
Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed
with the SEC on August 9, 1994).
10.16 Amendment to Employment Agreement dated July 26, 1994 among the
Company, the Bank and Ralph T. Linsley (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration Statement
on Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12,
1994).
10.17 Amendment to Employment Agreement dated July 26, 1994 among the
Company, the Bank and Robert J. Britton (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration Statement
on Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12,
1994).
13 1995 Annual Report to Shareholders, portions of which have been
incorporated by reference into this Form 10-K.
22 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
(b) No current reports on Form 8-K were filed by the
Registrant during the fourth quarter of fiscal 1995.
(c) Exhibits to this Form 10-K are attached or incorporated by
reference as stated above.
(d) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EAGLE FINANCIAL CORP.
------------------------------------
Registrant
By: /s/ Ralph T. Linsley
------------------------------------
Ralph T. Linsley
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Title
By: /s/Ralph T. Linsley
------------------- Chairman of the Board
Ralph T. Linsley
/s/Robert J. Britton
By: ------------------- Chief Executive Officer, President
Robert J. Britton and Director (principal executive
officer)
/s/Mark J. Blum
By: ------------------- Vice President and Chief Financial
Mark J. Blum Officer (principal financial and
accounting officer)
/s/Richard H. Alden
By: ------------------- Director
Richard H. Alden
/s/George T. Carpenter
By: ------------------- Director
George T. Carpenter
/s/Theodore M. Donovan
By: ------------------- Director
Theodore M. Donovan
/s/Thomas V. LaPorta
By: ------------------- Director
Thomas V. LaPorta
/s/John F. McCarthy
By: ------------------- Director
John F. McCarthy
/s/Ernest J. Torizzo
By: ------------------- Director
Ernest J. Torizzo
/s/Steven E. Lasewicz
By: ------------------- Director
Steven E. Lasewicz
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit Numbering
Number Identity of Exhibit System
- ------ ------------------- -------
<S> <C>
3.1 Certificate of Incorporation, amended herein by reference
from Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 (No. 33-9166),
filed with the SEC on December 24, 1986.
3.2 Bylaws, as amended to date, (incorporated by reference
from Eagle's Current Report on Form 8-K dated
November 12, 1993).
10.1 Eagle Financial Corp. Stock Option Plan, (incorporated herein
by reference from Eagle's Annual Report on Form 10-K
for the year ended September 30, 1987 as filed with the
SEC on December 22, 1995).
10.2 BFS Bancorp, Inc. Stock Option Plan, (incorporated by
reference from the Company's Registration Statement
on Form S-8 (No. 33-28403) filed with the SEC on
April 28, 1989).
10.3 Eagle Financial Corp. 1988 Stock Option Plan, (incorporated
by reference from the Company's definitive Proxy Statement
dated December 21, 1988 for the 1989 Annual Meeting of
Shareholders, as filed with the SEC on December 22, 1988).
10.4 Employment Agreement dated April 1, 1994 among the Company,
the Bank and Ralph T. Linsley (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration
Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC
on September 12, 1994).
10.5 Consulting Agreement dated August 25, 1988 between the
Company and Ralph T. Linsley (incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended
September 30, 1988, as filed with the SEC on December 29, 1988).
10.6 Employment Agreement dated April 1, 1994 among the Company, the
Bank and Robert J. Britton (incorporated by reference from Pre-effective
Amendment No. 1 to the Company's Registration Statement on Form S-2
(Reg. No. 33-54981) filed with the SEC on September 12, 1994).
10.7 Employment Agreement dated April 1, 1994 among the Company, the Bank
and Ercole J. Labadia (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the
SEC on August 9, 1994).
10.8 Employment Agreement dated April 1, 1994 among the Company, the
Bank and Mark J. Blum (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the
SEC on August 9, 1994).
10.9 Employment Agreement dated April 1, 1994 among the Company, the
Bank and Irene K. Hricko (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the
SEC on August 9, 1994).
10.10 Employment Agreement dated April 1, 1994, among the Company, the
Bank and Barbara S. Mills (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the
SEC on August 9, 1994).
10.11 The Bank deferred compensation plan (incorporated by reference from
<PAGE>
Pre-Effective Amendment No. 1 to the Company's Registration Statement
on Form S-4 (No. 33-21122) filed with the SEC on May 17, 1988).
10.12 Deferred Compensation Plan for Non-Employee Directors (incorporated
by reference from the Company's Annual Report on Form 10-K for the
year ended September 30, 1988, as filed with the SEC on December 29, 1988).
10.13 Outside Directors Post Retirement Plan, dated July 26, 1994 (incorporated by
reference from the Company's Registration Statement on Form S-2
(Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.14 Guarantee and Pledge Agreement dated November 1, 1990 between the
Company and Bank of Boston Connecticut (incorporated by reference
from the Company's Annual Report on Form 10-K for the year ended
September 30, 1990, as filed with the SEC on December 28, 1990).
10.15 Annual Incentive Plan (incorporated by reference from the Company's
Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the
SEC on August 9, 1994).
10.16 Amendment to Employment Agreement dated July 26, 1994 among the
Company, the Bank and Ralph T. Linsley (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration Statement
on Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994).
10.17 Amendment to Employment Agreement dated July 26, 1994 among the
Company, the Bank and Robert J. Britton (incorporated by reference from
Pre-effective Amendment No. 1 to the Company's Registration Statement
on Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994).
13 1995 Annual Report to Shareholders, portions of which have been
incorporated by reference into this Form 10-K.
22 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 13
Eagle Financial Corp.
1995 Annual Report
Excellence is achieved through moral integrity coupled with hard work and
commitment.
Company Profile
Eagle Financial Corp. is a $1.2 billion unitary savings bank holding company and
parent to Eagle Federal Savings Bank. Eagle Federal operates 23 banking offices
located in Hartford, Litchfield and northern Fairfield counties, all in
Connecticut. Historically the Bank has primarily engaged in the business of
accepting deposits from the general public and using such funds in the
origination of first mortgage loans for the purchase, refinance or construction
of 1-4 family homes. Eagle is currently positioning itself as a mid-sized
community bank offering a broader base of services to both consumers and
businesses in its local market.
<TABLE>
<CAPTION>
Financial Highlights
Financial Condition Data At September 30,
(In thousands) 1995 1994(a) 1993 1992(a) 1991
---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C>
Total assets $1,237,286 $1,070,276 $792,468 $751,171 $524,429
Investment portfolio (b) 159,197 123,823 77,924 109,948 63,459
Mortgage-backed securities 302,462 68,706 25,953 31,652 5,248
Loans receivable, net 713,545 810,705 656,344 568,124 432,507
Allowance for loan losses 7,457 8,311 5,005 4,011 1,544
Deposits 951,751 948,829 706,214 677,701 458,074
FHLB advances and borrowed money 155,467 39,592 16,252 7,326 11,068
Shareholders' equity 92,460 66,276 60,407 55,004 50,892
Operating Data For the Years Ended September 30,
(In thousands, except for per share data) 1995 1994(a) 1993 1992(a) 1991
---- ------- ---- ------- ----
Net interest income $ 40,017 $ 31,071 $ 27,285 $ 22,186 $ 16,632
Net income 10,972 7,566 6,152 5,166 4,011
Loan originations 155,666 219,904 209,901 163,478 78,927
Loan purchases 130 2,507 -- -- 240
Cash dividends declared per share (d) 0.82 0.69 0.57 0.50 0.43
Net income per share: (d)
Primary 2.41 2.13 1.79 1.55 1.25
Fully diluted 2.38 2.12 1.77 1.53 1.25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Significant Statistical Data 1995 1994(a) 1993 1992(a) 1991
---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C>
For the period:
Return on average assets 0.95% 0.85% 0.79% 0.81% 0.80%
Return on average shareholders' equity 12.68% 11.99% 10.69% 9.80% 8.05%
Average interest rate spread 3.43% 3.41% 3.40% 3.26% 2.88%
Net interest margin 3.63% 3.60% 3.64% 3.59% 3.43%
Operating expenses to average assets 2.11% 2.24% 2.10% 2.02% 1.84%
Operating expenses to average assets
(excluding real estate owned expenses) 2.04% 2.09% 1.97% 1.90% 1.81%
Net interest income to operating expenses 1.64x 1.55x 1.67x 1.72x 1.80x
Efficiency ratio 53% 55% 51% 49% 50%
At end of period:
Shareholders' equity to total assets 7.47% 6.19% 7.62% 7.32% 9.71%
Common shares outstanding
(net of treasury) (c) 4,459,824 3,131,911 3,054,481 2,692,305 2,656,595
Book value per share (d) $ 20.73 $ 19.24 $ 17.98 $ 16.88 $ 15.84
Non-performing assets to total assets 1.10% 1.15% 1.51% 1.38% 1.81%
Allowance for loan losses to
non-performing loans 67% 104% 77% 100% 27%
Tangible capital ratio 6.59% 5.17% 7.26% 6.87% 9.68%
<FN>
(a) Fiscal 1994 and 1992 data reflect the impact of government-assisted
acquisitions.
(b) Includes interest-bearing deposits, Federal funds sold, investment
</FN>
</TABLE>
<PAGE>
equity was $92.5 million, or 7.47% of total assets, at September 30, 1995. Book
value per share increased to $20.73 from $19.24 at the beginning of the fiscal
year.
Growth Through Acquisition
On October 2, 1995, Eagle announced that it had entered into definitive
agreements with Fleet Financial Group and Shawmut Bank to purchase approximately
$49 million of loans and assume approximately $290 million of deposits related
to five branch offices located in the greater Hartford market. The branch
offices, located in Hartford, Bloomfield, West Hartford, Simsbury and
Manchester, were being divested as part of the Fleet/Shawmut merger.
The transaction is a unique opportunity which will allow Eagle to better serve
its existing customers in this market as well as establish relationships with
over 15,000 new households. The transaction also supports Eagle's overall
strategy to become a broad-based community bank providing residential, consumer
and commercial banking services.
It is estimated that the transaction, which will be accretive to earnings
immediately upon closing, will be consummated in January 1996. The consideration
Eagle will pay for the acquired branches and related deposit liabilities is the
equivalent of a deposit premium of approximately 6.75%. The transaction
represents Eagle's fourth major acquisition in the last 3 1/2 years.
Focus on Core Market
On November 28, 1995, Eagle announced that it had signed a letter of intent with
Union Savings Bank of Danbury for the sale by Eagle Federal of seven branch
offices in the Danbury area. In this transaction Union Savings will assume
approximately $181 million in deposits and pay a deposit premium of 9%. The sale
will benefit Eagle in a number of ways:
. It will simplify operations and make Eagle Federal more efficient in that it
will no longer need to service two geographically distinct markets. After
consummation of the Fleet/Shawmut transaction, Eagle Federal's average branch
size in Hartford and Litchfield counties will be approximately $55 million
compared to $25 million in the greater Danbury area.
. As a result of the gain on sale of deposits to Union Savings, Eagle
Financial's consolidated book value per share will increase by approximately
$2.00 without considering any impact that the Fleet/Shawmut transaction may
have on consolidated book value per share. In addition Eagle Financial's
earnings will be positively impacted in 1996 from the Union Savings
transaction.
. The additional capital generated by the transaction will give Eagle Financial
the flexibility to pursue other growth opportunities in its core market.
Economic Environment and Industry Trends
While most of the nation has been experiencing a moderate expansion, the
Connecticut economy struggles to recover from the recession that ended in 1992.
Connecticut's recovery has lagged other states due to defense cuts,
restructuring in the insurance industry and the continued high cost of doing
business. There are some positive developments, however, which in the long run
will enhance Connecticut's competitive position. These include a growing small
business market, a rebound in the commercial real estate market and improved
affordability in the housing and labor markets.
During the past year there has been an increase in merger and acquisitions among
banks due to the fact that there are few other opportunities for growth. While
the most noteworthy mergers have been larger regional banks, there continues to
be consolidation among community banks as well. Eagle has capitalized on the
consolidation trend, profitably expanding its franchise through acquisitions
which have positioned Eagle Federal Savings Bank as the fifth largest
Connecticut based bank.
Despite the sluggish economy and limited opportunities to grow, bank
profitability in Connecticut compares favorably with national averages. Most New
England bank stocks have also performed well during the past year.
Banks will continue to lose market share to non-bank competitors as long as the
burden of regulatory requirements are imposed on banks and not on its
competitors. Bank regulators must provide for effective risk management, while
not inhibiting banks' ability to compete effectively in the marketplace.
<PAGE>
Reshaping Corporate Culture
By successfully integrating the cultures of our four former banks, we have
established a corporate culture in which the delivery of quality customer
service is paramount. Knowing and valuing the customer may be viewed as an old
fashioned strategy, but it continues to be fundamental to a successful business.
We strongly believe that customer satisfaction fosters business growth and
profitability.
This year we started our "Eagle Excellence" program which focuses on the
continuous improvement of processes in order to increase customer satisfaction
and enhance overall efficiency throughout the Bank. Bankwide principles and
standards of service have been developed together with performance measurements
and recognition systems. As a result we are developing a better understanding of
people, operations, systems and customer needs while improving service.
Eagle's reputation as a growing and successful bank has been a motivating factor
among our employees to work hard and go the extra mile. The fact that most
employees are also Eagle stockholders through our Employee Stock Ownership Plan
has made our success even more rewarding.
Looking Ahead
In this rapidly changing banking industry Eagle is competitively positioned as a
mid-sized community bank which offers a broad base of services for both
consumers and businesses in its local market. Eagle is large enough to be
considered as an alternative to larger regional banks yet small enough to be
responsive to customer needs while providing quality service.
Consistent growth of earnings remains our primary objective as we look to the
future. A successful acquisition plan over the past three years has resulted in
earnings momentum, increased market share, an enhanced organizational structure
and a stronger management team.
Going forward we will focus on growing revenues through enhanced business
development efforts in all lines of business. To improve interest margins we
will continue to diversify our loan portfolio to include a higher percentage of
consumer and commercial loans. Residential lending remains our primary line of
business and we are committed to being the lender of choice in our core market
area. We have made significant investments in technology, systems and human
resources in order to compete effectively in this rapidly changing business. We
will continue to develop low cost core deposits and fee income by continuing our
successful checking account acquisition program. Additionally we will continue
to look for opportunities to expand through acquisition when we can do so
profitably.
Thank you for your continued confidence and we assure you that we remain
committed to building shareholder value.
Robert J. Britton
President and Chief Executive Officer
Eagle Financial Corp.
September 30, 1995
<PAGE>
Eagle Financial Corp.'s performance over the last five years has been
highlighted by steady growth in net income, cash dividends and book value,
consistent improvement in return on shareholders' equity and an increase of over
150% in total assets.
Total Assets dollars in millions at September 30,
1995 $1,237,286
1994 $1,070,276
1993 $ 792,468
1992 $ 751,171
1991 $ 524,429
Net Income Per Share years ended September 30,
1995 2.41
1994 2.13
1993 1.79
1992 1.55
1991 1.25
Book value Per Share at September 30,
1995 $20.73
1994 $19.24
1993 $17.98
1992 $16.88
1991 $15.84
Return on Average Shareholders' Equity years ended September 30,
1995 12.68%
1994 11.99%
1993 10.69%
1992 9.80%
1991 8.05%
Cash Dividends Per Share years ended September 30,
1995 0.82
1994 0.69
1993 0.57
1992 0.50
1991 0.43
Non-Performing Assets to Total Assets at September 30,
1995 1.10%
1994 1.15%
1993 1.51%
1992 1.38%
1991 1.81%
<PAGE>
Officers and Directors
Eagle Financial Corp. Directors
Ralph T. Linsley
Chairman
Eagle Financial Corp.
Robert J. Britton
President and
Chief Executive Officer
Eagle Financial Corp.
Vice Chairman, President and
Chief Executive Officer
Eagle Federal Savings Bank
Richard H. Alden
Attorney
Partner with the Law Firm
Anderson, Alden, Hayes &
Ziogas LLC
George T. Carpenter
President
Carpenter Companies
Construction and Real Estate
Theodore M. Donovan
Attorney
Partner with the Law Firm
Furey, Donovan, Eddy, Kocsis,
Tracy & Daly
Thomas V. LaPorta
President and Chairman
The LaPorta Funeral Home
Steven E. Lasewicz, Jr.
President
SELCO CONTROLS, Inc.
Building Automation and
Temperature Controls
John F. McCarthy
President
J & M Sales, Inc.
Beer Distributorship
Ernest J. Torizzo
Executive Vice President
O & G Industries, Inc.
Construction
<PAGE>
Eagle Financial Corp. Executive Officers
Robert J. Britton
President and
Chief Executive Officer
Ercole J. Labadia
Vice President,
Administration
Mark J. Blum
Vice President,
Chief Financial Officer
Barbara S. Mills
Vice President,
Treasurer
Irene K. Hricko
Vice President,
Corporate Secretary
Eagle Federal Savings Bank Officers
Robert J. Britton
Vice Chairman, President and
Chief Executive Officer
Ercole J. Labadia
Executive Vice President,
Administration and Operations
Mark J. Blum
Senior Vice President,
Chief Financial Officer
Kenneth F. Burns
Senior Vice President,
Retail Banking and Marketing
Patrick Macomber
Senior Vice President,
Residential and Consumer Lending
John A. Baker
Vice President, Commercial Lending
John D. Buckley
Vice President, Internal Auditor
Donald E. Crandall, Jr.
Vice President, Loan Servicing
Irene K. Hricko
Vice President, Corporate Secretary
<PAGE>
Marc A. Lambert
Vice President, Finance
Kathleen K. Leach
Vice President,
Loan Originations
Peter L. Leone
Vice President,
Senior Retail Officer
Barbara S. Mills
Vice President, Treasurer
Adele L. Reale
Vice President, Human Resources
Janet E. Recidivi
Vice President, Retail Administration
Louise D. Rohner
Vice President,
Business Development Manager
Mark Shaw
Vice President, Technology
Joan F. Warkoski
Vice President,
Loan Originations
Table of Contents
8 Management's Discussion and Analysis
18 Consolidated Balance Sheets
19 Consolidated Statements of Income
20 Consolidated Statements of Shareholders' Equity
21 Consolidated Statements of Cash Flows
23 Notes to Consolidated Financial Statements
42 Independent Auditors' Report
43 Additional Information
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
Eagle Financial Corp. (the "Company") is a unitary savings bank holding company
and parent of Eagle Federal Savings Bank ("Eagle Federal" or the "Bank"). The
Bank is a federally chartered savings bank headquartered in Bristol,
Connecticut, which conducts business from 23 banking offices located in
Hartford, Litchfield and northern Fairfield counties. Prior to January 1, 1993,
the Company had two bank subsidiaries, Bristol Federal Savings Bank and First
Federal Savings and Loan Association of Torrington. Effective January 1, 1993,
the two bank subsidiaries were combined into one subsidiary, Eagle Federal
Savings Bank. In June 1994, Eagle Federal assumed all of the insured deposits
and purchased certain assets of the former Bank of Hartford from the Federal
Deposit Insurance Corp. ("FDIC"). The acquisition included approximately $273
million of deposits and approximately $81 million in loans consisting primarily
of residential mortgage and home equity loans. In October 1995, Eagle Federal
announced that it entered into agreements with Fleet Financial Group and Shawmut
<PAGE>
Bank to assume approximately approximately $49 million of primarily commercial
real estate and consumer loans related to five branch offices located in the
greater Hartford market, subject to final regulatory approval. In November 1995,
Eagle Federal announced that it had signed a letter of intent to sell its seven
branch banking offices in the greater Danbury area and approximately $181
million of related deposits to Union Savings Bank of Danbury.
Eagle Federal's primary business has historically been accepting deposits from
the general public and using such funds in the origination of first mortgage
loans for the purchase, refinance or construction of 1-4 family homes. Whereas
residential mortgage lending will continue to be the Bank's main focus, Eagle
Federal has also begun implementing strategies which will put increased emphasis
on originating commercial real estate and small business loans within its
primary market areas. The Bank started this process in 1995 by hiring several
people with experience in commercial loan products and will further expand in
this area in 1996. Eagle Federal also intends to put more emphasis on its
multi-family and consumer lending products. The marketing of these loans will
focus on the Bank's existing customer base, customers acquired as part of the
Fleet/Shawmut acquisition and new relationships within Eagle Federal's primary
market areas.
Net Interest Income dollars in millions years ended September 30,
1995 $40,017
1994 $31,071
1993 $27,285
1992 $22,186
1991 $16,632
Eagle Financial Corp. had record net income of $11.0 million, or $2.38 per share
on a fully diluted basis, for the year ended September 30, 1995. The Company has
posted higher annual earnings for seven consecutive years with average earnings
per share growth of 25% during that period. The Company's consolidated results
of operations depend to a large extent on the level of its net interest income,
which is the difference between the interest earned on its loan and investment
portfolios versus the interest paid on its deposits and borrowed funds.
Additional earnings are derived from a variety of financial services provided to
customers and from income related to the servicing of loans for others.
As of September 30, 1995, the Company had total assets of $1.24 billion compared
to $1.07 billion at the start of the fiscal year. Growth during the year was in
the Company's investment and mortgage-backed securities portfolios. Although
Eagle Federal had loan origination activity in excess of $150 million during
1995, the Bank securitized $154 million of its long term, fixed rate mortgage
loans during the year for sale into the secondary market. As of September 30,
1995, $95 million of these securitized loans had been sold. The purpose of this
strategy is to strengthen the Bank's ability to absorb the impact of future
interest rate changes, primarily in the event of a sustained rise in interest
rates, by replacing fixed rate mortgage loans with adjustable rate securities.
See "Asset/Liability Management." As a result of this activity, the Company's
net loan portfolio decreased by $95 million in fiscal 1995. Most of Eagle
Federal's net asset growth during the year was funded by Federal Home Loan Bank
advances and other borrowed money while deposits grew only slightly in 1995.
In the first quarter of fiscal 1995, the Company completed a common stock
offering which added approximately $16.7 million of new capital. The additional
capital was raised primarily to increase the Bank's core capital ratio, which
had decreased as a result of the substantial increase in asset size as a result
of the Bank of Hartford transaction. The additional capital was also intended to
assist Eagle in making further acquisitions in Connecticut or other generally
adjacent market areas and increase the market liquidity of its common stock.
Fleet/Shawmut Transaction
On October 2, 1995, Eagle Federal announced that it had entered into agreements
with Fleet Financial Group and Shawmut Bank to assume approximately $290 million
of deposits and purchase approximately $49 million of commercial real estate and
consumer loans related to five branch offices located in the greater Hartford
market. The consideration Eagle Federal will pay for the acquired branches and
related deposit liabilities is the equivalent of a deposit premium of
approximately 6.75%. It is estimated that the transaction will be consummated in
early 1996, subject to required regulatory approval and other closing
conditions.
<PAGE>
The transaction will allow Eagle Federal to increase its market share and expand
its branch network already established in the greater Hartford area. The Bank
currently operates seven offices in the greater Hartford area and has been
actively pursuing opportunities to increase its presence in the Hartford market.
Management intends to close two existing Hartford area branches which overlap
two of the branches to be acquired. The transaction will allow Eagle Federal to
better serve its existing customers in this market as well as establish
relationships with over 15,000 new households.
In addition, the Fleet/Shawmut transaction supports Eagle Federal's overall
strategy to become a broad-based community bank providing residential, consumer
and commercial banking services.
Divestiture of Danbury Region
On November 28, 1995, Eagle Federal announced that it had signed a letter of
intent to sell its seven branch banking offices and the related deposits in the
greater Danbury market to Union Savings Bank of Danbury. In this transaction,
Union Savings will assume approximately $181 million of deposits at seven Eagle
Federal offices. Union Savings will purchase all real property and assume all
lease obligations related to the seven offices. Union Savings intends to offer
positions to all branch related Eagle Federal employees who currently work in
these offices. The consideration Eagle Federal will receive for the acquired
deposit liabilities is the equivalent of a deposit premium of 9.00%, or
approximately $16 million before income taxes. There are no loans or investment
securities being sold by Eagle Federal other than deposit secured loans and
checking account credit lines. The Union Savings transaction is expected to be
settled shortly after consummation of the Fleet/Shawmut acquisition in January
1996.
Eagle Federal's seven Danbury area offices are the end result of two government
assisted acquisitions in 1992, when Eagle Federal assumed the deposits of
Danbury Federal Savings and Loan from the Resolution Trust Corporation and
Brookfield Bank from the FDIC. The average cost to Eagle Federal of the two
acquisitions was the equivalent of approximately a 1.00% deposit premium.
Eagle Federal's more recent acquisition activity, including the Bank of Hartford
transaction in 1994 and the pending Fleet/Shawmut transaction, has been centered
around Hartford county and the Farmington Valley west of Hartford. Prior to
consummation of the Union Savings transaction, but after giving effect to the
Fleet/Shawmut transaction, 85% of Eagle Federal's deposits will be in its
greater Hartford market which includes Hartford county and eastern Litchfield
county. The sale of Eagle Federal's seven branches in the Danbury market is
consistent with management's intention going forward to clearly focus its
attention on the greater Hartford market where its strong market share allows it
to compete effectively.
The sale of the Danbury branches to Union Savings will benefit Eagle in a number
of ways:
o It will simplify operations and make Eagle Federal more efficient in that it
will no longer need to service two geographically distinct markets. After
consummation of the Fleet/Shawmut transaction, Eagle Federal's average branch
size in Hartford and Litchfield counties will be approximately $55 million
compared to $25 million in the greater Danbury area.
o As a result of the gain on sale of deposits to Union Savings, Eagle
Financial's consolidated book value per share will increase by approximately
$2.00 without considering any impact that the Fleet/Shawmut transaction may
have on consolidated book value per share. In addition Eagle Financial's
earnings will be positively impacted in 1996 from the Union Savings
transaction.
o The additional capital generated by the transaction will give Eagle Financial
the flexibility to pursue other growth opportunities in its core market.
Upon completion of the Fleet/Shawmut and Union Savings transactions, Eagle
Financial will have 19 branch banking offices in Hartford and eastern Litchfield
counties.
Liquidity And Capital Resources
The Bank of Hartford transaction in June, 1994 resulted in a substantial
increase in the Bank's asset size and a corresponding decrease in Eagle
Federal's core capital ratio. During the first quarter of fiscal 1995, the
Company completed a common stock offering which added approximately $16.7
million of new capital. In addition to restoring the Bank's core capital ratio,
the new capital was intended to assist Eagle Federal in making further
acquisitions in Connecticut or other generally adjacent market areas and
increase the market liquidity of the Company's common stock.
<PAGE>
Bolstered by the new capital and $11.0 million of net income less $3.9 million
of dividends paid out to shareholders, shareholders' equity increased to $92.5
million at September 30, 1995 from $66.3 million at September 30, 1994. The net
growth in shareholders' equity also reflects reductions in debt related to the
Company's employee stock ownership plan, exercise of stock options, purchases of
stock by shareholders under the Company's dividend reinvestment and stock
purchase plans, and changes in unrealized gains and losses on securities
available for sale.
As a member of the Federal Home Loan Bank ("FHLB") System, the Bank is required
to maintain liquid assets at 5% of its withdrawable deposits plus short-term
borrowings. At September 30, 1995, the Bank was in compliance with the Office of
Thrift Supervision ("OTS") liquidity requirements, having a ratio of 7.55%.
The Bank's principal sources of funds include deposits, loan payments (including
interest, scheduled amortization of principal and prepayments), earnings and
amortization on investments and mortgage-backed securities, maturing
investments, FHLB advances and other borrowed money. In fiscal 1995, the Bank
also received funds from the sale of $95 million of fixed rate mortgage loans
that had been securitized prior to sale. While scheduled loan amortization and
maturing securities and short-term investments are generally predictable sources
of funds, loan and mortgage-backed securities prepayments are greatly influenced
by general interest rates, economic conditions and competition. One of the risks
inherent in investing in mortgage-backed securities is the ability of such
instruments to incur prepayments of principal prior to maturity at prepayment
rates different than those estimated at time of purchase. This generally occurs
because of changes in market interest rates. In a rising interest rate
environment, for example, the level of prepayments on fixed rate mortgage-backed
securities and loans will typically decline, as will their market value.
Adjustable rate mortgage-backed securities and loans generally have less market
value volatility than do fixed rate products. At September 30, 1995, Eagle
Federal's loan and mortgage-backed securities portfolios were 73% and 63%
adjustable rate, respectively. The Company's liquidity is primarily derived from
and dependent on the ability of the Bank to pay dividends to the Company.
Principal uses of funds include loan originations, investments, payments of
interest on deposits, and payments to meet operating expenses. At September 30,
1995, the Company had approximately $49.2 million in loan commitments
outstanding including $23.5 million in available home equity lines of credit and
$9.9 million in amounts due borrowers for construction loan advances. It is
expected that these and future loans will be funded primarily by deposits, loan
repayments and sales, investment maturities and amortization and borrowings. The
Bank has the aggregate capacity to borrow up to $655.2 million in advances from
the FHLB of Boston and will continue to consider this source for borrowing. FHLB
advances at September 30, 1995 were $73.2 million, compared to $31.8 million at
September 30, 1994.
The Company purchases certain debt securities (including mortgage-backed
securities) with the intent and ability to hold to maturity for purposes of
earning interest income and meeting regulatory liquidity requirements. Events
which may be reasonably anticipated are considered when determining the
Company's intent and ablility to hold investment securities to maturity. Such
securities are classified as investment securities held to maturity and are
stated at cost adjusted for amortization of premiums and accretion of discounts.
Other debt securities are purchased and classified as available for sale.
Management will sell such securities from time to time and use the proceeds to
fund loans when deposit flows are not adequate, the rates offered on borrowed
funds are not favorable, and liquidity ratios support such sales. The Company
also occasionally sells available for sale securities to restructure an
asset/liability mismatch. Securities classified as available for sale, as well
as equity securities and mutual fund investments, are accounted for, in the
aggregate, at market value with any unrealized gain or loss being recorded as an
adjustment to shareholders' equity, net of income tax effect. At September 30,
1995, approximately $286 million, or 69% of Eagle's investment and
mortgage-backed securities portfolio, was classified as available for sale and
had a pre-tax net unrealized gain of $445,000.
During the year ended September 30, 1995, Eagle Federal sold $101.3 million of
investment and mortgage-backed securities producing net gains of $51,000 while
maturing investment securities totaled $15.2 million. During fiscal 1994,
investment securities sold totaled $2.8 million producing no gain or loss, while
maturing investment securities totaled $9.3 million. There were no
mortgage-backed securities sold in 1994.
The Bank is required by the OTS to meet minimum capital requirements, which
include tangible capital, core capital and risk-based capital requirements.
These capital requirements are applicable to the Bank only, do not consider
capital held at the holding company level, and require certain adjustments from
total Bank capital to arrive at the various regulatory capital amounts. The
Bank's actual capital as reported to the OTS at September 30, 1995 exceeded all
three requirements.
<PAGE>
The following chart sets forth the actual and required minimum levels of
regulatory capital for the Bank under applicable OTS regulations as of September
30, 1995:
(in thousands) Actual Percent Required Percent Excess
------ ------- -------- ------- ------
Core $80,751 6.59% $36,787 3.0% $43,964
Tangible 80,751 6.59% 18,385 1.5% 62,366
Risk-based 86,196 15.31% 44,743 8.0% 41,453
The OTS has proposed to increase the minimum required core capital ratio from
the current 3% level to a range of 4% to 5% for all but the most highly rated
financial institutions. While the OTS has not taken final action on such
proposal, it has adopted a prompt corrective action regulation that classifies
any savings institution that maintains a core capital ratio of less than 4% (3%
in the event the institution was assigned a composite 1 rating in its most
recent report of examination) as "undercapitalized." As of September 30, 1995,
the Bank had a core capital ratio of 6.59% and met the requirements for a "well
capitalized" institution.
On August 23, 1993, the OTS issued new regulations, effective January 1, 1994,
which add an interest-rate risk component to the risk- based capital
requirement. The OTS has delayed implementation of the new regulation and no
definitive date for implementation has been announced. Under the new regulation,
an institution is considered to have excess interest-rate risk if based upon a
200 basis point change in market interest rates, the market value of an
institution's capital changes by more than 2%. The new interest-rate risk
requirements are not expected to significantly affect the ability of the Bank to
meet the risk-based capital requirements.
The Company's ability to pay dividends to shareholders is substantially
dependent on funds received from its subsidiary, Eagle Federal. Under current
OTS regulations, because the Bank meets the OTS capital requirements, it may pay
out 100% of net income to date over the calendar year and 50% of surplus capital
existing at the beginning of the calendar year without supervisory approval. In
general, the Bank pays dividends to the Company only to the extent that funds
are needed to cover operating expenses and dividends paid to shareholders. At
September 30, 1995, the Bank has approximately $41.5 million in excess capital
over the OTS risk-based requirement, one half of which would be available for
declaration of dividends to the Company. The OTS regulations permit the OTS to
prohibit capital distributions under certain circumstances.
Asset/Liability Management
Net interest income, the primary component of the Company's net income, is
derived from the difference or "spread" between the yield on interest-earning
assets and the cost of interest-bearing liabilities. The Company has sought to
reduce its exposure to changes in interest rates by matching more closely the
effective maturities and repricings of its interest-sensitive assets and
liabilities. At the same time, the Company's asset and liability management
strategies also must accommodate customer demands for particular types of
deposit and loan products.
While much of the Company's asset and liability management efforts involve
strategies which increase the rate sensitivity of its loans and investments,
such as the sale of fixed rate loans, originations of adjustable rate loans and
purchases of adjustable rate mortgage-backed securities and short term
investments, it also uses certain techniques to reduce the rate sensitivity of
its deposits and borrowed money. Those techniques include attracting longer term
certificates of deposit when the market will permit, emphasizing core deposits
which are less sensitive to changes in interest rates, and borrowing through
long-term FHLB advances.
Mortgage & Home Equity Loans 9/30/94
Fixed 40%
Adjustable 60%
Mortgage & Home Equity Loans 9/30/95
Fixed 27%
Adjustable 73%
<PAGE>
Much of Eagle's strong loan origination activity in 1993 and 1994 was driven by
the relatively low interest rate environment that resulted in customers
refinancing their existing mortgage loans into lower rate, and generally fixed
rate, products. While loan origination activity was lower in fiscal 1995,
customer preference continued for fixed rate loans. That activity resulted in an
increase in the percentage of fixed rate mortgages in Eagle's loan portfolio. At
September 30, 1994, approximately 40% of Eagle's mortgage and home equity loan
portfolio was comprised of long term, fixed rate mortgage loans. During fiscal
1995, the Company securitized $154 million of fixed rate mortgage loans for sale
into the secondary market as mortgage-backed securities. As of September 30,
1995, $95 million of these securitized loans had been sold, with most of the
proceeds reinvested in adjustable rate mortgage-backed securities. The remaining
$59 million of securitized loans was sold in October, 1995. The purpose of this
strategy was to strengthen the Bank's ability to absorb the impact of future
interest rate changes, primarily in the event of a sustained rise in interest
rates. As a result of this activity, the long term, fixed rate component of
Eagle's mortgage and home equity loan portfolio at September 30, 1995 was
reduced to approximately 27% of total loans.
The Company measures its exposure to rate fluctuations on a quarterly basis
primarily by using a computer modeling system designed for banks such as Eagle
Federal. The computer modeling system quantifies the approximate impact on
Eagle's net interest income that would result from increases and decreases of up
to 400 basis points in interest rates. Under the model, interest rates are
assumed to move to specified levels based upon both a gradual and immediate (or
"shock") basis. The Board has established acceptable tolerances for changes in
net interest income under the different interest rate scenarios. For example,
the Board-approved tolerance for decreases in net interest income based upon the
model's prediction of the impact of an immediate 200 basis point increase in
interest rates is 20%. At September 30, 1995, according to the computer model
and using asset and liability repricing assumptions based on Eagle's historical
experience and industry data, if interest rates were to immediately increase by
200 basis points the negative impact on the Company's net interest income would
be within the Board-approved tolerance level.
The Company also monitors other indicators of interest-rate risk. Market value
of equity ("MVE") analysis is intended to address the change in equity value
arising from movements in interest rates. The MVE is estimated by valuing the
Bank's assets and liabilities. The extent to which assets have gained or lost
value in relation to the gains or losses of liabilities determines the
appreciation or depreciation in equity on a market value basis. MVE analysis can
be a good indicator of long term interest rate risk inherent in a balance sheet.
The Bank measures its market value risk on a quarterly basis under a variety of
interest rate environments. Eagle Federal's Board has also established
acceptable tolerances for changes in MVE under different interest rate
scenarios.
Another commonly used measure of interest rate risk exposure is reflected in the
Company's one-year cumulative gap, which is the difference between rate
sensitive assets and rate sensitive liabilities maturing or repricing within one
year. An asset or liability is said to be interest rate sensitive within a
specific period if it will mature or reprice within that period. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities, and is considered negative
when the amount of interest rate sensitive liabilities exceeds the amount of
interest rate sensitive assets.
At September 30, 1995, the Company's one-year gap was a positive 7.84% of total
assets. The Company's current asset/liability management strategy is to maintain
a one-year gap within a tolerance of plus or minus 15%. However, the Company
believes there are certain shortcomings inherent in the gap analysis and,
accordingly, does not rely solely on gap analysis as an accurate measure of
interest rate risk. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rates. The interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates on other types of assets and liabilities may lag behind
changes in market interest rates. Certain assets, such as adjustable-rate
mortgages, have features which restrict changes in interest rates on a
short-term basis and over the life of the assets. In the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the gap table. The ability of
many borrowers to service their debt may decrease in the event of an interest
rate increase.
Eagle has an Asset/Liability Management Committee which meets regularly and
reports at least quarterly to the Board of Directors. The Committee sets
interest-rate risk goals and formulates strategies to achieve those goals.
<PAGE>
Effect of Interest Rate Fluctuations
The Company's consolidated results of operations depend to a large extent on the
level of its net interest income, which is the difference between the interest
earned on its loan and investment portfolios versus the interest paid on its
deposits and borrowed funds. If the cost of funds increases faster than the
yield on loans and investments, net interest income will be reduced. Eagle
measures its interest-rate risk using simulation and gap analysis.
While Eagle uses various monitors of interest-rate risk, it is unable to predict
future fluctuations in interest rates or the specific impact thereof. The market
value of most of the Company's financial assets are sensitive to fluctuations in
market interest rates. Fixed rate investments, mortgage-backed securities and
mortgage loans decline in value as interest rates rise. Although Eagle's
investment and mortgage-backed securities portfolios have grown in recent
quarters, most of the growth has been in adjustable rate securities or short
term securities with maturities of less than two years. In addition, the Bank
sold $95 million of its fixed rate mortgages during fiscal 1995. Changes in
interest rates also can affect the amount of loans originated by Eagle as well
as the value of its loans and other interest-earning assets and its ability to
realize gains on the sale of such assets and liabilities. The extent to which
borrowers prepay loans also is affected by prevailing interest rates. When
interest rates increase, borrowers are less likely to prepay their loans;
whereas, when interest rates decrease, borrowers are more likely to prepay
loans. Funds generated by prepayments may be invested at a lower rate.
Prepayments may adversely affect the value of mortgage loans, the levels of such
assets that are retained in the portfolio, net interest income and loan
servicing income. Similarly, prepayments on mortgage-backed securities also may
affect adversely the value of these securities and interest income. Increases in
interest rates may cause depositors to shift funds from accounts that have a
comparatively lower cost such as regular savings accounts to accounts with a
higher cost such as certificates of deposit. If the cost of deposits increases
at a rate that is greater than the increase in yields on interest-earning
assets, the interest rate spread is negatively affected. Changes in the asset
and liability mix also affect the interest rate spread.
Although Eagle Federal's average annual net interest margin has been stable in
recent fiscal years, rapid changes in interest rates and/or changes in the shape
of the treasury yield curve can result in expansion or compression of the Bank's
net interest margin and a corresponding increase or decrease in earnings. For
example, a narrowing of the spread or difference between short term versus long
term interest rates (i.e. a flatter treasury yield curve) may lower the yield on
Eagle Federal's loan and investment portfolios more than it decreases the Bank's
cost of deposits and borrowed money, resulting in a shrinking net interest
margin and lower net interest income.
Asset Quality
At September 30, 1995, the Company had total non-performing assets in the amount
of $13.6 million, or 1.10% of total assets, including $11.2 million in
non-performing loans and $2.4 million in real estate owned and in-substance
foreclosures. Loan loss reserves totaled $7.5 million, or 67% of non-performing
loans. All loans are generally placed on a non-accrual basis when a loan is
contractually delinquent for more than three calendar months, when
collectability is doubtful or when legal action has been instituted. All of the
real estate owned and in-substance foreclosures are residential properties. The
large majority of the Company's non-performing assets are residential mortgage
and home equity loans. At September 30, 1995, Eagle had only $210,000 of
non-performing commercial real estate loans representing 1.5% of total
non-performing assets. In addition, Eagle had $2.7 million of restructured
residential mortgage loans at September 30, 1995 which were making monthly
payments as scheduled and accruing interest. The majority of these borrowers
have had short-term financial difficulties but currently meet income guidelines
and other underwriting criteria based on the terms of the restructured loans.
The terms of the restructured loans are consistent with loans currently written
on purchase money mortgages and refinances. Loan delinquencies (greater than 60
days) totaled $11.1 million, or 1.55% of total loans, at September 30, 1995
compared to $9.5 million, or 1.17% of total loans, at September 30, 1994. At
September 30, 1994 the Company had total non-performing assets in the amount of
$12.3 million, or 1.15% of total assets, including $8.0 million in
non-performing loans and $4.3 million in real estate owned and in-substance
foreclosures. During fiscal 1995, non-performing loans increased by $3.2 million
while total non-performing assets increased by $1.3 million. The increase in
non-performing loans can be attributed to the overall weakness in the
Connecticut economy. Slow job growth and a soft real estate market are factors
which impact a borrowers ability to repay debt. The Bank's level of
non-performing loans continues to compare favorably to other lenders in
Connecticut. During the year ended September 30, 1995 net loan charge-offs were
$2,354,000 compared to $1,394,000 during fiscal 1994. This increase can be
attributed to the charge-off of loans acquired from the Bank of Hartford.
<PAGE>
The following table represents a breakdown of non-performing assets as of
September 30, 1995:
<TABLE>
<CAPTION>
Total
Non-performing Real Estate Non-performing % of
(in thousands) Loans Owned Assets Total
<S> <C> <C> <C> <C>
Mortgage Loans:
Residential $9,419 $1,873 $11,292 83.2%
Commercial R.E. 210 -- 210 1.5%
Multi-family 209 519 728 5.4%
Land development 178 47 225 1.7%
Consumer loans 20 -- 20 0.1%
Home equity Loans 1,094 -- 1,094 8.1%
----- -- ----- ----
Total 11,130 $2,439 $13,569 100.0%
======= ====== ======= ======
</TABLE>
During fiscal 1995, the Bank enhanced its loan review function that assists in
identifying and evaluating potential problem loan relationships. Loan review
assists senior management in determining loan loss reserve levels in addition to
providing an independent assessment of loan asset quality. The integration of
this function and a reorganized counseling/collection effort has enhanced the
Bank's ability to assess the necessity of principal charge-offs and provided
opportunities to repair loan relationships with temporarily troubled borrowers.
Management added $1.5 million to the Bank's allowance for loan losses in 1995.
Management monitors the adequacy of the allowances for losses on loans and real
estate owned on an ongoing basis. Management has considered the results of the
loan review process, historical loss experience, the composition of the
portfolio which is predominately a lower risk residential portfolio and various
other trends and factors in concluding that the allowance is adequate at
September 30, 1995. While management uses available information to recognize
losses on loans and real estate owned, future additions to the allowances may be
necessary based on changes in economic conditions, particularly in Connecticut.
In connection with the determination of the allowances for loan losses and real
estate owned, management obtains independent appraisals for significant
properties.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for losses on
loans and real estate owned. Such agencies may require the Bank to recognize
additions to the allowances based on their judgments of information available to
them at the time of their examination. The OTS completed a regularly scheduled
examination of Eagle Federal during 1995 and no changes to the allowance for
loan losses were required at that time.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $8,311 $ 5,005 $4,011
Loans charged-off:
1-4 family mortgage loans (1,599) (942) (271)
Multi-family, commercial real estate and land loans (511) (496) (521)
Consumer loans (366) (68) (166)
----- ---- -----
Total loans charged-off (2,476) (1,506) (958)
Recoveries:
1-4 family mortgage loans 116 110 224
Multi-family, commercial real estate and land loans 5 -- 7
Consumer loans 1 2 13
- - --
Total recoveries 122 112 244
Provision for loan losses 1,500 1,200 1,708
Allowance acquired through purchase -- 3,500 0
-- ----- -
Balance at end of period 7,457 $ 8,311 $5,005
===== ======= ======
Ratio of net charge-offs to average loans outstanding during the period 0.28% 0.20% 0.11%
Allowance for loan losses to gross loans receivable (at period end) 1.03% 1.01% 0.75%
Allowance for loan losses to non-performing loans (at period end) 67% 104% 77%
</TABLE>
<PAGE>
Proposed Elimination of Federal Savings Association Charter
Legislation has been introduced in the House that would eliminate the federal
savings association charter by January 1, 1998. If such legislation is enacted,
Eagle would be required to convert its federal savings bank charter to either a
national bank charter or to a state depository institution charter. Pending
legislation also may result in Eagle becoming regulated at the holding company
level by the Board of Governors of the Federal Reserve System ("Federal
Reserve") rather than by the OTS. Regulation by the Federal Reserve could
subject Eagle to capital requirements that are not currently applicable to the
Company as a holding company under OTS regulation and may result in statutory
limitations on the type of business activities in which the Company may engage
at the holding company level, which business activities currently are not
restricted. The pending legislation is expected to provide relief as to
recapture of the bad debt deduction that otherwise would be applicable if Eagle
were unable to continue as a qualified savings institution for federal tax
purposes. The potential liability under this recapture was approximately $3.7
million as of September 30, 1995. Eagle is unable to predict whether such
legislation will be enacted or, if enacted, whether it will contain relief as to
bad debt deductions previously taken.
Savings Association Insurance Fund Recapitalization
The current financial condition of the Savings Association Insurance Fund
("SAIF") has resulted in the introduction of various legislation in both the
United States Senate ("Senate") and the United States House of Representatives
("House") to recapitalize the SAIF and then to merge the SAIF into the Bank
Insurance Fund ("BIF"). Both the Senate and the House legislation, as currently
proposed, would generally impose a special one-time assessment of approximately
85 cents per $100 of assessable SAIF deposits, which would apply retroactively
to approximately $708 million of assessable SAIF deposits at the Bank.
Accordingly, the proposed special one-time assessment has the potential for
significantly impacting fiscal 1996 earnings by approximately $3.6 million
after-tax. After the special assessment, it is proposed that SAIF premium rates
would then become the same as BIF rates until the funds are merged, which would
significantly reduce the Bank's federal deposit insurance premium going forward.
The Bank is unable to predict whether this legislation will be enacted or the
amount or applicable retroactive date of any one-time assessment or the rates
that would then apply to assessable SAIF deposits.
Financial Accounting Standards Board Releases
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan", was issued in May 1993 and amended by SFAS
No. 118 in October 1994. SFAS No. 114, as amended, which is effective for fiscal
years beginning after December 15, 1994, requires that creditors evaluate the
collectability of both contractual interest and contractual principal of all
loans when identifying impaired loans. When a loan is impaired, a creditor shall
measure impairment based on the present value of the expected future cash flows
discounted at the loan's effective interest rate, or the fair value of the
collateral if the loan is collateral-dependent. The creditor shall recognize
impairment by creation of a valuation allowance. SFAS No. 114 allows the
exclusion of large groups of small- balance homogenous loans that are
collectively evaluated for impairment such as residential and consumer loans.
Therefore, the provisions of SFAS No. 114 will be applied to the following loan
types within the loan portfolio; construction loans, land loans, commercial
mortgages, multi-family loans and commercial loans. The adoption of SFAS No.
114, as amended, will have no impact on earnings.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," was issued in May 1995
and is effective for fiscal years beginning after December 15, 1995. Earlier
application is permitted. SFAS No. 122 requires the capitalization of mortgage
servicing rights acquired through either purchase of mortgage loan servicing or
origination and sale or securitization of mortgage loans with retention of
servicing. SFAS No. 122 also requires the analysis of capitalized mortgage
servicing rights for impairment to be based on the fair value of the rights. The
Company has not decided whether SFAS No. 122 will be adopted prior to the
required effective date. The effect of adoption by the Company will vary based
on the extent of mortgage servicing rights existing upon adoption and mortgage
servicing rights acquired subsequent to adoption. At this time, the adoption of
SFAS No. 122 is not expected to have a material effect on the Company's
financial position or results of operations.
The Financial Accounting Standards Board ("FASB") has issued a Special Report, A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities that provides additional guidance relating to the
application of SFAS No. 115. The Company adopted SFAS No. 115 on October 1,
1994. In connection with the issuance of
<PAGE>
this Special Report the FASB is allowing all organizations to review their
current portfolio classification between held to maturity, available for sale
and trading and make a one-time reclassification of securities between
categories during the period from November 15, 1995 to December 31, 1995. Eagle
anticipates that a reassessment of the classifications of its portfolio will
take place within the prescribed time period, and will most likely involve the
transfer of certain held to maturity securities to the available for sale
classification.
Comparison of Years Ended September 30, 1995 and 1994
Net Income -- Eagle had net income of $11.0 million, or $2.38 per share on a
fully diluted basis, for the year ended September 30, 1995 compared to $7.6
million, or $2.12 per share, in the prior fiscal year. This represents an
increase of $3.4 million, or 45%, in net income and $0.26, or 12%, in earnings
per share. Net interest income increased by $8.9 million, or 29%, in fiscal 1995
while other income increased by $1.2 million, or 39%. Provisions for loan losses
were $300,000, or 25% higher in the current fiscal year and other expenses
increased by $4.2 million, or 21%. Income taxes were $7.7 million for the year
ended September 30, 1995 versus $5.4 million in the prior year representing an
increase of $2.3 million, or 44%.
Interest Income -- Interest income increased by $22.8 million, or 38%, in fiscal
1995 as a result of a $237 million, or 27%, increase in average interest earning
assets in addition to an increase in the average yield on loans receivable,
mortgage-backed and investment securities from 6.96% to 7.53%. The strong growth
in interest earning assets was primarily driven by the acquisition of the Bank
of Hartford in June, 1994. The increase in average interest earning assets
includes a $116 million increase in average loans receivable and a $121 million
increase in average mortgage-backed and investment securities.
Net Interest Margin for the year ended September 30,
1995 3.63%
1994 3.60%
1993 3.64%
1992 3.59%
1991 3.43%
Interest Expense -- Interest expense increased by $13.9 million, or 48%, during
the twelve months ended September 30, 1995. The increase was due to an increase
in the average cost of deposits and borrowed money from 3.55% to 4.10%, along
with a $228 million, or 28%, increase in the average balance of these funds.
Approximately 35% of the average balance increase is attributable to FHLB
advances and other borrowings whose combined average cost for fiscal 1995 was
6.18%. The growth in the average balance was largely attributable to the Bank of
Hartford acquisition.
Net Interest Income -- Net interest income increased $8.9 million, or 29%, in
fiscal 1995 to $40.0 million from $31.1 million for the twelve months ended
September 30, 1994. The increase is attributable to growth in earnings assets
whereas the Bank's interest rate spread and net interest margin were relatively
stable in 1995. Eagle's interest rate spread and net interest margin were 3.43%
and 3.63%, respectively, in fiscal 1995 compared to 3.41% and 3.60%,
respectively, in the prior fiscal year.
Provision for Loan Losses -- Eagle added provisions of $1.5 million to its
allowance for loan losses during the year ended September 30, 1995. This
compares to $1.2 million in loan loss provisions for the year ended September
30, 1994. Net loan charge-offs for fiscal 1995 were $2.5 million, or .28% of
average loans receivable versus $1.5 million, or .20% of average loans
receivable, for fiscal 1994. The increased provision in fiscal 1995 reflects
management's analysis of the risk elements of the loan portfolio, current
delinquency and payment trends (including the increased level of loan
charge-offs in 1995). At September 30, 1995, Eagle's allowance for loan losses
was $7.5 million, or 67% of loans receivable, compared to $8.3 million, or 104%
of loans receivable, one year earlier.
Other Income -- Other income increased $1.2 million, or 39%, to $4.4 million for
the twelve months ended September 30, 1995 from $3.2 million for the same period
in 1994. The increase is attributable primarily to increases in customer service
fees, loan servicing fees and other non-interest income. Fiscal 1995 also
includes a gain from the securitization of
<PAGE>
fixed rate loans classified as held for sale of $244,000 compared to $120,000
recorded from the sale of loans during the year ended September 30, 1994.
Other Expenses -- Other expenses for the twelve months ended September 30, 1995
increased $4.2 million, or 21%, to $24.3 million compared to $20.1 million for
the twelve month period ended September 30, 1994. Compensation and benefits were
higher by $1.4 million, or 14%, in 1995. The net increase results primarily from
higher expenses in fiscal 1995 related to the cost of staffing the six
additional branch offices acquired as part of the Bank of Hartford acquisition
partially offset by a one time expense in fiscal 1994 of $740,000 before taxes
relating to the retirement of two senior officers. A $485,000, or 22%, increase
in office occupancy expenses also reflects the impact of the Bank of Hartford
transaction as does the $667,000 increase in amortization of intangible assets
principally due to the goodwill recorded as a result of the transaction. A
reduction in the Bank's net foreclosed real estate from $4.3 million at
September 30, 1994 to $2.4 million at September 30, 1995 is reflected in a
reduction of $616,000, or 45%, in the cost of real estate owned operations in
fiscal 1995. The Bank of Hartford acquisition also resulted in higher operating
expenses in a number of other areas including federal deposit insurance,
advertising, data processing expenses, office supplies, postage and telephone.
Income Taxes -- The increase in net income before income taxes and cumulative
effect of accounting changes in fiscal 1995 versus 1994 is reflected in a $2.3
million, or 44%, increase in income taxes for the year ended September 30, 1995
over the prior year.
Comparison of Years Ended September 30, 1994 and 1993
Net Income -- Net income for the year ended September 30, 1994 was $7.6 million,
or $2.12 per share on a fully diluted basis, compared to $6.2 million, or $1.77
per share, for the year ended September 30, 1993. Net interest income for fiscal
1994 increased $3.8 million, or 14%, over the prior twelve months. Other income
increased $662,000, or 26%, in 1994, while operating expenses increased $3.8
million, or 23%.
Interest Income -- Interest income increased $4.3 million, or 8%, during fiscal
1994 as a result of a $113 increase in average interest-earning assets which was
partially offset by a drop in the average yield on interest-earning assets from
7.43% in 1993 to 6.96% in 1994. The growth in earning assets is attributable to
a high level of loan originations in 1994 funded with deposits, FHL Bank
advances and investment maturities and amortizations. Also contributing to the
growth in earning assets for part of the year was the Bank of Hartford
transaction in June, 1994.
Interest Expense -- Interest expense was $29.0 million in fiscal 1994, an
increase of $547,000, or 2%, over fiscal 1993. The relatively small increase was
due primarily to a drop in the cost of funds from 4.03% in 1993 to 3.55% in
1994, which substantially offset a $111 million increase in average deposits and
borrowed money in 1994.
Net Interest Income -- Net interest income increased by $3.8 million, or 14%, in
fiscal 1994. The increase was largely driven by growth in earning assets while
the average interest rate spread was relatively stable. The average interest
rate spread increased only slightly from 3.40% to 3.41% while the net interest
margin declined from 3.64% to 3.60%.
Provision for Loan Losses -- Eagle added provisions of $1.2 million to its
allowance for loan losses in fiscal 1994 compared to $1.7 million in fiscal
1993. Net charge-offs for 1994 were $1.5 million, or .20% of average loans
receivable. The decreased provision in 1994 reflects management's analysis of
the risk elements of the loan portfolio, current delinquency and payment trends.
At September 30, 1994, Eagle's allowance for loan losses was $8.3 million, or
1.03% of loans receivable compared to $5.0 million, or .76%, one year earlier.
The allowance for loan losses at September 30, 1994 includes $3.5 million added
to the allowance as part of the Bank of Hartford transaction.
Other Income -- Non-interest income increased $662,000, or 26%, during the
twelve month period ended September 30, 1994 over the same period of 1993 and
represents increases in fees for various services relating to loan and deposit
products, as well as an increase in the number of loan and deposit accounts
relating to the newly acquired Bank of Hartford transactions. In addition, the
increase includes $120,000 net gain on sale of mortgage loans.
<PAGE>
Other Expenses -- Non-interest expenses increased $3.8 million, or 23%, to $20.1
million in 1994 compared to $16.3 million in 1993. Compensation and benefits
expenses were higher by $2.3 million, or 31 %, and include $740,000 of one-time
expenses relating to the retirement of two senior officers in 1994. Other
factors contributing to the higher compensation and benefits were an increase in
pension costs in 1994 because the Company's pension plan was over-funded for
part of 1993 and required lower contributions, higher post-retirement benefits
expenses relating to the adoption of Statement of Accounting Standards No. 106
(see Note 16 in the Consolidated Financial Statements), and higher compensation
relating to additional staffing as a result of the Bank of Hartford transaction.
Higher provisions for losses on real estate owned in 1994 reflects Eagle's
current strategy to sell properties more aggressively than in the past. Higher
office occupancy costs are due in part to the operation of six former Bank of
Hartford branches for part of the year. The Bank of Hartford transaction also
resulted in higher operating expenses in a number of other areas including
federal deposit insurance, data processing expenses, office supplies, postage,
telephone and amortization of intangible assets.
Income Taxes -- Income tax expense was $5.4 million in fiscal 1994 versus $5.6
million in fiscal 1993. Notwithstanding the higher income during the 1994 period
as compared to the 1993 period, income tax expense was $284,000 less for the
1994 period. As a result of the adoption of Statement of Accounting Standard
No.109 (See Note 12 inConsolidated Financial Statements), Eagle is permitted a
tax benefit for certain real estate owned and loan loss provisions that was not
allowed under prior accounting rules.
Cumulative Effect of Accounting Changes -- Eagle was required to adopt two
accounting pronouncements in the first quarter of fiscal 1994. The cumulative
effect of these accounting changes, net of related tax benefits, was to reduce
net income by approximately $30,000 during the twelve months ended September 30,
1994. The adoption of SFAS No. 109, "Accounting for Income Taxes", resulted in
recognition of a tax benefit of approximately $1.3 million during the twelve
months ended September 30, 1994. The adoption of SFAS No. 106, "Accounting for
Postretirement Benefits Other than Pensions", resulted in a one-time cumulative
adjustment that, net of the related tax benefit, reduced net income by
approximately $1.3 million.
<PAGE>
The following table sets forth certain information relating to the Company's
average interest-earning assets and interest-bearing liabilities and reflects
the average yield on assets and the average cost of liabilities for the periods
and at the dates indicated. During the periods indicated, non-accrual loans are
included in the net loans receivable category:
<TABLE>
<CAPTION>
Years ended September 30,
1995 1994 1993
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(in thousands) Balance Expense Cost Balance Expense Cost Balance Expense Cost
------- ------- ---- ------- ------- ---- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (a) $ 827,127 $63,227 7.64% $711,302 $51,250 7.21% $625,446 $48,614 7.77%
Mortgage-backed securities
available for sale 59,961 5,530 9.22% -- -- -- -- -- --
Mortgage-backed securities 85,531 5,606 6.55% 38,760 2,645 6.82% 29,668 1,859 6.27%
Investment securities
available for sale 64,971 3,944 6.07% 17,197 810 4.71% 11,191 478 4.27%
Investment securities (d) 44,781 3,505 7.83% 78,312 4,596 5.87% 67,752 4,279 6.32%
Overnight investments
and Federal Funds sold 18,645 1,085 5.82% 18,278 786 4.30% 16,296 524 3.22%
------ ----- ----- ------ --- ----- ------ --- -----
Total 1,101,016 82,897 7.53% 863,849 60,087 6.96% 750,353 55,754 7.43%
Interest-bearing liabilities:
Deposits (b) 941,371 36,449 3.87% 792,833 27,648 3.49% 700,003 27,960 3.99%
FHLB advances 59,599 3,646 6.12% 21,968 1,266 5.76% 5,629 494 8.78%
Borrowings 44,516 2,785 6.26% 2,450 102 4.16% 416 15 3.61%
------ ----- ----- ----- --- ----- --- -- -----
Total $1,045,486 $42,880 4.10% $817,251 $29,016 3.55% $706,048 $28,469 4.03%
---------- ------- ----- -------- ------- ----- -------- ------- -----
Net interest income $40,017 $31,071 $27,285
======= ======= =======
Average interest rate spread 3.43% 3.41% 3.40%
Net interest margin (c) 3.63% 3.60% 3.64%
<FN>
(a) Interest income includes fees of $284,000, $937,000, and $574,000,in 1995,
1994, and 1993, respectively.
(b) Includes non-interest bearing demand deposits which averaged $24.1
million, $17.4 million and $10.8 million for fiscal 1995, 1994 and 1993,
respectively; had these demand deposits been excluded above the overall
cost of funds would have been 4.20%, 3.63% and 4.09% for fiscal 1995, 1994
and 1993, respectively.
(c) Net interest income divided by average interest-earning assets.
(d) Investment securities include FHLB stock.
</FN>
</TABLE>
<PAGE>
The following table allocates the period-to-period changes in the Company's
various categories of interest income and interest expense between changes due
to changes in volume (calculated by multiplying the change in average volume of
the related interest-earning asset or interest-bearing liability category by the
prior year's rate), changes due to changes in rate (change in rate multiplied by
prior year's volume) and changes due to changes in rate-volume (changes in rate
multiplied by changes in volume):
<TABLE>
<CAPTION>
Years ended September 30,
1995 v. 1994 1994 v. 1993
Rate/ Rate/
(in thousands) Rate Volume Volume Total Rate Volume Volume Total
---- ------ ------ ----- ---- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $3,123 $ 8,345 $ 509 $11,977 $(3,550) $6,673 $(487) $2,636
Mortgage-backed securities available
for sale -- -- 5,530 5,530 -- -- -- --
Mortgage-backed securities (105) 3,192 (126) 2,961 165 570 51 786
Investment securities available
for sale 234 2,250 650 3,134 49 256 27 332
Investment securities (a) 1,533 (1,968) (656) (1,091) (305) 667 (45) 317
Overnight investments and
Federal Funds sold 278 16 5 299 176 64 22 262
--- -- - --- --- -- -- ---
Total 5,063 11,835 5,912 22,810 (3,465) 8,230 (432) 4,333
Interest-bearing liabilities:
Deposits 3,050 5,180 571 8,801 (3,549) 3,708 (471) (312)
FHLB advances 78 2,169 133 2,380 (170) 1,434 (492) 772
Other Borrowings 51 1,751 881 2,683 3 73 11 87
-- ----- --- ----- - -- -- --
Total 3,179 9,100 1,585 13,864 (3,716) 5,215 (952) 54
----- ----- ----- ------ ------- ----- ----- --
Net change in net interest income $1,884 $ 2,735 $4,327 $ 8,946 $ 251 $3,015 $ 520 $3,786
====== ======= ====== ======= ======= ====== ===== ======
<FN>
(a) Investment securities include FHLB stock.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Assets
September 30,
(in thousands, except for share data) 1995 1994
---- ----
<S> <C> <C>
Cash and amounts due from depository institutions $ 22,670 $ 21,549
Interest-bearing deposits 40,637 3,103
------ -----
Cash and cash equivalents 63,307 24,652
Investment securities available for sale
(amortized cost: $67,311 in 1995 and $17,615 in 1994) 66,646 16,936
Investment securities held to maturity
(market value: $42,445 in 1995 and $95,228 in 1994) 42,969 97,249
Mortgage-backed securities available for sale
(amortized cost $218,220 in 1995) 219,330 --
Mortgage-backed securities held to maturity
(market value: $84,861 in 1995 and $67,224 in 1994) 83,132 68,706
Loans held for sale 2,467 --
Loans, net of allowance for loan losses of
$7,457 in 1995 and $8,311 in 1994 713,545 810,705
Accrued interest receivable:
Loans 4,900 5,119
Investment securities 972 253
Mortgage-backed securities 2,608 760
Real estate owned, net 2,439 4,310
Stock in Federal Home Loan Bank of Boston, at cost 8,945 6,535
Premises and equipment, net 8,066 7,255
Prepaid expenses and other assets 17,960 27,796
------ ------
Total Assets $1,237,286 $1,070,276
========== ==========
Liabilities & Shareholders' Equity
Liabilities:
Deposits $ 951,751 $ 948,829
Federal Home Loan Bank advances 73,150 31,775
Reverse repurchase agreements and other borrowed money 82,317 7,817
Advance payments by borrowers for taxes and insurance 5,498 5,522
Accrued expenses and other liabilities 32,110 10,057
------ ------
Total Liabilities 1,144,826 1,004,000
Shareholders' Equity:
Serial preferred stock, $.01 par value,
2,000,000 shares authorized and unissued -- --
Common stock, $.01 par value, 8,000,000 shares authorized;
4,507,197 and 3,174,977 shares issued at September 30, 1995
and 1994, respectively, including 47,373 and
43,066 shares held in treasury 45 32
Additional paid-in capital 59,514 34,613
Retained earnings 33,092 33,139
Cost of common stock in treasury (362) (362)
Employee stock ownership plan debt (94) (467)
Net unrealized gain (loss) on available for sale securities 265 (679)
Total Shareholders' Equity 92,460 66,276
------ ------
Total Liabilities and Shareholders' Equity $1,237,286 $1,070,276
========== ==========
</TABLE>
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended September 30,
(in thousands, except for per share data) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $63,227 $51,250 $48,614
Interest on mortgage-backed securities 11,136 2,645 1,859
Interest on investment securities 6,012 3,926 3,876
Dividends on investment securities 1,437 1,480 881
Interest on overnight investments 1,085 676 514
Interest on Federal funds sold -- 110 10
-- --- --
Total interest income 82,897 60,087 55,754
Interest expense:
Interest on deposits 36,449 27,648 27,960
Interest on Federal Home Loan Bank advances 3,646 1,266 494
Interest on borrowed money 2,785 102 15
----- --- --
Total interest expense 42,880 29,016 28,469
------ ------ ------
Net interest income 40,017 31,071 27,285
Provision for loan losses 1,500 1,200 1,708
----- ----- -----
Net interest income after provision
for loan losses 38,517 29,871 25,577
Non-interest income:
Net gain (loss) on sale of securities (42) -- 52
Net gain on sale of loans 244 120 --
Customer service fee income 2,847 2,096 1,688
Other 1,352 950 764
----- --- ---
Total non-interest income 4,401 3,166 2,504
----- ----- -----
42,918 33,037 28,081
Non-interest expense:
Compensation, taxes and benefits 11,088 9,703 7,398
Office occupancy 2,687 2,202 1,856
Advertising 949 571 534
Net cost of real estate owned operations 744 1,360 977
Federal insurance premium 2,110 1,597 1,459
Data processing expenses 1,578 1,257 1,076
Amortization of intangible assets 1,414 747 375
Other 3,689 2,651 2,617
----- ----- -----
Total non-interest expense 24,259 20,088 16,292
Income before income taxes and
cumulative effect of accounting changes 18,659 12,949 11,789
Income taxes 7,687 5,353 5,637
----- ----- -----
Income before cumulative effect of
accounting changes 10,972 7,596 6,152
Cumulative effect of accounting changes -- (30) --
-- ---- --
Net income $10,972 $ 7,566 $ 6,152
======= ======= =======
Income per primary share:
Income before cumulative effect of
accounting changes $ 2.41 $ 2.14 $ 1.79
Cumulative effect of accounting changes -- (0.01) --
-- ------ --
Net income $ 2.41 $ 2.13 $ 1.79
======= ======= =======
Income per fully diluted share:
Income before cumulative effect of
accounting changes $ 2.38 $ 2.13 $ 1.77
Cumulative effect of accounting changes -- (0.01) --
-- ------ --
Net income $ 2.38 $ 2.12 $ 1.77
========= ======== ========
<FN>
Note: All per share data for all periods and dates prior to September 30, 1995
have been adjusted retroactively to give effect to a 10% stock dividend to
common shareholders of record on February 15, 1995.
</FN>
</TABLE>
<PAGE>
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
Cost of Gain(Loss) on Employee
Common Stock Additional Common Available Stock
------------ Paid-in Retained Stock in For Sale Ownership
(in thousands, except for per share data) Shares Amount Capital Earnings Treasury Securities Plan Debt Total
------ ------ ------- -------- -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1992 2,731 $27 $27,640 $28,707 $(362) $ -- $(1,008) $55,004
Net income 6,152 6,152
Cash dividends declared, $0.57 per share (1,910) (1,910)
Reduction in debt related to Employee
Stock Ownership Plan 256 256
Exercise of stock options and other 79 1 686 687
Common stock dividend declared 10%,
less fractional shares 273 3 5,009 (5,021) (9)
Dividend reinvestment plan 14 227 227
-- --- ---
Balance at September 30, 1993 3,097 31 33,562 27,928 (362) -- (752) 60,407
Net income 7,566 7,566
Cash dividends declared, $0.69 per share (2,355) (2,355)
Reduction in debt related to Employee
Stock Ownership Plan 285 285
Exercise of stock options and other 48 1 486 487
Dividend reinvestment plan 30 565 565
Increase in net unrealized loss on
available for sale securities (679) (679)
----- -----
Balance at September 30, 1994 3,175 32 34,613 33,139 (362) (679) (467) 66,276
Net income 10,972 10,972
Cash dividends declared, $0.82 per share (3,627) (3,627)
Reduction in debt related to Employee
Stock Ownership Plan 373 373
Exercise of stock options and other 37 455 455
Dividend reinvestment plan 28 418 418
Common stock dividend declared
10%, less fractional shares 405 4 7,380 (7,392) (8)
Common stock offering 862 9 16,648 16,657
Unrealized loss upon adoption of
SFAS 115 on October 1, 1994 (357) (357)
Change in unrealized gain (loss) on
available for sale securities 1,301 1,301
----- -----
Balance at September 30, 1995 4,507 $45 $59,514 $33,092 $(362) $ 265 $ (94) $92,460
===== === ======= ======= ====== ======= ======== ========
<FN>
Note: All per share data for all periods and dates prior to September 30, 1995
have been adjusted retroactively to give effect to a 10% stock dividend to
common shareholders of record on February 15, 1995.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended September 30,
(in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income $10,972 $ 7,566 $ 6,152
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Provision for loan losses 1,500 1,200 1,708
Provision for losses on real estate owned 333 675 287
Provision for depreciation and amortization 775 613 603
Accretion of discounts and fees on loans (238) (937) (574)
Amortization of premiums (accretion of discounts) on
investment and mortgage-backed securities (812) 45 110
Amortization of core deposit and other intangibles 1,414 747 375
Realized (gain) loss on sale of real estate owned (125) 18 (48)
Realized (gain) loss on sale of securities, net 42 -- (52)
Realized gain on sale of loans (244) (120) --
Increase in loans held for sale (2,467) -- --
Decrease (increase) in accrued interest receivable (2,348) (317) 146
Decrease (increase) in prepaid expenses and other assets 8,242 (12,655) 7,049
Loan origination fees 352 1,016 1,318
Increase (decrease) in accrued expenses and other liabilities 1,837 1,888 (1,286)
----- ----- ------
Net cash provided (used) by operating activities 19,233 (261) 15,788
------ ----- ------
Investing Activities:
Proceeds from sales of investment securities available for sale 2,210 2,800 7,998
Proceeds from sales of investment securities prior to maturity -- -- 4,032
Proceeds from maturities of investment securities 15,200 9,300 6,350
Principal payments on investment securities available for sale 6,262 -- --
Principal payments on investment securities 4,512 20,530 19,526
Purchases of investment securities available for sale (5,742) (4,800) (10,000)
Purchases of investment securities (7,892) (61,474) (4,415)
Proceeds from sales of trading securities 83,909 -- --
Principal payments on mortgage-backed securities available for sale 10,768 -- --
Principal payments on mortgage-backed securities 12,479 11,096 5,691
Purchases of mortgage-backed securities available for sale (141,850) -- --
Purchases of mortgage-backed securities (48,764) (7,135) --
Proceeds from sales of mortgage-backed securities available for sale 11,164 -- --
Proceeds from sales of mortgage-backed securities prior to maturity 4,032 -- --
Principal payments on loans receivable 95,847 129,877 115,111
Loan originations (155,666) (219,904) (209,901)
Loan purchases (130) (2,507) --
Proceeds from sales of loans 152 11,153 698
Decrease in real estate owned 442 1,018 476
Proceeds from sales of real estate owned 3,444 2,580 3,636
Purchases of premises and equipment (1,586) (844) (729)
Increase in investment in Federal Home Loan Bank stock (2,410) (586) (1,610)
Aquisition of loans, investments and other assets -- (155,724) --
-- --------- --
Net cash used by investing activities (113,619) (264,620) (63,137)
--------- --------- --------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years ended September 30,
(in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Financing Activities:
Net increase (decrease) in passbook, NOW and Money Market accou (55,609) 8,699 18,761
Net increase (decrease) in certificates of deposit 58,531 (38,836) 1,554
Assumption of deposits and liabilities of acquired banks -- 275,986 8,198
Borrowings under Federal Home Loan Bank advances 195,875 53,275 10,000
Principal payments under Federal Home Loan Bank advances (154,500) (37,000) --
Net increase (decrease) in borrowed money 74,873 7,065 (1,074)
Net decrease in advance payments by borrowers for taxes and insurance (24) (311) (259)
Proceeds from exercise of stock options and dividends reinvested 873 1,052 914
Payment of fractional shares from stock dividend (8) -- (9)
Proceeds from common stock offering 16,657 -- --
Cash dividends (3,627) (2,355) (1,910)
------- ------- -------
Net cash provided by financing activities 133,041 267,575 36,175
------- ------- ------
Increase (decrease) in cash and cash equivalents 38,655 2,694 (11,174)
Cash and cash equivalents at beginning of period 24,652 21,958 33,132
------ ------ ------
Cash and cash equivalents at end of period $ 63,307 $ 24,652 $ 21,958
========== ========= ========
Non-cash investing activities:
Transfer of investment securities to investment
securities available for sale $ 53,124 $ -- $ --
Transfer of mortgage-backed securities to
mortgage-backed securities available for sale 18,529 -- --
Securitization of loans into mortgage-backed securities available for sale 69,455 -- --
Securitization of loans into trading mortgage-backed securities 83,909 -- --
Securities purchased but not yet settled 20,216 -- --
Transfers of loans to foreclosed real estate 2,223 3,130 3,419
===== ===== =====
Supplemental cash flow information:
Interest paid $ 42,146 $ 29,159 $ 27,788
Income taxes paid $ 8,690 $ 6,078 $ 5,520
</TABLE>
Notes to Consolidated Financial Statements
1. Accounting Policies
Principles of Consolidation
Eagle Financial Corp. (the "Company") is the savings bank holding company for
Eagle Federal Savings Bank ("Eagle Federal" or the "Bank"), a
federally-chartered savings bank. Prior to January 1, 1993, the Company had two
bank subsidiaries, Bristol Federal Savings Bank and First Federal Savings and
Loan Association of Torrington. Effective January 1, 1993, the two bank
subsidiaries were combined into one subsidiary, Eagle Federal Savings Bank. All
significant intercompany balances and transactions have been eliminated.
Basis of Financial Statement Presentation
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to change in the near term
relate to the determination of the allowance for loan losses and the valuation
of real estate owned. In connection with the determination of the allowance for
loan losses and the valuation of real estate owned, management obtains
independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
real estate owned, future additions to the allowance or write-downs may be
necessary based on changes in economic conditions, particularly in Connecticut.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's
<PAGE>
allowance for loan losses and value of real estate owned. Such agencies may
require the Bank to recognize additions to the allowance or write-downs based on
their judgment of information available to them at the time of their
examination.
Investment and Mortgage-Backed Securities
As of October 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." SFAS No. 115 requires the classification of securities into
one of three categories; trading, available for sale, and held to maturity.
Securities for which management has the positive intent and ability to hold
until maturity are classified as held to maturity and are carried at cost,
adjusted for amortization of premiums andaccretion of discounts over the
estimated terms of the securities utilizing a method the result of which
approximates a level yield. Securities that management intends to hold for an
indefinite period of time are classified as available for sale and are carried
at fair value with unrealized gains or losses reported as a separate component
of shareholders' equity, net of income taxes. Included in securities available
for sale are securities created through the securitization of loans held in the
Bank's loan portfolio. Securities classified as trading are carried at fair
value with unrealized gains and losses included in income. The Company has no
securities classified as trading as of September 30, 1995. All marketable equity
securities and mutual funds are classified as available for sale.
Prior to 1995, marketable equity securities and mutual funds were classified as
available for sale since they have no stated maturity and were carried at the
lower of aggregate cost or market value. A valuation allowance was established
and charged to shareholders' equity for the amount that the aggregate market
value of the available for sale securities portfolio was less than the book
value of the portfolio. Other securities were stated at cost, adjusted for
amortization of premiums and accretion of discounts over the estimated terms of
the securities utilizing a method the result of which approximates a level
yield.
Upon adoption of SFAS No. 115, $71.7 million of investment and mortgage-backed
securities were classified as available for sale which resulted in the net
unrealized loss on these securities of $1.0 million, net of an income tax
benefit of $358,000, being shown as a reduction to shareholders' equity. As of
September 30, 1995, the investment and mortgage-backed securities classified as
available for sale resulted in a net unrealized gain of $265,000, net of income
tax expense of $180,000, a change of $1.3 million from the result reported at
adoption.
Gains or losses on the sale of investment and mortgage-backed securities are
computed by the specific identification method. Unrealized losses on investment
securities that are determined to be other than temporary are charged to income.
Revenue Recognition
Interest on loans is accrued and credited to income based upon the principal
amount outstanding. The accrual of interest income is generally discontinued
when a loan becomes 90 days past due as to principal or interest. Management may
elect to continue the accrual of interest when the estimated fair value of
collateral is sufficient to cover the principal balance and accrued interest.
Net premiums on loans purchased are recognized in interest income over the lives
of the loans using a method the result of which approximates a level yield.
Loan origination fees and certain direct loan origination costs are deferred and
the net amount amortized as an adjustment to the related loan's yield using a
method the result of which approximates a level yield. The Company is generally
amortizing these amounts over the contractual life of the related loans.
Amortization of deferred amounts is suspended when a loan becomes non-accrual
and does not begin again until the loan is returned to accrual status.
Loans Held for Sale
First mortgage loans held for sale in the secondary market are carried at the
lower of aggregate cost or market value. Management estimates the market value
of its portfolio held for sale based on outstanding investor commitments or
current investor yield requirements, whichever is more readily apparent.
Securitization of loans held for sale result in the classification of the
resultant securities as trading securities.
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb probable losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors. The
allowance for loan losses is increased through provisions for loan losses
charged against income. Loans are charged against the allowance when management
has concluded the collectibility of loan principal is unlikely. Recoveries of
amounts previously charged off are credited to the allowance.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation
computed generally by the straight-line method at rates based on estimated
useful lives. Amortization of leasehold improvements is computed on a
straight-line basis over the terms of related leases or the estimated useful
lives, whichever is shorter.
Real Estate Owned
Real estate owned is composed of properties acquired through foreclosure
proceedings, acceptance of a deed in lieu of foreclosure, or loans designated
in-substance foreclosed real estate. The Bank considers a property in-substance
foreclosed when it is determined that a borrower has little or no equity in a
property collateralizing a loan, proceeds for repayment of the loan can be
expected to come only from the operation or sale of the collateral, and it is
doubtful that the equity can be rebuilt in the foreseeable future. At the time
these properties are foreclosed or are designated in-substance foreclosed real
estate, they are recorded at the lower of cost or fair value less selling costs
through a direct charge against the allowance for loan losses. Losses in value
subsequent to foreclosure or in-substance foreclosure classification are
recorded as a provision (charge) against income. Gains and losses from the sale
of real estate owned is recorded in income when realized.
Goodwill and Identifiable Intangibles
Because of the earning power or other special values of certain acquired banks
or bank branches, the Company paid amounts in excess of fair value of core
deposits assumed and tangible assets purchased. Generally, such amounts are
being amortized by systematic charges to income over a period no greater than
the estimated remaining life of the assets acquired or not exceeding the
estimated average remaining life of the existing deposit base assumed (primarily
for periods from 6 to 15 years). On an ongoing basis, management assesses the
recoverability of the intangible assets. If an assessment of the intangible
asset indicates that its' recoverability is impaired, a charge to the statement
of income is recorded for the amount of impairment.
Loan Servicing Rights
Loan servicing fees earned from the servicing of loans for others are recorded
as income when received. Acquisition costs of purchased loan servicing rights
are amortized over the estimated period of servicing revenue. The purchased
servicing right is evaluated periodically for recoverability and should the
evaluation indicate that recoverability is impaired, a charge to the statement
of income is recorded for the amount of impairment.
Income Taxes
The company files consolidated state and federal income tax returns.
In February 1992, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 109, "Accounting for Income Taxes." This Statement required a change from
the deferred method of accounting for income taxes to the asset and liability
method of accounting for income taxes. Under the asset and liability method of
this Statement, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No.109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company adopted SFAS No.109 on October 1, 1993 and has reported the benefit
of the cumulative effect of $1,273,000 in the statement of income for the year
ended September 30, 1994.
<PAGE>
Prior to adoption of SFAS No.109, the Company recognized income taxes under the
deferred method of APB Opinion 11. Items of income and expense recognized in
different time periods for financial reporting purposes and for purposes of
computing income taxes currently payable gave rise to deferred income taxes.
Cash Flows
Cash and cash equivalents include cash and amounts due from depository
institutions and interest-bearing deposits.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted-average
common shares and common stock equivalents, if dilutive, outstanding during the
year based on the treasury stock method. Weighted average common shares
outstanding used to calculate primary earnings per share were 4,560,104,
3,551,488 and 3,441,042 in 1995, 1994 and 1993, respectively. Weighted average
common shares outstanding used to calculate fully diluted earnings per share
were 4,614,057, 3,575,733 and 3,471,685 in 1995, 1994 and 1993, respectively.
All share data for all periods prior to September 30, 1995 have been adjusted
retroactively to give effect to a 10% stock dividend to common shareholders of
record on February 15, 1995.
Reclassification
Certain 1994 and 1993 amounts have been reclassified to conform to the 1995
presentation for comparative purposes. Such reclassifications had no effect on
net income.
2. Acquisition
On June 10, 1994, Eagle Federal acquired certain assets and assumed all insured
deposits of The Bank of Hartford from the Federal Deposit Insurance Corporation
("FDIC"). The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed were
recorded based on estimated fair values at the date of acquisition. The
estimated fair values of assets acquired and liabilities assumed at the date of
acquisition are summarized as follows:
(in thousands)
Cash and amounts due from banks $ 4,933
Interest-bearing deposits 25,503
Investment and mortgage-backed securities 72,667
Loans 80,776
Allowance for loan losses (3,500)
Other assets 2,330
Core deposit and other intangibles 11,276
Deposits (272,752) Other liabilities (3,234)
--------
Cash received or receivable from FDIC $82,001
========
The operating results of this acquisition are included in the Company's
statement of income from the date of acquisition.
In connection with the acquisition, the Company completed a common stock
offering which resulted in the sale of 862,310 shares at a price of $20.75 in
November 1994. Net proceeds to the Company were approximately $16.7 million
after deducting the underwriting discount and offering expenses. Substantially
all of the net proceeds received were contributed to the Bank as additional
capital.
<PAGE>
3. Investment Securities
The aggregate carrying amounts and market values of investment securities are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
September 30, 1995: ---- ----- ------ -----
<S> <C> <C> <C> <C>
Investment securities held to maturity:
U. S. Government agency obligations $ 1,500 $ 2 $ -- $ 1,502
Collateralized mortgage obligations 40,493 325 916 39,902
Corporate and other securities 976 65 -- 1,041
-------- ----- ----- -------
Total $ 42,969 $392 $ 916 $42,445
======== ===== ===== =======
Investment securities available for sale:
U. S. Treasury securities $ 6,303 $ 22 $ -- $ 6,325
U. S. Government agency obligations 20,478 28 5 20,501
Collateralized mortgage obligations 12,925 -- 95 12,830
Corporate and other securities 12,296 31 302 12,025
Mutual funds 15,309 -- 344 14,965
-------- ----- ----- -------
Total $67,311 $ 81 $ 746 $66,646
======== ===== ===== =======
September 30, 1994:
Investment securities:
U.S. Treasury securities $ 12,834 $ 3 $ 38 $ 12,799
U.S. Government agency obligations 14,018 10 157 13,871
Collateralized mortgage obligations 47,357 32 1,398 45,991
Corporate and other securities 23,040 18 491 22,567
-------- ----- ----- -------
Total $ 97,249 $ 63 $ 2,084 $ 95,228
======== ===== ===== ========
Securities available for sale:
Mutual funds $ 17,599 $ -- $ 781 $ 16,818
Equity securities 16 102 -- 118
-------- ----- ----- -------
Total $ 17,615 $ 102 $ 781 $ 16,936
======== ===== ===== ========
</TABLE>
The amortized cost and market value of debt securities at September 30, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
Amortized Market Amortized Market
(in thousands) Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $11,616 $11,651
Due after one year through five years 3,017 3,015 13,197 13,195
Due after five years through ten years 891 956 -- --
Due after ten years 39,061 38,474 27,189 26,835
------ ------ ------ ------
$42,969 $42,445 $52,002 $51,681
======= ======= ======= =======
</TABLE>
There were no debt securities sold in 1995 or 1994. Proceeds from sale of
investments in debt securities were $4,032,000 in 1993. Gross gains of $38,000
and were realized on the 1993 sales. No losses were realized on the sales in
1993.
Proceeds from sales of securities available for sale were $2,210,000 ,
$2,800,000 and $7,998,000 in 1995, 1994 and 1993, respectively. Gross realized
gains on sales of securities available for sale were $89,000, $0 and $15,000 in
1995, 1994 and 1993, respectively. Gross realized losses on securities available
for sale were $194,000, $0 and $1,000 in 1995, 1994 and 1993, respectively.
<PAGE>
Investment securities with a book value of $1,319,000 and $3,300,000 were
pledged as collateral to secure public deposits at September 30, 1995 and 1994,
respectively.
As required by the Federal Home Loan Bank, the Bank must hold FHLB stock equal
to at least 5% of outstanding advances. As September 30, 1995 and 1994, the Bank
was in compliance with the Federal Home Loan Bank stock requirement.
4. Mortgage-backed Securities
The aggregate carrying amounts and market values of mortgage-backed securities
are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
(in thousands) Cost Gain Loss Value
---- ---- ---- -----
September 30, 1995:
<S> <C> <C> <C> <C>
Held to maturity:
FHLMC $ 70,878 $1,655 $ -- $72,533
FNMA 11,750 103 56 11,797
GNMA 388 31 -- 419
Other 116 -- 4 112
--- -- - ---
Total $ 83,132 $1,789 $ 60 $ 84,861
======== ====== ====== =======
Available for sale:
FHLMC $147,281 $1,513 $ 310 $148,484
FNMA 61,233 250 402 61,081
GNMA 7,034 27 -- 7,061
Other 2,672 32 -- 2,704
----- -- -- -----
Total $218,220 $1,822 $ 712 $219,330
======== ====== ====== ========
September 30, 1994:
FHLMC $ 53,382 $ 20 $ 855 $ 52,547
FNMA 14,712 -- 659 14,053
GNMA 470 24 7 487
Other 142 -- 5 137
--- -- - ---
Total $ 68,706 $ 44 $1,526 $ 67,224
========= ======== ====== =========
</TABLE>
Mortgage-backed securities primarily includes participation certificates issued
by the Government National Mortgage Association ("GNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association
("FNMA").
Proceeds from sales of mortgage-backed securities classified available for sale
were $11,164,000 in 1995. Gross realized gains were $308,000 and gross realized
losses were $152,000. There were no sales of mortgage-backed securities during
1994 or 1993.
Proceeds from sales of mortgage-backed securities classified as trading were
$83.9 million with no resulting realized gain or loss. These securities were
created from securitized loans that had been classified as held for sale prior
to securitization.
During 1995, the Company sold a mortgage-backed security classified as held to
maturity resulting in proceeds of $4.0 million and a realized loss of $10,000.
The security was sold due to the discovery of a broker error in identifying the
security's repricing characteristics when purchased. The security's actual
repricing characteristics did not match the asset/liability parameters outlined
by the Company and, as a result, the security was repurchased by the broker.
<PAGE>
5. Loans
Loans consisted of the following:
<TABLE>
<CAPTION>
September 30,
1995 1994
(in thousands) ---- ----
Real estate mortgage loans:
<S> <C> <C>
Residential-- One-to-four family $603,729 $704,914
Residential-- Multi-family 16,694 17,513
Residential-- Construction 12,014 7,103
Commercial real estate 15,025 15,862
Land 6,804 6,551
----- -----
654,266 751,943
------- -------
Other loans:
Home equity lines of credit 34,510 38,246
Second mortgages 21,751 21,734
Commercial 592 --
Consumer 10,864 9,249
------ -----
67,717 69,229
------ ------
Unearned discounts and premiums 137 183
Deferred loan origination fees (1,118) (2,339)
Allowance for loan losses (7,457) (8,311)
------- -------
$713,545 $810,705
======== ========
</TABLE>
During 1995, the Company securitized approximately $154.2 million of 30 year
fixed rate loans into FHLMC mortgaged-backed securities. Of the total
securitized, $83.9 million were sold immediately upon securitization under a
forward commitment. This transaction resulted in a gain of approximately
$244,000 recorded in income. The securitization was completed inorder to improve
the asset/liability position of the Bank by replacing the fixed rate loans with
adjustable rate mortgage-backed securities.
The Company sold $10 million of 30-year fixed rateloans to the Federal Home Loan
Mortgage Corporation in fiscal 1994. This transaction resulted in a gain of
approximately $120,000.
At September 30, 1995, 1994 and 1993, loans serviced for the benefit of others
approximated $234.8 million, $95.1 million and $11.8 million, respectively.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years ended September 30,
1995 1994 1993
(in thousands) ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 8,311 $ 5,005 $4,011
Charge-offs (2,476) (1,506) (958)
Recoveries 122 112 244
Provision for loan losses 1,500 1,200 1,708
Allowance from acquired bank -- 3,500 --
------- ------- ------
Balance at end of year $ 7,457 $ 8,311 $5,005
======= ======= ======
</TABLE>
Non-performing loans approximated $11.1 million and $8.0 million as of September
30, 1995 and 1994, respectively. If these loans had been current, in accordance
with their original terms, additional interest income would have been recorded
in the amounts of $577,000 and $503,000 for 1995 and 1994, respectively.
The Company had $2,653,000 of restructured loans as of September 30, 1995 that
are not included as part of the non-performing loan total. The decision to
continue the accrual of interest on the restructured loans is based on several
factors, including: the borrowers meeting standard underwriting criteria with
respect to debt service ability and the
<PAGE>
continuation of current monthly payments. The gross interest income that would
have been recorded if the restructured loans had been current in accordance with
their original items was $93,000 for the year ended September 30, 1995. The
actual amount of interest income recognized on these loans was $62,000 for the
year ended September 30, 1995. The Company had no outstanding commitments to
lend additional funds to borrowers with loans classified as restructured as of
September 30, 1995.
6. Loans to Related Parties
The Bank has granted loans to officers and directors of the Bank and to their
associates. Related party loans are made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated persons,
except that prior to fiscal year 1991 officers and directors were granted a 1%
discount on the interest rate for mortgage and property improvement loans.
Management believes that these loans do not involve more than normal risk of
collectibility.
The aggregate dollar amount of loans to officers and directors (exclusive of
loans to any such persons which in the aggregate did not exceed $60,000 during
the year) and the activity therein was as follows:
<TABLE>
<CAPTION>
Years ended September 30,
1995 1994
(in thousands) ---- ----
<S> <C> <C>
Balance, beginning of year $5,810 $3,854
New loans 1,417 2,627
Repayments (962) (671)
------- --------
Balance, end of year $6,265 $5,810
======== ========
</TABLE>
7. Real Estate Owned
Real estate owned consisted of the following:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Properties acquired through foreclosure $2,264 $3,820
In-substance foreclosure 353 955
------- --------
2,617 4,775
Valuation allowance (178) (465)
------- --------
Total $2,439 $4,310
======== ========
</TABLE>
The following summarizes the activity in the valuation allowance for real estate
owned:
<TABLE>
<CAPTION>
Years ended September 30,
1995 1994 1993
(in thousands) ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 465 $ 35 $ 40
Charge-offs (620) (245) (292)
Provisions for losses 333 675 287
----- ----- ------
Balance at end of year $ 178 $ 465 $ 35
===== ===== ======
</TABLE>
The net cost of real estate owned operations was as follows:
<TABLE>
<CAPTION>
Years ended September 30,
1995 1994 1993
(in thousands) ---- ---- ----
<S> <C> <C> <C>
Net loss (gain) from sales $(125) $ 18 $ (48)
Provisions for losses 333 675 287
Expenses of holding real estate owned, net of rental income 536 667 738
----- ------ -----
Total $ 744 $1,360 $977
===== ====== =====
</TABLE>
<PAGE>
8. Premises and Equipment
The following is a summary of the premises and equipment accounts:
September 30,
in thousands) 1995 1994
---- ----
Land $ 690 $ 688
Premises and leasehold improvements 6,939 6,887
Furniture, fixtures and equipment 5,835 4,495
----- -----
13,464 12,070
Less accumulated depreciation and amortization (5,398) (4,815)
------- -------
$ 8,066 $ 7,255
======= =======
The Company leases office space and several branch office sites under operating
lease arrangements. Certain of the lease arrangements provide for renewal
options and rental escalation clauses. Rental expense for leased branches
included in operating expenses was approximately $446,000, $470,000 and $352,000
for 1995, 1994 and 1993, respectively.
In 1992, Bristol Federal Savings Bank entered into two lease agreements for
office space and a branch site with a director-related corporation. The leases
were for an initial term of five years and seven years, respectively, and have
renewal options which extend for an additional five years. Total lease expense
for the office space and branch site was $71,700, $69,017 and $65,040 for 1995,
1994, and 1993, respectively.
The future minimum rental commitments for the leased branches as of September
30, 1995 were as follows: (in thousands)
1996 $ 377
1997 314
1998 165
1999 122
2000 97
thereafter 307
------
$1,382
======
9. Prepaid Expenses and Other Assets
A summary of prepaid expenses and other assets follows:
September 30,
(in thousands) 1995 1994
---- ----
Core deposit intangibles $ 2,527 $ 3,677
Goodwill 7,342 7,834
Mortgage servicing rights 716 839
Deferred tax assets, net 3,451 3,947
Due from FDIC, net -- 7,605
Prepaid expenses and other assets 3,924 3,894
------- -------
$17,960 $27,796
======= =======
Intangible assets, including core deposit intangibles, goodwill and purchased
mortgage servicing rights, increased significantly in 1994 reflecting the
additional intangible assets resulting from the Bank of Hartford acquisition.
The amount due from the FDIC in 1994 represents net settlement items from that
acquisition which were reimbursed by the FDIC in 1995.
<PAGE>
A summary of the activity of mortgage servicing rights was as follows:
Years ended September 30,
(in thousands) 1995 1994 1993
---- ---- ----
Balance at beginning of year $839 $-- $--
Servicing from acquired bank -- 880 --
Amortization (123) (41) --
----- ---- --
Balance at end of year $ 716 $839 $--
===== ==== ===
The following table shows activity in goodwill and core deposit intangibles:
<TABLE>
<CAPTION>
Total Goodwill
Core Deposit & Core Deposit Accumulated
(in thousands) Goodwill Intangibles Intangibles Amortization
-------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at September 30, 1992 $ -- $ 2,138 $ 2,138 $ 413
Intangible assets acquired -- 98 98
Amortization of intangibles -- (375) (375) 375
-- ----- ----- ---
Balance at September 30, 1993 -- 1,861 1,861 788
Intangible assets acquired 7,995 2,402 10,397
Amortization of intangibles (161) (586) (747) 747
----- ----- ----- ---
Balance at September 30, 1994 7,834 3,677 11,511 1,535
Amortization of intangibles (492) (922) (1,414) 1,414
Other adjustments -- (228) (228)
-- ----- -----
Balance at September 30, 1995 $7,342 $2,527 $9,869 $2,949
====== ====== ====== ======
</TABLE>
Other adjustments represent the realization of tax benefits due to changes in
tax law related to amortization of intangibles.
10. Deposits
Deposit balances consisted of the following:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1995 1994
---- ----
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------
<S> <C> <C> <C> <C>
Non interest-bearing $ 27,913 --% $ 22,101 --%
Passbook accounts 143,271 1.99 162,344 1.99
NOW accounts 80,625 1.04 76,111 1.05
Money market accounts 104,428 2.71 151,290 2.67
------- ---- ------- ----
356,237 1.83 411,846 1.96
------- ---- ------- ----
Certificate accounts with original maturities of:
Six months or less 57,383 4.64 107,722 3.27
Over six months to one year 178,098 5.69 110,928 3.77
Over one year to two years 145,895 5.57 113,970 4.73
Over two years 214,138 6.09 204,363 5.85
------- ---- ------- ----
595,514 5.70 536,983 4.59
------- ---- ------- ----
$951,751 4.25 $948,829 3.45
======== ==== ======== ====
</TABLE>
<PAGE>
Interest on deposits is summarized as follows:
Years ended September 30,
(in thousands) 1995 1994 1993
---- ---- ----
Passbook accounts $ 2,992 $ 2,966 $ 3,228
NOW accounts 719 777 1,054
Money market accounts 3,313 3,929 4,337
Certificate accounts 29,425 19,976 19,341
------ ------ ------
$36,449 $27,648 $27,960
======= ======= =======
Interest forfeitures resulting from early withdrawals from certificate accounts
are credited to interest on deposits. Interest forfeitures reducing the cost of
interest on deposits amounted to $198,000, $95,000 and $91,000 for 1995, 1994
and 1993, respectively.
The total amount of time deposit accounts of $100,000 or more was $56.1 million
at September 30, 1995.
The following table sets forth the maturities of time deposit accounts at
September 30, 1995: (in thousands)
Under one year $235,528
Between one year and two years 79,616
Between two years and three years 65,016
Between three years and four years 30,816
Between four years and five years 37,775
More than five years 146,763
-------
$595,514
========
11. Federal Home Loan Bank Advances and Borrowed Money
Federal Home Loan Bank ("FHLB") advances and borrowed money consisted of the
following:
September 30,
(in thousands) 1995 1994
---- ----
Federal Home Loan Bank advances:
Due October 1994 - 5.04% $ -- $ 8,125
Due December 1994 - 5.12% -- 850
Due March 1995 - 6.07% -- 2,300
Due October 1995 - 5.93% 15,400 --
Due November 1995 - 6.11% 10,100 --
Due December 1995 - 5.98% 450 --
Due January 1996 - 5.92% 16,500 --
Due March 1996 - 5.74% 5,700 1,500
Due April 1996 - 8.10% 500 500
Due August 1996 - 4.52% 5,000 5,000
Due November 1996 - 7.12% 3,000 --
Due March 1997 - 5.48% 3,000 3,000
Due November 1997 - 7.52% 3,000 --
Due August 1998 - 5.19% 5,000 5,000
Due March 1999 - 6.10% 2,000 2,000
Due March 2000 - 6.48% 1,000 1,000
Due March 2001 - 6.83% 1,500 1,500
Due September 2001 - 8.20% 1,000 1,000
----- -----
$73,150 $31,775
======= =======
<PAGE>
Borrowed money:
Reverse repurchase agreements:
Due October 1994 - 5.09% $ -- $7,350
Due October 1995 - 5.90% 7,350
Due November 1995 - 5.86% 25,080 --
Due December 1995 - 5.92% 26,295 --
Due January 1996 - 5.89% 13,498 --
Due June 1996 - 5.84% 10,000 --
------ --
82,223 7,350
------ -----
Employee Stock Ownership Plan debt:
1987 Borrowing - 7.22% and 6.39% at
September 30, 1995 and 1994, respectively 17 146
1992 Borrowing - 9.00% and 8.00% at
September 30, 1995 and 1994, respectively 77 321
-- ---
94 467
-- ---
$82,317 $7,817
======= ======
The weighted average interest rate at September 30, 1995 and 1994 was 5.96% and
5.44% respectively on FHLB advances, and 5.89% and 5.20%, respectively, on
borrowed money.
The entire amount of reverse repurchase agreements at September 30, 1995 of
$82,223,000 represents agreements to repurchase the same securities. The
securities collateralizing the reverse repurchase agreements, which are being
held by the counterparty to the agreement, consisted of the following:
Amortized Accrued Market
(in thousands) Cost Interest Value
------- ------- -------
FHLMC mortgage-backed securities $62,092 $ 748 $62,858
FNMA mortgage-backed securities 18,376 100 18,098
GNMA mortgage-backed securities 1,524 9 1,530
U.S. Treasury notes 4,150 64 4,164
FHLMC debenture 2,088 67 2,092
------- ------- -------
$88,230 $988 $88,742
======= =======
The maximum amount of outstanding repurchase agreements at any month end was
$84.2 million and $7.4 million for the years ended September 30, 1995 and 1994,
respectively. The average amount of outstanding reverse repurchase agreements
for the years ended September 30, 1995 and 1994 was $44.5 million and $2.6
million, respectively.
In accordance with an agreement with the Federal Home Loan Bank of Boston
("FHLB"), the Bank is required to maintain qualified collateral, as defined in
the FHLB Statement of Credit Policy, free and clear of liens, pledges and
encumbrances, as collateral for the advances. The FHLB Statement of Credit
Policy grants members the ability to borrow up to the value of the member's
qualified collateral that has not been pledged to outside sources. Members whose
total indebtedness, including borrowings from outside sources, exceeds 30% of
assets are required to list and segregate collateral in a sufficient amount to
cover the amount of advances outstanding. Advances are secured by the Bank's
investment in FHLB stock and a blanket security agreement. The Bank has a
capacity to borrow an additional $582.1 million in advances from FHLB as of
September 30, 1995. The Bank has a preapproved line up to 2% of total assets.
In connection with its purchase of the Company's common stock during 1987, the
Employee Stock Ownership Plan (the "Plan") borrowed $1,163,000 under a term note
maturing in 1997 with interest due quarterly at 82.5% of the lender's floating
prime rate. In 1991, the Plan borrowed $759,000 to purchase additional shares of
the Company's common stock under a term note maturing in 1997 with interest due
quarterly at the lender's floating prime rate plus .25%. Principal payments
ranging from $129,000 to $247,000 are due annually on March 31 until 1997 on the
outstanding borrowings. A total of 7,509 unallocated shares in the Plan Trust at
September 30, 1995 have been pledged as collateral in conjunction with the Plan
borrowings. The Company reflects the Plan debt as borrowed money and as a
reduction of shareholders' equity.
<PAGE>
12. Income Taxes
As discussed in note 1, the Company has adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" as of October 1,
1993. The cumulative affect of this change in accounting for income taxes was a
benefit of $1,273,000 and is a component of the amount shown as the cumulative
effect of accounting changes in the statement of income for fiscal 1994. Prior
years' financial statements have not been restated to apply the provisions of
SFAS No.109.
Charges for income taxes in the Consolidated Statements of Income comprised the
following:
Years ended September 30,
(in thousands) 1995 1994 1993
---- ---- ----
Current:
Federal $ 5,540 $ 4,968 $ 4,169
State 1,831 1,708 1,691
------- ------- -------
7,371 6,676 5,860
------- ------- -------
Deferred:
Federal 212 (998) (116)
State 104 (325) (107)
------- ------- -------
316 (1,323) (223)
------- ------- -------
Total:
Federal 5,752 3,970 4,053
State 1,935 1,383 1,584
------- ------- -------
$ 7,687 $ 5,353 $5,637
======= ======= =======
The actual income tax expense for 1995, 1994 and 1993 differs from the
"expected" income tax expense for those years (computed by applying the U.S.
federal statutory corporate tax rate of 35%, 35%, and 34%, respectively) as
follows:
<TABLE>
<CAPTION>
Years ended September 30,
(in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Expected income tax on income before income taxes $6,531 $4,532 $4,008
Increase (decrease) in income taxes resulting from:
Bad debt deduction -- -- 410
State income taxes, net of federal income tax benefit 1,258 898 1,045
Loss (gain) on sale of real estate owned -- -- (16)
Other, net (102) (77) 190
----- ---- ---
$7,687 $5,353 $5,637
====== ===== =======
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1995
and 1994 are presented below:
<TABLE>
<CAPTION>
September 30,
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred loan fees $ 462 $ 960
Post-retirement benefits 1,006 948
Deferred compensation 428 656
Loans receivable, principally due to
allowance for loan losses 2,738 3,545
Intangibles 700 479
Other miscellaneous 466 31
--- --
Total gross deferred assets 5,800 6,619
----- -----
Deferred tax liabilities:
Premises and equipment, principally due
to differences in depreciation (1,156) (842)
Tax discount on acquired loans (1,013) (1,830)
Unrealized gain on securities available
for sale (180) --
------ -------
Total gross deferred tax liabilities (2,349) (2,672)
------- -------
Net deferred tax asset $ 3,451 $ 3,947
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of September 30, 1995 and
1994 was $0. There was no change in the valuation allowance during the years
ended September 30, 1995 and 1994.
In order to fully realize the net deferred tax asset, the Company will need to
either generate tax losses to carryback to recover taxes previously paid or
generate future taxable income. Based upon the Company's historical and current
pre-tax earnings, management believes it is more likely than not that the
Company will realize the net deferred tax asset.
Timing differences between the financial statement carrying amounts and tax
bases of assets and liabilities that gave rise to significant portions of the
deferred taxes (benefit) in 1993 related to the following:
Year ended September 30,
(in thousands) 1993
-----
Accrual versus cash basis items $(205)
Loan origination fees (27)
Other, net 9
-----
$(223)
=====
The Company has not provided deferred income taxes for the Bank's tax return
reserve for bad debts that arose in tax years beginning before September 30,
1988 because it is not expected that this difference will reverse in the
foreseeable future. The cumulative net amount of temporary difference related to
the reserve for bad debts for which deferred taxes have not been provided was
approximately $8.9 million at September 30, 1995. If the Company does not meet
the income tax requirements necessary to permit it to claim a percentage of
taxable income loan loss deduction in the future, the Bank, under certain
circumstances, could incur a tax liability for the previously deducted tax
return loan losses in the year in which such requirements are not met. This
potential liability for which no deferred income taxes have been provided was
approximately $3.7 million as of September 30, 1995.
<PAGE>
13. Stock Option Plans
At September 30, 1995, 1994 and 1993, 733,171, 300,587 and 348,824 shares,
respectively, were reserved for issuance in connection with incentive and
non-incentive stock option plans for the benefit of directors, officers and
other full-time employees.
Under the Company's stock option plans, options have been granted for terms up
to ten years at not less than the fair value of the shares at the dates of grant
and are exercisable at date of grant.
<TABLE>
<CAPTION>
Shares under
stock option Option price
plan per share
<S> <C> <C> <C>
Outstanding and exercisable at September 30, 1990 264,623 $ 6.36 -- 10.46
Granted 10,000 9.63
Canceled (3,967) 8.25
----
Outstanding and exercisable at September 30, 1991 270,656 6.36 -- 10.46
Exercised (37,721) 6.36 -- 10.13
Granted 69,326 10.13 -- 15.38
------------------------
Outstanding and exercisable at September 30, 1992 302,261 6.36 -- 15.38
Stock dividend 30,226
Exercised (79,483) 5.78 -- 13.98
Granted 41,953 15.34 -- 18.18
Canceled (10)
-----
Outstanding and exercisable at September 30, 1993 294,947 5.78 -- 18.18
Exercised (48,226) 5.78 -- 15.34
Granted 46,750 19.375 -- 23.00
-------------------------
Outstanding and exercisable at September 30,1994 293,471 5.78 -- 23.00
Stock dividend 29,347
Exercised (37,473) 5.25 -- 18.41
Granted 162,800 18.18
------------------------
Outstanding and exercisable at September 30, 1995 448,145 $ 5.25 -- 20.91
========================
</TABLE>
14. Restriction on Subsidiary Dividends
The Company's ability to pay dividends to shareholders is substantially
dependent on funds received from the Bank. Regulations governing the payment of
dividends by savings institutions, as set forth by the Office of Thrift
Supervision ("OTS"), establish three tiers of institutions for purposes of
determining the level of dividends that can be paid. Under these rules, the Bank
is able to pay dividends in an amount equal to one-half of their surplus capital
at the beginning of the year plus all net income for the calendar year. The OTS
regulations permit the OTS to prohibit capital distributions in certain
circumstances.
The Bank is required by the 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 September 30, 1995 exceeded all
three requirements.
15. Employee Benefit Plans
The Bank maintains a noncontributory trusteed defined benefit pension plan
through the Financial Institutions Retirement Fund (the "Fund") covering all
eligible employees. The plan is part of a multi-employer plan in which details
as to the Bank's relative positions are not readily determinable. Therefore,
information relating to the value of vested and nonvested accumulated plan
benefits and assumed rates of return used in determining such values is not
disclosed. Employer contributions to the Fund in 1995, 1994 and 1993 were
$123,000, $394,000 and $172,000, respectively, and these amounts are expensed to
operations in the year contributed. The 1995 contribution amount is net of a
one-time credit received from the Fund of $221,000.
<PAGE>
The Company sponsors a leveraged employee stock ownership plan ("ESOP") that
covers substantially all full-time employees. The Company makes annual
contributions to the ESOP equal to the ESOP's debt service. All dividends
received by the ESOP are allocated to employees accounts. The ESOP shares were
initially pledged as collateral against the debt. As the debt is repaid, shares
are released from collateral and allocated to active employees, based on the
proportion of debt service paid during the year. Accordingly, the debt of the
ESOP is recorded as debt and the shares pledged as collateral are reported as a
reduction of shareholders' equity in the consolidated balance sheets. The ESOP
shares were as follows:
September 30,
1995 1994
Allocated shares 194,734 158,613
Shares released for allocation 35,369 26,055
Unreleased shares 7,509 39,642
------- -------
Total ESOP shares 237,612 224,310
======= =======
A summary of the components of ESOP contribution expense by the Company for
1995, 1994 and 1993 is as follows:
(in thousands) 1995 1994 1993
---- ---- ----
Principal component $373 $285 $258
Interest component 31 42 54
---- ---- ----
Total contribution expense $404 $327 $312
==== ==== ====
Effective in the first quarter of fiscal 1995, the Bank established an employee
savings plan under Section 401 (k) of the Internal Revenue Code. Under the
savings plan, the Bank will match $0.25 for every $1.00 of the employee's
contribution which is not in excess of 4% of the employees total compensation.
During 1995, the Bank recorded expense in the amount of $41,000 related to the
savings plan.
Included in the fiscal 1994 results of operations is a one-time pre-tax charge
of $740,000 related to the retirement of two senior officers.
16. Other Postretirement Benefit Plans
In addition to the Company's defined benefit pension plan, Eagle provides
medical and dental insurance programs to its retirees. The retiree programs are
first available at age 60 with 25 years of service or at age 65 with 10 years of
service. All covered retirees are required to contribute to the cost of their
coverage and the provisions may be changed at the discretion of the Company.
In fiscal 1994, the Company adopted Statement of Financial Accounting Standard
No.106, "Employers' Accounting for Postretirement Benefits Other Than Pensions",
and elected the immediate recognition of transition obligation. Upon adoption,
the Company recognized the accumulated postretirement benefit obligation of
$2,194,000 which, net of an income tax benefit of $891,000, decreased 1994 net
income by $1,303,000 and is a component of the amount shown as the cumulative
effect of accounting changes in the consolidated statement of income.
Postretirement benefit cost for prior years, which were expensed as paid, were
not restated. The effect on 1994 expenses is an increase of approximately
$98,000. Under the prior method, expenses in 1993 were $44,000.
<PAGE>
The following table sets forth the plans' funded status and amounts recognized
in the Company's consolidated balance sheet:
September 30,
(in thousands) 1995 1994
------- ------
Accumulated postretirement benefit obligation:
Retirees $ (967) $ (544)
Fully eligible active plan participants (315) (617)
Other active plan participants (309) (301)
------- -------
Accumulated postretirement benefit obligation (1,591) (1,462)
Plan assets at fair value -- --
Accumulated postretirement benefit obligation in excess
of plan assets (1,591) (1,462)
Unrecognized prior service cost (615) (658)
Unrecognized net loss (124) (167)
------- -------
Net postretirement benefit liability included in
other liabilities $(2,330) $(2,287)
======= =======
Assumptions used in determining the actuarial present value of the
postretirement benefit obligation are as follows:
September 30,
1995 1994
---- ----
Discount rate 7.5% 8%
Rate of increase on health care costs
Initial 10% 13%
Ultimate 6% 6%
The resulting net periodic postretirement benefit expense consisted of the
following components:
<TABLE>
<CAPTION>
Years ended September 30,
(in thousands) 1995 1994
----- -----
<S> <C> <C>
Service cost-- benefits earned during the period $ 32 $ 56
Interest cost on accumulated postretirement benefit obligation 115 118
Actual return on plan assets -- --
Net amortization (45) (32)
----- -----
Net postretirement benefit expense $ 102 $ 142
===== =====
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits is 10% for 1995 and is assumed to decrease by 1% annually to 6%
in 2000 and remain at that level thereafter. This health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
September 30, 1995 by 10%, and the aggregate of the service and interest cost
components of net periodic postretirement benefit costs for 1995 by 11%.
<PAGE>
17. Commitments and Contingencies
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These instruments expose the Company to credit risk in excess of the amount
recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. Total credit exposure related to these
items is summarized below:
September 30,
(in thousands) 1995 1994
------- -------
Loan commitments:
Approved loan commitments $15,821 $14,102
Unadvanced portion of construction loans 9,856 7,026
Unadvanced portion of home equity lines of credit 23,523 24,899
======= =======
Loan commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract. Loan
commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held is primarily
residential property. Interest rates on approved loan commitments and home
equity lines of credit are a combination of fixed and variable. Interest rates
on unadvanced portions of construction loans are fixed rates which generally
mature within eighteen months.
Commitments outstanding at September 30, 1995 consist of adjustable and fixed
rate mortgages of $7,281,000 and $8,540,000 respectively, at rates ranging from
5.75% to 9.00%. Commitments outstanding at September 30, 1994 consist of
adjustable and fixed rate mortgages of $13,100,000 and $1,002,000, respectively,
at rates ranging from 4.25% to 9.25%. Commitments to originate loans generally
expire within 60 days.
18. Significant Group Concentrations of Credit Risk
The Company primarily grants residential and consumer loans to customers located
within its primary market area in the State of Connecticut. The majority of the
Company's loan portfolio is comprised of residential mortgages. At September 30,
1995, residential mortgage loans, including residential construction loans,
totaled $632 million, excluding off-balance-sheet items. All such loans are
collateralized by real estate, of which approximately 96% is located in
Connecticut.
19. Fair Value of Financial Investments
The Company is required to provide supplemental financial disclosures on the
estimated fair value of it's financial instruments in accordance with SFAS No.
107, Disclosures about Fair Value Instruments. Financial instruments as defined
in SFAS No.107 include cash and cash equivalents, mortgage-backed securities,
loans, deposits, borrowings and certain off-balance sheet items. Other assets
that are not considered financial instruments under SFAS No.107 are excluded
from fair value disclosures such as real estate owned and premises and
equipment.
<PAGE>
Fair value estimates are made at a specific point in time based on market
information, where available, or other more subjective information if a market
for the financial instrument does not exist. These estimates incorporate
assumptions and other matters of judgement and may not reflect the true
financial impact that could result from selling the entire portfolio of a
financial instrument on one date, including any income tax consequences.The
following table presents fair value information on the Company's investment and
mortgage-backed security portfolios:
September 30,
(in thousands) 1995 1994
---- ----
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
Investment Securities $109,615 $109,091 $114,185 $112,164
Mortgage-backed Securities 302,462 304,191 68,706 67,224
-------- -------- -------- --------
Total $412,077 $413,282 $182,891 $179,388
======== ======== ======== ========
The following table represents fair value information for the Bank's loan
portfolio:
September 30,
(in thousands) 1995
Allowance
Principal and Other Carrying Estimated
Value Adjustments Amount Fair Value
Real estate mortgage loans $654,266 $ 7,548 $646,718 $643,241
Consumer and commercial loans 67,717 890 66,827 67,522
-------- -------- -------- --------
Total $721,983 $ 8,438 $713,545 $710,763
======== ======== ======== ========
September 30,
(in thousands) 1994
Allowance
Principal and Other Carrying Estimated
Value Adjustments Amount Fair Value
Real estate mortgage loans $751,943 $ 9,190 $742,753 $732,164
Consumer loans 69,229 1,277 67,952 68,416
-------- -------- -------- --------
Total $821,172 $ 10,467 $810,705 $800,580
======== ======== ======== ========
In developing the estimated fair values above, the Bank's loan portfolio was
segregated by type of loan, performing status and interest rate (fixed or
variable). In general, fair value was estimated by discounting contractual cash
flows adjusted for repayment estimates using discount rates developed in the
secondary market.
Assumptions have been made in developing these fair values based on historical
experience and market conditions. Because there is no immediate market for many
of the above loans, there is no basis for determining whether the fair value
presented above would be indicative of the value negotiated in an actual sale.
<PAGE>
The estimated fair value of the Bank's deposit portfolio is as follows:
September 30,
(in thousands) 1995 1994
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Non-interest bearing $ 27,913 $ 27,913 $ 22,101 $ 22,101
Passbook accounts 143,271 143,271 162,344 162,344
NOW accounts 80,625 80,625 76,111 76,111
Money market accounts 104,428 104,428 151,290 151,290
Certificate accounts 595,514 596,969 536,983 540,047
-------- -------- -------- --------
Total deposits $951,751 $953,206 $948,829 $951,893
======== ======== ======== ========
The fair value of deposits with no stated maturity, such as passbook, NOW and
money market accounts, is equal to the amount payable on demand on September 30,
1995 and 1994. The fair value of time deposits is based on the discounted value
of contractual cash flows, using rates offered at September 30, 1995 and 1994
for deposits with similar remaining maturities.
The fair value of FHLB advances, estimated using rates available at September
30, 1995 and 1994 for debt of similar terms and remaining maturities was $73
million and $31 million at September 30, 1995 and 1994, respectively. The fair
value of reverse repurchase agreements, estimated using rates available at
September 30, 1995 and 1994 for debt of similar terms and maturities, was $83
million and $7 million at September 30, 1995 and 1994, respectively.
The fair value of FHLB stock, accrued interest receivable, accrued interest
payable and loan commitments approximate the carrying value at September 30,
1995 and 1994.
20. Recent Accounting Pronouncements
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", was issued in
May 1993 and amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosure", in October 1994. SFAS No. 114, as
amended, which is effective for fiscal years beginning after December 15, 1994,
requires that creditors evaluate the collectibility of both contractual interest
and contractual principal of loans when identifying impaired loans. When a loan
is impaired, a creditor shall measure impairment based on the present value of
the expected future cash flows discounted at the loan's effective interest rate,
or the fair value of the collateral if the loan is collateral-dependent. The
creditor shall recognize impairment by creating a valuation allowance. SFAS No.
114 allows the exclusion of large groups of small-balance homogenous loans that
are collectively evaluated for impairment such as residential and consumer
loans. Therefore, the provisions of SFAS No. 114 will be applied to the
following loan types within the loan portfolio; construction loans, land loans,
non-residential loans, multi-family loans and commercial loans. The adoption of
SFAS No. 114, as amended, will have no impact on earnings.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," was issued in May 1995
and is effective for fiscal years beginning after December 15, 1995. Earlier
application is permitted. SFAS No. 122 requires the capitalization of mortgage
servicing rights acquired through either purchase of mortgage loan servicing or
origination and sale or securitization of mortgage loans with retention of
servicing. SFAS No. 122 also requires the analysis of capitalized mortgage
servicing rights for impairment to be based on the fair value of the rights. The
Company has not decided whether SFAS No. 122 will be adopted prior to the
required effective date. The effect of adoption on the Company will vary based
on the extent of mortgage servicing rights existing upon adoption and mortgage
servicing rights acquired subsequent to adoption. At this time, the adoption of
SFAS No. 122 is not expected to have a material effect on the Company's
financial postion or results of operations. The FASB has issued a Special
Report, A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities that provides additional guidance
relating to the application of SFAS No.115. The Company adopted SFAS No.115 on
October 1, 1994. In connection with the issuance of this Special Report the FASB
is allowing
<PAGE>
all organizations to review their current portfolio classification between held
to maturity, available for sale and trading and make a one-time reclassification
of securities between categories during the period from November 15, 1995 to
December 31, 1995. Eagle anticipates that a reassessment of the classifications
of its portfolio will take place within the prescribed time period, and will
most likely involve the transfer of certain held to maturity securities to the
available for sale classification.
21. Subsequent Events
On October 2, 1995, the Bank announced that it had entered into definitive
agreements with Fleet Financial Group ("Fleet") and Shawmut Bank Connecticut
("Shawmut") to purchase certain loans and assume all deposits related to four
current Shawmut branch offices and one current Fleet branch office.
The transaction will result in the Bank assuming approximately $290 million of
deposits and purchasing approximately $50 million of loans. Approximately 80% of
the loans are secured by commercial real estate with the remainder of the loans
predominately home equity and other consumer. The Bank will pay the equivalent
of a deposit premium of approximately 6.75%.
The Bank expects that the transaction will be consummated in January 1996,
subject to the required regulatory approval and other closing conditions.
On November 28, 1995, Eagle Federal announced that it had signed a letter of
intent to sell its seven branch banking offices in the greater Danbury market to
Union Savings Bank of Danbury. In this transaction, Union Savings will assume
approximately $181 million of deposits at seven Eagle Federal offices. Union
Savings will purchase all real property and assume all lease obligations related
to the seven offices. There are no loans or investment securities being sold by
Eagle Federal other than deposit secured loans and checking account credit
lines.
The consideration Eagle Federal will receive for the acquired deposit
liabilities is equivalent of a deposit premium of 9.00%, or approximately $16
million before income taxes. The transaction is expected to be settled shortly
after consummation of the Fleet/Shawmut acquisition in January 1996.
22. Eagle Financial Corp. (Parent Company Only) Condensed Financial Information
Balance Sheets September 30,
(in thousands) 1995 1994
---- ----
Assets:
Cash $ 87 $ 84
Interest-bearing deposits 954 375
-------- --------
Cash and cash equivalents 1,041 459
Investment securities 85 85
Investment in Bank subsidiary 90,621 65,531
Receivable from Bank subsidiary 1,081 --
Other assets 133 236
-------- --------
Total assets $ 92,961 $ 66,311
======== ========
Liabilities and Shareholders' Equity:
Payable to Bank subsidiary $ 29 $ 27
Accrued expenses and other liabilities 378 (459)
Borrowed money 94 467
Shareholders' equity 92,460 66,276
-------- --------
Total liabilites and shareholders' equity $ 92,961 $ 66,311
======== ========
<PAGE>
<TABLE>
<CAPTION>
Statements of Income
Years ended September 30,
(in thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest on investments $ 71 $ 31 $ 79
Dividends from Bank subsidiary 2,000 1,000 1,000
Other expenses (909) (857) (767)
-------- -------- --------
Income before income taxes and equity in
undistributed earnings of Bank subsidiary 1,162 174 312
Income tax benefit 364 323 387
-------- -------- --------
Income before equity in undistributed earnings of Bank subsidiary 1,526 497 699
Equity in undistributed earnings of Bank subsidiary 9,446 7,069 5,453
-------- -------- --------
Net income $ 10,972 $7,566 $6,152
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Years ended September 30,
(in thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income $ 10,972 $ 7,566 $ 6,152
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of Bank subsidiary (9,446) (7,069) (5,453)
Amortization of premiums on investments -- -- 2
Decrease (increase) in other assets 103 (136) (21)
Increase (decrease) in accrued expenses and other liabilities, net 837 (261) (304)
-------- -------- --------
Net cash provided by operating activities 2,466 100 376
-------- -------- --------
Investing activities:
Purchase of investment securities -- (1,000) (85)
Proceeds from maturity of investment security -- 1,000 600
Increase in receivable from Bank subsidiary (1,081) -- --
Investment in Bank subsidiary (14,700) -- --
-------- -------- --------
Net cash provided (used) by investing activities (15,781) -- 515
-------- -------- --------
Financing activities:
Cash dividends (3,627) (2,355) (1,910)
Proceeds from exercise of stock options and other 873 1,052 914
Payment of fractional shares from stock dividend (8) -- (9)
Proceeds from sale of common stock 16,657 -- --
Increase (decrease) in payable to Bank subsidiary 2 4 (6)
-------- -------- --------
Net cash provided (used) by financing activities 13,897 (1,299) (1,011)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 582 (1,199) (120)
Cash and cash equivalents at beginning of year 459 1,658 1,778
-------- -------- --------
Cash and cash equivalents at end of year $ 1,041 $ 459 $1,658
======== ======== ========
</TABLE>
<PAGE>
23. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share data) Three months ended
Fiscal 1995 12/31/94 3/31/95 6/30/95 9/30/95 Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $ 18,750 $ 20,342 $ 21,659 $ 22,146 $ 82,897
Interest expense 8,888 10,108 11,551 12,333 42,880
-------- -------- -------- -------- ---------
Net interest income 9,862 10,234 10,108 9,813 40,017
Provision for loan losses 225 225 525 525 1,500
Net gain (loss) on sales of securities (104) -- (10) 72 (42)
Other income 1,081 1,016 1,063 1,283 4,443
Other expenses 5,694 6,152 6,393 6,020 24,259
Income tax provision 2,040 2,027 1,728 1,892 7,687
-------- -------- -------- -------- ---------
Net income $ 2,880 $ 2,846 $ 2,515 $ 2,731 $ 10,972
======== ======== ======== ======== =========
Net income per share:
Primary $ 0.64 $ 0.63 $ 0.55 $ 0.59 $ 2.41
Fully diluted $ 0.63 $ 0.62 $ 0.54 $ 0.59 $ 2.38
</TABLE>
<TABLE>
<CAPTION>
(in thousands, except per share data) Three months ended
Fiscal 1994 12/31/93 3/31/94 6/30/94 9/30/94 (a) Total
-------- ------- ------- ----------- -----
<S> <C> <C> <C> <C> <C>
Interest income $13,750 $13,499 $14,826 $18,012 $60,087
Interest expense 6,706 6,418 7,085 8,807 29,016
----- ----- ----- ----- ------
Net interest income 7,044 7,081 7,741 9,205 31,071
Provision for loan losses 300 300 300 300 1,200
Net gain on sales of investment securities ----- ----- ----- ----- ------
Other income 791 643 815 917 3,166
Other expenses 4,513 4,496 4,486 6,593 20,088
Income tax provision 1,246 1,224 1,608 1,275 5,353
-------- -------- -------- -------- --------
Net income before cumulative
effect of accounting changes 1,776 1,704 2,162 1,954 7,596
-------- -------- -------- -------- --------
Cumulative effect of accounting changes (30) -- -- -- (30)
-------- -------- -------- -------- --------
Net income $ 1,746 $ 1,704 $ 2,162 $ 1,954 $ 7,566
======== ======== ======== ======== ========
Net income per share - Primary:
Net income per share before cumulative
effect of accounting changes $ 0.51 $ 0.48 $ 0.61 0.54 $ 2.14
Cumulative effect of accounting changes (0.01) -- -- -- (0.01)
-------- -------- -------- -------- --------
Net income per share $ 0.50 $ 0.48 $ 0.61 $ 0.54 $ 2.13
======== ======== ======== ======== ========
Net income per share - Fully diluted:
Net income per share before cumulative
effect of accounting changes $ 0.50 $ 0.48 $ 0.61 $ 0.54 $ 2.13
Cumulative effect of accounting changes (0.01) -- -- -- (0.01)
-------- -------- -------- -------- --------
Net income per share $ 0.49 $ 0.48 $ 0.61 $ 0.54 $ 2.12
======== ======== ======== ======== ========
<FN>
(a) The quarter ended September 30, 1994 includes the impact of the acquisition
and assumption on June 10, 1994 of certain assets and liabilities of the Bank of
Hartford.
Note: All per share data for all periods and dates prior to September 30, 1995
have been adjusted retroactively to give effect to a 10% stock dividend to
common shareholders of record on February 15, 1995.
</FN>
</TABLE>
<PAGE>
Independent Auditors' Report
KPMG Peat Marwick LLP
The Board of Directors and Shareholders
Eagle Financial Corp.:
We have audited the accompanying consolidated balance sheets of Eagle Financial
Corp. and subsidiaries as of September 30, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three-year period ended September 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eagle Financial
Corp. and subsidiaries as of September 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1995 in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, the Company
changed its method of accounting for investment securities in 1995, and its
methods of accounting for postretirement benefits other than pensions and income
taxes in 1994.
KPMG Peat Marwick LLP
Hartford, Connecticut
October 19, 1995, except as to the fourth and fifth paragraphs of Note 21, as to
which the date is November 28, 1995
Additional Information
Annual Meeting
Tuesday, January 23, 1996
11:00 am
Radisson Inn
42 Century Drive
Bristol, CT 06010
Executive Offices
Eagle Financial Corp.
222 Main Street
P.O. Box 1157
Bristol, CT 06010
(860) 314-6400
Independent Auditors
KPMG Peat Marwick LLP
City Place II
Hartford, CT 06103-4103
<PAGE>
Registrar and Transfer Agent
First National Bank of Boston
Shareholder Services
Mail Stop: 45-02-64
P.O. Box 644, Boston, MA 02102-0644
(617) 575-3170
(800) 730-4001 Outside MA
Legal Counsel
Hogan & Hartson
Columbia Square
555 Thirteenth Street NW
Washington, DC 20004-1109
Anderson, Alden, Hayes & Ziogas LLC
238 Main Street
Bristol, CT 06010
Form 10-K
A Copy of Eagle Financial Corp.'s annual report on Form 10-K (without exhibits)
filed with the Securities and Exchange Commission for fiscal 1995 may be
obtained from the Company without charge.
Please send a written request to:
Irene K. Hricko
Vice President, Secretary
Eagle Financial Corp.
222 Main Street
Bristol, CT 06010
Common Stock Information
Eagle Financial Corp. common stock is listed on the NASDAQ National Market
System under the symbol "EGFC." As of September 30, 1995 there were 4,507,197
shares of common stock outstanding, including 47,373 shares held in treasury,
and approximately 1,800 shareholders of record.
<PAGE>
Quarterly Stock Quotations and Stock Information
<TABLE>
<CAPTION>
Cash
Dividends
Quarter Paid Per
Ended Share
----- -----
<S> <C> <C> <C>
Dec. 31, 1991 $11.875 $ 9.625 $.124
Mar. 31, 1992 17.50 11.75 .124
June 30, 1992 16.375 14.00 .124
Sep. 30, 1992 16.375 15.00 .124
Dec. 31, 1992 17.375 15.00 .140
Mar. 31, 1993 20.25 16.75 .140
Jun. 30, 1993 19.25 16.25 .140
Sep. 30, 1993 19.875 16.625 .155
Dec. 31, 1993 21.625 18.75 .173
Mar. 31, 1994 20.625 19.125 .173
Jun. 30, 1994 23.625 19.125 .173
Sep. 30, 1994 23.625 19.875 .173
Dec. 31, 1994 21.00 18.25 .191
Mar. 31, 1995 21.25 17.75 .210
Jun. 30, 1995 22.25 19.00 .210
Sep. 30, 1995 24.50 21.25 .210
<FN>
(a) All cash dividends paid have been adjusted retroactively to give effect to
10% stock dividends paid in September 1993 and March 1995.
</FN>
</TABLE>
Eagle Financial Corp.
222 Main Street Bristol, CT 06010
(860) 314-6400
Eagle Federal Savings Bank is a
subsidiary of Eagle Financial Corp.
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF REGISTRANT
Jurisdiction of
Name of Subsidiary Incorporation
----------------- -------------
Eagle Federal Savings Bank United States
Eagle Service Corp.(*) Connecticut
- --------------------------
(*) Subsidiary of Eagle Federal Savings Bank.
<PAGE>
Exibit 23
The Board of Directors and Shareholders
Eagle Financial Corp.:
We consent to incorporation by reference in the registration statements on Form
S-8 (No. 33-28403) and Form S-8 (No. 33-46092) of Eagle Financial Corp. of our
report dated October 19, 1995, except as to the fourth and fifth paragraphs of
Note 21, which is as of November 28, 1995, relating to the consolidated balance
sheets of Eagle Financial Corp. and Subsidiaries as of Septembet 30, 1995 and
1994, and the related consolidated statements of income, shareholders's equity,
and cash flows for each of the years in the three-year period ended September
30, 1995, as an Exhibit to, and incorporation by reference into, the September
30, 1995 annual report on Form 10-K of Eagle Financial Corp.
Our report dated October 19, 1995, except as to the fourth and fifth paragraphs
of Note 21, which is as of November 28, 1995, contains a paragraph that states
that the Company has changed its method of accounting for investment securities
in 1995, and its methods of accounting for postretirement benefits other than
pensions and income taxes in 1994.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
December 29, 1995
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000792369
<NAME> EAGLE FINANCIAL CORP
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR END
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 22,670
<INT-BEARING-DEPOSITS> 40,637
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 285,976
<INVESTMENTS-CARRYING> 135,046
<INVESTMENTS-MARKET> 136,251
<LOANS> 713,545
<ALLOWANCE> 7,457
<TOTAL-ASSETS> 1,237,286
<DEPOSITS> 951,751
<SHORT-TERM> 133,890
<LIABILITIES-OTHER> 37,608
<LONG-TERM> 21,577
<COMMON> 45
0
0
<OTHER-SE> 92,415
<TOTAL-LIABILITIES-AND-EQUITY> 1,237,286
<INTEREST-LOAN> 63,227
<INTEREST-INVEST> 19,670
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 32,449
<INTEREST-DEPOSIT> 36,449
<INTEREST-EXPENSE> 6,431
<INTEREST-INCOME-NET> 40,017
<LOAN-LOSSES> (42)
<SECURITIES-GAINS> 244
<EXPENSE-OTHER> 24,259
<INCOME-PRETAX> 18,659
<INCOME-PRE-EXTRAORDINARY> 18,659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,972
<EPS-PRIMARY> 2.410
<EPS-DILUTED> 2.380
<YIELD-ACTUAL> 7.470
<LOANS-NON> 11,130
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,311
<CHARGE-OFFS> (2,476)
<RECOVERIES> 122
<ALLOWANCE-CLOSE> 7,457
<ALLOWANCE-DOMESTIC> 7,457
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
