<PAGE>
As filed with the Securities and Exchange Commission on April 21, 1997
Registration No. 333-23469
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
Eagle Financial Corp.
(Exact name of registrant as specified in its charter)
Delaware 6712 06-1194047
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
------------------
222 Main Street
Bristol, Connecticut 06010
(860) 314-6400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------
<TABLE>
<S> <C>
Mark J. Blum Stuart G. Stein, Esq.
Vice President, Chief Financial Officer and Secretary Hogan & Hartson L.L.P.
Eagle Financial Corp. 555 Thirteenth Street, N.W.
222 Main Street Washington, D.C. 20004
Bristol, Connecticut 06010 (202) 637-8575
(860) 314-6400
</TABLE>
(Name, address including zip code, and telephone number, including area code,
of registrant's agent for service)
------------------------
Copy to:
Stanford N. Goldman, Jr., Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
(617) 542-6000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]
------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
MidConn Bank
346 Main Street
Kensington, Connecticut 06037
April 23, 1997
To the Shareholders of
MidConn Bank:
You are cordially invited to attend a special meeting of shareholders of
MidConn Bank to be held on May 29, 1997, at 10:00 a.m. at The Hawthorne Inn,
Berlin, Connecticut.
As described in the enclosed Joint Proxy Statement/Prospectus, at the
MidConn Bank shareholder meeting you will be asked to approve the Agreement and
Plan of Merger, dated as of January 27, 1997, by and among Eagle Financial Corp.
("EFC"), Eagle Bank and MidConn Bank (the "Merger Agreement"). Under the Merger
Agreement, MidConn Bank will be merged into Eagle Bank, EFC's wholly-owned
subsidiary (the "Merger"). Upon the Merger, each outstanding share of MidConn
Bank common stock (other than dissenting shares) will be converted into .86 of a
share of EFC common stock, plus cash to be paid in lieu of fractional shares. It
is intended that such conversion will qualify as a tax-free exchange for federal
income tax purposes.
Ostrowski & Company, Inc., MidConn Bank's financial advisor in connection
with the Merger, has delivered its written opinion to MidConn Bank's Board of
Directors that, as of the date of the Merger Agreement, the consideration to be
received by the holders of MidConn Bank common stock in the Merger was fair to
such holders from a financial point of view. The written opinion of Ostrowski &
Company, Inc. is reproduced in full as Appendix A to the accompanying Joint
----------
Proxy Statement/Prospectus.
Consummation of EFC's acquisition of MidConn Bank is subject to certain
conditions, including approval of the Merger Agreement by at least two-thirds of
the outstanding shares of MidConn Bank common stock entitled to be voted at the
MidConn Bank shareholders meeting and the receipt of certain regulatory
approvals, as well as approval by the holders of EFC common stock of the
issuance of additional shares of EFC common stock.
Your Board of Directors unanimously approved the Merger Agreement and the
Merger, and recommends that you vote "FOR" approval of the Merger Agreement and
the Merger.
<PAGE>
THE REQUIRED VOTE TO APPROVE THE MERGER AGREEMENT IS BASED UPON THE TOTAL
NUMBER OF OUTSTANDING SHARES OF MIDCONN BANK COMMON STOCK. ACCORDINGLY, THE
FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT THE MIDCONN BANK
SHAREHOLDERS MEETING OR THE ABSTENTION FROM VOTING BY A SHAREHOLDER WILL HAVE
THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT AND THE MERGER.
You are urged to carefully read the Joint Proxy Statement/Prospectus, which
provides you with a description of the EFC common stock and the terms of the
Merger. A copy of the Merger Agreement (including each of the exhibits thereto)
and the other documents described in the accompanying Joint Proxy
Statement/Prospectus will be provided without charge upon oral or written
request to Mark J. Blum, Vice President, Chief Financial Officer and Secretary
of Eagle Financial Corp., 222 Main Street, Bristol, Connecticut 06010, telephone
(860) 314-6400. It is very important that your shares be represented at the
MidConn Bank shareholders meeting. Whether or not you plan to attend the MidConn
Bank shareholders meeting, you are requested to complete, date and sign the
enclosed proxy card and return it as soon as possible in the enclosed postage-
paid envelope. Failure to return a properly executed proxy card or to vote at
the MidConn Bank shareholders meeting will have the same effect as a vote
against the Merger Agreement and the Merger.
Sincerely,
RICHARD J. TOMAN
President and Chief Executive Officer
<PAGE>
MIDCONN BANK
346 Main Street
Kensington, Connecticut 06037
-------------------
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON
May 29, 1997
-------------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of MidConn
Bank will be held on May 29, 1997, at 10:00 a.m. at The Hawthorne Inn, Berlin,
Connecticut, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of January 27, 1997, by and
among Eagle Financial Corp. ("EFC"), Eagle Bank and MidConn Bank (the
"Merger Agreement") and the merger provided for therein. As more fully
described in the accompanying Joint Proxy Statement/Prospectus, under
the Merger Agreement, MidConn Bank will be merged into Eagle Bank,
EFC's wholly-owned subsidiary (the "Merger"). Upon the Merger, each
outstanding share of MidConn Bank common stock (other than dissenting
shares) will be converted into .86 of a share of EFC common stock,
plus cash to be paid in lieu of fractional shares; and
2. To transact such other business as may properly come before the
MidConn Bank shareholders meeting, or any adjournments or
postponements thereof, including, without limitation, a motion to
adjourn the MidConn Bank shareholders meeting to another time and/or
place for the purpose of soliciting additional proxies in order to
approve the Merger Agreement and the Merger provided for therein or
otherwise.
If the Merger Agreement is approved, adopted and consummated, each holder
of MidConn Bank common stock will have the right to dissent and demand payment
of the fair value of his shares. This right is contingent upon strict compliance
with the procedures set forth in the applicable statutes. The full text of these
statutes is included as Appendix C to the accompanying Joint Proxy
----------
Statement/Prospectus.
The Board of Directors of MidConn Bank has fixed the close of business
on April 17, 1997 as the record date for the determination of shareholders of
MidConn Bank entitled to notice of and to vote at the MidConn Bank shareholders
meeting. Only holders of record of MidConn Bank common stock at the close of
business on that date will be entitled to notice of and to vote at the MidConn
Bank shareholders meeting or any adjournments or postponements thereof.
By Order of the Board of Directors
DOROTHY A. BIALEK
Secretary
Kensington, Connecticut
April 23, 1997
WE URGE YOU TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN
IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU
PLAN TO ATTEND THE MIDCONN BANK SHAREHOLDERS MEETING IN PERSON. YOUR PROXY MAY
BE REVOKED IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT IS VOTED AT THE MIDCONN BANK
SHAREHOLDERS MEETING.
<PAGE>
EAGLE FINANCIAL CORP.
222 Main Street
Bristol, Connecticut 06010
April 23, 1997
To the Shareholders of
Eagle Financial Corp.:
You are cordially invited to attend a special meeting of shareholders of
Eagle Financial Corp. ("EFC") to be held on May 29, 1997, at 3:00 p.m. at EFC's
main Boardroom, 240 Main Street, Bristol, Connecticut.
As described in the enclosed Joint Proxy Statement/Prospectus, at the EFC
shareholders meeting, you will be asked to approve the issuance of up to
1,752,077 shares of EFC common stock in connection with the acquisition by EFC
of MidConn Bank pursuant to the Agreement and Plan of Merger, dated as of
January 27, 1997, by and among EFC, Eagle Bank and MidConn Bank (the "Merger
Agreement"). Under the Merger Agreement, MidConn Bank will be merged into Eagle
Bank. Upon the Merger, each outstanding share of MidConn Bank common stock
(other than dissenting shares) will be converted into .86 of a share of EFC
common stock, plus cash to be paid in lieu of fractional shares. It is intended
that such conversion will qualify as a tax-free exchange for federal income tax
purposes.
Keefe, Bruyette & Woods, Inc., EFC's financial advisor in connection with
the Merger, has delivered its written opinion to EFC's Board of Directors that
as of the date of the Merger Agreement, the exchange ratio was fair to EFC from
a financial point of view. The updated written opinion of Keefe, Bruyette is
reproduced in full as Appendix B to the accompanying Joint Proxy
----------
Statement/Prospectus.
Consummation of EFC's acquisition of MidConn Bank is subject to certain
conditions, including approval of the issuance of the EFC common stock by a
majority of the total votes cast on the proposal and the receipt of certain
regulatory approvals, as well as approval by MidConn Bank shareholders of the
Merger Agreement.
Your Board of Directors unanimously approved the issuance of the additional
shares of EFC common stock in connection with the Merger Agreement and
recommends that you vote "FOR" approval of the issuance.
<PAGE>
You are urged to carefully read the Joint Proxy Statement/Prospectus, which
provides you with a description of the issuance of the EFC common stock and the
terms of the Merger pursuant to which such shares will be issued. A copy of the
Merger Agreement (including each of the exhibits thereto) and the other
documents described in the accompanying Joint Proxy Statement/Prospectus will be
provided without charge upon oral or written request to Mark J. Blum, Vice
President, Chief Financial Officer and Secretary of Eagle Financial Corp., 222
Main Street, Bristol, Connecticut 06010, telephone (860) 314-6400. It is very
important that your shares be represented at the EFC shareholders meeting.
Whether or not you plan to attend the EFC shareholders meeting, you are
requested to complete, date and sign the enclosed proxy card and return it as
soon as possible in the enclosed postage-paid envelope.
Sincerely,
ROBERT J. BRITTON
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
EAGLE FINANCIAL CORP.
222 Main Street
Bristol, Connecticut 06010
-------------------
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON
May 29, 1997
-------------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Eagle
Financial Corp. ("EFC") will be held on May 29, 1997, at 3:00 p.m. at EFC's main
Boardroom, 240 Main Street, Bristol, Connecticut for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
up to 1,752,077 shares of EFC common stock in connection with the
transactions contemplated by the Agreement and Plan of Merger,
dated as of January 27, 1997 (the "Merger Agreement"), by and
among EFC, Eagle Bank and MidConn Bank. As more fully described
in the accompanying Joint Proxy Statement/Prospectus, under the
Merger Agreement, MidConn Bank will be merged into Eagle Bank
(the "Merger"). Upon the Merger, each outstanding share of
MidConn Bank common stock (other than dissenting shares) will be
converted into .86 of a share of EFC common stock, plus cash to
be paid in lieu of fractional shares; and
2. To transact such other business as may properly come before the
EFC shareholders meeting, or any adjournments or postponements
thereof, including, without limitation, a motion to adjourn the
EFC shareholders meeting to another time and/or place for the
purpose of soliciting additional proxies in order to approve the
issuance of EFC common stock or otherwise.
The Board of Directors of EFC has fixed the close of business on April 17,
1997 as the record date for the determination of shareholders of EFC entitled to
notice of and to vote at the EFC shareholders meeting. Only holders of record of
EFC common stock at the close of business on that date will be entitled to
notice of and to vote at the EFC shareholders meeting or any adjournments or
postponements thereof.
By Order of the Board of Directors
ROBERT J. BRITTON
Chairman of the Board, President
and Chief Executive Officer
Bristol, Connecticut
April 23, 1997
WE URGE YOU TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN
IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU
PLAN TO ATTEND THE EFC SHAREHOLDERS MEETING IN PERSON. YOUR PROXY MAY BE REVOKED
IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AT
ANY TIME BEFORE IT IS VOTED AT THE EFC SHAREHOLDERS MEETING.
<PAGE>
EAGLE FINANCIAL CORP. MIDCONN BANK
222 Main Street 346 Main Street
Bristol, Connecticut 06010 Kensington, Connecticut 06037
JOINT PROXY STATEMENT
----------------------
EAGLE FINANCIAL CORP.
PROSPECTUS
1,752,077 Shares of Common Stock
----------------------
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
MidConn Bank and to shareholders of Eagle Financial Corp. ("EFC"); it relates to
the special meeting of shareholders of MidConn Bank (the "MidConn Bank Meeting")
to be held on May 29, 1997, at 10:00 a.m. at The Hawthorne Inn, Berlin,
Connecticut, and to the special meeting of shareholders of EFC (the "EFC
Meeting") to be held on May 29, 1997, at 3:00 p.m. at EFC's main Boardroom, 240
Main Street, Bristol, Connecticut, and to any adjournments or postponements of
the MidConn Bank Meeting and the EFC Meeting. This Joint Proxy
Statement/Prospectus is first being mailed to shareholders of MidConn Bank and
to shareholders of EFC on or about April 23, 1997.
At the MidConn Bank Meeting, the principal item of business will be to
consider and vote upon the approval and adoption of the Agreement and Plan of
Merger, dated as of January 27, 1997, by and among EFC, Eagle Bank and MidConn
Bank (the "Merger Agreement") and the merger provided for therein. At the EFC
Meeting, the principal item of business will be to consider and vote upon a
proposal to approve the issuance of up to 1,752,077 shares of EFC common stock,
par value $.01 per share ("EFC Common Stock") in connection with the acquisition
of MidConn Bank pursuant to the Merger Agreement.
The Merger Agreement provides for MidConn Bank to be acquired by EFC
through a merger of MidConn Bank with and into Eagle Bank, a wholly-owned
subsidiary of EFC (the "Merger"). Upon the Merger, each issued and outstanding
share of MidConn Bank common stock, par value $1.00 per share ("MidConn Bank
Common Stock"), other than dissenting shares, will be converted into .86 of a
share of EFC Common Stock (the "Exchange Ratio"). Cash will be paid in lieu of
fractional shares. In connection with the Merger Agreement, MidConn Bank has
granted EFC an irrevocable option (the "Option") to purchase up to 485,319 newly
issued shares of MidConn Bank Common Stock at a purchase price of $21.00 per
share (which price is subject to adjustment) upon the occurrence of certain
events.
The Merger is subject to various conditions, including approvals of
applicable federal and Connecticut regulatory authorities. MidConn Bank and EFC
expect that the Merger will be consummated in the second quarter of 1997, or as
soon as possible after the receipt of all regulatory and shareholder approvals
and the expiration of all regulatory waiting periods. If the Merger is not
consummated by September 30, 1997, the Merger Agreement will be terminated
unless MidConn Bank and EFC mutually consent to an extension. For a more
detailed description of the Merger and the Option, see "THE MERGER."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of EFC
with respect to up to 1,752,077 shares of EFC Common Stock subject to issuance
in connection with the acquisition of MidConn Bank by EFC pursuant to the Merger
Agreement.
<PAGE>
THE EFC COMMON STOCK OFFERED HEREBY INVOLVES RISK. MIDCONN BANK
SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE MATTERS DISCLOSED UNDER "RISK
FACTORS" BEGINNING AT PAGE 17 RELATING TO CERTAIN FACTORS RELEVANT TO AN
ASSESSMENT OF EFC AND THE EFC COMMON STOCK.
THE EFC COMMON STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("SEC"), ANY STATE SECURITIES COMMISSION, THE OFFICE OF
THRIFT SUPERVISION ("OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"),
OR THE CONNECTICUT COMMISSIONER OF BANKING (THE "CONNECTICUT COMMISSIONER"), NOR
HAS THE SEC, ANY STATE SECURITIES COMMISSION, THE OTS, THE FDIC, OR THE
CONNECTICUT COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THE SHARES OF EFC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FDIC, THE BANK INSURANCE FUND
("BIF"), THE SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") OR ANY OTHER
GOVERNMENTAL AGENCY.
The information set forth in this Joint Proxy Statement/Prospectus
concerning MidConn Bank has been furnished by MidConn Bank. The information
concerning EFC and Eagle Bank has been furnished by EFC. The descriptions of the
Merger Agreement, the Option Agreement, the MidConn Bank Stockholder Agreement
and the Eagle Financial Corp. Stockholder Agreement (as defined herein) and
other documents in this Joint Proxy Statement/Prospectus are qualified by
reference to the text of those documents, which are incorporated herein by
reference, copies of which will be provided without charge upon written or oral
request addressed to Mark J. Blum, Vice President, Chief Financial Officer and
Secretary of Eagle Financial Corp., 222 Main Street, Bristol, Connecticut 06010,
telephone (860) 314-6400.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/ PROSPECTUS, OR
INCORPORATED BY REFERENCE HEREIN, IN CONNECTION WITH THE SOLICITATION OF PROXIES
BY MIDCONN BANK OR EFC OR THE OFFERING OF EFC COMMON STOCK MADE HEREBY, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY MIDCONN BANK OR EFC. THIS JOINT PROXY STATEMENT/
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, ANY EFC COMMON STOCK OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION OF AN
OFFER, OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF THE EFC COMMON STOCK
OFFERED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF MIDCONN BANK OR EFC OR THE INFORMATION HEREIN OR THE DOCUMENTS OR
REPORTS INCORPORATED BY REFERENCE SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
----------------------
The date of this Joint Proxy Statement/Prospectus is April 21, 1997.
<PAGE>
AVAILABLE INFORMATION
EFC and MidConn Bank are both subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder, and in accordance therewith EFC files reports,
proxy statements and other information with the SEC and MidConn Bank files
reports, proxy statements and other information with the FDIC. With respect to
EFC, such reports, proxy statements and other information can be obtained at
prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, such reports, proxy statements and
other information filed by EFC may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611 and 7 World Trade Center, Suite 1300, New York, New York 10048.
The SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of the SEC's Web site is (http://www.sec.gov). With
respect to MidConn Bank, such reports, proxy statements and other information
filed by MidConn Bank may be inspected and copied at the FDIC, 550 17th Street,
N.W., Room Number F-643, Washington, D.C. 20429 (202) 898-8913. EFC Common Stock
and MidConn Bank Common Stock are traded on The Nasdaq Stock Market National
Market System ("The Nasdaq National Market"). Reports, proxy statements and
other information concerning EFC and MidConn Bank can be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
EFC has filed with the SEC a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the EFC Common Stock to be issued to the
shareholders of MidConn Bank in connection with the acquisition of MidConn Bank
by EFC pursuant to the Merger Agreement. As permitted by the rules and
regulations of the SEC, this Joint Proxy Statement/Prospectus does not contain
all the information set forth in the Registration Statement. Such additional
information may be obtained from the SEC's principal office in Washington, D.C.
as set forth above. Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated by reference herein as to
the contents of any contract or other document are not necessarily complete and,
in each instance where such contract or document is filed as an exhibit to the
Registration Statement, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by EFC with the SEC (File No. 0-15311) under
the Exchange Act are hereby incorporated in this Joint Proxy
Statement/Prospectus by reference: (i) EFC's Annual Report on Form 10-K for the
year ended September 30, 1996; (ii) EFC's Quarterly Report on Form 10-Q/A for
the quarter ended December 31, 1996; and (iii) EFC's Current Reports on Form 8-K
filed with the SEC on October 29, 1996, December 19, 1996, February 5, 1997 and
April 8, 1997.
All documents filed by EFC pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the EFC Meeting shall be deemed to
be incorporated by reference in this Joint Proxy Statement/Prospectus. In lieu
of incorporating by reference the description of the capital stock of EFC which
is contained in a registration statement filed under the Exchange Act, such
description is included in this Joint Proxy Statement/Prospectus. See
"DESCRIPTION OF EFC CAPITAL STOCK AND COMPARISON OF SHAREHOLDER RIGHTS."
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently
-i-
<PAGE>
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Joint Proxy Statement/Prospectus. EFC will provide without charge to
each person, including any beneficial owner, to whom a copy of this Joint Proxy
Statement/Prospectus is delivered, upon written or oral request of such person,
a copy of any and all of the documents incorporated herein by reference and not
delivered herewith (not including exhibits to the information incorporated by
reference unless such exhibits are specifically incorporated by reference into
the text of such documents).
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. These documents are
available upon request from: Mark J. Blum, Vice President, Chief Financial
Officer and Secretary, Eagle Financial Corp., 222 Main Street, Bristol,
Connecticut 06010; telephone (860) 314-6400. In order to ensure timely delivery
of the documents, any request should be made as soon as possible, but no later
than May 22, 1997.
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................................................... i
Incorporation of Certain Documents
by Reference....................................................... i
Merger Summary.......................................................... 1
The Parties........................................................ 1
The Merger......................................................... 1
Comparison of Shareholder Rights................................... 7
Market Prices of Common Stock...................................... 7
Comparative Per Share Data......................................... 8
Summary Financial and Other
Data............................................................ 10
Risk Factors............................................................ 17
Recent Growth and Market Area Focus................................ 17
Legislative and General Regulatory
Developments.................................................... 17
Sources of Funds for Cash Dividends................................ 18
Commercial Lending................................................. 18
Recent Developments..................................................... 18
MidConn Bank Meeting.................................................... 18
Matters to be Considered at the
MidConn Bank Meeting............................................ 18
Record Date and Voting............................................. 19
Vote Required; Revocability of
Proxies......................................................... 20
Solicitation of Proxies............................................ 21
EFC Meeting............................................................. 21
Matters to be Considered at the
EFC Meeting..................................................... 21
Record Date and Voting............................................. 22
Vote Required; Revocability of
Proxies......................................................... 23
Solicitation of Proxies............................................ 24
The Merger.............................................................. 24
The Parties........................................................ 24
Background of the Merger........................................... 25
Recommendation of the MidConn Bank
Board of Directors and Reasons for
the Merger...................................................... 26
Recommendation of the EFC Board of
Directors and Reasons for the
Issuance........................................................ 27
Purpose and Effects of the Merger.................................. 28
Structure.......................................................... 28
Exchange Ratio..................................................... 29
Options............................................................ 31
Regulatory Approvals............................................... 32
Conditions to the Merger........................................... 32
Conduct of Business Pending
the Merger...................................................... 33
Third Party Proposals.............................................. 33
Expenses; Breakup Fee.............................................. 33
Opinion of MidConn Bank Financial
Advisor......................................................... 34
Opinion of EFC Financial Advisor................................... 38
Certain Provisions of the Merger
Agreement....................................................... 41
Termination and Amendment of
the Merger Agreement............................................ 41
Certain Federal Income Tax
Consequences.................................................... 42
Accounting Treatment............................................... 44
Resales of EFC Common Stock
Received in the Merger.......................................... 44
Dissenters' Appraisal Rights....................................... 45
Interests of Certain Persons in
the Merger...................................................... 47
Indemnification.................................................... 48
Option Agreement................................................... 48
Pro Forma Combined Financial
Statements......................................................... 51
Market Prices and Dividends............................................. 59
EFC Common Stock................................................... 59
MidConn Bank Common Stock.......................................... 60
Description of EFC Capital Stock and
Comparison of Shareholder Rights........................................ 61
EFC Capital Stock.................................................. 61
Certificate of Incorporation and Bylaw
Provisions...................................................... 62
Applicable Law..................................................... 66
Information about MidConn Bank.......................................... 67
Description of Business of MidConn Bank............................ 67
Description of Property of MidConn Bank............................ 77
Management's Discussion and Analysis
of Financial Condition and
Results of Operations -Year Ended
September 30, 1996.............................................. 77
Management's Discussion and Analysis
of Financial Condition and Results of
Operations - Quarter Ended
December 31, 1996............................................... 84
Principal Shareholders............................................. 87
Security Ownership of Management................................... 88
Legal Proceedings.................................................. 89
Independent Accountants............................................ 89
Section 16(a) Compliance........................................... 89
Adjournment of MidConn Bank and EFC
Meetings........................................................... 89
Shareholder Proposals................................................... 90
Other Matters........................................................... 90
Experts................................................................. 90
Legal Matters........................................................... 90
Appendix A
- ----------
Opinion of Ostrowski & Company, Inc................................ A-1
Appendix B
- ----------
Opinion of Keefe, Bruyette & Woods, Inc............................ B-1
Appendix C
- ----------
Section 36a-125(h) and Sections 33-855
to 33-872 of the Connecticut
General Statutes................................................ C-1
Exhibit F
- ---------
Index to Financial Statements...................................... F-1
Financial Statements of MidConn Bank............................... F-2
</TABLE>
iii
<PAGE>
MERGER SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Joint Proxy Statement/Prospectus. This summary is not intended
to be a complete description and is qualified in its entirety by reference to
the more detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus. Shareholders of MidConn Bank and of EFC are urged before
voting to give careful consideration to all of the information contained in or
incorporated by reference into this Joint Proxy Statement/Prospectus.
The Parties
EFC. EFC is a Delaware corporation and the holding company of Eagle
Bank, its wholly-owned, federally chartered, FDIC insured savings bank
subsidiary. Both EFC and Eagle Bank are headquartered in Bristol, Connecticut.
Through Eagle Bank, EFC provides a full range of financial services to customers
from 19 traditional banking offices and four supermarket branch offices located
in Hartford and eastern Litchfield Counties in Connecticut.
At December 31, 1996, EFC had total consolidated assets of $1.49
billion, total deposits of $1.07 billion, and shareholders' equity of $105
million. EFC Common Stock is quoted on The Nasdaq National Market under the
symbol "EGFC". The address of EFC's principal executive offices is Eagle
Financial Corp., 222 Main Street, Bristol, Connecticut 06010, and its telephone
number is (860) 314-6400. See "THE MERGER -- The Parties."
Eagle Bank. Eagle Bank, a federal savings bank, is a wholly-owned
subsidiary of EFC. Eagle Bank was formerly known as Eagle Federal Savings Bank.
Eagle Bank will be the surviving federal savings bank following the Merger (the
"Surviving Bank"). See "THE MERGER -- The Parties." The address of Eagle Bank's
principal executive offices is Eagle Bank, 222 Main Street, Bristol, Connecticut
06010, and its telephone number is (860) 314-6400.
MidConn Bank. MidConn Bank, a Connecticut-chartered savings bank, is
headquartered in Kensington, Connecticut. Deposits at MidConn Bank are FDIC
insured. MidConn Bank currently serves customers from eight branch offices
located in Hartford County and two branch offices located in Middlesex County.
MidConn Bank is engaged primarily in the business of attracting deposits from
the general public and using those funds and other sources of funds primarily
for residential and commercial mortgage loans.
At December 31, 1996, MidConn Bank had total consolidated assets of
$363 million, total deposits of $315 million, and shareholders' equity of $35
million. MidConn Bank Common Stock is quoted on The Nasdaq National Market under
the symbol "MIDC". The address of MidConn Bank's principal executive offices is
MidConn Bank, 346 Main Street, Kensington, Connecticut 06037, and its telephone
number is (860) 828-0301. See "THE MERGER -- The Parties."
The Merger
General. The Merger Agreement provides for the acquisition of MidConn
Bank by EFC through the merger of MidConn Bank with and into Eagle Bank, with
Eagle Bank being the Surviving Bank which will continue to be a wholly-owned
subsidiary of EFC. Eagle Bank will remain headquartered in Bristol, Connecticut
as an FDIC insured federally chartered savings bank.
At the Effective Time (defined below) of the Merger, each issued and
outstanding share of MidConn Bank Common Stock, except for (i) shares held as
treasury stock or held, directly or indirectly, by EFC, MidConn Bank or any of
EFC's subsidiaries (other than shares held in a fiduciary capacity ("Trust
Account Shares") or in respect of a debt previously contracted ("DPC Shares")),
which shall be canceled and (ii) Dissenting Shares (defined below), will be
converted into .86 of a
-1-
<PAGE>
share of EFC Common Stock, plus cash to be paid in lieu of fractional shares.
See "THE MERGER -- Exchange Ratio." Based on the 4,559,851 shares of EFC Common
Stock and the 2,037,299 shares of MidConn Bank Common Stock and MidConn Options
outstanding on the record date, immediately following the Merger, holders of
MidConn Bank Common Stock and MidConn Options will receive 1,752,077 shares
(27.8%) of the EFC Common Stock outstanding immediately following the Merger;
the Merger will not otherwise change the outstanding EFC Common Stock held by
EFC shareholders prior to the Merger.
MidConn Bank and EFC expect that the Merger will be consummated in the
second quarter of 1997, or as soon as possible after the receipt of all
regulatory and shareholder approvals and the expiration of all regulatory
waiting periods. If the Merger is not consummated by September 30, 1997, the
Merger Agreement will be terminated unless MidConn Bank and EFC mutually consent
to an extension. See "THE MERGER -- Structure."
Exchange Ratio. At the Effective Time, except as discussed below,
each issued and outstanding share of MidConn Bank Common Stock will be converted
automatically into .86 of a share of EFC Common Stock. Shares held as treasury
stock or held directly or indirectly by MidConn Bank, EFC or any of EFC's
subsidiaries (other than Trust Account Shares and DPC shares) shall be canceled.
Dissenting Shares will not be converted into the right to receive shares of EFC
Common Stock, unless and until such shareholders shall have failed to perfect or
shall have effectively withdrawn or lost their rights of payment under
applicable law. See "THE MERGER -- Dissenters' Appraisal Rights" and
Appendix C. Cash will be paid in lieu of fractional shares.
Based on the 1,955,469 shares of MidConn Bank Common Stock outstanding
on the April 17, 1997 record date and the Exchange Ratio of .86, EFC would issue
up to 1,681,703 shares of EFC Common Stock to the MidConn Bank shareholders in
the Merger, plus cash in lieu of fractional shares. These numbers do not
reflect additional shares of EFC Common Stock to be issued in the event of the
exercise prior to the Merger of the 81,830 shares of MidConn Bank Common Stock
that are subject to existing stock options held by directors, officers and
employees of MidConn Bank.
Options. As of the MidConn Bank Record Date (defined below), there were
outstanding options to purchase 81,830 shares of MidConn Bank Common Stock at an
average exercise price of $13.74 per share, all of which are or will be,
immediately before the Effective Time, vested and exercisable in full. These
options are held as follows: options for 10,500 shares by non-employee
directors; 28,130, 1,620, 1,620, 5,445 and 4,265 shares by Messrs. Toman,
Anderson, Rungee and Rys and Ms. Bialek, respectively; and 30,250 shares by
retired officers and directors. Under the Merger Agreement, shares of MidConn
Bank Common Stock issued prior to consummation of the Merger upon the exercise
of the 81,830 outstanding options held by directors, officers and other
employees of MidConn Bank will also be converted into EFC Common Stock at the
Exchange Ratio.
Under the Merger Agreement, each option granted by MidConn Bank to purchase
shares of MidConn Bank Common Stock pursuant to the MidConn Bank stock option
plans that is outstanding and unexercised immediately before the Effective Time
(a "MidConn Option") shall be terminated, and the holders thereof shall have the
right to receive, at the Effective Time, in substitution for and cancellation of
such MidConn Option, shares of EFC Common Stock in accordance with a specified
formula which, as is described in more detail below, will generally result in
the option holder receiving shares of EFC Common Stock having a value (based on
a 20-trading-day average price) essentially equal to the "spread" on the option
(that is, the value of shares of EFC Common Stock, based on the Exchange Ratio
and such average price, that the
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<PAGE>
option holder would have received if he or she had exercised the option, reduced
by the applicable exercise price). The option holder generally will be subject
to federal income tax (at ordinary income rates) on the value of such shares of
EFC Common Stock received (subject to certain special rules if the sale of such
shares is restricted in accordance with the "pooling-of-interest" accounting
rules, as described below). See "THE MERGER -- Options."
Conditions to the Merger. The respective obligations of the parties under
the Merger Agreement to consummate the Merger are subject to the satisfaction of
various conditions, including approval by at least two-thirds of the outstanding
shares of MidConn Bank Common Stock, approval of the issuance of EFC Common
Stock as part of the Merger by a majority of the total votes cast on the
proposal at the EFC Meeting, receipt of regulatory approvals, receipt of a
favorable tax opinion from EFC's special counsel and an opinion from EFC's
independent accountants that the Merger will be accounted for as a pooling-of-
interests, as well as other customary conditions. See "THE MERGER -- Conditions
to the Merger."
MidConn Bank Meeting. The MidConn Bank Meeting will be held on May 29,
1997 at 10:00 a.m. at The Hawthorne Inn, Berlin, Connecticut, at which time the
holders of record of MidConn Bank Common Stock at the close of business on April
17, 1997 (the "MidConn Bank Record Date") will be asked to consider and vote
upon: (i) a proposal to approve and adopt the Merger Agreement and the Merger
provided for therein, and (ii) such other matters as may properly be brought
before the MidConn Bank Meeting or any adjournments or postponements thereof.
The affirmative vote of the holders of two-thirds of the outstanding shares of
MidConn Bank Common Stock entitled to vote at the MidConn Bank Meeting is
required to approve and adopt the Merger Agreement and the Merger provided for
therein.
All of the directors of MidConn Bank, who beneficially owned as of the
MidConn Bank Record Date, an aggregate of 45,149 shares of MidConn Bank Common
Stock (excluding all stock options) or approximately 2.3% of the outstanding
shares of MidConn Bank, and certain affiliates of MidConn Bank have entered into
a stockholder agreement with EFC, dated as of January 27, 1997 (the "MidConn
Bank Stockholder Agreement"), pursuant to which they have each agreed, among
other things, to certain transfer restrictions and to vote all shares of MidConn
Bank Common Stock with respect to which they have the right to vote in favor of
the Merger Agreement, the Merger and the other transactions contemplated by the
Merger Agreement and against any third party merger proposal. No separate
consideration was paid to any of the directors for entering into the MidConn
Bank Stockholder Agreement. EFC required that the MidConn Stockholder Agreement
be executed as a condition to EFC entering into the Merger Agreement. See
"MIDCONN BANK MEETING."
The Board of Directors of MidConn Bank believes that the terms of the
Merger Agreement are fair to, and in the best interests of, MidConn Bank and its
shareholders. The Board of Directors of MidConn Bank unanimously approved the
Merger Agreement and the Merger and recommends that holders of MidConn Bank
Common Stock vote "FOR" approval and adoption of the Merger Agreement and the
Merger. For a discussion of the factors considered
-3-
<PAGE>
by the Board of Directors in reaching its decision, see "THE MERGER --
Background of the Merger" and "--Recommendation of the MidConn Bank Board of
Directors and Reasons for the Merger."
EFC Meeting. The EFC Meeting will be held on May 29, 1997, at 3:00 p.m. at
EFC's main Boardroom, 240 Main Street, Bristol, Connecticut, at which time the
holders of record of EFC Common Stock at the close of business on April 17, 1997
(the "EFC Record Date") will be asked to consider and vote upon: (i) a proposal
to approve the issuance of up to 1,752,077 shares of EFC Common Stock in
connection with the acquisition of MidConn Bank by EFC pursuant to the Merger
Agreement, and (ii) such other business as may properly be brought before the
EFC Meeting or any adjournments or postponements thereof. The Merger is
conditioned on the approval by the EFC shareholders of the issuance of these
shares of EFC Common Stock, which approval requires an affirmative vote of a
majority of the total votes cast on the proposal. See "EFC MEETING."
The Board of Directors of EFC believes that the terms of the Merger
Agreement are fair to, and in the best interests of EFC and its shareholders.
The Board of Directors of EFC unanimously approved the issuance of the shares of
EFC Common Stock in connection with the Merger Agreement and recommends that the
holders of EFC Common Stock vote "FOR" approval of the issuance. For a
discussion of the factors considered by the Board of Directors in reaching its
decision, see "THE MERGER -- Background of the Merger" and "-- Recommendation of
the EFC Board of Directors and Reasons for the Issuance."
Fairness Opinions. On January 27, 1997, Ostrowski & Company, Inc. ("O &
Co.") delivered its opinion to the Board of Directors of MidConn Bank that, as
of such date, the consideration to be received by the holders of MidConn Bank
Common Stock was fair from a financial point of view. The opinion of O & Co.
describes the matters considered and the scope of the review undertaken in
rendering such opinion. O & Co.'s opinion and presentations to the MidConn Bank
Board of Directors, together with a review by the MidConn Bank Board of the
assumptions used by O & Co., were among the factors considered by the MidConn
Bank Board of Directors in reaching its determination to approve the Merger
Agreement and the Merger. On January 27, 1997, the date that O & Co. delivered
its opinion, EFC Common Stock closed at $29.25 per share. The Merger Agreement
does not provide for an update by O & Co. of its opinion. See "THE MERGER --
Opinion of MidConn Bank Financial Advisor." A copy of O & Co.'s opinion letter
dated as of January 27, 1997 is attached as Appendix A to this Joint Proxy
----------
Statement/Prospectus and should be read by MidConn Bank shareholders in its
entirety.
The Board of Directors of EFC reviewed financial analyses and other
material information in considering the Merger. EFC also consulted with Keefe,
Bruyette & Woods, Inc. ("Keefe, Bruyette") as to certain issues concerning the
Merger, including whether the Exchange Ratio is fair to EFC from a financial
point of view. On January 23, 1997, Keefe, Bruyette delivered a fairness
opinion to EFC with respect to the terms of the Merger. See "THE MERGER --
Opinion of EFC Financial Advisor." A copy of Keefe, Bruyette's updated opinion
letter dated the date of this Joint Proxy Statement/Prospectus is attached as
Appendix B to this Joint Proxy Statement/Prospectus and should be read by EFC
- ----------
shareholders in its entirety.
Regulatory Approvals. Consummation of the Merger is conditioned on receipt
of required regulatory approvals from the OTS and the Connecticut Commissioner.
Applications as to such approvals have been filed and are pending. No other
regulatory approvals are required to effect the Merger pursuant to the Merger
Agreement. Neither MidConn Bank nor EFC is aware of any reason why all required
regulatory approvals should not be obtained. See "THE MERGER -- Regulatory
Approvals."
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<PAGE>
Accounting Treatment. The Merger is intended to qualify as a "pooling-of-
interests" for accounting and financial reporting purposes. Consummation of the
Merger is conditioned upon the Merger so qualifying. See "THE MERGER --
Accounting Treatment."
Federal Income Tax Consequences. It is intended that the Merger will
qualify as a tax-free reorganization for federal income tax purposes so that
MidConn Bank shareholders generally should not recognize gain or loss as a
result of exchanging their MidConn Bank Common Stock for the EFC Common Stock
issued in the Merger. Receipt of an opinion to such effect is a condition to
the Merger. See "THE MERGER -- Certain Federal Income Tax Consequences."
Dissenters' Appraisal Rights. The holders of EFC Common Stock do not have
dissenters' rights of appraisal in connection with the Merger.
Under Connecticut law, holders of MidConn Bank Common Stock are entitled to
dissenters' rights of appraisal in connection with the Merger. Shares of
MidConn Bank Common Stock that are issued and outstanding immediately prior to
the Effective Time and that are owned by shareholders who have properly
dissented from the Merger (collectively, "Dissenting Shares") pursuant to
Section 36a-125(h) and Sections 33-855 to 33-872, inclusive, of the Connecticut
General Statutes (the "CGS"), shall not be converted into the right to receive
shares of EFC Common Stock, unless and until such shareholders shall have failed
to perfect or shall have effectively withdrawn or lost their right of payment
under applicable law. If any such shareholder shall have failed to perfect or
shall have effectively withdrawn or lost such right of payment, the shares of
MidConn Bank Common Stock held by such shareholder shall thereupon be deemed to
have been converted into the right to receive and become exchangeable for, at
the Effective Time, shares of EFC Common Stock pursuant to the Merger Agreement.
See "THE MERGER -- Dissenters' Appraisal Rights" and Appendix C to this Joint
----------
Proxy Statement/Prospectus, which set forth the steps to be taken by a holder of
MidConn Bank Common Stock who wishes to exercise the right to dissent.
Effective Time. The Merger will become effective (the "Effective Time") as
of the date and time specified in the Agreement of Merger and Articles of
Combination to be filed with the OTS prior to the Merger. It is anticipated
that the Effective Time will occur (i) on the fifth day after the last required
regulatory approval is received and all applicable waiting periods have expired,
(ii) if elected by EFC, the last business day of the month in which the date set
forth in (i) above occurs, or (iii) at such other time as the parties may agree.
MidConn Bank and EFC expect that the Merger will be consummated in the second
quarter of 1997, or as soon as possible after the receipt of all regulatory and
shareholder approvals and the expiration of all regulatory waiting periods. If
the Merger is not consummated by September 30, 1997, the Merger Agreement will
be terminated unless MidConn Bank and EFC mutually consent to an extension.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time by the mutual consent of MidConn Bank and EFC and by either
of them individually under certain specified circumstances, including if the
Merger is not consummated by September 30, 1997. See "THE MERGER -- Termination
and Amendment of Merger Agreement."
Exchange of MidConn Bank Common Stock Certificates. Upon the Effective
Time, each holder of a certificate representing MidConn Bank Common Stock issued
and outstanding immediately prior to the Merger will, upon the surrender thereof
(duly endorsed, if required) to EFC's transfer agent, The First National Bank of
Boston (the "Exchange Agent"), be entitled to receive a certificate representing
the number of whole shares of EFC Common Stock into which such MidConn Bank
Common Stock will have been automatically converted as part of the Merger. The
Exchange Agent will mail a letter of transmittal with instructions to all
holders of record of MidConn Bank Common Stock immediately prior to the
Effective Time for use in surrendering their certificates for MidConn Bank
Common Stock in exchange for new certificates representing EFC
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<PAGE>
Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED BY MIDCONN BANK
------------------------------------------------------
SHAREHOLDERS UNTIL THE LETTER OF TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED. See
- --------------------------------------------------------------------------
"THE MERGER --Exchange Ratio."
Option Agreement. As a condition of and inducement to EFC's entering into
the Merger Agreement, EFC and MidConn Bank entered into an option agreement,
dated as of January 27, 1997 (the "Option Agreement"), immediately after their
execution of the Merger Agreement. The Option Agreement is intended to
discourage the making of alternative acquisition-related proposals, even if such
proposal is for a higher price per share for MidConn Bank Common Stock than the
price per share consideration to be paid pursuant to the Merger Agreement.
If the Option granted pursuant to the Option Agreement becomes exercisable,
EFC may purchase at a price of $21.00 per share up to 485,319 newly issued
shares of MidConn Bank Common Stock, or approximately 19.9% of the MidConn Bank
Common Stock then outstanding. The Option would become exercisable primarily
upon the occurrence of certain events that create the potential for a third
party to acquire MidConn Bank. To the knowledge of MidConn Bank, no event that
would permit exercise of the Option has occurred as of the date hereof. If the
Option becomes exercisable, EFC or any permitted transferee of EFC may, under
certain circumstances, require MidConn Bank to repurchase, for a formula price,
the Option (in lieu of its exercise) or any shares of MidConn Bank Common Stock
purchased upon exercise of the Option. See "THE MERGER -- Option Agreement."
Interests of Certain Persons in the Merger. The Merger Agreement provides
for one MidConn Bank director (selected by the Board of Directors of EFC in
consultation with MidConn Bank) to be invited to serve as an additional member
of the Boards of Directors of EFC and Eagle Bank upon consummation of the
Merger. The director will serve until the annual meeting of shareholders
following the fiscal year ended September 30, 1999.
Pursuant to existing employment and severance agreements of MidConn Bank,
and as provided in the Merger Agreement, severance payments are expected to be
made upon the consummation of the Merger and termination of their current
employment positions without cause to Richard J. Toman, Robert W. Anderson,
Dorothy A. Bialek, Robert C. Rungee and Daniel J. Rys, Jr. These payments, which
are limited to the maximum amount that can be paid without adverse tax
consequences under Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), would be based on 2.99 times their respective average annual
compensation that was paid by MidConn Bank and includible in their gross income
for federal tax purposes for the calendar years 1992 through 1996.
Based on 2.99 times their respective average annual compensation paid by
MidConn Bank and includible in gross income for federal tax purposes for the
calendar years 1992 through 1996, the severance payments to Messrs. Toman,
Anderson, Rungee and Rys and Ms. Bialek upon termination of employment without
cause in connection with the Merger would be approximately $515,971, $246,777,
$223,467, $164,193, and $206,880, respectively.
The Merger Agreement provides that as to each employee of MidConn Bank who
was a party to an employment or severance agreement with MidConn Bank on the
date of the Agreement and whose employment is terminated after the Effective
Time and during the term of such agreement, Eagle Bank will assume the
obligations of MidConn Bank under such agreement and, in addition, take certain
actions at the discretion of the employee. Pursuant to the Merger Agreement,
MidConn Bank will make a severance payment to Douglas Larson equal to twelve
months of his compensation based on his compensation for December 1996, which
amount will be $60,000. In addition, Eagle Bank has agreed to pay for
continuation of group term life insurance with a death benefit not in
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<PAGE>
excess of three times such employee's annual rate of compensation from MidConn
Bank as of the Effective Time for one year and for accrued and unused vacation
and sick leave.
Also upon consummation of the Merger, Eagle Bank has agreed to employ Mr.
Toman as an officer from the Effective Time through December 31, 1997 to assist
in the transition at a salary of $14,000 per month, and thereafter to retain him
as a part-time independent contractor consultant for the subsequent year with
consulting fees at an annual rate of $50,000. See "THE MERGER --Interests of
Certain Persons in the Merger."
EFC also has agreed to indemnify the directors, officers and employees of
MidConn Bank as to certain matters. See "THE MERGER -- Indemnification."
As of the MidConn Bank Record Date, the directors and executive officers
of MidConn Bank and their affiliates owned 74,838 of the outstanding shares
(3.8%) of MidConn Bank Common Stock. To approve and adopt the Merger
Agreement and the Merger, the affirmative vote of at least two-thirds of the
outstanding shares of MidConn Bank Common Stock entitled to be voted at the
MidConn Bank Meeting is required. As of the EFC Record Date, the directors and
executive officers of EFC and their affiliates owned 251,890 of the
outstanding shares (5.5%) of EFC Common Stock. To approve the issuance of
the additional shares of EFC Common Stock in connection with the Merger
Agreement, the affirmative vote of a majority of the total votes cast on the
proposal at the EFC Meeting is required.
Comparison of Shareholder Rights
If the Merger is consummated, the holders of MidConn Bank Common Stock will
become holders of EFC Common Stock. There are certain differences between the
rights of EFC shareholders and MidConn Bank shareholders. For a summary of such
differences, see "DESCRIPTION OF EFC CAPITAL STOCK AND COMPARISON OF SHAREHOLDER
RIGHTS."
Market Prices of Common Stock
EFC Common Stock and MidConn Bank Common Stock are traded on The Nasdaq
National Market. The symbol for EFC Common Stock is "EGFC". The symbol for
MidConn Bank Common Stock is "MIDC".
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<PAGE>
The following table sets forth per share closing prices of the EFC Common
Stock and MidConn Bank Common Stock on The Nasdaq National Market, as of the
dates specified and the pro forma equivalent market value of the EFC Common
Stock to be issued for the MidConn Bank Common Stock in the Merger. See "MARKET
PRICES AND DIVIDENDS."
<TABLE>
<CAPTION>
MidConn Bank
Last Reported Sale Price Common Stock
-------------------------- Pro Forma
Date EFC MidConn Bank Equivalent Market
---- Common Stock Common Stock Value (a)
------------ ------------ ---------------
<S> <C> <C> <C>
September 30, 1994.... $21.25 $14.25 $18.28
September 30, 1995.... 23.00 14.25 19.78
September 30, 1996.... 27.25 19.25 23.44
December 31, 1996..... 30.50 19.75 26.23
January 27, 1997 (b).. 29.25 20.00 25.16
April 15, 1997 (c).... 27.50 23.13 23.65
</TABLE>
- --------------
(a) Determined by multiplying the respective closing prices of the EFC Common
Stock by the .86 Exchange Ratio. See "THE MERGER -- Exchange Ratio."
(b) Last trading date prior to announcement of the execution of the Merger
Agreement.
(c) The most recent practicable date prior to the date of this Joint Proxy
Statement/Prospectus.
Shareholders are advised to obtain current market quotations for EFC Common
Stock. It is expected that the market price of EFC Common Stock will fluctuate
between the date of this Joint Proxy Statement/Prospectus and the date on which
the Merger is consummated. No assurance can be given as to the market price of
EFC Common Stock at the time of the Merger.
Comparative Per Share Data
Following are certain comparative selected historical per share data of EFC
and of MidConn Bank, pro forma combined per share data of EFC and MidConn Bank,
and equivalent pro forma per share data of MidConn Bank. The financial data is
based on, and should be read in conjunction with, the historical consolidated
financial statements and the notes thereto of EFC and of MidConn Bank and the
pro forma combined financial statements and the notes thereto appearing herein
or incorporated by reference elsewhere into this Joint Proxy Statement/
Prospectus. All per share data of EFC, MidConn Bank and pro forma are
presented on a fully diluted basis and have been adjusted retroactively to give
effect to stock dividends. The pro forma data is not necessarily indicative of
results which will be obtained on a combined basis. The pro forma data has not
been adjusted to reflect any of the improvements in operating efficiencies that
EFC anticipates may occur in the future due to the Merger.
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<PAGE>
<TABLE>
<CAPTION>
At or for
the Three
Months Ended At or for the Year Ended September 30,
December 31, -------------------------------------
Net Income before cumulative change per ------------
fully diluted Common Share: 1996 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
EFC -- historical........................... $ 0.61 $ 2.89 $ 2.38 $ 2.13(a)
MidConn Bank -- historical.................. 0.35 0.94 0.56 0.97(a)
Pro Forma Combined (b)...................... 0.55 2.42 1.92 1.81
MidConn Bank Equivalent Pro Forma (c)....... 0.47 2.08 1.65 1.56
Cash Dividends per Common Share
EFC -- historical........................... 0.23 0.92 0.82 0.69
MidConn Bank -- historical.................. 0.15 0.60 0.54 0.44
Pro Forma Combined.......................... 0.23 0.92 0.82 0.69
MidConn Bank Equivalent Pro Forma (c)....... 0.20 0.79 0.71 0.59
Book Value per Common Share
EFC -- historical........................... 23.16 22.31 20.73 19.24
MidConn Bank -- historical.................. 18.13 18.00 17.77 17.68
Pro Forma Combined (d)...................... 21.86 21.94 20.71 19.66
MidConn Bank Equivalent Pro Forma (c)....... 18.80 18.87 17.81 16.91
</TABLE>
- -------------
(a) Does not give effect to the loss and additional income, respectively, in
1994 resulting from the cumulative effect of the change in the method of
accounting for income taxes and post-retirement benefits other than pensions
adopted by each of EFC and MidConn Bank in 1994 in accordance with Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
109 ("FASB 109") and No. 106 ("FASB 106"), which resulted in a decrease of
$0.01 per share in EFC's net income for 1994 and an increase of $0.06 per
share in MidConn Bank's net income for 1994.
(b) Pro Forma Combined EFC and MidConn Bank Net Income per Common Share data
have been determined based upon (i) the combined historical net income of
EFC and MidConn Bank and (ii) the combined historical weighted average
common equivalent shares of EFC and MidConn Bank. For purposes of this
determination, MidConn Bank's historical weighted average common shares
outstanding were multiplied by the .86 Exchange Ratio. See "THE MERGER --
Exchange Ratio."
(c) MidConn Bank Equivalent Pro Forma per share amounts are calculated by
multiplying the pro forma combined amounts by the .86 Exchange Ratio.
(d) Pro Forma Combined EFC and MidConn Bank Book Value per Common Share has been
determined based upon (i) the combined historical shareholders' equity of
EFC and MidConn Bank and (ii) the combined historical common shares
outstanding of EFC and MidConn Bank. For purposes of this determination,
MidConn Bank's historical common shares outstanding were multiplied by the
.86 Exchange Ratio.
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<PAGE>
Summary Financial and Other Data
The following tables present summary historical financial and other data
for EFC and MidConn Bank as of the dates and for the periods indicated. This
summary data is based upon, and should be read in conjunction with, the
historical and pro forma consolidated financial statements and notes thereto of
EFC and MidConn Bank incorporated by reference herein or appearing elsewhere
herein. As to historical information, see "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE" for information with respect to EFC and Exhibit F for information
---------
with respect to MidConn Bank. For pro forma information, see "-- Comparative
Per Share Data" above and "PRO FORMA COMBINED FINANCIAL STATEMENTS" appearing
elsewhere herein. All adjustments necessary for a fair presentation of
financial position and results of operations of interim periods have been
included. All per share data of EFC and MidConn Bank have been adjusted
retroactively to give effect to stock dividends. The pro forma amounts are not
necessarily indicative of results which will be obtained on a combined basis.
The pro forma data has not been adjusted to reflect any of the improvements in
operating efficiencies that EFC anticipates may occur in the future due to the
Merger.
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<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Data - EFC
Financial Condition
and Other Data - EFC
(Dollars in Thousands) At December 31, At September 30,
------------------- ---------------------------------------------------------------
1996 1996 1995 1994 1993 1992
------ ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total assets........................ $1,458,050 $1,402,809 $1,237,286 $1,070,276 $ 792,468 $ 751,171
Loans receivable, net............... 828,594 814,488 713,545 810,705 656,344 568,124
Investment securities............... 47,818 52,877 105,874 76,466 54,701 70,536
Mortgage-backed securities.......... 497,251 450,120 355,785 116,063 49,176 71,064
Intangible assets (a)............... 26,355 26,990 9,869 11,511 1,861 2,138
Deposits............................ 1,067,480 1,059,355 951,751 948,829 706,214 677,701
FHL Bank advances and other
borrowings........................ 241,204 221,678 155,467 39,592 16,252 7,326
Shareholders' equity................ 105,209 101,148 92,460 66,276 60,407 55,004
Number of banking offices........... 23 23 23 23 17 17
<CAPTION>
Operating Data - EFC At or for the Three Months
(Dollars in Thousands) Ended December 31, At or for the Year Ended September 30,
-------------------- ---------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................ $ 24,879 $ 22,149 $ 95,601 $ 82,897 $ 60,087 $ 55,754 $ 51,884
Interest expense............... 14,429 12,748 55,842 42,880 29,016 28,469 29,698
---------- --------- --------- -------- -------- -------- --------
Net interest income............ 10,450 9,401 39,759 40,017 31,071 27,285 22,186
Provision for loan losses...... 525 225 2,041 1,500 1,200 1,708 1,646
Non-interest income:
Net gain (loss) on sale of
securities.................. - 631 (463) (42) - 52 37
Net gain (loss) from mortgage
banking activities......... 20 6 (1,484) 244 120 - -
Gain on sale of deposits..... - - 15,904 - - - -
Other non-interest income.... 1,275 1,266 4,951 4,199 3,046 2,452 2,425
---------- --------- --------- -------- -------- -------- --------
Total non-interest income.. 1,295 1,903 18,908 4,401 3,166 2,504 2,462
---------- --------- --------- -------- -------- -------- --------
Non-interest expense:
Net cost of real estate
owned operations............ 192 222 1,190 744 1,360 977 740
Other non-interest expense... 6,158 5,760 32,459 23,515 18,728 15,315 12,196
---------- --------- --------- -------- -------- -------- --------
Total non-interest expense. 6,350 5,982 33,649 24,259 20,088 16,292 12,936
---------- --------- --------- -------- -------- -------- --------
Income before income taxes and
cumulative change............. 4,870 5,097 22,977 18,659 12,949 11,789 10,066
Income taxes................... 1,974 2,173 9,339 7,687 5,353 5,637 4,900
---------- --------- --------- -------- -------- -------- --------
Income before cumulative change 2,896 2,924 13,638 10,972 7,596 6,152 5,166
Cumulative change (b).......... - - - - (30) - -
---------- --------- --------- -------- -------- -------- --------
Net income..................... $ 2,896 $ 2,924 $ 13,638 $ 10,972 $ 7,566 $ 6,152 $ 5,166
========== ======== ========= ======== ======== ======== ========
Loan originations during period $ 46,875 $ 54,572 $ 236,097 $158,133 $219,904 $209,901 $163,478
Net increase in deposits....... 8,125 18,218 107,604 2,922 242,615 28,513 219,627
Loans serviced for others...... 239,710 231,685 242,600 234,800 95,100 11,800 13,200
</TABLE>
See footnotes on the following page
-11-
<PAGE>
<TABLE>
<CAPTION>
Significant Statistical Data - EFC
At or for the Three Months
Ended December 31, At or for the Year Ended September 30,
------------------- -----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
For The Period:
Net income per common share:
Primary.................................... $ 0.61 $ 0.63 $ 2.92 $ 2.41 $ 2.14(c) $ 1.79 $ 1.55
Fully Diluted.............................. $ 0.61 $ 0.62 $ 2.89 $ 2.38 $ 2.13(c) $ 1.77 $ 1.53
Cash dividends paid per common share......... $ 0.23 $ 0.23 $ 0.92 $ 0.82 $ 0.69 $ 0.57 $ 0.50
Return on average assets..................... 0.83% 0.95% 1.00% 0.95% 0.85%(c) 0.79% 0.81%
Return on average shareholders' equity....... 11.37% 12.56% 13.82% 12.68% 12.04%(c) 10.69% 9.80%
Average shareholders' equity to
average assets............................... 7.26% 7.56% 7.23% 7.51% 7.05% 7.41% 8.22%
Interest rate spread......................... 2.99% 2.94% 2.92% 3.43% 3.41% 3.40% 3.26%
Net yield on average earning assets.......... 7.40% 7.50% 7.40% 7.53% 6.96% 7.43% 8.39%
Non-interest expense to average assets....... 1.81% 1.94% 2.12% 2.11% 2.24% 2.10% 2.02%
Non-interest expense (excluding
net cost of real estate owned
operations) to average assets............... 1.76% 1.87% 2.04% 2.04% 2.09% 1.97% 1.90%
At End of Period:
Book value per common share.................. $ 23.16 $ 21.37 $ 22.31 $ 20.73 $ 19.24 $ 17.98 $ 16.88
Tangible book value per common share......... $ 17.36 $ 19.24 $ 16.36 $ 18.52 $ 15.90 $ 17.42 $ 16.23
Common shares outstanding (000's)............ 4,543 4,480 4,534 4,460 3,132 3,054 2,692
Shareholders' equity to total assets......... 7.22% 7.42% 7.21% 7.47% 6.19% 7.62% 7.32%
Nonperforming assets to total assets......... 0.93% 1.04% 0.88% 1.10% 1.15% 1.51% 1.38%
Allowance for loan losses to
nonperforming loans........................ 81% 66% 93% 67% 104% 77% 100%
Allowances for nonperforming
assets to nonperforming assets.............. 62% 55% 70% 56% 69% 42% 39%
</TABLE>
- -------------------------------
(a) The increase in intangible assets in 1996 is a result of the January 1996
acquisition of the Fleet/Shawmut branches. The goodwill resulting from the
Fleet/Shawmut acquisition is being amortized over a 12 year period.
(b) Reflects cumulative change in method of accounting for income taxes and
post-retirement benefits other than pensions adopted by EFC in 1994 in
accordance with FASB 109 and FASB 106.
(c) Does not give effect to $30,000 loss in 1994 resulting from the cumulative
change of EFC's adoption of FASB 109 and FASB 106. Giving effect to such
cumulative change, (i) net income per common share for 1994 was $2.13 on a
primary basis and $2.12 on a fully diluted basis; (ii) return on average
assets for 1994 was 0.85%; and (iii) return on average shareholders'
equity for 1994 was 11.99%.
-12-
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Data - MidConn Bank
Financial Condition
and Other Data - MidConn Bank
(Dollars in Thousands) At December 31, At September 30,
------------------- ---------------------------------------------------------------
1996 1996 1995 1994 1993 1992
------ ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total assets........................... $ 363,176 $358,429 $358,326 $366,349 $229,653 $225,747
Loans receivable, net.................. 278,137 280,168 256,699 262,568 165,650 160,654
Investment securities.................. 51,237 38,066 62,253 58,697 36,401 31,625
Mortgage-backed securities............. 11,804 17,944 14,271 16,978 13,661 14,074
Intangible assets (a).................. 5,376 5,498 5,986 6,776 237 256
Deposits............................... 311,794 309,422 311,411 313,948 185,281 182,144
FHL Bank advances and other
borrowings............................ 10,641 10,150 10,150 15,150 10,000 10,600
Shareholders' equity................... 35,422 34,844 33,751 33,432 32,118 30,970
Number of banking offices.............. 10 10 10 10 6 6
<CAPTION>
Operating Data - Mid Conn Bank At or for the Three Months
(Dollars in Thousands) Ended December 31, At or for the Year Ended September 30,
------------------ ---------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- ------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 6,330 $ 6,280 $ 25,033 $ 23,907 $ 17,360 $ 15,122 $ 17,935
Interest expense....................... 2,893 2,978 11,645 10,535 6,902 6,764 9,405
--------- ------- --------- --------- --------- --------- ----------
Net interest income.................... 3,437 3,302 13,388 13,372 10,458 8,358 8,530
Provision for loan losses.............. 200 125 1,225 2,638 340 96 540
Non-interest income:
Net gain on sales of
securities........................... - - - 12 25 675 199
Other non-interest income............. 207 192 857 938 670 849 696
--------- ------- --------- --------- --------- --------- ----------
Total non-interest income............ 207 192 857 950 695 1,524 895
--------- ------- --------- --------- --------- --------- ----------
Non-interest expense:
Net cost of real estate
owned operations..................... 164 129 464 664 656 1,764 2,095
Other non-interest expense............ 2,072 2,209 9,810 9,215 6,908 5,445 5,240
--------- ------- --------- --------- --------- --------- ----------
Total non-interest expense............. 2,236 2,338 10,274 9,879 7,564 7,209 7,335
--------- ------- --------- --------- --------- --------- ----------
Income before income taxes
and cumulative change................. 1,208 1,031 2,746 1,805 3,249 2,577 1,550
Income taxes........................... 523 421 891 731 1,394 1,002 744
--------- ------- --------- --------- --------- --------- ----------
Income before cumulative change........ 685 610 1,855 1,074 1,855 1,575 806
Cumulative change (b).................. - - - - 127 - -
--------- ------- --------- --------- --------- --------- ----------
Net income............................. $ 685 $ 610 $ 1,855 $ 1,074 $ 1,982 $ 1,575 $ 806
========= ======= ========= ========= ========= ========= ==========
Loan originations during period........ $ 11,774 $14,180 $ 67,028 $ 31,761 $ 61,852 $ 85,257 $ 61,174
Net increase (decrease) in deposits.... 2,372 4,058 (1,989) (2,537) 128,667 3,137 14,881
Loans serviced for others.............. 18,055 20,939 18,829 21,306 22,751 25,096 18,230
</TABLE>
See footnotes on the following page
-13-
<PAGE>
Significant Statistical Data - MidConn Bank
<TABLE>
<CAPTION>
At or for the Three Months
Ended December 31, At or for the Year Ended September 30,
-------------------- ------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
For The Period
Net income per common share:
Primary................................ $ 0.35 $ 0.32 $ 0.95 $ 0.56 $ 0.97(c) $ 0.84 $ 0.43
Fully Diluted.......................... $ 0.35 $ 0.32 $ 0.94 $ 0.56 $ 0.97(c) $ 0.84 $ 0.43
Cash dividends paid per common share..... $ 0.15 $ 0.15 $ 0.60 $ 0.54 $ 0.44 $ 0.31 $ 0.20
Return on average assets................. 0.76% 0.68% 0.51% 0.30% 0.66%(c) 0.68% 0.35%
Return on average shareholders' equity... 7.80% 7.17% 5.36% 3.15% 5.66%(c) 5.00% 2.62%
Average shareholders' equity to
average assets......................... 9.74% 9.41% 9.56% 9.43% 11.76% 13.62% 13.38%
Interest rate spread..................... 3.77% 3.62% 3.66% 3.77% 3.76% 3.52% 3.63%
Net yield on average earning assets...... 7.48% 7.46% 7.40% 7.15% 6.71% 7.05% 8.57%
Non-interest expense to average assets... 2.48% 2.59% 2.84% 2.73% 2.71% 3.11% 3.19%
Non-interest expense (excluding net
cost of real estate owned operations)
to average assets...................... 2.30% 2.45% 2.71% 2.55% 2.48% 2.35% 2.28%
At End of Period:
Book value per common share.............. $18.13 $17.96 $18.00 $17.77 $17.68 $17.11 $16.55
Tangible book value per common share..... $15.38 $14.87 $15.16 $14.62 $14.10 $16.98 $16.42
Common shares outstanding (000's)........ 1,953 1,902 1,936 1,900 1,891 1,877 1,871
Shareholders' equity to total assets..... 9.75% 9.36% 9.72% 9.42% 9.13% 13.99% 13.72%
Non-performing assets to total assets.... 2.00% 1.79% 1.37% 1.69% 2.80% 2.51% 5.17%
Allowance for loan losses to
non-performing loans................... 39% 67% 74% 90% 44% 74% 46%
Allowances for non-performing assets to
non-performing assets.................. 26% 32% 39% 37% 20% 20% 10%
- ------------------------
</TABLE>
(a) Reflects the unamortized balance of the goodwill resulting from the
acquisition of The Federal Savings Bank in 1994. The goodwill is being
amortized over a 15 year period.
(b) Reflects cumulative change in method of accounting for income taxes and
post-retirement benefits other than pensions adopted by MidConn Bank in
1994 in accordance with FASB 109 and FASB 106.
(c) Does not give effect to $127,000 of additional income in 1994 resulting
from the cumulative change of MidConn Bank's adoption of FASB 109 and FASB
106. Giving effect to such cumulative change, (i) net income per common
share for 1994 was $1.04 on a primary basis and $1.03 on a fully diluted
basis; (ii) return on average assets for 1994 was 0.71%; and (iii) return
on average shareholders' equity for 1994 was 6.04%.
-14-
<PAGE>
Pro Forma Combined Financial Data - Unaudited
<TABLE>
<CAPTION>
Financial Condition
and Other Data - Pro Forma
(Dollars in Thousands) At December 31, At or for the Year Ended September 30,
-------------- --------------------------------------------------------------
1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Total assets.......................... $1,820,376 $1,761,238 $1,595,612 $1,436,625 $1,022,121 $976,918
Loans receivable, net................. 1,104,131 1,094,656 970,244 1,073,273 821,994 728,778
Investment securities................. 99,055 90,943 168,127 135,163 91,102 102,161
Mortgage-backed securities............ 509,055 468,064 370,056 133,041 62,837 85,138
Intangible assets..................... 31,731 32,488 15,855 18,287 2,098 2,394
Deposits.............................. 1,379,274 1,368,777 1,263,162 1,262,777 891,495 859,845
FHL Bank advances and other
borrowings.......................... 251,845 231,828 165,917 54,742 26,252 17,926
Shareholders' equity.................. 136,061 135,992 126,211 99,708 92,525 85,974
Number of banking offices............. 30 33 33 33 23 23
<CAPTION>
Operating Data - Pro Forma At or for the Three Months
(Dollars in Thousands) Ended December 31, At or for the Year Ended September 30,
-------------------- --------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---------- -------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income....................... $ 31,209 $ 28,429 $ 120,634 $ 106,804 $ 77,447 $ 70,876 $ 69,819
Interest expense...................... 17,322 15,726 67,487 53,415 35,918 35,233 39,103
---------- -------- ---------- ---------- ---------- ---------- --------
Net interest income................... 13,887 12,703 53,147 53,389 41,529 35,643 30,716
Provision for loan losses............. 725 350 3,266 4,138 1,540 1,804 2,186
Non-interest income:
Net gain (loss) on sales of
securities........................ - 631 (463) (30) 25 727 236
Net gain (loss) from mortgage
banking activities................ 20 6 (1,484) 244 120 - -
Gain on sale of deposits............. - - 15,904 - - - -
Other non-interest income............ 1,482 1,458 5,808 5,137 3,716 3,301 3,121
---------- -------- ---------- ---------- ---------- ---------- --------
Total non-interest income......... 1,502 2,095 19,765 5,351 3,861 4,028 3,357
---------- -------- ---------- ---------- ---------- ---------- --------
Non-interest expense:
Net cost of real estate owned
operations........................ 356 351 1,654 1,408 2,016 2,741 2,835
Other non-interest expense.......... 8,230 7,969 42,269 32,730 25,636 20,760 17,436
---------- -------- ---------- ---------- ---------- ---------- --------
Total non-interest expense........ 8,586 8,320 43,923 34,138 27,652 23,501 20,271
---------- -------- ---------- ---------- ---------- ---------- --------
Income before income taxes
and cumulative change............... 6,078 6,128 25,723 20,464 16,198 14,366 11,616
Income taxes.......................... 2,497 2,594 10,230 8,418 6,747 6,639 5,644
---------- -------- ---------- ---------- ---------- ---------- --------
Income before cumulative
change.............................. 3,581 3,534 15,493 12,046 9,451 7,727 5,972
Cumulative change..................... - - - - 97 - -
---------- -------- ---------- ---------- ---------- ---------- --------
Net income............................ $ 3,581 $ 3,534 $ 15,493 $ 12,046 $ 9,548 $ 7,727 $ 5,972
========== ======== ========== ========== ========== ========== ========
Loan originations during period....... $ 58,649 $ 68,752 $ 303,125 $ 189,894 $ 281,756 $ 295,158 $224,652
Net increase in deposits.............. 10,497 22,276 105,615 385 371,282 31,650 234,508
Loans serviced for others............. 257,765 252,624 261,429 256,106 117,851 36,896 31,430
</TABLE>
See footnotes on the following page
-15-
<PAGE>
Significant Statistical Data - Pro Forma Combined - Unaudited
<TABLE>
<CAPTION>
At or for the Three Months
Ended December 31, At or for the Year Ended September 30,
------------------- ------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
For The Period:
Net income per common share (a):
Primary............................... $ 0.56 $ 0.56 $ 2.44 $ 1.94 $ 1.82 $ 1.53 $ 1.21
Fully Diluted......................... $ 0.55 $ 0.56 $ 2.42 $ 1.92 $ 1.81 $ 1.52 $ 1.20
Cash dividends paid per common share.... $ 0.23 $ 0.23 $ 0.92 $ 0.82 $ 0.69 $ 0.57 $ 0.50
Return on average assets................ 0.81% 0.89% 0.90% 0.80% 0.80% 0.77% 0.69%
Return on average shareholders' equity.. 10.46% 11.12% 11.62% 9.98% 9.85% 8.68% 7.15%
Average shareholders' equity to
average assets........................ 7.76% 7.98% 7.72% 7.97% 8.17% 8.83% 9.59%
Interest rate spread.................... 3.14% 3.14% 3.06% 3.50% 3.48% 3.42% 3.35%
Net yield on average earning assets..... 7.41% 7.52% 7.40% 7.44% 6.90% 7.35% 8.44%
Non-interest expense to average assets.. 1.95% 2.09% 2.54% 2.25% 2.35% 2.33% 2.33%
Non-interest expense (excluding net
cost of real estate owned operations)
to average assets..................... 1.87% 2.00% 2.45% 2.16% 2.18% 2.06% 2.00%
At End of Period:
Book value per common share (b)......... $21.86 $21.24 $21.94 $20.71 $19.66 $18.60 $17.67
Tangible book value per common
share (b)............................. $16.76 $18.72 $16.70 $18.11 $16.06 $18.18 $17.17
Common shares outstanding (000's)....... 6,223 6,115 6,199 6,093 4,758 4,669 4,301
Shareholders' equity to total assets.... 7.47% 7.84% 7.72% 7.91% 6.94% 9.05% 8.80%
Nonperforming assets to total assets.... 1.15% 1.21% 0.98% 1.23% 1.57% 1.73% 2.26%
Allowance for loan losses to
nonperforming loans................... 84% 66% 89% 71% 82% 76% 80%
Allowances for nonperforming assets to
nonperforming assets.................. 62% 47% 61% 50% 47% 35% 23%
-----------------------
</TABLE>
(a) Pro forma combined EFC and MidConn Bank net income per common share data
have been determined based upon (i) the combined historical net income of
EFC and MidConn Bank and (ii) the combined historical weighted average
common equivalent shares of EFC and MidConn Bank. For purposes of this
determination, MidConn Bank's historical weighted average common shares
outstanding were multiplied by the .86 Exchange Ratio. Also, pro forma
combined net income per common share data does not give effect to the
$97,000 of additional income in 1994 resulting from the cumulative change
of EFC's and MidConn Bank's adoption of FASB 109 and FASB 106. Giving
effect to such cumulative change, (i) net income per common share for
1994 was $1.84 on a primary basis and $1.83 on a fully diluted basis;
(ii) return on average assets for 1994 was 0.81%; and (iii) return on
average shareholder's equity for 1994 was 9.96%.
(b) Pro forma combined EFC and MidConn Bank book value per common share and
tangible book value per common share have been determined based upon (i)
the combined historical shareholders' equity of EFC and MidConn Bank and
(ii) the combined historical common shares outstanding of EFC and MidConn
Bank. For purposes of this determination, MidConn Bank's historical
common shares outstanding were multiplied by the .86 Exchange Ratio.
-16-
<PAGE>
RISK FACTORS
MidConn Bank shareholders should consider, among other matters, the
following factors in voting upon the proposal to approve and adopt the Merger
Agreement and the Merger provided for therein, consummation of which will result
in holders of MidConn Bank Common Stock receiving shares of EFC Common Stock.
These factors also should be considered by EFC shareholders in voting on the
proposal to approve the issuance of EFC Common Stock to MidConn Bank
shareholders as part of the Merger.
Recent Growth and Market Area Focus
EFC has acquired other financial institutions in recent years including two
acquisitions in fiscal 1992 and another in fiscal 1994. That trend continued in
the second quarter of fiscal 1996 when Eagle Bank purchased five large branch
offices in the Hartford County market that were being divested as part of the
merger transaction between Fleet Bank, N.A. and Shawmut Bank Connecticut, N.A.
(the "Fleet/Shawmut Transaction"). Upon the branch purchase, Eagle Bank closed
two existing branches that were in close proximity to the newly acquired
offices. The transaction, which increased Eagle Bank's deposit base by $253
million, allowed Eagle Bank to expand an already established network of branch
offices in the Hartford area.
EFC's strategy to focus on the greater Hartford market was further
emphasized in the same quarter of 1996 when Eagle Bank sold seven relatively
small, geographically separate branch offices in northern Fairfield County and
$184 million of related deposits, which resulted in a $15.9 million gain. Later
in the year Eagle Bank added four supermarket branches and three off-site
automatic teller machines ("ATMs"), all of which were located in Hartford and
its suburbs. The 1996 events substantially changed the landscape of EFC by
creating a more geographically concentrated network of branches located in
Hartford and eastern Litchfield Counties. In comparing Eagle Bank at 1996 fiscal
year end to where it was twelve months earlier, Eagle Bank now operates four
fewer full service branch offices but has a higher amount of total deposits in a
more concentrated market area.
Legislative and General Regulatory Developments
EFC is subject to federal and state regulatory oversight as a savings and
loan holding company, primarily by the OTS and the Connecticut Commissioner.
Eagle Bank is, and following the Merger will be, subject to extensive regulation
by the OTS as its primary federal regulator and also to regulation as to certain
matters by the FDIC. The OTS and FDIC have adopted numerous regulations and
undertaken other regulatory initiatives, and further regulations and initiatives
may be adopted. Future legislation or regulatory developments could have an
adverse effect on Eagle Bank.
Under recently enacted legislation, the Secretary of the Treasury was
required to report to Congress no later than March 31, 1997 with respect to the
development of a common charter for all federal and national financial
institutions and the abolition of separate and distinct charters between banks
and savings associations. If legislation with respect to the development of a
common charter is enacted, Eagle Bank may be required to convert its federal
savings bank charter to either a new federal type of bank charter or to a state
depository institution charter. Future legislation also may result in EFC
becoming regulated at the holding company level by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") rather than by the OTS.
Regulation by the Federal Reserve Board could subject EFC to capital
requirements that are not currently applicable to EFC as a holding company under
OTS regulation and may result in statutory limitations on the type of business
activities in which EFC may engage at the holding company level, which business
activities currently are not restricted. EFC is unable to predict whether such
legislation will be enacted.
-17-
<PAGE>
Sources of Funds for Cash Dividends
EFC has traditionally invested substantially all of its liquid assets in
Eagle Bank. EFC's liquidity and ability to pay dividends to its shareholders is
primarily derived from and dependent on the ability of Eagle Bank to pay
dividends to EFC. Under current OTS regulations, because Eagle Bank meets the
OTS capital requirements, it may pay out the higher of 100% of net income to
date over the calendar year and 50% of surplus capital existing at the beginning
of the calendar year, or 75% of its net income over the most recent four-quarter
period, without regulatory supervisory approval. In general, Eagle Bank pays
dividends to EFC only to the extent that funds are needed to cover operating
expenses and dividends paid to shareholders. At December 31, 1996, Eagle Bank
had approximately $34.0 million in excess capital over the OTS risk-based
requirement, one half of which would be available for declaration of dividends
to EFC. The OTS regulations permit the OTS to prohibit capital distributions
under certain circumstances. See "MARKET PRICES AND DIVIDENDS."
Commercial Lending
Since fiscal 1995, in addition to its traditional lending activities, EFC
has emphasized origination of commercial loans within its primary market areas.
Also, in fiscal 1996, as part of the Fleet/Shawmut Transaction, Eagle Bank
purchased approximately $20 million of commercial loans. Commercial loans tend
to improve interest rate sensitivity inasmuch as such loans tend to be of
shorter maturity than 1-4 family residential mortgage loans, and may be
structured to adjust to market interest rates. Commercial lending entails
significant additional risk as compared to 1-4 family residential lending.
Commercial loans typically involve relatively large loan balances to single
borrowers or groups of related borrowers. The payment experience on such loans
is typically dependent on the successful operation of the commercial venture and
economic conditions generally.
RECENT DEVELOPMENTS
In March 1997, EFC raised $50 million in new capital through the sale of
capital securities that will be used for general corporate purposes. EFC formed
a business trust for the purposes of issuing capital securities and investing
the proceeds in junior subordinated debentures of EFC.
MIDCONN BANK MEETING
Matters to be Considered at the MidConn Bank Meeting
The MidConn Bank Meeting is scheduled to be held on May 29, 1997, at 10:00
a.m., at The Hawthorne Inn, Berlin, Connecticut. At the MidConn Bank Meeting,
the holders of MidConn Bank Common Stock will consider and vote upon: (i) the
proposal to approve and adopt the Merger Agreement and the Merger provided for
therein, and (ii) such other business as may properly come before the MidConn
Bank Meeting, or any adjournments or postponements thereof including, without
limitation, a motion to adjourn the MidConn Bank Meeting to another time and/or
place for the purpose of soliciting additional proxies in order to approve the
Merger Agreement and the Merger provided for therein or otherwise.
-18-
<PAGE>
Record Date and Voting
The Board of Directors of MidConn Bank has fixed the close of business on
April 17, 1997 as the MidConn Bank Record Date for the determination of the
holders of MidConn Bank Common Stock entitled to receive notice of and to vote
at the MidConn Bank Meeting. Only holders of record of MidConn Bank Common Stock
at the close of business on that date will be entitled to vote at the MidConn
Bank Meeting or at any adjournment or postponement thereof. At the close of
business on the MidConn Bank Record Date, there were 1,955,469 shares of MidConn
Bank Common Stock outstanding and entitled to vote at the MidConn Bank Meeting,
held by approximately 1,214, shareholders of record. The directors of MidConn
Bank beneficially owned as of the MidConn Bank Record Date an aggregate of
45,149 shares of MidConn Bank Common Stock (excluding stock options) or
approximately 2.3% of the outstanding shares of MidConn Bank Common Stock. No
shares of preferred stock of MidConn Bank are issued and outstanding.
Each holder of MidConn Bank Common Stock on the MidConn Bank Record Date
will be entitled to one vote for each share held of record upon each matter
properly submitted at the MidConn Bank Meeting or at any adjournment or
postponement thereof. The presence, in person or by proxy, of the holders of a
majority of the shares of MidConn Bank Common Stock issued and outstanding and
entitled to vote at the MidConn Bank Meeting is necessary to constitute a
quorum. Abstentions and broker non-votes will be included in the calculation of
the number of shares represented at the MidConn Bank Meeting for purposes of
determining whether a quorum has been achieved. Since approval of the Merger
Agreement requires the affirmative vote of the holders of at least two-thirds of
the outstanding shares of MidConn Bank Common Stock entitled to be voted at the
MidConn Bank Meeting, abstentions and broker non-votes will have the same effect
as a vote against the Merger Agreement.
Each participant in MidConn Bank's non-contributory employee stock
ownership plan ("MidConn Bank ESOP") will receive a form to be used to instruct
the trustees of the MidConn Bank ESOP how to vote the MidConn Bank Common Stock
held by the MidConn Bank ESOP that is allocated to such participant. The MidConn
Bank ESOP provides that each participant shall direct the trustees of the
MidConn Bank ESOP as to the manner in which shares allocated to such participant
are to be voted. The MidConn Bank ESOP provides that the trustees will vote such
shares as instructed. The MidConn Bank ESOP also provides that the trustees of
the MidConn Bank ESOP shall vote all allocated shares for which the trustees
have not received directions from the applicable participant in their sole
discretion. The trustees of the MidConn Bank ESOP are Mr. Toman and Ms. Bialek.
The directions of participants regarding the voting of the shares allocated
to them will not be disclosed to MidConn Bank, EFC or Eagle Bank, and will be
tabulated by the Bank of Boston.
To be effective, directions to the trustees must be received at the Bank of
Boston, ATTN.: MidConn Bank ESOP Vote, by the close of business (5:00 p.m.
E.S.T.) on May 27, 1997. Directions to the trustees received after the close of
business on May 27, 1997, or received at a different address, will not be
effective. A participant or beneficiary in the MidConn Bank ESOP who is
otherwise a MidConn Bank shareholder should (i) complete and return directions
to the MidConn Bank ESOP trustees with respect to shares of MidConn Bank Common
Stock held by the MidConn Bank ESOP that are allocated to such participant and
(ii) complete and return the enclosed proxy with respect to such other shares of
MidConn Bank Common Stock.
If a quorum is not obtained, or if fewer shares of MidConn Bank Common
Stock are voted in favor of the proposal for approval of the Merger Agreement
than the number required for approval, it is expected that the MidConn Bank
Meeting will be adjourned for the purpose of allowing additional
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time for obtaining additional proxies. In such event, proxies will be voted to
approve an adjournment, except for proxies as to which instructions have been
given to vote against the Merger Agreement. The holders of a majority of the
shares present at the MidConn Bank Meeting would be required to approve any
adjournment of the MidConn Bank Meeting.
If the enclosed proxy card is properly executed and received by MidConn
Bank in time to be voted at the MidConn Bank Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed proxies with no instructions indicated thereon will be voted "FOR" the
proposal to approve and adopt the Merger Agreement and the Merger provided for
therein.
The Board of Directors of MidConn Bank is not aware of any matters other
than the proposal to approve and adopt the Merger Agreement and the Merger
provided for therein (or a proposal to adjourn or postpone the MidConn Bank
Meeting as necessary) that may be properly brought before the MidConn Bank
Meeting. If any other matters properly come before the MidConn Bank Meeting, the
persons named in the accompanying proxy will vote the shares represented by all
properly executed proxies on such matters in such manner as shall be determined
by a majority of the Board of Directors of MidConn Bank.
MIDCONN BANK SHAREHOLDERS SHOULD NOT FORWARD ANY MIDCONN BANK COMMON STOCK
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CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, STOCK
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CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN
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A LETTER OF TRANSMITTAL WHICH WOULD BE SENT TO MIDCONN BANK SHAREHOLDERS BY
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THE EXCHANGE AGENT PROMPTLY AFTER THE EFFECTIVE TIME.
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Vote Required; Revocability of Proxies
The affirmative vote of at least two-thirds of the outstanding shares of
MidConn Bank Common Stock entitled to be voted at the MidConn Bank Meeting is
required in order to approve and adopt the Merger Agreement and the Merger
provided for therein.
THE REQUIRED VOTE OF THE MIDCONN BANK SHAREHOLDERS WITH RESPECT TO THE
MERGER AGREEMENT IS BASED UPON THE TOTAL NUMBER OF OUTSTANDING SHARES OF MIDCONN
BANK COMMON STOCK AND NOT UPON THE NUMBER OF SHARES WHICH ARE ACTUALLY VOTED.
ACCORDINGLY, THE FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT THE
MIDCONN BANK MEETING OR THE ABSTENTION FROM VOTING BY A SHAREHOLDER WILL HAVE
THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT AND THE MERGER PROVIDED
FOR THEREIN.
All of the directors of MidConn Bank, who beneficially owned, as of the
MidConn Bank Record Date, an aggregate of 45,149 shares of MidConn Bank Common
Stock (excluding all stock options) or approximately 2.3% of the outstanding
shares of MidConn Bank, and certain affiliates of MidConn Bank have entered into
the MidConn Bank Stockholder Agreement with EFC pursuant to which they have each
agreed, among other things, to certain transfer restrictions and to vote all
shares of MidConn Bank Common Stock with respect to which they have the right to
vote (whether owned as of the date of the MidConn Bank Stockholder Agreement or
thereafter acquired) in favor of the Merger Agreement, the Merger and the other
transactions contemplated by the Merger Agreement and against any third party
merger proposal. No separate consideration was paid to any of the directors for
entering into the MidConn Bank Stockholder Agreement. EFC required that the
MidConn Bank Stockholder Agreement be executed as a condition to EFC entering
into the Merger Agreement.
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The presence of a shareholder at the MidConn Bank Meeting will not
automatically revoke such shareholder's proxy. However, a shareholder may revoke
a proxy at any time prior to its exercise by (i) delivering to Dorothy A.
Bialek, Secretary, MidConn Bank, 346 Main Street, Kensington, Connecticut 06037,
a written notice of revocation prior to the MidConn Bank Meeting, (ii)
delivering to MidConn Bank prior to the MidConn Bank Meeting a duly executed
proxy bearing a later date, or (iii) attending the MidConn Bank Meeting and
voting in person.
The obligations of MidConn Bank and EFC to consummate the Merger Agreement
are subject, among other things, to the condition that the Merger Agreement and
the Merger shall have been approved and adopted by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of MidConn Bank Common
Stock entitled to vote thereon. The approval of the issuance of additional EFC
Common Stock in connection with the transactions contemplated by the Merger
Agreement is also required. See "THE MERGER -- Conditions to the Merger."
As of the MidConn Bank Record Date, the MidConn Bank ESOP owned 68,862
shares (3.5%) of the MidConn Bank Common Stock outstanding and entitled to vote
at the MidConn Bank Meeting. All the shares of MidConn Bank Common Stock held by
the MidConn Bank ESOP have been allocated to the accounts of participants as of
the MidConn Bank Record Date. The MidConn Bank ESOP provides that each
participant shall direct the trustees of the MidConn Bank ESOP as to the manner
in which shares allocated to such participant are to be voted. The trustees have
discretion to vote allocated shares for which no instructions are received. See
"-- Record Date and Voting."
Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of
MidConn Bank may solicit proxies for the MidConn Bank Meeting from shareholders
personally or by telephone or telegram without additional remuneration therefor.
The cost of soliciting proxies will be paid by MidConn Bank. In addition, EFC,
on behalf of itself and MidConn Bank, has retained Morrow & Company, a proxy
solicitation firm, to assist in such solicitation. The fee to be paid to such
firm is an aggregate $9,500 for both EFC and MidConn Bank, plus reasonable out-
of-pocket expenses. Such fee will be paid by EFC. MidConn Bank will also make
arrangements with brokerage firms and other custodians, nominees and fiduciaries
to send proxy materials to their principals and will reimburse such parties for
their expenses in doing so.
EFC MEETING
Matters to be Considered at the EFC Meeting
The EFC Meeting is scheduled to be held on May 29, 1997, at 3:00 p.m., at
EFC's main Boardroom, 240 Main Street, Bristol, Connecticut. At the EFC Meeting,
the holders of EFC Common Stock will consider and vote upon: (i) the proposal to
approve the issuance of up to 1,752,077 shares of EFC Common Stock in connection
with the acquisition of MidConn Bank by EFC pursuant to the Merger Agreement,
and (ii) such other business as may properly come before the EFC Meeting, or any
adjournments or postponements thereof, including, without limitation, a motion
to adjourn the EFC Meeting to another time and/or place for the purposes of
soliciting additional proxies in order to approve the issuance of EFC Common
Stock or otherwise.
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Record Date and Voting
The Board of Directors of EFC has fixed the close of business on April 17,
1997, as the EFC Record Date for the determination of the holders of EFC Common
Stock entitled to receive notice of and to vote at the EFC Meeting. Only holders
of record of EFC Common Stock at the close of business on that date will be
entitled to vote at the EFC Meeting or at any adjournment or postponement
thereof. At the close of business on the EFC Record Date, there were 4,559,851
shares of EFC Common Stock outstanding and entitled to vote at the EFC Meeting,
held by approximately 1,740 shareholders of record. The directors of EFC
beneficially owned as of the EFC Record Date an aggregate of 216,532 shares of
EFC Common Stock (excluding stock options) or approximately 4.7% of the
outstanding shares of EFC. No shares of preferred stock of EFC are issued and
outstanding.
Each holder of EFC Common Stock on the EFC Record Date will be entitled to
one vote for each share held of record upon each matter properly submitted at
the EFC Meeting or at any adjournment or postponement thereof. The presence, in
person or by proxy, of at least one-third of the shares of EFC Common Stock
issued and outstanding and entitled to be voted at the EFC Meeting is necessary
to constitute a quorum. Abstentions and broker non-votes will be included in the
calculation of the number of shares represented at the EFC Meeting for purposes
of determining whether a quorum has been achieved.
Each participant in EFC's non-contributory employee stock ownership plan
("EFC ESOP") will receive a form to be used to instruct the trustee of the EFC
ESOP how to vote the EFC Common Stock held by the EFC ESOP that is allocated to
such participant. The EFC ESOP provides that each participant shall direct the
trustee of the EFC ESOP as to the manner in which shares allocated to such
participant are to be voted. The EFC ESOP provides that the trustee will vote
such shares as instructed. The EFC ESOP also provides that the trustee of the
EFC ESOP shall vote all allocated shares for which the trustee has not received
directions from the applicable participant in its sole discretion. The trustee
of the EFC ESOP is Fleet Investment Services.
The directions of participants regarding the voting of the shares allocated
to them will not be disclosed to EFC, Eagle Bank or MidConn Bank, and will be
tabulated by Fleet Investment Services.
To be effective, directions to the trustee must be received at Fleet
Investment Services, ATTN.: Eagle Financial Corp. ESOP Vote, by the close of
business (5:00 p.m. E.S.T.) on May 27, 1997. Directions to the trustee received
after the close of business on May 27, 1997, or received at a different address,
will not be effective. A participant or beneficiary in the EFC ESOP who is
otherwise an EFC shareholder should (i) complete and return directions to the
EFC ESOP trustee with respect to shares of EFC Common Stock held by the EFC ESOP
that are allocated to such participant and (ii) complete and return the enclosed
proxy with respect to such other shares of EFC Common Stock.
The Merger is conditioned on the approval by the EFC shareholders of the
issuance of additional shares of EFC Common Stock in connection with the Merger
Agreement, which approval requires the affirmative vote of a majority of the
total votes cast on the proposal by the EFC shareholders entitled to vote at the
EFC Meeting. Approval by the EFC shareholders of the issuance of the additional
shares is also necessary under the rules of The Nasdaq National Market. As of
the EFC Record Date, of the shares of additional EFC Common Stock proposed to be
issued as part of the Merger, 1,681,703 shares of EFC Common Stock would be
issued to the holders of the 1,955,469 then outstanding shares of MidConn Bank
Common Stock and 70,373 shares of EFC Common Stock would be issued or reserved
for issuance with respect to the exercise of the 81,830 then outstanding MidConn
Options held by directors, officers and employees of MidConn Bank.
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If a quorum is not obtained, or if fewer shares of EFC Common Stock are
voted in favor of approval of the proposal authorizing the issuance of the
additional EFC Common Stock in connection with the Merger Agreement than the
number required for approval, it is expected that the EFC Meeting will be
adjourned for the purpose of allowing additional time for obtaining additional
proxies. In such event, proxies will be voted to approve an adjournment,
except for proxies as to which instructions have been given to vote against
the proposal authorizing the issuance of the additional EFC Common Stock. The
holders of a majority of the shares entitled to vote at the EFC Meeting would
be required to approve any adjournment of the EFC Meeting.
If the enclosed proxy card is properly executed and received by EFC in time
to be voted at the EFC Meeting, the shares represented thereby will be voted
in accordance with the instructions marked thereon. Executed proxies with no
instructions indicated thereon will be voted "FOR" approval of the proposal
authorizing the issuance of the additional EFC Common Stock in connection with
the Merger Agreement.
The Board of Directors of EFC is not aware of any matters other than the
proposal to approve the issuance of the additional shares of EFC Common Stock
in connection with the Merger Agreement (or a proposal to adjourn or postpone
the EFC Meeting as necessary) that may be properly brought before the EFC
Meeting. If any other matters properly come before the EFC Meeting, the
persons named in the accompanying proxy will vote the shares represented by
all properly executed proxies on such matters in such manner as shall be
determined by a majority of the Board of Directors of EFC.
Vote Required; Revocability of Proxies
The affirmative vote of a majority of the total votes cast on the proposal
at the EFC Meeting is required to approve the issuance of the additional
shares of EFC Common Stock in connection with Merger Agreement.
The presence of a shareholder at the EFC Meeting will not automatically
revoke such shareholder's proxy. However, a shareholder may revoke a proxy at
any time prior to its exercise by (i) delivering to Mark J. Blum, Vice
President, Chief Financial Officer and Secretary, Eagle Financial Corp., 222
Main Street, Bristol, Connecticut 06010, a written notice of revocation prior
to the EFC Meeting, (ii) delivering to EFC prior to the EFC Meeting a duly
executed proxy bearing a later date, or (iii) attending the EFC Meeting and
voting in person.
The obligations of EFC and MidConn Bank to consummate the Merger are
subject, among other things, to the condition that the issuance of additional
shares of EFC Common Stock shall have been approved by the affirmative vote of
a majority of the total votes cast on the proposal. Approval of the Merger
Agreement and the Merger provided for therein by the affirmative vote of two-
thirds of the outstanding shares of MidConn Bank Common Stock entitled to vote
thereon is also required. See "THE MERGER -- Conditions to the Merger."
As of the EFC Record Date, the EFC ESOP owned 238,620 shares (5.2%) of the
EFC Common Stock outstanding and entitled to vote at the EFC Meeting. All
shares of EFC Common Stock held by the EFC ESOP have been allocated to the
accounts of participants as of the EFC Record Date. The EFC ESOP provides
that each participant shall direct the trustee of the EFC ESOP as to the
manner in which shares allocated to such participant are to be voted. The
trustee has discretion to vote allocated shares for which no instructions are
received. See "-- Record Date and Voting."
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Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of
EFC may solicit proxies for the EFC Meeting from shareholders personally or by
telephone or telegram without additional remuneration therefor. The cost of
soliciting proxies will be paid by EFC. In addition, EFC, on behalf of itself
and MidConn Bank, has retained Morrow & Company, a proxy solicitation firm, to
assist in such solicitation. The fee to be paid to such firm is an aggregate
$9,500 for both EFC and MidConn Bank, plus reasonable out-of-pocket expenses.
Such fee will be paid by EFC. EFC will also make arrangements with brokerage
firms and other custodians, nominees and fiduciaries to send proxy materials
to their principals and will reimburse such parties for their expenses in
doing so.
THE MERGER
The information in this Section is qualified in its entirety by reference
to the full text of the Merger Agreement (including each of the exhibits
thereto), the Option Agreement, the MidConn Bank Stockholder Agreement and the
Eagle Financial Corp. Stockholder Agreement, all of which are incorporated
herein by reference and the material features of which are described in this
Joint Proxy Statement/Prospectus. A copy of the Merger Agreement (including
each of exhibits thereto) and the other documents described in this Joint
Proxy Statement/Prospectus will be provided promptly without charge upon oral
or written request addressed to Mark J. Blum, Vice President, Chief Financial
Officer and Secretary, Eagle Financial Corp., 222 Main Street, Bristol,
Connecticut 06010, telephone (860) 314-6400.
The Parties
The Merger Agreement was entered into among EFC, Eagle Bank and MidConn
Bank. The Merger Agreement provides for, among other things, EFC's
acquisition of MidConn Bank through the merger of MidConn Bank into Eagle
Bank, a wholly-owned subsidiary of EFC.
EFC. EFC is a Delaware corporation and the holding company of Eagle Bank,
its wholly-owned, federally chartered, FDIC insured savings bank subsidiary.
Both EFC and Eagle Bank are headquartered in Bristol, Connecticut. Through
Eagle Bank, EFC provides a full range of financial services to customers from
19 traditional banking offices and four supermarket branch offices located in
Hartford and eastern Litchfield Counties in Connecticut. EFC, as a holding
company, is regulated primarily by the OTS at the federal level and by the
Connecticut Commissioner. Eagle Bank, as a federal savings bank, is regulated
primarily by the OTS and as to certain matters by the FDIC.
Eagle Bank. Eagle Bank, a federally chartered savings bank, is a wholly-
owned subsidiary of EFC. Eagle Bank will be the Surviving Bank in the Merger.
MidConn Bank. MidConn Bank, a Connecticut-chartered savings bank, is
headquartered in Kensington, Connecticut. Deposits at MidConn Bank are FDIC
insured. MidConn Bank currently serves customers from eight branch offices
located in Hartford County and two branch offices located in Middlesex County.
MidConn Bank is engaged primarily in the business of attracting deposits from
the general public and using those funds and other sources of funds primarily
for residential and commercial mortgage loans. MidConn Bank, as a state-
chartered savings bank, is regulated by the Connecticut Commissioner and by
the FDIC.
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Background of the Merger
In September 1996, Richard J. Toman, President and Chief Executive Officer
of MidConn Bank, met with Robert J. Britton, President and Chief Executive
Officer of EFC, at the invitation of Mr. Britton. At such meeting, Mr. Britton
inquired as to MidConn Bank's future strategic plans and expressed an interest
in a combination of the institutions. Mr. Toman reported such meeting to
MidConn Bank's Board of Directors at the regular meeting of the Board held on
September 16, 1996.
At a special meeting on October 11, 1996, the Board of Directors of MidConn
Bank considered and discussed various strategic planning alternatives with
respect to the future of MidConn Bank. O & Co., MidConn Bank's financial
advisor, presented an analysis of a number of strategic alternatives to the
Board of Directors, including alternatives to remain an independent bank and
to affiliate with potential third party acquirors. The O & Co. presentation
included an identification of potential acquirors.
On October 17, 1996, the MidConn Bank Board of Directors reviewed and
discussed the presentation of the previous meeting. After such discussion,
the Board of Directors determined that, in order to fully evaluate the
available strategic alternatives, it should proceed further with a more
detailed analysis of likely potential acquirors and identified three such
institutions based on the O & Co. presentation. At a special meeting held on
October 29, 1996, O & Co. presented a detailed analysis of combinations of
MidConn Bank with each of three previously identified potential acquirors.
After a discussion of such presentation, the Board of Directors authorized O &
Co. to contact such parties, including EFC.
At a meeting of the Board of Directors held on November 21, 1996, O & Co.
reported on the results of its contacts with potential acquirors. After
review and deliberations of the results of such contacts, the Board of
Directors authorized O & Co. to pursue further discussions with EFC. Contacts
with EFC subsequent to such meeting resulted in a preliminary proposal by EFC
to acquire MidConn Bank. On December 11, 1996, O & Co., MidConn Bank's
executive committee and MidConn Bank's legal advisors met to discuss the EFC
acquisition proposal.
On December 19, 1996, the MidConn Bank Board of Directors considered the
preliminary proposal for acquisition by EFC. After review and deliberations,
including discussions regarding the form and terms of potential consideration,
the Board determined to seek more information, including pricing, relating to
EFC's proposal.
Subsequent to such meeting, EFC submitted a proposed acquisition offer
including a proposed exchange ratio. Such proposal was considered by the
Board of Directors of MidConn Bank on December 26, 1996 at a special meeting
of the Board.
At the Board of Directors' regular meeting held on January 16, 1997, the
MidConn Bank Board reviewed the results of certain due diligence and the
current terms of the EFC acquisition proposal. At such time, they agreed to
pursue further negotiations with EFC.
On January 21, 1997, at a special meeting, the MidConn Bank Board of
Directors reviewed with its legal advisors and O & Co. the most current terms
of EFC's proposal and draft agreements which had been sent to MidConn Bank
subsequent to its previous Board meeting. After a review and discussion of
the financial and legal terms of the proposal, the Board authorized that
negotiations with EFC continue.
At a meeting held on January 27, 1997, MidConn Bank's legal advisors and O
& Co. presented summaries of the negotiated acquisition agreements with EFC.
Upon final review and
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deliberation, the MidConn Bank Board of Directors determined that the Merger
was in the best long-term interests of MidConn Bank's shareholders as compared
to remaining an independent bank or other strategic alternatives. The Board of
Directors unanimously voted to approve the acquisition of MidConn Bank by EFC
and authorized the execution and delivery by MidConn Bank of the Merger
Agreement.
At regular Board meetings held in November and December 1996, EFC's Board
of Directors considered management's preliminary analyses of the possible
transaction, and authorized management to proceed with the negotiations.
Throughout the negotiations, EFC's Board reviewed management's reports and
presentations regarding MidConn Bank, and the status of the possible
transaction. At a meeting held on January 23, 1997, EFC's legal advisor and
Keefe, Bruyette presented summaries of the negotiated acquisition agreements
with MidConn Bank and an analysis of the transaction, respectively. Upon
final review and deliberation at a meeting held on January 27, 1997, the EFC
Board of Directors unanimously authorized the execution and delivery of the
Merger Agreement.
Recommendation of the MidConn Bank Board of Directors and Reasons for the
Merger
The MidConn Bank Board of Directors unanimously approved the Merger
Agreement and the Merger provided for therein and determined that the Merger
is fair to, and in the best interests of, MidConn Bank and its shareholders.
The MidConn Bank Board therefore unanimously recommends that holders of
MidConn Bank Common Stock vote to approve and adopt the Merger Agreement and
the Merger provided for therein. The MidConn Bank Board believes that the
Merger will enable holders of MidConn Bank Common Stock to realize increased
value due to the premium over market price, net income per share of MidConn
Bank Common Stock and book value per share of MidConn Bank Common Stock, as
provided by the Exchange Ratio. The relative multiples implied by the
Exchange Ratio ($25.16 implied per share value to MidConn Bank shareholders as
of January 28, 1997) represented a premium to market price as of January 24,
1997 of 126%, 21 times last 12 months earnings per share for the period ended
September 30, 1996 (before giving effect to SAIF assessment) and 140% of book
value as of September 30, 1996. The MidConn Bank Board also believes that the
Merger may enable MidConn Bank's shareholders to participate in opportunities
for appreciation of EFC Common Stock. See "-- Background of the Merger" above
and "-- Opinion of MidConn Bank Financial Advisor" below. In reaching its
decision to approve the Merger Agreement, the MidConn Bank Board consulted
with its legal advisor regarding the legal terms of the Merger and the MidConn
Bank Board's fiduciary obligations in its consideration of the proposed
Merger, with its financial advisor, O & Co., regarding the financial aspects
and fairness of the proposed Merger, as well as with management of MidConn
Bank, and, without assigning any relative or specific weight, considered the
following material factors, many of which are subjective in nature, both from
a short-term and long-term perspective:
(i) The MidConn Bank Board's familiarity with, and review of, MidConn
Bank's business, financial condition, results of operations and
prospects, including, but not limited to, its potential growth,
development, productivity and profitability and the business risks
associated therewith;
(ii) The current and prospective environment in which MidConn Bank
operates, including national and local economic conditions, the
highly competitive environment for financial institutions generally,
the increased regulatory burden on financial institutions, and the
trend toward consolidation in the financial services industry;
(iii) The potential appreciation in market and book value of MidConn Bank
Common Stock on both a short- and long-term basis, as a stand alone
entity, in comparison to the Exchange Ratio;
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(iv) Information derived from publicly available data and discussions
with EFC management concerning the business, financial conditions,
results of operations and asset quality of EFC;
(v) The competitive position and future growth prospects of EFC
following the Merger, the potential synergies resulting from
consolidation of the two companies' operations and the related
potential for appreciation and growth in earnings and book value of
EFC as a result of the proposed Merger;
(vi) The presentations of O & Co. regarding the Merger and the opinion of
O & Co. that as of the date of the Merger Agreement, the merger
consideration was fair, from a financial point of view, to the
holders of MidConn Bank Common Stock (see "-- Opinion of MidConn
Bank Financial Advisor" below);
(vii) The financial terms and other conditions of the Merger Agreement and
the Option Agreement;
(viii) The expectation that EFC will continue to provide quality services
to the communities and customers served by MidConn Bank and EFC's
capacity, as a larger institution with a larger capital base, to
provide a wider range of services, enhanced access to credit, and
greater convenience to such customers and communities; and
(ix) The compatibility with respect to businesses and management
philosophies of MidConn Bank and EFC and EFC's strong commitment to
the Connecticut communities it serves.
Recommendation of the EFC Board of Directors and Reasons for the Issuance
The EFC Board of Directors unanimously approved the Merger Agreement and
the Merger provided for therein and determined that the Merger is fair to, and
in the best interests of, EFC and its shareholders. The EFC Board also
unanimously approved the issuance of shares of EFC Common Stock in connection
with the acquisition of MidConn Bank by EFC pursuant to the Merger Agreement.
The EFC Board therefore unanimously recommends that holders of EFC Common
Stock vote to approve the issuance of additional EFC Common Stock in
connection with the Merger Agreement.
In approving the Merger Agreement and related matters, the Board of
Directors of EFC reviewed detailed merger analyses performed by EFC's
management. Such analyses took into consideration the material factors
regarding MidConn Bank's operations, asset quality, reserves for losses,
products, market, deposits and other liabilities, capital, historical
financial performance, human resource issues and Merger-related costs. EFC
also consulted with its outside financial advisor, Keefe, Bruyette, as to
certain issues concerning the Merger, including whether the Exchange Ratio is
fair to EFC from a financial point of view. See "-- Opinion of EFC Financial
Advisor."
The EFC Board of Directors concluded that the Merger and the issuance of
EFC Common Stock in the Merger is in the best interests of EFC and its
shareholders. In reaching such conclusion, the Board considered the following
material factors: (i) the Merger would enable EFC to increase its deposit
base in Hartford County by almost 40%; (ii) the availability of more branch
and ATM locations to allow EFC to better meet the needs of its customers and
enhance EFC's ability to offer additional products to an expanded customer
base; (iii) EFC's expectation that, after factoring in anticipated cost
savings of 30% to 40%, EFC expects the Merger to be accretive to earnings per
share within the first year of post-Merger operation; (iv) its knowledge of
the business, operations,
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financial condition, operating results and prospects of MidConn Bank based on
an in-depth due diligence review; (v) current industry, economic and market
conditions; (vi) the presentation of Keefe, Bruyette regarding the Merger and
the opinion of Keefe, Bruyette; (vii) a comparison of prices known to
management to have been paid in certain local and regional financial
institution mergers and acquisitions in the recent period (see "-- Opinion of
EFC Financial Advisor"); (viii) the terms of the Merger Agreement, which were
the product of arms' length negotiations; (ix) the structure and accounting
treatment of the Merger; and (x) regulatory aspects of the proposed
transaction.
As noted above after factoring in anticipated expense savings of 30% to
40%, the EFC Board expects the Merger to be accretive to earnings per share
within the first year of combined operations. The cost savings are estimated
to occur primarily in compensation, benefits, and office occupancy expenses,
and are based upon the projected closing and/or consolidation of three MidConn
Bank branch locations in addition to the elimination of overlapping
administrative and operations functions. Considering these factors, EFC's
management estimates that annual cost savings could be approximately $3.0 to
$4.0 million before income taxes in fiscal 1998. The projected cost savings
and future earnings per share are necessarily based on certain estimates and
assumptions made as of the date of such information, which could differ
significantly from actual results, due to a number of factors. The material
factors, a number of which are beyond the control of EFC, are the ability of
Eagle Bank to fully realize operational efficiencies and integrate operations
relating to such offices, the regulatory environment to which Eagle Bank is
subject, economic conditions in general as well as in Eagle Bank's market
areas, and no assurances can be given with respect to the ultimate level and
composition of cost savings to be realized, or that such savings will be
realized in the time frame currently anticipated. These amounts have not been
included in any of the unaudited pro forma financial information included in
this Joint Proxy Statement/Prospectus. Statements in this paragraph and the
foregoing paragraph concerning anticipated future results, performance,
expectations or intentions are forward-looking statements. Actual results,
performance or developments may differ materially from those expressed or
implied by such forward-looking statements as a result of known or unknown
risks, uncertainties and other factors, including those identified herein.
Purpose and Effects of the Merger
The purpose of the Merger is to enable EFC to acquire the assets and
business of MidConn Bank. After the Merger, it is anticipated that seven of
MidConn Bank's 10 branch offices will be operated as banking offices of Eagle
Bank and three offices will be closed and/or consolidated with Eagle Bank
offices.
The Merger will thus result in an expansion of EFC's primary market area to
include MidConn Bank's banking offices in Hartford County, Connecticut. The
assets and business of MidConn Bank's 10 banking offices will broaden EFC's
existing operations in Hartford and eastern Litchfield Counties where EFC
currently has 19 traditional banking offices and four supermarket branch
offices. EFC expects to achieve reductions in the current operating expenses
of MidConn Bank upon the consolidation of MidConn Bank's operations into Eagle
Bank. Upon consummation of the Merger, the issued and outstanding shares of
MidConn Bank Common Stock will automatically be converted into EFC Common
Stock based on the Exchange Ratio. See "-- Exchange Ratio."
Structure
The Merger will be effected by merging MidConn Bank into Eagle Bank, a
wholly-owned subsidiary of EFC, which will then be the Surviving Bank.
Upon consummation of the Merger, except as discussed below, each
outstanding share of MidConn Bank Common Stock will be converted into .86 of a
share of EFC Common Stock, plus cash
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to be paid in lieu of fractional shares. Shares held as treasury stock or held
directly or indirectly by MidConn Bank, EFC or any of EFC's Subsidiaries
(other than Trust Account Shares and DPC Shares) shall be canceled. Dissenting
Shares will not be converted (see "--Dissenters' Appraisal Rights"). Based on
the 4,559,851 shares of EFC Common Stock and the 2,037,299 shares of MidConn
Bank Common Stock and MidConn Options outstanding on the record date,
immediately following the Merger, holders of MidConn Bank Common Stock and
MidConn Bank Options will receive 1,752,077 shares (27.8%) of the EFC Common
Stock outstanding immediately following the Merger; the Merger will not
otherwise change the outstanding EFC Common Stock held by EFC
shareholders.
MidConn Bank and EFC expect that the Merger will be consummated in the
second quarter of 1997, or as soon as possible after the receipt of all
regulatory and shareholder approvals and the expiration of all regulatory
waiting periods. If the Merger is not consummated by September 30, 1997, the
Merger Agreement will be terminated unless MidConn Bank and EFC mutually
consent to an extension.
Notwithstanding any provision of the Merger Agreement to the contrary, EFC
may elect to modify the structure of the transactions contemplated by the
Merger Agreement as noted therein so long as (i) there are no material adverse
federal income tax consequences to the MidConn Bank shareholders as a result
of such modification, (ii) the consideration to be paid to the MidConn Bank
shareholders under the Merger Agreement is not thereby changed or reduced in
amount, and (iii) such modification will not be reasonably likely to delay
materially or jeopardize receipt of any required regulatory approvals. EFC
presently has no intent to modify the structure.
Exchange Ratio
The Merger Agreement provides that at the Effective Time, except as
discussed below, each issued and outstanding share of MidConn Bank Common
Stock will be converted automatically into .86 of a share of EFC Common Stock.
Shares of treasury stock held directly or indirectly by MidConn Bank, EFC or
any of EFC's subsidiaries (other than Trust Account Shares or DPC Shares)
shall be canceled. Dissenting Shares will not be converted into the right to
receive shares of EFC Common Stock, unless and until such shareholders shall
have failed to perfect or shall have effectively withdrawn or lost their right
to payment under applicable law. See "-- Dissenters' Appraisal Rights" and
Appendix C.
----------
Based on the 1,955,469 shares of MidConn Bank Common Stock outstanding on
the record date and an Exchange Ratio of .86, EFC would issue up to 1,681,703
shares of EFC Common Stock in the Merger, plus cash in lieu of fractional
shares. These numbers do not reflect additional shares of EFC Common Stock to
be issued in the event of the exercise prior to the Merger of the 81,830
shares of MidConn Bank Common Stock that are subject to existing MidConn
Options held by directors, officers and employees of MidConn Bank.
Certificates for fractions of shares of EFC Common Stock will not be
issued. Under the Merger Agreement, in lieu of a fractional share of EFC
Common Stock, each holder of MidConn Bank Common Stock will be entitled to
receive an amount of cash equal to the fraction of a share of EFC Common Stock
to which such holder would otherwise be entitled multiplied by the average of
the daily closing prices per share of EFC Common Stock, as reported on The
Nasdaq National Market, for the 20 consecutive trading days on which shares of
EFC Common Stock are actually traded ending on the third trading day preceding
the closing date of the Merger. Following consummation of the Merger, no
holder of MidConn Bank Common Stock would be entitled to dividends or other
rights in respect of any such fraction. The aggregate number of shares of EFC
Common Stock, along with any cash to be paid in lieu of a fraction of a share
of EFC Common Stock, payable to each holder of MidConn Bank Common Stock, is
hereinafter referred to as the "Purchase Price."
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The conversion of MidConn Bank Common Stock held by shareholders of MidConn
Bank into shares of EFC Common Stock at the Exchange Ratio will occur
automatically upon the Merger. Pursuant to the Merger Agreement, on or after
the Effective Time, EFC will cause the Exchange Agent to make payment of the
Purchase Price to each holder of shares of MidConn Bank Common Stock who
surrenders the certificate or certificates representing such shares to the
Exchange Agent, together with a duly executed letter of transmittal.
The Exchange Agent will mail a letter of transmittal as soon as practicable
after the Effective Time to each holder of record of MidConn Bank Common Stock
immediately prior to the Effective Time. EFC will cause to be deposited with
the Exchange Agent certificates representing the aggregate number of shares of
EFC Common Stock to be issued to MidConn Bank shareholders, along with the
cash to be paid in lieu of fractional shares. The Exchange Agent shall not be
obligated, however, to deliver or cause to be delivered the Purchase Price to
which any holder of MidConn Bank Common Stock would otherwise be entitled as a
result of the Merger until such holder surrenders the certificate or
certificates representing the shares of MidConn Bank Common Stock for
exchange, or, if not available, an appropriate affidavit of loss and indemnity
agreement and/or a bond as may be required by EFC. Likewise, no dividends or
distributions with respect to EFC Common Stock payable to any such holder will
be paid until such holder surrenders the certificate or certificates
representing the shares of MidConn Bank Common Stock for exchange. No
interest will be paid or accrued to MidConn Bank's shareholders on cash in
lieu of fractional shares or unpaid dividends and distributions, if any.
If any certificate representing shares of EFC Common Stock is to be issued
in a name other than that in which the certificate for such shares surrendered
in exchange is registered, it shall be a condition of such issuance that the
certificate so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the person requesting such exchange shall
either (i) pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the issuance of a certificate to a person other than the
registered holder of the certificate surrendered or (ii) establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable. After the close of business on the day immediately prior to the
Effective Time, there shall be no transfers on the stock transfer books of
MidConn Bank of the shares of MidConn Bank Common Stock outstanding
immediately prior to the Effective Time and any such shares presented to the
Exchange Agent at or after the Effective Time shall be canceled and exchanged
for the Purchase Price.
Any portion of the Purchase Price made available to the Exchange Agent that
remains unclaimed by MidConn Bank's shareholders for six months after the
Effective Time will be returned to EFC. Any shareholder of MidConn Bank who
has not exchanged shares of MidConn Bank Common Stock for the Purchase Price
in accordance with the Merger Agreement prior to that time shall thereafter
look only to EFC for payment of the Purchase Price in respect of such shares
and any unpaid dividends or distributions. Notwithstanding the foregoing,
none of EFC, MidConn Bank, the Exchange Agent or any other person will be
liable to any shareholder of MidConn Bank for any amount properly delivered to
a public official pursuant to applicable abandoned property, escheat or
similar laws.
STOCK CERTIFICATES FOR SHARES OF MIDCONN BANK COMMON STOCK SHOULD NOT BE
---
RETURNED TO MIDCONN BANK WITH THE ENCLOSED PROXY CARD AND SHOULD ONLY BE
FORWARDED TO THE EXCHANGE AGENT AFTER RECEIPT OF THE LETTER OF TRANSMITTAL.
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Options
As of the MidConn Bank Record Date, there were outstanding MidConn Options
to purchase 81,830 shares of MidConn Bank Common Stock at an average exercise
price of $13.74 per share. These options are held as follows: options for
10,500 shares by non-employee directors; 28,130, 1,620, 1,620, 5,445 and 4,265
shares by Messrs. Toman, Anderson, Rungee and Rys and Ms. Bialek,
respectively; and 30,250 shares by retired officers and directors. Under the
Merger Agreement, shares of MidConn Bank Common Stock issued prior to
consummation of the Merger upon the exercise of the 81,830 outstanding options
held by directors, officers and other employees of MidConn Bank will also be
converted into EFC Common Stock at the Exchange Ratio.
As described below, under the Merger Agreement, at the Effective Time, each
MidConn Option shall be terminated, and each holder of a MidConn Option shall
have the right to receive shares of EFC Common Stock in accordance with the
formula set out below. The "Option Value" of each MidConn Option shall be the
product of (w) the number of whole shares of MidConn Bank Common Stock that
could be purchased immediately before the Effective Time upon exercise of the
MidConn Option times the excess of the product of (x) the actual market value
of a share of EFC Common Stock (determined as set forth below) (the "AMV")
multiplied by (y) the Exchange Ratio over (z) the per share exercise price of
such MidConn Option. At the Effective Time, each holder of a MidConn Option
shall receive, in substitution for and cancellation thereof, a number of whole
shares of EFC Common Stock equal to the Option Value divided by the AMV, plus
cash for any fraction of a share. The AMV of the EFC Common Stock shall be
deemed to be the average of the daily closing prices per share of EFC Common
Stock for the 20 consecutive trading days on which shares of EFC Common Stock
are actually traded (as reported on The Nasdaq National Market) ending on the
third trading day preceding the Effective Time. The conversion of the MidConn
Options provided for in the Merger Agreement shall be and is intended to be
effected in a manner consistent with Section 424(a) of the Code.
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Regulatory Approvals
Consummation of the Merger is conditioned upon the receipt of required
regulatory approvals from the OTS and the Connecticut Commissioner.
Applications as to such approvals have been filed and are pending. No other
regulatory approvals are required to effect the Merger pursuant to the Merger
Agreement. Neither MidConn Bank nor EFC is aware of any reasons why all
required regulatory approvals should not be obtained. See "-- Conditions to
the Merger."
Conditions to the Merger
The respective obligations of the parties under the Merger Agreement to
consummate the Merger are subject to the satisfaction of the following
conditions: (i) the Merger Agreement shall not have been terminated on or
before the Effective Time; (ii) the Merger Agreement and the Merger shall have
been approved by the affirmative vote of the holders of at least two-thirds of
the outstanding shares of MidConn Bank Common Stock entitled to vote thereon
at the MidConn Bank Meeting; (iii) the issuance of EFC Common Stock to the
MidConn Bank shareholders as part of the Merger shall have been approved by a
majority of the total votes cast on the proposal at the EFC Meeting; (iv) the
EFC Common Stock which shall be issued in the Merger (including the shares
that may be issued upon the exercise of MidConn Options prior to the Effective
Time) shall have been authorized for quotation on The Nasdaq National Market;
(v) all required regulatory approvals shall have been obtained and shall
remain in full force and effect, all statutory waiting periods in respect
thereof shall have expired, and no such regulatory approvals shall contain a
non-customary condition that EFC reasonably determines to be burdensome or
otherwise alters the benefits for which EFC bargained in the Merger Agreement;
(vi) the Registration Statement shall have become effective and shall not be
subject to a stop order or any threatened stop order; (vii) no injunction
preventing consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement shall be in effect and such consummation
continues to be legal; (viii) EFC shall have received a favorable tax opinion
from EFC's special counsel; and (ix) EFC shall have received an opinion from
EFC's independent accountants that the Merger will be accounted for as a
pooling-of-interests.
The obligations of EFC and Eagle Bank under the Merger Agreement to
consummate the Merger are subject further to the satisfaction or waiver of
certain conditions, including the following: (i) the representations and
warranties of MidConn Bank contained in the Merger Agreement shall be true and
correct when made on the date of the Merger Agreement and as of the Effective
Time, except where such failure or failures would not have a material adverse
effect on MidConn Bank; (ii) MidConn Bank shall have in all material respects
performed all covenants and agreements contained in the Merger Agreement to be
performed by MidConn Bank at or prior to the Effective Time; (iii) MidConn
Bank shall have obtained the consent, approval or waiver of other persons
whose consent or approval is required to permit the succession by the
Surviving Bank under any lease or other agreement, except where such failure
or failures would not have a material adverse effect on MidConn Bank; (iv) no
proceeding initiated by any governmental entity seeking an injunction shall be
pending; and (v) specified legal opinions of MidConn Bank's counsel and a
comfort letter of MidConn Bank's independent public accountants shall have
been received by EFC.
The obligations of MidConn Bank under the Merger Agreement to consummate
the Merger are subject further to the satisfaction or waiver of certain
conditions, including the following: (i) the representations and warranties
of EFC contained in the Merger Agreement shall be true and correct when made
on the date of the Merger Agreement and as of the Effective Time, except where
such failure or failures would not have a material adverse effect on EFC; (ii)
EFC and Eagle Bank each shall have in all material respects performed all
covenants and agreements contained in the Merger Agreement required to be
performed by it at or prior to the Effective Time; (iii) EFC shall have
obtained the consent or approval of other persons in connection with the
transactions contemplated by the Merger Agreement that is required under any
lease or other agreement to which EFC or
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Eagle Bank is a party or otherwise bound; (iv) no proceeding initiated by any
governmental entity seeking an injunction shall be pending; and (v) specified
legal opinions of EFC's counsel shall have been received by MidConn Bank.
Conduct of Business Pending the Merger
The Merger Agreement contains various restrictions on the operations of
MidConn Bank prior to the Effective Time. In general, the Merger Agreement
obligates MidConn Bank to continue to carry on its business in the ordinary
course consistent with past practices and with prudent banking practices, with
certain specific limitations on MidConn Bank's lending activities and other
operations. MidConn Bank also is prohibited by the Merger Agreement from
declaring any dividends on its capital stock other than specified dividends on
the MidConn Bank Common Stock; splitting, combining or reclassifying any
shares of its capital stock; issuing or authorizing or proposing the issuance
of any securities, other than the issuance of additional shares of MidConn
Bank Common Stock upon exercise of certain existing stock options held by
directors, officers and employees of MidConn Bank or the Option held by EFC;
or repurchasing certain specified shares of capital stock. Also, under the
terms of the Merger Agreement, MidConn Bank may not amend its Amended and
Restated Certificate of Incorporation or Bylaws, nor may it change its methods
of accounting in effect at September 30, 1996, except as required by changes
in regulatory or generally accepted accounting principles. In addition, the
Merger Agreement restricts MidConn Bank from increasing employee or director
benefit arrangements or compensation, including the granting of stock options
and entering into any new employment or severance agreements, or paying any
bonuses other than to certain specified persons not to exceed a specified
aggregate amount which payments may be subject to such persons continuing
their employment with Eagle Bank after the Effective Time.
Third Party Proposals
The Merger Agreement provides generally that MidConn Bank shall not, nor
shall MidConn Bank authorize or permit any of its officers, directors,
employees or agents, to, solicit, initiate or encourage any inquiries relating
to, or the making of, any third party takeover proposal. There is a similar
prohibition as to any substantive discussion or negotiation of any third party
takeover proposal, or providing third parties with information relating to
such inquiry or proposal, unless the MidConn Bank Board of Directors,
following receipt of written advice of counsel, reasonably determines in the
exercise of its fiduciary duty that such discussions or negotiations should be
commenced or such information must be furnished.
Expenses; Breakup Fee
The Merger Agreement generally provides for EFC and MidConn Bank to pay
their own expenses relating to the Merger Agreement, with EFC paying the costs
of printing this Joint Proxy Statement/Prospectus and the SEC filing fees for
registering the EFC Common Stock to be issued in the Merger. However, if the
Merger Agreement is terminated by EFC or MidConn Bank as a result of a
material breach of a representation, warranty, covenant or other agreement
contained therein by the other party, or if EFC terminates the Merger
Agreement by reason of MidConn Bank (i) failing to hold the MidConn Bank
Meeting on a timely basis; (ii) failing to recommend to its shareholders
approval of the Merger Agreement and the transactions contemplated thereby;
(iii) failing to oppose any third party takeover proposal; or (iv) as a result
of MidConn Bank violating the restrictions on third party takeover proposals,
the Merger Agreement provides for the non-terminating party to pay all
reasonable expenses of the terminating party up to $500,000, plus a breakup
fee of $500,000. If the Merger Agreement is terminated by either EFC or
------------------------------------------------------
MidConn Bank as a result of the non-terminating party failing to obtain the
---------------------------------------------------------------------------
approval of its shareholders necessary to consummate the Merger, the
--------------------------------------------------------------------
terminating party is entitled to have all of its reasonable expenses up to
--------------------------------------------------------------------------
$500,000 paid by the non-terminating party. Certain events described above
------------------------------------------
that would permit EFC to terminate
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<PAGE>
the Merger Agreement would also constitute Preliminary Purchase Events (as
defined) under the Option. See "THE MERGER --Option Agreement."
Opinion of MidConn Bank Financial Advisor
O & Co. has been retained by MidConn Bank as its financial advisor since
1994 and is currently providing, among other services, advice and assistance
relating to the evaluation and execution of mergers and acquisitions pursuant
to an engagement letter dated February 1, 1995 ("O & Co. Engagement Letter").
MidConn Bank selected O & Co. on the basis of its in-depth knowledge of the
bank and thrift industry; the qualifications, experience and reputation of its
personnel in the banking and investment communities; as well as its experience
in the valuation of bank and thrift institutions and their securities in
connection with mergers and acquisitions and other corporate transactions.
As part of the advisory services described above, the Board of Directors of
MidConn Bank requested O & Co.'s opinion as to the fairness, from a financial
point of view, of the terms of the Merger Agreement to the holders of MidConn
Bank Common Stock. Pursuant to the terms of the Merger Agreement, each share
of MidConn Bank Common Stock will be converted into the right to receive .86
of a share of EFC Common Stock, subject to adjustment in certain circumstances
as described in the Merger Agreement. On January 27, 1997, O & Co. delivered
its opinion to the Board of Directors of MidConn Bank that, as of such date,
the consideration to be received by the holders of MidConn Bank Common Stock
was fair from a financial point of view.
THE FULL TEXT OF O & CO.'S FAIRNESS OPINION IS ATTACHED AS APPENDIX A TO
----------
THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
THE DESCRIPTION OF THE FAIRNESS OPINION SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO APPENDIX A. HOLDERS OF MIDCONN BANK COMMON STOCK ARE
----------
URGED TO READ THE OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS OF THE
REVIEW UNDERTAKEN BY O & CO. IN CONNECTION THEREWITH. O & CO.'S OPINION IS
DIRECTED SOLELY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE TERMS
OF THE MERGER AGREEMENT AND DOES NOT CONSTITUTE ANY RECOMMENDATION TO THE
BOARD OF DIRECTORS OF MIDCONN BANK OR TO THE HOLDERS OF MIDCONN BANK COMMON
STOCK WITH RESPECT TO ANY VOTE AT THE MIDCONN BANK MEETING.
In connection with providing its opinion, O & Co. examined and relied upon,
among other things, the Merger Agreement, annual reports to shareholders,
proxy statements and related audited financial statements for MidConn Bank and
EFC for the three fiscal years ended September 30, 1994, 1995, and 1996;
certain interim financial reports for MidConn Bank and EFC for the quarter
ended December 31, 1996; and certain other financial information for MidConn
Bank and EFC, including pro forma financial statements and managements'
estimates relating to, among other things, earnings, asset quality and
capital. O & Co. conducted discussions with executive management of both
MidConn Bank and EFC concerning historical financial performance and
condition, market area economic conditions, future business prospects and
financial forecasts. O & Co. reviewed stock market prices and trading activity
for the common shares of MidConn Bank and EFC. O & Co. also reviewed
comparable financial, operating and market data for the banking industry and
selected peer groups; compared the terms of the Merger Agreement with other
bank merger and acquisition transactions; and considered such additional
financial and other information it deemed relevant.
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In preparing its opinion, O & Co. relied upon the accuracy, completeness
and fair presentation of all information supplied or otherwise made available
to it by, or on behalf of, MidConn Bank and EFC. O & Co. did not
independently verify such information or undertake an independent evaluation
or appraisal of the assets or liabilities of MidConn Bank or EFC, nor were
they furnished any such evaluations or appraisals. With respect to forecasts
of expected future financial performance, O & Co. was advised that they
reflected the best currently available estimates and judgment of the executive
management of MidConn Bank and EFC. O & Co.'s opinion was necessarily based
upon the information available to it and the market, economic and other
conditions as they existed, and could be evaluated, as of the date of its
opinion.
In connection with providing its fairness opinion to the Board of Directors
of MidConn Bank, O & Co. performed a variety of financial analyses. The
following is a summary of the material terms of such analyses, but does not
purport to be a complete description of O & Co.'s analyses or presentations to
the MidConn Bank Board of Directors. The preparation of a fairness opinion is
a complex process involving subjective judgments and is not necessarily
susceptible to partial analyses or summary description. O & Co. believes that
its analyses must be considered as a whole and that selecting portions of such
analyses and the factors considered therein, without considering all factors
and analyses, could create an incomplete view of the analyses and the
processes underlying O & Co.'s opinion.
In performing its analyses, O & Co. made numerous assumptions with respect
to industry performance, business and economic conditions and various other
matters, many of which may be more or less favorable than actual results.
Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold. No company or transaction utilized in O & Co.'s analyses
was identical to MidConn Bank or EFC or to the terms of the Merger Agreement.
Because such estimates are inherently subject to uncertainty, O & Co. assumes
no responsibility for their accuracy.
Stock Trading History
O & Co. examined the history of trading prices for MidConn Bank Common
Stock and EFC Common Stock for the period from January 24, 1996 through
January 24, 1997. During that time period, MidConn Bank Common Stock traded
in the $13.75 to $20.50 range; from mid-June 1996 through the end of the month
there was significant price appreciation and the stock began trading as high
as $19.00. From September through December of 1996, MidConn Bank Common
Stock traded in the range of $17.50 to $20.50. On January 24, 1997, MidConn
Bank Common Stock closed at $20.00.
From January 24, 1996 through January 24, 1997, EFC Common Stock traded in
the $22.25 to $31.00 range. During June 1996, there was significant price
appreciation and the stock traded as high as $26.88. The price declined from
July through September reaching a low of $23.75 but the stock price rebounded
and at the end of September reached a high of $27.25. The price remained
fairly steady until late November when it began to appreciate, continuing this
trend through the end of 1996, closing at $30.50 on December 31, 1996. The
closing price for EFC Common Stock on January 24, 1997 was $29.50.
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Contribution Analysis
O & Co. prepared a contribution analysis showing the percentage contributed
by MidConn Bank to the combined company on a pro forma basis of assets,
deposits, and equity at September 30, 1996. Net income contributions were
considered based upon management's estimates for the twelve months ended
September 30, 1997. Both companies reported significant nonrecurring items to
earnings in 1996. The 1997 estimates were deemed to more appropriately reflect
the recurring earnings levels for both MidConn Bank and EFC. O & Co. compared
these percentages to the MidConn Bank shareholders' pro forma ownership of
EFC. This analysis showed that MidConn Bank shareholders would contribute
20.4% of pro forma consolidated assets, 22.6% of pro forma consolidated
deposits, 26.2% of pro forma consolidated equity and 17.1% of pro forma
estimated net income for the twelve months ended September 30, 1997. MidConn
Bank shareholders would receive 27.92% of the pro forma ownership of the
combined company based on the .86 Exchange Ratio.
Comparable Company Analysis
O & Co. compared the financial condition, financial operating performance
and trading market performance of MidConn Bank with a peer group of 28
community thrifts in the Northeast with assets between $250 million and $500
million. MidConn Bank reported a return on average assets of 0.51%, and
return on equity of 5.36%, based on September 30, 1996 operating results, and
an equity to assets ratio of 9.72%; the peer group reported a median return
on average assets of 0.75%; a median return on average equity of 8.80% and a
median equity to asset ratio of 8.21%. MidConn Bank reported somewhat weaker
operating performance than the peer group, below average return on equity and
a higher equity to assets ratio.
At January 22, 1997, the MidConn Bank Common Stock price was $19.50, or
20.5 times trailing twelve months earnings and 108% of reported September 30,
1996 book value, compared to the peer group median of 14.7 times trailing
twelve months earnings and 130% of book value, respectively. MidConn Bank
Common Stock's trading performance was above its peers on an earnings multiple
basis but below its peers as a percent of book value.
O & Co. also compared the financial condition, financial operating
performance and trading performance of EFC with a peer group of 25 large
community thrifts in the Northeast with assets between $850 million and $3.0
billion. EFC reported a return of average assets of 1.00% and a return on
equity of 13.82%, based on September 30, 1996 operating results, and an equity
to assets ratio of 7.19%; the peer group had median return on average assets
of 0.98%; a median return of average equity of 10.62% and median equity to
assets ratio of 7.95%. EFC reported operating performance slightly better than
the peer group, an above average return on equity and a lower equity to assets
ratio.
At January 22, 1997, the EFC Common Stock price was $30.63, or 10.6 times
trailing twelve months earnings and 137% of reported September 30, 1996 book
value, compared to the peer group median for these same measures of 14.5 times
and 135%, respectively. EFC Common Stock trading performance was below its
peers on an earnings multiple basis and slightly greater that its peers as a
percent of book value.
Discounted Cash Flow Analysis
O & Co. performed an analysis which estimated the future cash flows to
MidConn Bank shareholders over two years under various circumstances, assuming
MidConn Bank performed in accordance with the earnings forecasts of its
management. To approximate the terminal value of MidConn Bank Common Stock at
the end of the two-year period, O & Co. applied price to earnings multiples
ranging from 15.0 times to 20.0 times, which resulted in values that equated
to
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percentages of book value ranging from 125% to 166%. The terminal values were
then discounted to present projected values using discount rates ranging from
12.5% to 20.0% chosen to reflect assumptions regarding rates of return and risk
premiums required by holders or prospective buyers of MidConn Bank Common Stock.
This analysis indicated a range of present values per share of $17.76 to $26.37.
Analysis of Selected Merger Transactions
O & Co. reviewed certain financial data, as of the date of the
announcement, for acquisitions of commercial banks and thrifts in the Northeast
announced between September 1995 and December 1996. O & Co. also reviewed
acquisitions of commercial banks and thrifts in Connecticut between January 1995
and December 31, 1996. O & Co. calculated the average multiple of price to
target's earnings for trailing 12 months, the average percentage of price to
book value and the average premium (price in excess of reported equity) as a
percentage of deposits, on a quarterly basis beginning September 1, 1995 through
December 31, 1996. For transactions announced in the fourth quarter of 1996, the
calculations resulted in the following averages: (i) price as a multiple of
earnings for Northeast banks 20.6 times, Northeast thrifts 14.6 times, and
Connecticut transactions 15.2 times, compared with the value of the EFC proposal
of 26.7 times MidConn Bank's trailing twelve months earnings and 21.0 times
MidConn Bank's estimated 1997 earnings; (ii) price as a percentage of book value
for Northeast banks of 219%, Northeast thrifts of 157%, and Connecticut
transactions of 162%, compared with 144% of MidConn Bank's fully converted
shareholders' equity; and (iii) premium as a percentage of core deposits for
Northeast banks of 13.4%, Northeast thrifts of 6.4%, and Connecticut
transactions of 5.3%, compared with the value of the EFC proposal equal to a
premium of 5.1% of MidConn Bank's deposits.
Impact Analysis
O & Co. analyzed the changes in the amount of fully diluted earnings per
share and book value represented by the issuance of .86 of a share of EFC Common
Stock for each share of fully converted MidConn Bank Common Stock. The analysis
considered, among other things, the impact on fully diluted earnings per share
and book value per share of EFC. The analysis was based upon reported September
30, 1996 balance sheet data for MidConn Bank and EFC and 1997 estimated earnings
for the twelve months ended September 30, 1997 for MidConn Bank and EFC. These
analyses indicated that the Merger would be approximately 12.12% dilutive to
EFC's pro forma fully diluted earnings per share, and approximately 2.30%
dilutive to EFC's pro forma book value.
O & Co. also analyzed certain per share values for fully converted MidConn
Bank Common Stock on an independent basis as well as the equivalent values based
on the Exchange Ratio of .86 of a share of EFC Common Stock for each share of
fully converted MidConn Bank Common Stock as proposed in the Merger. The
estimated equivalent 1997 annual earnings per equivalent share of MidConn Bank
Common Stock was $2.12 or 59% greater than MidConn Bank's estimated 1997
earnings per share; the book value per equivalent share of MidConn Bank Common
Stock as of September 30, 1996 was $18.82 or 6.5% greater than MidConn Bank's
book value per share as of the same date; and the annual cash dividend for each
equivalent share of MidConn Bank Common Stock was $0.79 per share or 32% greater
than MidConn Bank's indicated annual cash dividend of $0.60 per share.
Pursuant to the O & Co. Engagement Letter, MidConn Bank has agreed to pay O
& Co. a fee for its advisory services in connection with the Merger equal to
1.5% of the aggregate value of the consideration received by MidConn Bank
shareholders upon the closing of the Merger, or approximately $722,697 based
upon an estimated aggregate value of $48,180,000 based on the closing price of
EFC Common Stock on April 15, 1997. MidConn Bank has agreed to make interim
payments to O & Co. during the pendancy of the proposed Merger which will be
credited against the total advisory fee. MidConn Bank has made a total of
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$18,675 of such payments as of the mailing of this Joint Proxy Statement/
Prospectus. Pursuant to the O & Co. Engagement Letter, MidConn Bank has also
agreed to reimburse O & Co. for its reasonable out-of-pocket expenses, including
legal fees, incurred in connection with its engagement, and to indemnify O & Co.
and its affiliates and their respective directors, officers, employees, agents
and controlling persons against certain expenses and liabilities.
Opinion of EFC Financial Advisor
EFC retained Keefe, Bruyette in January 1997 to opine as to the fairness of
the Merger from a financial point of view. Keefe, Bruyette was selected to act
as EFC's advisor based upon its qualifications, expertise and reputation, as
well as Keefe, Bruyette's familiarity with EFC's business and market area.
Keefe, Bruyette regularly publishes research reports regarding the New England
banking industry and the businesses and securities of publicly owned companies
in that industry.
On January 23, 1997, Keefe, Bruyette made a presentation with respect to
the proposed MidConn Bank merger and subsequently delivered a written opinion to
the EFC Board of Directors that the consideration to be paid by EFC pursuant to
the Merger Agreement was fair from a financial point of view.
The full text of the updated MidConn Bank opinion dated the date of this
Joint Proxy Statement/Prospectus (the "MidConn Bank Opinion"), which sets forth,
among other things, the assumptions made, matters considered and limitations on
the review undertaken, is attached hereto as Appendix B and is incorporated
----------
herein by reference. EFC shareholders are urged to read the MidConn Bank
Opinion in its entirety. The MidConn Bank Opinion is directed to the EFC Board
of Directors, and addresses only the fairness of the consideration to be paid by
EFC pursuant to the Merger Agreement from a financial point of view and does not
constitute a recommendation to any EFC shareholder as to how such shareholder
should vote. The MidConn Bank Opinion was rendered to the EFC Board of
Directors for its consideration in determining whether to approve the Merger
Agreement. The following summary of the MidConn Bank Opinion is qualified in
its entirety by reference to the full text of the MidConn Bank Opinion.
In rendering the MidConn Bank Opinion, Keefe, Bruyette reviewed certain
publicly available financial information concerning EFC and MidConn Bank and
certain internal financial analyses and other information furnished to it by EFC
and MidConn Bank. Keefe, Bruyette also held discussions with members of the
senior management of EFC regarding the business and prospects of EFC. In
addition, Keefe, Bruyette (i) compared certain financial and stock market
information for EFC and MidConn Bank, respectively, with similar information for
certain comparable companies whose securities are publicly traded, (ii) reviewed
the Merger Agreement, (iii) reviewed the financial terms of certain recent
business combinations which it deemed comparable in whole or in part, (iv)
reviewed the potential pro forma impact of the Merger on EFC's financial
condition, operating results and per share figures, and (v) performed such other
studies and analyses and considered such other factors as Keefe, Bruyette deemed
appropriate.
In conducting its review and arriving at the MidConn Bank Opinion, Keefe,
Bruyette assumed and relied upon, without independent verification, the
accuracy, completeness and fairness of all the financial and other information
reviewed by and discussed with it for purposes of the MidConn Bank Opinion.
With respect to the financial forecasts reviewed by Keefe, Bruyette, in
rendering the MidConn Bank Opinion, Keefe, Bruyette assumed that such financial
forecasts were reasonable and prepared on the basis of information reflecting
the best currently available estimates and judgments of the management of EFC as
to the likely future performance of EFC. Keefe,
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Bruyette did not make an independent evaluation or appraisal of the assets or
liabilities of MidConn Bank nor was it furnished with any such appraisal.
While the summary set forth below describes all analyses and factors that
Keefe, Bruyette deemed material in its presentation to the EFC Board of
Directors, it does not purport to be a complete description of the analyses and
factors considered by Keefe, Bruyette in this regard. The preparation of a
fairness opinion is a complex process involving various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. Accordingly, notwithstanding
the separate factors discussed below, Keefe, Bruyette believes that its analyses
must be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
could create an incomplete view of the evaluation process underlying the MidConn
Bank Opinion. No one of the analyses performed by Keefe, Bruyette was assigned
a greater significance than any other. The analyses performed by Keefe,
Bruyette are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than those suggested by such
analyses. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which the
businesses actually may be sold. The MidConn Bank Opinion is based on market,
economic and other conditions as they existed and could be evaluated as of the
date of the MidConn Bank Opinion. Furthermore, no opinion is being expressed as
to the prices at which shares of EFC may trade at any future time.
Valuation Summary
In preparing the MidConn Bank Opinion, Keefe, Bruyette, using publicly
available information, compared selected financial information, including book
value, tangible book value, latest twelve months ("LTM") earnings, and estimated
1997 earnings, for MidConn Bank and a selected group of Connecticut banking
organizations.
The selected group of peer institutions comprised certain Connecticut
savings banks with total assets between $175 million and $650 million, and a
total of nine institutions were included, namely American Bank of Connecticut,
Bancorp Connecticut, Branford Savings Bank, Dime Financial Corp, New England
Community Bancorp, Inc., NewMil Bancorp, Inc., Norwalk Savings Society, Peoples
Savings Financial Corp. and Tolland Bank (the "Selected Banks").
As of January 23, 1997, the relative multiples implied by the market price
of MidConn Bank Common Stock and the median market price of the common stock of
the Selected Banks to such selected September 30, 1996 financial data was: to
stated book value, 108% for MidConn Bank and 138% for the Selected Banks; to
tangible book value, 129% for MidConn Bank and 139% for the Selected Banks; to
LTM earnings, 20.5x for MidConn Bank and 12.8x for the Selected Banks; and to
estimated 1997 earnings, 13.0x for MidConn Bank and 11.6x for the Selected
Banks. Keefe, Bruyette noted that none of the Selected Banks was identical to
MidConn Bank. From this analysis, Keefe, Bruyette, concluded that MidConn Bank
Common Stock traded at a discount to the median trading level of the Selected
Banks on a percentage of book value and tangible book value, but traded at a
premium to the Selected Banks on LTM earnings and estimated 1997 earnings
multiple basis.
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Analysis of Selected Acquisition Transactions
In preparing the MidConn Bank Opinion, Keefe, Bruyette reviewed the
financial terms, to the extent publicly available, of certain selected merger
and acquisition transactions for banks based upon the acquisition price relative
to stated book value, stated tangible book value, and LTM earnings. The
analysis included a review and comparison of the average and median multiples
represented by a sample of recently effected or pending bank and thrift
acquisitions in New England announced since January 1, 1995 (a total of 40
transactions).
The relative multiples implied by the merger consideration of each of such
selected bank and thrift acquisition transactions in New England and MidConn
Bank are provided in the following table:
<TABLE>
<CAPTION>
New England Bank Transactions Tangible
Book Value Book Value LTM Earnings
----------- ----------- ------------
<S> <C> <C> <C>
Average............................ 186% 188% 14.8x
Median............................. 194% 201% 13.6x
New England Thrift Transactions
Average............................ 154% 159% 23.9x
Median............................. 152% 160% 14.1x
MidConn Bank Acquisition 143% 170% 27.2x
</TABLE>
Keefe, Bruyette concluded from its review of selected acquisition
transactions that the relevant multiples implied by the per share merger
consideration, except for price to LTM earnings, were within the range of
multiples implied in each of the aforementioned transaction categories. Because
MidConn Bank recorded a non recurring charge in conjunction with the
recapitalization of the SAIF, Keefe, Bruyette indicated that the price to LTM
earnings was not a meaningful ratio.
Historical Performance
Keefe, Bruyette reviewed certain operating statistics for MidConn Bank.
This review compared MidConn Bank's return on assets, return on equity, net
interest margin, efficiency ratio, capital ratio, ratio of nonperforming assets
to related assets, and ratio of loan loss reserve to nonperforming loans with
comparable data for the Selected Banks. This review also compared such data for
EFC to pro forma data for EFC and MidConn Bank combined.
Pro Forma Merger Analysis
Keefe, Bruyette analyzed certain pro forma effects on EFC from the Merger
in 1997 assuming the payment of the merger consideration. Based on certain
assumptions, including those by EFC management with respect to cost savings and
other synergies from the Merger and the stand alone earnings projections of EFC
and MidConn Bank, the analysis showed that the Merger, as a pooling-of-
interests, would be accretive to EFC's earnings per share by 1.7%; additionally,
the pooling merger analysis showed the Merger would be 1.7% dilutive to EFC's
stated book value per share and 2.1% accretive to EFC's tangible book value per
share.
Internal Rate of Return Analysis
Keefe, Bruyette performed an internal rate of return analysis to estimate
the rate of return that MidConn Bank could produce over a five year period. In
producing a range of returns, Keefe,
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Bruyette utilized the following assumptions: anticipated cost savings of 30% to
40% of MidConn Bank's non interest expense base, a terminal earnings multiple of
11.5x applied to 2001 forecasted earnings, and a range of base case earnings for
MidConn Bank of $1.30 to $1.50. The analysis showed a range of internal rates of
return for MidConn Bank of 13.2% to 18.7%. Keefe, Bruyette noted that the
internal rate of return analysis was included because it is a widely used
valuation methodology, but noted that it relies on numerous assumptions,
including earnings growth rates, anticipated cost savings, and terminal values.
Compensation of Financial Advisor
Pursuant to the terms of an engagement letter dated January 23, 1997, EFC
will pay Keefe, Bruyette an aggregate fee of $40,000 for rendering the MidConn
Bank Opinion. Of the $40,000 fee, $15,000 was paid following signing of the
engagement letter, with the remainder of the fee payable upon consummation of
the Merger. Whether or not the Merger is consummated, EFC also has agreed to
reimburse Keefe, Bruyette for its reasonable out-of-pocket expenses incurred in
connection with the transaction. EFC has also agreed to indemnify Keefe,
Bruyette and certain related persons against certain liabilities relating to or
arising out of its engagement.
Certain Provisions of the Merger Agreement
Under the Merger Agreement, MidConn Bank has made certain representations
and warranties to EFC and Eagle Bank. The material representations and
warranties of MidConn Bank are those with regard to (i) organization and good
standing; (ii) insurance of deposit accounts (iii) capitalization; (iv)
corporate power and authority; (v) the execution and delivery of the Merger
Agreement and the Option Agreement; (vi) consents and approvals required for the
Merger; (vii) loan portfolio and reports; (viii) financial statements and books
and records; (ix) brokers' fees; (x) absence of any material adverse change;
(xi) legal proceedings; (xii) tax matters; (xiii) employee benefit plans; (xiv)
certain contracts; (xv) certain regulatory matters; (xvi) charter takeover
provisions; (xvii) environmental matters; (xviii) loss reserves; (xix)
properties and assets; (xx) insurance matters; (xxi) liquidation account; (xxii)
compliance with applicable laws; (xxiii) loan information; (xxiv) agreements
with affiliates and directors; (xxv) ownership of EFC Common Stock; (xxvi)
receipt of the fairness opinion of O & Co.; and (xxvii) suspension of the
MidConn Bank dividend reinvestment plan.
Under the Merger Agreement, EFC has made certain representations and
warranties to MidConn Bank. The material representations and warranties of EFC
are those with regard to (i) the organization and good standing of EFC and the
organization of Eagle Bank; (ii) capitalization; (iii) the corporate power and
authority of EFC and Eagle Bank; (iv) the execution and delivery of the Merger
Agreement and the Option Agreement; (v) consents and approvals required for the
Merger; (vi) financial statements and books and records of EFC; (vii) the
absence of any material adverse change in EFC; (viii) compliance with applicable
laws; (ix) ownership of MidConn Bank Common Stock; (x) employee benefit plans;
(xi) certain regulatory matters; (xii) legal proceedings; (xiii) loss reserves;
(xiv) compliance with applicable laws; (xv) loans; and (xvi) environmental
matters.
Termination and Amendment of the Merger Agreement
The Merger Agreement may be terminated by EFC or MidConn Bank (provided the
terminating party is not in violation of the Merger Agreement) as summarized
below:
(i) by mutual written consent of EFC and MidConn Bank;
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(ii) by EFC or MidConn Bank if (a) 30 days after any required regulatory
approval is denied or regulatory application is withdrawn at a
regulator's request, unless action is timely taken for a rehearing
or to file an amended application; (b) the Merger has not occurred
on or before September 30, 1997; or (c) MidConn Bank's shareholders
fail to approve the Merger Agreement or EFC's shareholders fail to
approve the issuance of the additional shares of EFC Common Stock in
connection with the Merger Agreement;
(iii) by EFC, in the event of a breach of any representation, warranty,
covenant or agreement contained in the Merger Agreement by MidConn
Bank, if such breach or breaches would have a material adverse
effect on MidConn Bank;
(iv) by MidConn Bank, in the event of a breach of any representation,
warranty, covenant or agreement contained in the Merger Agreement by
EFC, if such breach or breaches would have a material adverse effect
on EFC;
(v) by EFC, if MidConn Bank or its Board of Directors (a) fails to hold
the MidConn Bank Meeting on a timely basis; (b) fails to recommend
to MidConn Bank's shareholders the approval of the Merger Agreement
and the transactions contemplated thereby; (c) fails to oppose any
third party takeover proposal; or (d) violates the covenant relating
to third party proposals; and
(vi) by MidConn Bank, if after the date on which the approvals of the
OTS, the Connecticut Commissioner and the EFC and MidConn Bank
shareholders all have been received (the "Determination Date"), the
closing sales price of EFC Common Stock as reported on The Nasdaq
National Market is less than $24.00, unless EFC elects that the
Exchange Ratio shall be a quotient, the numerator of which is $24.00
multiplied by .86 and the denominator of which is the AMV of shares
of EFC Common Stock, provided, however, that such adjusted Exchange
Ratio shall not be less than .86.
Termination under certain circumstances may result in a break-up fee or
expense reimbursement. See "-- Expenses; Break-up Fee."
The Merger Agreement also provides that subject to applicable law, the
Boards of Directors of the parties may (i) amend the Merger Agreement (except as
provided below); (ii) extend the time for the performance of any of the
obligations or other acts of the other parties thereto; (iii) waive any
inaccuracies in the representations and warranties contained in the Merger
Agreement or in any document delivered pursuant thereto; or (iv) waive
compliance with any of the agreements or conditions contained in the Merger
Agreement. After approval of the Merger Agreement by MidConn Bank's
shareholders, no amendment of the Merger Agreement may be made without further
shareholder approval, if the amendment would reduce the amount or change the
form of the consideration to be delivered to the MidConn Bank shareholders under
the Merger Agreement.
Certain Federal Income Tax Consequences
The following summary discusses the material federal income tax
consequences of the Merger. The summary is based upon the Code, applicable
Treasury Regulations thereunder, administrative rulings, and judicial authority,
all as of the date hereof. All of the foregoing are subject to change, and any
such change could affect the continuing validity of this summary. The summary
assumes that the holders of shares of MidConn Bank Common Stock hold such shares
as a capital asset. The summary does not address the tax consequences that may
be applicable to a particular MidConn Bank shareholder subject to special tax
rules, such as tax-exempt organizations, dealers in securities, financial
institutions, insurance companies, non-United States persons, shareholders who
acquired shares of MidConn Bank Common Stock pursuant to the exercise of
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options or otherwise as compensation or through a qualified retirement plan, and
shareholders who hold shares of MidConn Bank Common Stock as part of a
"straddle," "hedge," or "conversion transaction." This summary also does not
address any consequences arising under the tax laws of any state, locality, or
foreign jurisdiction.
Consummation of the Merger is subject to the prior receipt by EFC of an
opinion from Hogan & Hartson L.L.P., its special counsel, that the Merger will
be treated for federal income tax purposes as a tax-free reorganization within
the meaning of Section 368 of the Code. The opinion of Hogan & Hartson L.L.P.
will be based on the Code, the U.S. Treasury regulations promulgated thereunder,
the administrative interpretations thereof and the judicial decisions with
respect thereto, all as in effect as of the Effective Time of the Merger, on the
assumption that the Merger takes place as described in the Merger Agreement, and
on certain certificates and representations provided and to be provided by
MidConn Bank and certain shareholders of MidConn Bank regarding the satisfaction
of certain requirements to a reorganization within the meaning of Section 368(a)
of the Code (including the absence of any plan or intention by certain holders
of MidConn Bank Common Stock to sell, exchange or otherwise dispose of shares of
EFC Common Stock to be received by such person upon the Merger). Unlike a
ruling from the Internal Revenue Service ("IRS"), an opinion of counsel is not
binding on the IRS and there can be no assurance that the IRS will not take a
position contrary to one or more of the positions reflected in such opinions or
that such positions will be upheld by the courts if challenged by the IRS. If
such opinion is not received, or if the material tax consequences described
therein materially differ from those as stated below, EFC and MidConn Bank will
resolicit shareholders.
If, as concluded in the opinion of counsel, the Merger qualifies as a tax-
free reorganization within the meaning of Section 368 of the Code, then:
(1) Except as discussed in (4) below with respect to cash received in
lieu of a fractional share of EFC Common Stock, a MidConn Bank
shareholder will recognize no gain or loss upon the exchange of
MidConn Bank Common Stock for EFC Common Stock pursuant to the
Merger.
(2) The tax basis of the EFC Common Stock received by a MidConn Bank
shareholder in the Merger will be the same as the shareholder's
tax basis in the MidConn Bank Common Stock surrendered in
exchange therefor.
(3) The holding period of the EFC Common Stock received by a MidConn
Bank shareholder in the Merger will include the holding period of
the MidConn Bank Common Stock surrendered in exchange therefor
(assuming the MidConn Bank Common Stock was held as a capital
asset).
(4) A MidConn Bank shareholder who receives cash in lieu of a
fractional share of EFC Common Stock will be treated as having
received the cash in exchange for the fractional share.
Generally, the shareholder will recognize gain or loss (capital
gain or loss if the shareholder held its MidConn Bank Common
Stock as a capital asset) equal to the difference between the
shareholder's basis in the fractional share (determined under (2)
above) and the cash received in lieu of the fractional share.
(5) Neither EFC, Eagle Bank, nor MidConn Bank will recognize any gain
or loss as a result of the Merger.
MidConn Bank shareholders are urged to consult their own tax advisors as to the
specific tax consequences to them of the Merger, including tax return reporting
requirements, the applicability
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and effect of federal, state, local and other applicable tax laws, and the
effect of any proposed changes in the tax laws.
As is described above (see "THE MERGER -- Options"), holders of MidConn
Options will receive shares of EFC Common Stock and cash in lieu of a fraction
of a share in substitution for and in cancellation of their MidConn Options.
Holders of MidConn Options generally would be treated as having received
compensation taxable as ordinary income in an amount equal to the sum of the
cash and the value of the EFC Common Stock received by them for their MidConn
Options. However, the directors of MidConn Bank and certain affiliates of
MidConn Bank have entered into the MidConn Bank Stockholder Agreement, which
imposes certain restrictions on transfers of EFC Common Stock following the
Merger to enable the Merger to comply with the "Pooling-of-Interests Accounting"
rules set forth in Accounting Series Releases Numbered 130 and 135 (the
"Restrictions"). See "-- Accounting Treatment." Income realized by an individual
who is a party to the MidConn Bank Stockholder Agreement upon receipt of shares
of EFC Common Stock will be taxable at the time such Restrictions lapse (and the
amount of such income will be determined based on the value of EFC Common Stock
at that time) unless such individual files an election to include in gross
income for the taxable year of the receipt of the EFC Common Stock the market
value of the EFC Common Stock at the time of the transfer, in accordance with
section 83(b) of the Code, within 30 days after the Merger.
Holders of MidConn Options are urged to consult their own tax advisors as
to the specific tax consequences to them of the Merger, including tax return
reporting requirements, available elections, the applicability and effect of
federal, state, local and other applicable tax laws, and the effect of any
proposed changes in the tax laws.
Accounting Treatment
The Merger is intended to qualify as a pooling-of-interests for accounting
and financial reporting purposes. Under the pooling-of-interests method of
accounting, the recorded assets and liabilities of MidConn Bank will be carried
forward to EFC at their recorded amounts. Revenues and expenses of EFC will
include revenues and expenses of MidConn Bank for the entire fiscal year of EFC
in which the Merger occurs, and the reported revenues and expenses of MidConn
Bank for prior periods will be combined with those of EFC, whose financial
statements will then be restated.
It is a condition to the Merger that EFC receive an opinion of its
independent accountants, KPMG Peat Marwick LLP, to the effect that the Merger
will be accounted for as a pooling-of-interests. See " -- Conditions to the
Merger."
Resales of EFC Common Stock Received in the Merger
The shares of EFC Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any MidConn Bank shareholder who may
be deemed to be an "affiliate" of MidConn Bank for purposes of Rule 145 under
the Securities Act. Affiliates may not sell their shares of EFC Common Stock
acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act covering such shares, in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. This Joint Proxy Statement/Prospectus does
not cover any resales of EFC Common Stock received by persons who
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may be deemed to be affiliates of MidConn Bank. Persons who may be deemed to be
affiliates of MidConn Bank generally include individuals or entities who
control, are controlled by or are under common control with MidConn Bank, and
may include certain officers or directors, as well as principal shareholders of
MidConn Bank.
Pursuant to the MidConn Bank Stockholder Agreement and the Eagle Financial
Corp. Stockholder Agreement, dated as of January 27, 1997, entered into by EFC,
all of the directors of EFC and certain affiliates of EFC (the "Eagle Financial
Corp. Stockholder Agreement"), all of the directors and certain affiliates of
MidConn Bank and EFC have each agreed that prior to the public release by EFC of
an earnings report to its shareholders covering at least one month of operations
after consummation of the Merger, such shareholder shall not sell or otherwise
dispose of a number of shares of his MidConn Bank or EFC Common Stock, as
applicable, (i) which is greater than 10% of his/her total beneficial ownership
of said shares as of the date of the first such sale and (ii) which in the
aggregate with shares sold or disposed of by the other shareholders who are
parties to the stockholder agreement will be greater than 1% of the issued and
outstanding shares as of the date of the first such sale.
Dissenters' Appraisal Rights
The holders of EFC Common Stock have no dissenters' appraisal rights in
connection with the Merger.
Section 36a-125(h) of the CGS provides that, in connection with a merger of
Connecticut banks, any shareholder of a constituent bank who dissents from the
merger is entitled to assert dissenters' rights under Sections 33-855 to 33-872,
inclusive, of the CGS (collectively such rights, "Dissenters' Rights"). In
accordance with Section 36a-125(h) and Sections 33-855 through 33-872,
inclusive, of the CGS, if the proposed Merger is approved and consummated,
holders of shares of MidConn Bank Common Stock who do not vote in favor of the
Merger will have the right to demand the purchase of their shares at their "fair
value" immediately before effectuation of the Merger (exclusive of any
appreciation or depreciation in anticipation of the Merger) if they fully comply
with the provisions of Sections 33-855 to 33-872 of the CGS.
The following is a brief summary of the procedures set forth in Sections
33-855 to 33-872 which are required to be followed by holders of shares of
MidConn Bank Common Stock who wish to dissent from the Merger and demand the
purchase of their shares at their fair value. This summary is qualified in its
entirety by reference to Sections 36a-125(h) and 33-855 to 33-872, inclusive,
the complete texts of which are attached to this Joint Proxy Statement/
Prospectus as Appendix C. Dissenting shareholders are advised to seek
----------
independent counsel with respect to exercising their dissenters' rights. This
Joint Proxy Statement/Prospectus constitutes notice to holders of shares of
MidConn Bank Common Stock concerning the availability of Dissenters' Rights
under Sections 36a-125(h) and 33-855 to 33-872 of the CGS.
Dissenting shareholders must satisfy all of the conditions of Sections
33-855 to 33-872. Each dissenting shareholder must, before the taking of the
vote on the adoption of the Merger at the MidConn Bank Meeting, give written
notice to the Secretary of MidConn Bank (together with the Surviving Bank, the
"Corporation") of such shareholder's intent to demand payment for his shares if
the Merger is effectuated. This notice must be in addition to and separate from
any abstention or any vote, in person or by proxy, cast against approval of the
Merger.
NEITHER VOTING "AGAINST," ABSTAINING FROM VOTING, OR FAILING TO VOTE ON THE
ADOPTION OF THE MERGER WILL CONSTITUTE NOTICE OF INTENT TO DEMAND PAYMENT OR
DEMAND FOR PAYMENT OF FAIR VALUE WITHIN THE MEANING OF SECTIONS 33-855 TO
33-872, INCLUSIVE.
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A Dissenting shareholder must NOT vote for approval and adoption of the
---
Merger. If a holder of shares of MidConn Bank Common Stock returns a signed
proxy but does not specify therein a vote "AGAINST" adoption of the Merger
Agreement and the Merger provided for therein or an instruction to abstain, the
proxy will be voted "FOR" adoption of the Merger Agreement and the Merger, which
will have the effect of waiving the rights of that holder of shares of MidConn
Bank Common Stock to have his shares purchased at fair value. Abstaining from
voting or voting against the adoption of the Merger Agreement and the Merger
will NOT constitute a waiver of such shareholder's rights.
---
After the vote is taken at the MidConn Bank Meeting, if the Merger is
approved, and in any event no later than 10 days after consummation of the
Merger, a "Dissenters' Notice" shall be sent to each dissenting shareholder who
has given the written notice described above and did not vote in favor of the
Merger. The Dissenters' Notice will state the results of the vote on the Merger
Agreement, where the payment demand must be sent, where and when certificates
must be deposited and will set a date, not fewer than thirty nor more than sixty
days after delivery of such notice, by which the payment demand must be received
from the dissenting shareholder. Such notice will include a form for demanding
payment that will require that the dissenting shareholder certify whether or not
such shareholder acquired beneficial ownership of the shares before January 28,
1997. (PLEASE NOTE THAT SHARES ACQUIRED AFTER JANUARY 28, 1997 ("AFTER ACQUIRED
SHARES"), MAY BE SUBJECT TO DIFFERENT TREATMENT IN ACCORDANCE WITH SECTION 33-
867 OF THE CGS THAN ARE SHARES ACQUIRED PRIOR TO SUCH DATE). The Dissenters'
Notice will also include a copy of Sections 33-855 to 33-872, inclusive, of the
CGS. A dissenting shareholder who receives a Dissenters' Notice must comply with
the terms of such notice. A dissenting shareholder who does so by demanding
payment, depositing his certificates in accordance with the terms of the notice
and certifying that beneficial ownership was acquired before January 28, 1997
will retain all other rights of a shareholder until such rights are canceled or
modified by the Merger. A dissenting shareholder who receives a Dissenters'
Notice and does not comply with the terms therein is not entitled to payment for
his shares under Sections 33-855 to 33-872 of the CGS.
Dissenters' Rights under Sections 33-855 through 33-872 may be asserted by
either a beneficial shareholder or record shareholder. A record shareholder may
assert Dissenters' Rights as to fewer than every share registered in his name
only if he dissents with respect to all shares beneficially owned by any one
person. A beneficial shareholder may assert Dissenters' Rights as to shares held
on his behalf only if he submits the record shareholder's written consent prior
to or at the time he asserts Dissenters' Rights and he does so with respect to
all shares of which he is beneficial owner or over which he has the power to
direct the vote.
After the Merger is consummated, or upon receipt of a payment demand, the
Corporation shall pay each dissenting shareholder who complied with the terms of
the Dissenters' Notice the amount the Corporation estimates to be the fair value
of the shares, plus accrued interest. Within 30 days of such payment, if a
dissenting shareholder believes that the amount paid is less than the fair value
of the shares or that the interest due is incorrectly calculated, such
shareholder may notify the Corporation in writing of his own estimate of the
fair value of the shares and interest due. If such a claim is made by a
dissenting shareholder, and it cannot be settled, the Corporation will within 60
days after receiving the payment demand, petition the court to determine the
fair value of the shares and accrued interest.
The costs and expenses of any such court proceeding shall be determined by
the court and shall be assessed against the Corporation, but such costs and
expenses may be assessed as the court shall deem equitable against any or all
dissenting shareholders who are parties to the proceeding if the court finds the
action of such dissenting shareholders in failing to accept the Corporation's
offer was arbitrary
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<PAGE>
or vexatious or not in good faith. Such expenses may include the fees and
expenses of counsel and experts employed by the respective parties.
All written notices of intent to demand payment of fair value should be
sent or delivered to Dorothy A. Bialek, Secretary, MidConn Bank, 346 Main
Street, Kensington, Connecticut 06037. MidConn Bank suggests that shareholders
use registered or certified mail, return receipt requested, for this purpose.
HOLDERS OF SHARES OF MIDCONN BANK COMMON STOCK CONSIDERING DEMANDING THE
PURCHASE OF THEIR SHARES AT FAIR VALUE SHOULD KEEP IN MIND THAT THE FAIR VALUE
OF THEIR SHARES DETERMINED UNDER SECTIONS 33-855 TO 33-872, INCLUSIVE, COULD BE
MORE, THE SAME, OR LESS THAN THE MERGER CONSIDERATION THEY ARE ENTITLED TO
RECEIVE PURSUANT TO THE MERGER IF THEY DO NOT DEMAND THE PURCHASE OF THEIR
SHARES AT FAIR VALUE.
THE SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF
THE PROVISIONS OF THE CGS RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS OF
SHARES OF MIDCONN BANK COMMON STOCK AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SECTIONS 33-855 THROUGH 33-872 OF THE CGS, WHICH ARE INCLUDED AS
APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. HOLDERS OF SHARES OF
- ----------
MIDCONN BANK COMMON STOCK INTENDING TO DEMAND THE PURCHASE OF THEIR SHARES AT
FAIR VALUE ARE URGED TO REVIEW CAREFULLY APPENDIX C AND TO CONSULT WITH LEGAL
----------
COUNSEL SO AS TO BE IN STRICT COMPLIANCE THEREWITH.
Interests of Certain Persons in the Merger
The Merger Agreement provides for one MidConn Bank director (selected by
the Board of Directors of EFC in consultation with the Board of Directors of
MidConn Bank) to be invited to serve as an additional member of the Boards of
Directors of EFC and Eagle Bank upon consummation of the Merger. The director
will serve until the annual meeting of shareholders following the fiscal year
ended September 30, 1999.
Pursuant to existing employment and severance agreements of MidConn Bank,
and as provided in the Merger Agreement, severance payments will be made upon
the consummation of the Merger and termination of their employment positions
without cause to Richard J. Toman, Robert W. Anderson, Dorothy A. Bialek, Robert
C. Rungee and Daniel J. Rys, Jr. These payments, which are limited to the
maximum amount that can be paid without adverse tax consequences under Section
280G of the Code would be based on 2.99 times their respective average annual
compensation that was paid by MidConn Bank and includible in their gross income
for federal tax purposes for the calendar years 1992 through 1996.
Based on 2.99 times their respective average annual compensation paid by
MidConn Bank and includible in gross income for federal tax purposes for the
calendar years 1992 through 1996, the severance payments to Messrs. Toman,
Anderson, Rungee and Rys and Ms. Bialek upon termination of employment without
cause in connection with the Merger would be approximately $515,971, $246,777,
$223,467, $164,193 and $206,880, respectively.
As to each employee of MidConn Bank who was a party to an employment or
severance agreement with MidConn Bank on the date of the Merger Agreement and
whose employment is terminated after the Effective Time and during the term of
such agreement, Eagle Bank will assume the obligations of MidConn Bank under
such agreement and, in addition, at the discretion of each such employee, will
(i) pay the applicable premium for health plan continuation (COBRA) coverage
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<PAGE>
in effect from time to time for such employee and the qualified beneficiaries of
such employee for a period of 18 months following such termination of employment
(or, if less, the period during which the employee or qualified beneficiary is
entitled to such continuation coverage); (ii) continue in effect, at Eagle
Bank's expense, for the remaining term of such agreement, group term life
insurance on the life of such employee with a death benefit equal to the amount
of such insurance provided to the employee by MidConn Bank immediately before
the Effective Time (but not in excess of three times such employee's annual rate
of compensation from MidConn Bank as of the Effective Time); and (iii) will pay
such employees for unused vacation and sick leave in accordance with the
documented policies of MidConn Bank on the date of the Merger Agreement,
provided, however, that Eagle Bank shall have no obligation to make any payment
to or on behalf of any such employee or to provide any benefit to such employee
to the extent that such payment or benefit would constitute a "parachute
payment" within the meaning of Section 280G(b)(2) of the Code and all such
payments and benefits shall be reduced to the extent necessary to prevent any
such payment or benefit from constituting a parachute payment. Pursuant to the
Merger Agreement, MidConn Bank will make a severance payment to Douglas Larson
equal to twelve months of his compensation based on his compensation for
December 1996, which amount will be $60,000. In addition, Eagle Bank has agreed
to pay for continuation of group term life insurance with a death benefit not in
excess of three times such employee's annual rate of compensation from MidConn
Bank as of the Effective Time for one year and for accrued and unused vacation
and sick leave.
Also upon consummation of the Merger, Eagle Bank has agreed to employ Mr.
Toman as an officer from the Effective Time through December 31, 1997 to assist
in the transition at a salary of $14,000 per month, and thereafter to retain him
as a part-time independent contractor consultant for the subsequent year with
consulting fees at an annual rate of $50,000.
As of the MidConn Bank Record Date, the directors and executive officers of
MidConn Bank and their affiliates owned 74,838 of the outstanding shares (3.8%)
of MidConn Bank Common Stock. To approve and adopt the Merger Agreement and the
Merger, the affirmative vote of at least two-thirds of the outstanding shares of
MidConn Bank Common Stock entitled to be voted at the MidConn Bank Meeting is
required. As of the EFC Record Date, the directors and executive officers of EFC
and their affiliates owned 251,890 of the outstanding shares (5.5%) of EFC
Common Stock. To approve the issuance of the additional shares of EFC Common
Stock in connection with the Merger Agreement, the affirmative vote of a
majority of the total votes cast on the proposal at the EFC Meeting is required.
Indemnification
In the Merger Agreement, EFC has agreed to indemnify, defend and hold
harmless each person who is, has been, or becomes prior to the Effective Time, a
director, officer or employee of MidConn Bank, to the fullest extent permitted
by applicable law and the Restated Certificate of Incorporation and Bylaws of
EFC or the Charter and Bylaws of Eagle Bank, as applicable, with respect to any
claims made against such person because he or she is or was a director, officer
or employee of MidConn Bank or in connection with the Merger Agreement. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or control persons, EFC has been informed that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Option Agreement
As a condition of and inducement to EFC's entering into the Merger
Agreement, EFC and MidConn Bank entered into the Option Agreement immediately
after the execution of the Merger Agreement. Pursuant to the Option Agreement,
MidConn Bank granted EFC the Option, which
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<PAGE>
entitles EFC to purchase, subject to the terms thereof, up to 485,319 fully paid
and nonassessable shares of MidConn Bank Common Stock, or approximately 19.9% of
the shares of MidConn Bank Common Stock then outstanding, under the
circumstances described below, at a price per share of $21.00, subject to
adjustment in certain circumstances. The Option is intended to discourage the
making of alternative acquisition-related proposals and to significantly
increase the cost to a potential third party of acquiring MidConn Bank, under
specified circumstances, compared to its cost had MidConn Bank not entered into
the Option Agreement and, therefore, is likely to discourage third parties from
proposing a competing offer to acquire MidConn Bank, even if such offer involves
a higher price per share for the MidConn Bank Common Stock than the per share
consideration to be paid pursuant to the Merger Agreement.
The following brief summary of certain provisions of the Option Agreement
is qualified in its entirety by reference to the Option Agreement. A copy of the
Option Agreement as well as the other documents described in this Joint Proxy
Statement/Prospectus will be provided without charge upon oral or written
request to Mark J. Blum, Vice President, Chief Financial Officer and Secretary
of Eagle Financial Corp., 222 Main Street, Bristol, Connecticut 06010, telephone
(860) 314-6400.
Subject to applicable law and regulatory restrictions, EFC may exercise the
Option, in whole or in part, following the occurrence of a "Purchase Event" (as
defined below), provided that the Option shall not have first terminated upon
the occurrence of an "Exercise Termination Event" (as defined below). "Purchase
Event" means, in substance, either (i) the acquisition by any third party of
beneficial ownership of 25% or more of the outstanding MidConn Bank Common Stock
or (ii) the entry by MidConn Bank into a letter of intent or definitive
agreement to engage in an Acquisition Transaction (as defined below) with any
third party, or the recommendation by the Board of Directors of MidConn Bank
that its shareholders approve or accept any Acquisition Transaction with any
third party.
For purposes of the Option Agreement, "Acquisition Transaction" means (x) a
merger, consolidation or other business combination involving MidConn Bank, (y)
a purchase, lease or other acquisition of all or substantially all of the assets
of MidConn Bank, or (z) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of beneficial ownership of
10% or more of the voting power of MidConn Bank as to a Purchase Event
(described above) or 25% as to a Preliminary Purchase Event (defined below).
The Option Agreement defines an "Exercise Termination Event" to mean the
earliest to occur of the following: (i) the time immediately prior to the
Effective Time of the Merger; (ii) 12 months after the first occurrence of a
Purchase Event; (iii) 12 months after the termination of the Merger Agreement
following the occurrence of a Preliminary Purchase Event unless clause (vii)
below is applicable; (iv) upon the termination of the Merger Agreement, prior to
the occurrence of a Purchase Event or Preliminary Purchase Event, (A) by MidConn
Bank, if at any time following the Determination Date the closing sales price of
EFC Common Stock as reported on The Nasdaq National Market is less than $24.00
unless EFC takes certain specified action; (B) by both parties, if the Merger
Agreement is terminated by mutual consent; (C) by either EFC or MidConn Bank, if
the Merger Agreement has been terminated as a result of regulatory denial or
requested withdrawal of a regulatory application, if the Merger has not occurred
by September 30, 1997, or if the Merger Agreement is terminated because the
approval of the shareholders of EFC or MidConn Bank is not obtained; or (D) by
MidConn Bank, if the Merger Agreement is terminated as a result of a material
breach of any representation, warranty, covenant or other agreement by EFC; (v)
six months after the termination of the Merger Agreement, if the MidConn Bank
shareholders have failed to approve the Merger Agreement and no Purchase Event
or Preliminary Purchase Event has occurred prior to the MidConn Bank Meeting;
(vi) 12 months after the termination of the Merger Agreement by EFC as a result
of a material breach or breaches of any representation, warranty, covenant or
other agreement by MidConn Bank, if such breach or breaches were not willful or
intentional by MidConn
-49-
<PAGE>
Bank; or (vii) 18 months after the termination of the Merger Agreement by EFC
(A) as a result of a willful or intentional material breach or breaches of any
representation, warranty, covenant or agreement by MidConn Bank; or (B) as a
result of a failure of MidConn Bank or its Board of Directors to hold the
MidConn Bank Meeting on a timely basis, to recommend to MidConn Bank's
shareholders that they approve the Merger Agreement, to oppose any third party
takeover proposal, or based on a violation by MidConn Bank of the covenant on
third party takeover proposals.
"Preliminary Purchase Event", as defined in the Option Agreement, includes
(i) the entry by MidConn Bank into a letter of intent or definitive agreement to
engage in an Acquisition Transaction with any third party, or the recommendation
by the Board of Directors of MidConn Bank that its shareholders approve or
accept any Acquisition Transaction with any third party; (ii) an acquisition by
any third party of beneficial ownership of 10% or more of the outstanding
MidConn Bank Common Stock; (iii) the making of a bona fide proposal for an
Acquisition Transaction by any third party to MidConn Bank, or a public
announcement or written communication that is publicly disclosed to MidConn
Bank's shareholders as to a third party engaging in an Acquisition Transaction;
(iv) a willful or intentional material breach by MidConn Bank of any
representation, warranty, covenant or agreement that would entitle EFC to
terminate the Merger Agreement; (v) a failure by MidConn Bank's shareholders to
approve the Merger Agreement, a failure to recommend or a withdrawal or
modification in any manner adverse to EFC by MidConn Bank's Board of Directors
of its approval or recommendation as to the Merger Agreement, or a failure by
MidConn Bank or its Board of Directors to oppose any third party takeover
proposal; or (vi) a filing by any third party of an application or notice with
any regulatory authority for approval to engage in an Acquisition Transaction.
The Option may not be assigned by EFC to any other person without the
express written consent of MidConn Bank, except that EFC may assign its rights
under the Option Agreement to a wholly-owned subsidiary or may assign its rights
in whole or in part after the occurrence of a Preliminary Purchase Event.
MidConn Bank also has agreed to prepare and file a registration statement if the
Option is exercised with respect to the shares to be issued upon exercise of the
Option under applicable federal and state securities laws. Upon the occurrence
of a Purchase Event prior to an Exercise Termination Event, at the request of
EFC, MidConn Bank will be obligated to repurchase the Option, and any shares of
MidConn Bank Common Stock theretofore purchased pursuant to the Option, at
prices determined as set forth in the Option Agreement, except to the extent
prohibited by applicable law, regulation or administrative policy or to the
extent that the repurchase would cause MidConn Bank not to be classified as
"adequately capitalized" as defined in the Federal Deposit Insurance Act and the
regulations of the FDIC thereunder.
In the event that prior to an Exercise Termination Event, MidConn Bank
enters into a letter of intent or definitive agreement (i) to consolidate or
merge with any third party, and MidConn Bank is not the continuing or surviving
corporation in such consolidation or merger; (ii) to permit any third party to
merge into MidConn Bank, and MidConn Bank is the continuing or surviving
corporation, but, in connection with such merger, the then outstanding shares of
MidConn Bank Common Stock shall be changed into or exchanged for stock or other
securities of any third party or cash or any other property or the then
outstanding shares of MidConn Bank Common Stock will after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company; or (iii) to sell or otherwise transfer all or substantially all of its
assets to any third party, then, and in each such case, the agreement governing
such transaction must make proper provision so that the Option shall, upon the
consummation of such transaction, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of EFC, of either (x) the acquiring
corporation or (y) any person that controls the acquiring corporation. The
Substitute Option will be exercisable for shares of the issuer's common stock in
such number and at such exercise price as is set forth in the Option Agreement
and will otherwise have the same terms as the Option, except that the
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<PAGE>
number of shares subject to the Substitute Option may not exceed 19.9% of the
issuer's outstanding shares of common stock.
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Pro Forma Combined Statement of Financial Condition as of
December 31, 1996 combines the historical consolidated statements of financial
condition of EFC and MidConn Bank as if the Merger had occurred on December 31,
1996, after giving effect to the pro forma adjustments described in the
accompanying notes. The Pro Forma Combined Statements of Income for the three
months ended December 31, 1996 and 1995 and the years ended September 30, 1996,
1995 and 1994 are presented as if the Merger had been consummated at the
beginning of each period presented. No effect has been given to the sale of $50
million of capital securities in March 1997. See "RECENT DEVELOPMENTS."
The pro forma combined financial statements should be read in conjunction
with the separate historical consolidated financial statements and notes of EFC
and of MidConn Bank incorporated by reference or presented herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" for information with respect
to EFC and Exhibit F for information with respect to MidConn Bank. The pro forma
---------
combined financial statements are not necessarily indicative of the consolidated
financial position or results of future operations of the combined entity or of
the actual results that would have been achieved had the Merger been consummated
prior to the periods indicated.
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<PAGE>
EAGLE FINANCIAL CORP.
MIDCONN BANK
PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------
EFC MidConn Pro Forma Pro Forma
(historical) (historical) Adjustments Combined
----------- ------------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Assets
Cash and due from depository
institutions....................................... $ 22,351 $ 5,804 $ - $ 28,155
Interest-bearing deposits............................ 27,300 2,527 - 29,827
Investment securities................................ 9,163 46,059 - 55,222
Mortgage-backed securities........................... 497,251 11,804 - 509,055
Loans held for sale.................................. 265 - - 265
Loans receivable, net................................ 828,594 278,137 (2,600)(a) 1,104,131
Accrued interest receivable.......................... 8,639 2,466 11,105
Premises and equipment, net.......................... 9,735 4,022 (280)(a) 13,477
Stock in Federal Home Loan Bank
of Boston, at cost................................. 11,355 2,651 - 14,006
Real estate owned, net............................... 3,154 2,338 - 5,492
Intangible assets.................................... 26,355 5,376 - 31,731
Prepaid expenses and other assets.................... 13,888 1,992 2,030(a) 17,910
---------- -------- ----------- ----------
Total Assets................................... $1,458,050 $363,176 $ (850) $1,820,376
========== ======== =========== ==========
Liabilities and Shareholders'
Equity
Deposits............................................. $1,067,480 $311,794 $ - $1,379,274
Federal Home Loan Bank advances...................... 226,534 10,641 - 237,175
Other borrowings..................................... 14,670 - - 14,670
Advanced payments by borrowers
for taxes and insurance......................... 9,037 3,195 - 12,232
Accrued expenses and other
liabilities..................................... 35,120 2,124 3,720(a) 40,964
---------- -------- ----------- ----------
Total Liabilities.............................. 1,352,841 327,754 3,720 1,684,315
---------- -------- ----------- ----------
Shareholders' Equity
Common stock....................................... 46 1,953 (1,936)(b) 63
Paid in capital.................................... 60,781 15,229 1,936 (b) 77,946
Retained earnings.................................. 44,450 18,220 (4,570)(a) 58,100
Less treasury stock at cost........................ (362) - - (362)
Net unrealized gain on
available for sale securities.................. 294 20 - 314
---------- -------- ----------- ----------
Total shareholders' equity........................... 105,209 35,422 (4,570) 136,061
---------- -------- ----------- ----------
Total Liabilities and
Shareholders' Equity.............................. $1,458,050 $363,176 $ (850) $1,820,376
========== ======== =========== ==========
</TABLE>
The pro forma combined statement of condition has not been adjusted
to reflect any of the improvements in operating efficiencies that EFC
anticipates may occur in the future due to the Merger of MidConn Bank into
Eagle Bank.
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<PAGE>
EAGLE FINANCIAL CORP.
MIDCONN BANK
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
EFC MidConn Bank Pro Forma
(historical) (historical) Combined
------------ ------------ ---------
<S> <C> <C> <C>
Interest Income:
Loans........................................ $ 16,093 $ 5,354 $ 21,447
Mortgage-backed securities................... 8,030 206 8,236
Investment and overnight securities.......... 756 770 1,526
---------- ---------- ----------
Total interest income 24,879 6,330 31,209
---------- ---------- ----------
Interest Expense:
Interest on deposits......................... 11,099 2,762 13,861
Interest on borrowings....................... 3,330 131 3,461
---------- ---------- ----------
Total interest expense 14,429 2,893 17,322
---------- ---------- ----------
Net interest income 10,450 3,437 13,887
Provision for loan losses.................... 525 200 725
---------- ---------- ----------
Net interest income after provision
for loan losses............................. 9,925 3,237 13,162
---------- ---------- ----------
Non-interest Income:
Fees and service charges..................... 924 171 1,095
Net gain on sale of securities............... - - -
Net gain from mortgage banking activities.... 20 - 20
Other non-interest income.................... 351 36 387
---------- ---------- ----------
Total non-interest income 1,295 207 1,502
---------- ---------- ----------
Non-interest Expense:
Salaries and employee benefits............... 2,783 1,128 3,911
Office occupancy expense..................... 1,043 169 1,212
Federal deposit insurance premiums........... 252 - 252
Net cost of real estate owned operations..... 192 164 356
Amortization of intangible assets............ 635 122 757
Data processing expenses..................... 383 120 503
Other operating expenses..................... 1,062 533 1,595
---------- ---------- ----------
Total non-interest expense 6,350 2,236 8,586
---------- ---------- ----------
Income before income taxes.................... 4,870 1,208 6,078
Income taxes.................................. 1,974 523 2,497
---------- ---------- ----------
Net Income.................................... $ 2,896 $ 685 $ 3,581
========== ========== ==========
Net Income Per Common Share:(c)
Primary.................................... $ 0.61 $ 0.35 $ 0.56
========== ========== ==========
Fully diluted.............................. $ 0.61 $ 0.35 $ 0.55
========== ========== ==========
Weighted Average Common Shares
Outstanding:
Primary.................................... 4,742,496 1,979,424 6,444,801
Fully diluted.............................. 4,764,111 1,980,675 6,467,492
</TABLE>
The pro forma combined statement of income has not been adjusted to
reflect any of the improvements in operating efficiencies that EFC anticipates
may occur in the future due to the Merger of MidConn Bank into Eagle Bank.
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<PAGE>
EAGLE FINANCIAL CORP.
MIDCONN BANK
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
EFC MidConn Bank Pro Forma
(historical) (historical) Combined
------------ ------------ -----------
<S> <C> <C> <C>
Interest Income:
Loans.............................................. $ 14,489 $ 5,060 $ 19,549
Mortgage-backed securities......................... 6,021 258 6,279
Investment and overnight securities................ 1,639 962 2,601
---------- ---------- ----------
Total interest income............................. 22,149 6,280 28,429
---------- ---------- ----------
Interest Expense:
Interest on deposits............................... 10,264 2,836 13,100
Interest on borrowings............................. 2,484 142 2,626
---------- ---------- ----------
Total interest expense............................ 12,748 2,978 15,726
---------- ---------- ----------
Net interest income............................... 9,401 3,302 12,703
Provision for loan losses.......................... 225 125 350
---------- ---------- ----------
Net interest income after provision
for loan losses................................... 9,176 3,177 12,353
---------- ---------- ----------
Non-interest Income:
Fees and service charges........................... 828 161 989
Net gain on sale of securities..................... 631 - 631
Net gain from mortgage banking activities.......... 6 - 6
Other non-interest income.......................... 438 31 469
---------- ---------- ----------
Total non-interest income......................... 1,903 192 2,095
---------- ---------- ----------
Non-interest Expense:
Salaries and employee benefits..................... 2,721 1,072 3,793
Office occupancy expense........................... 679 192 871
Federal deposit insurance premiums................. 436 99 535
Net cost of real estate owned operations........... 222 129 351
Amortization of intangible assets.................. 347 122 469
Data processing expenses........................... 405 116 521
Other operating expenses........................... 1,172 608 1,780
---------- ---------- ----------
Total non-interest expense........................ 5,982 2,338 8,320
---------- ---------- ----------
Income before income taxes............................ 5,097 1,031 6,128
Income taxes.......................................... 2,173 421 2,594
---------- ---------- ----------
Net Income............................................ $ 2,924 $ 610 $ 3,534
========== ========== ==========
Net Income Per Common Share:(c)
Primary............................................. $ 0.63 $ 0.32 $ 0.56
========== ========== ==========
Fully diluted....................................... $ 0.62 $ 0.32 $ 0.56
========== ========== ==========
Weighted Average Common Shares
Outstanding:
Primary............................................ 4,670,281 1,930,930 6,330,881
Fully diluted...................................... 4,686,883 1,933,895 6,350,033
</TABLE>
The pro forma combined statement of income has not been adjusted to
reflect any of the improvements in operating efficiencies that EFC anticipates
may occur in the future due to the Merger of MidConn Bank into Eagle Bank.
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<PAGE>
EAGLE FINANCIAL CORP.
MIDCONN BANK
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
EFC MidConn Bank Pro Forma
(historical) (historical) Combined
------------ ------------ ---------
<S> <C> <C> <C>
Interest Income:
Loans........................................ $ 61,089 $ 20,366 $ 81,455
Mortgage-backed securities................... 28,981 960 29,941
Investment and overnight securities.......... 5,531 3,707 9,238
---------- ---------- ----------
Total interest income..................... 95,601 25,033 120,634
---------- ---------- ----------
Interest Expense:
Interest on deposits......................... 44,256 11,105 55,361
Interest on borrowings....................... 11,586 540 12,126
---------- ---------- ----------
Total interest expense.................... 55,842 11,645 67,487
---------- ---------- ----------
Net interest income....................... 39,759 13,388 53,147
Provision for loan losses.................... 2,041 1,225 3,266
---------- ---------- ----------
Net interest income after provision
for loan losses........................... 37,718 12,163 49,881
---------- ---------- ----------
Non-interest Income:
Fees and service charges..................... 3,247 650 3,897
Net loss on sale of securities............... (463) - (463)
Net loss from mortgage banking activities.... (1,484) - (1,484)
Gain on sale of deposits..................... 15,904 - 15,904
Other non-interest income.................... 1,704 207 1,911
---------- ---------- ----------
Total non-interest income.................. 18,908 857 19,765
---------- ---------- ----------
Non-interest Expense:
Salaries and employee benefits............... 12,441 4,533 16,974
Office occupancy expense..................... 3,532 1,340 4,872
Federal deposit insurance premiums........... 1,443 463 1,906
Net cost of real estate owned operations..... 1,190 464 1,654
Amortization of Intangible Assets............ 2,276 488 2,764
Data processing expenses..................... 1,609 493 2,102
SAIF assessment.............................. 4,652 746 5,398
Other operating expenses..................... 6,506 1,747 8,253
---------- ---------- ----------
Total non-interest expense................. 33,649 10,274 43,923
---------- ---------- ----------
Income before income taxes.................... 22,977 2,746 25,723
Income taxes.................................. 9,339 891 10,230
---------- ---------- ----------
Net income.................................... $ 13,638 $ 1,855 $ 15,493
========== ========== ==========
Net Income Per Common Share:(c)
Primary................................... $ 2.92 $ 0.95 $ 2.44
========== ========== ==========
Fully diluted............................. $ 2.89 $ 0.94 $ 2.42
========== ========== ==========
Weighted Average Common Shares
Outstanding:
Primary.................................. 4,671,482 1,954,203 6,352,097
Fully diluted............................ 4,720,240 1,968,740 6,413,356
</TABLE>
The pro forma combined statement of income has not been adjusted to
reflect any of the improvements in operating efficiencies that EFC anticipates
may occur in the future due to the Merger of MidConn Bank into Eagle Bank.
-55-
<PAGE>
EAGLE FINANCIAL CORP.
MIDCONN BANK
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
EFC MidConn Bank Pro Forma
(historical) (historical) Combined
------------ ------------ ---------
<S> <C> <C> <C>
Interest Income:
Loans............................................ $ 63,227 $ 19,559 $ 82,786
Mortgage-backed securities....................... 14,410 1,057 15,467
Investment and overnight securities.............. 5,260 3,291 8,551
---------- ---------- ----------
Total interest income........................... 82,897 23,907 106,804
---------- ---------- ----------
Interest Expense:
Interest on deposits............................. 36,449 9,958 46,407
Interest on borrowings........................... 6,431 577 7,008
---------- ---------- ----------
Total interest expense.......................... 42,880 10,535 53,415
---------- ---------- ----------
Net interest income............................. 40,017 13,372 53,389
Provision for loan losses........................ 1,500 2,638 4,138
---------- ---------- ----------
Net interest income after provision for
loan losses..................................... 38,517 10,734 49,251
---------- ---------- ----------
Non-interest Income:
Fees and service charges......................... 2,820 733 3,553
Gain (loss) on sale of securities................ (42) 12 (30)
Net gain from mortgage banking activities........ 244 - 244
Other non-interest income........................ 1,379 205 1,584
---------- ---------- ----------
Total non-interest income....................... 4,401 950 5,351
---------- ---------- ----------
Non-interest Expense:
Salaries and employee benefits................... 11,088 4,479 15,567
Office occupancy expense......................... 2,687 1,406 4,093
Federal deposit insurance premiums............... 2,110 778 2,888
Net cost of real estate owned operations......... 744 664 1,408
Amortization of intangible assets................ 1,414 500 1,914
Data processing expenses......................... 1,578 464 2,042
Other operating expenses......................... 4,638 1,588 6,226
---------- ---------- ----------
Total non-interest expense...................... 24,259 9,879 34,138
---------- ---------- ----------
Income before income taxes........................... 18,659 1,805 20,464
Income taxes......................................... 7,687 731 8,418
---------- ---------- ----------
Net Income........................................... $ 10,972 $ 1,074 $ 12,046
========== ========== ==========
Net Income Per Common Share:(c)
Primary........................................... $ 2.41 $ 0.56 $ 1.94
========== ========== ==========
Fully diluted..................................... $ 2.38 $ 0.56 $ 1.92
========== ========== ==========
Weighted Average Common Shares
Outstanding:
Primary.......................................... 4,560,104 1,926,942 6,217,274
Fully diluted.................................... 4,614,057 1,931,262 6,274,942
</TABLE>
The pro forma combined statement of income has not been adjusted to
reflect any of the improvements in operating efficiencies that EFC anticipates
may occur in the future due to the Merger of MidConn Bank into Eagle Bank.
-56-
<PAGE>
EAGLE FINANCIAL CORP.
MIDCONN BANK
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1994
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
EFC MidConn Bank Pro Forma
(historical) (historical) Combined
------------ ------------ ---------
<S> <C> <C> <C>
Interest Income:
Loans................................................ $ 51,250 $ 14,247 $ 65,497
Mortgage-backed securities........................... 4,288 902 5,190
Investment and overnight securities.................. 4,549 2,211 6,760
---------- ---------- ----------
Total interest income............................... 60,087 17,360 77,447
---------- ---------- ----------
Interest Expense:
Interest on deposits................................. 27,648 6,264 33,912
Interest on borrowings............................... 1,368 638 2,006
---------- ---------- ----------
Total interest expense.............................. 29,016 6,902 35,918
---------- ---------- ----------
Net interest income................................. 31,071 10,458 41,529
Provision for loan losses............................ 1,200 340 1,540
---------- ---------- ----------
Net interest income after provision
for loan losses..................................... 29,871 10,118 39,989
---------- ---------- ----------
Non-interest Income:
Fees and service charges............................. 2,185 510 2,695
Gain on sale of securities........................... - 25 25
Net gain from mortgage banking activities............ 120 - 120
Other non-interest income............................ 861 160 1,021
---------- ---------- ----------
Total non-interest income........................... 3,166 695 3,861
---------- ---------- ----------
Non-interest Expense:
Salaries and employee benefits....................... 9,703 3,377 13,080
Office occupancy expense............................. 2,202 883 3,085
Federal deposit insurance premiums................... 1,597 625 2,222
Net cost of real estate owned operations............. 1,360 656 2,016
Amortization of intangible assets.................... 747 209 956
Data processing expenses............................. 1,257 484 1,741
Other operating expenses............................. 3,222 1,330 4,552
---------- ---------- ----------
Total non-interest expense.......................... 20,088 7,564 27,652
---------- ---------- ----------
Income before income taxes and cumulative
change............................................... 12,949 3,249 16,198
Income taxes........................................... 5,353 1,394 6,747
---------- ---------- ----------
Net Income Before Cumulative Change.................... $ 7,596 $ 1,855 $ 9,451
========== ========== ==========
Net Income Before Cumulative Change
Per Common Share: (c)(d)
Primary............................................. $ 2.14 $ 0.97 $ 1.82
========== ========== ==========
Fully diluted....................................... $ 2.13 $ 0.97 $ 1.81
========== ========== ==========
Weighted Average Common Shares
Outstanding:
Primary.............................................. 3,551,488 1,911,987 5,195,797
Fully diluted........................................ 3,575,733 1,918,736 5,225,846
</TABLE>
The pro forma combined statement of income has not been adjusted to
reflect any of the improvements in operating efficiencies that EFC anticipates
may occur in the future due to the Merger of MidConn Bank into Eagle Bank.
-57-
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Represents the estimated merger costs that will be incurred by EFC and
MidConn Bank. These costs are not reflected in the Pro Forma Combined
Statements of Income since these items do not have a continuing impact upon
EFC. The following table summarizes the financial impact of the additional
accruals as reflected in the Pro Forma Combined Statement of Financial
Condition (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Credit Related:
Additions to allowances for loan losses
to conform to EFC credit policies and to
provide for EFC's method of resolving
problem loans $2,600
Merger Related Costs:
Compensation (severance and related costs) 2,100
Writedown of fixed assets ($280) and accrual for
lease costs ($120) 400
Transaction costs (including investment bankers,
attorneys and accountants) 1,250
Miscellaneous expenses 250
------
Total merger-related costs 4,000
Total pre-tax adjustments 6,600
Income tax effect 2,030
------
Net after tax adjustments $4,570
======
</TABLE>
The above estimated credit and merger related adjustments will be reflected
in EFC's statements of income for the period in which the Merger is
consummated. The above estimated Merger related costs that will be incurred
by EFC and MidConn Bank include expenses that are estimated to be incurred
from the transaction. Compensation costs include estimated severance to
MidConn Bank employees and other related expenses as a result of merging
administrative staff and consolidating overlapping branch locations. The
writedown of fixed assets and accrual for lease costs represents the
estimated costs associated with the closing and/or consolidation of three
MidConn Bank branch offices. Miscellaneous expenses include computer
conversion costs.
(b) Represents the elimination of MidConn Bank's historical aggregate $1.00 per
share par value of $1.95 million, the issuance of EFC Common Stock at the
aggregate $0.01 per share par value of $16,800 and the net effect on paid
in capital.
(c) Pro Forma Combined EFC and MidConn Bank Net Income per Common Share data
have been determined based upon (i) the combined historical net income of
EFC and MidConn Bank and (ii) the combined historical weighted average
common equivalent shares of EFC and MidConn Bank. For purposes of this
determination, MidConn Bank's historical weighted average common shares
outstanding were multiplied by the .86 Exchange Ratio. See "THE MERGER --
Exchange Ratio."
(d) Does not give effect to the loss and additional income, respectively, in
1994 resulting from the cumulative effect of the change in the method of
accounting for income taxes and post-retirement benefits other than
pensions adopted by each of EFC and MidConn Bank in accordance with FASB
109 and FASB 106, which resulted in a decrease of $0.01 per share in EFC's
net income for 1994, an increase of $0.06 per share in MidConn Bank's net
income in 1994, and an increase of $0.02 per share on a pro forma combined
basis.
-58-
<PAGE>
MARKET PRICES AND DIVIDENDS
EFC Common Stock
The following sets forth the range of high and low sale prices of EFC
Common Stock as reported on The Nasdaq National Market, as well as cash
dividends paid during the periods indicated:
<TABLE>
<CAPTION>
Market Price Cash
------------ ----
High Low Dividends Paid (a)
---- --- ------------------
<S> <C> <C> <C>
Quarter Ended:
December 31, 1993 $21.625 $18.750 $.173
March 31, 1994 20.625 19.125 .173
June 30, 1994 23.625 19.125 .173
September 30, 1994 23.625 19.875 .173
December 31, 1994 21.000 18.250 .191
March 31, 1995 21.250 17.750 .210
June 30, 1995 22.250 19.000 .210
September 30, 1995 24.500 21.250 .210
December 31, 1995 27.750 25.250 .230
March 31, 1996 26.250 22.750 .230
June 30, 1996 26.375 22.250 .230
September 30, 1996 27.250 23.750 .230
December 31, 1996 30.500 26.500 .230
March 31, 1997 30.750 28.250 .230
(through April 15, 1997) 28.250 26.750 -
</TABLE>
---------------
(a) All cash dividends paid have been adjusted retroactively to give effect
to 10% stock dividends paid in September 1993 and March 1995.
On January 27, 1997, the last trading day prior to the public announcement
of the Merger, the closing price of EFC Common Stock on The Nasdaq National
Market was $29.25. On April 15, 1997 (the most recent practicable date prior
to the printing of this Joint Proxy Statement/Prospectus), the closing price
of EFC Common Stock on The Nasdaq National Market was $27.50.
-59-
<PAGE>
MidConn Bank Common Stock
The following table sets forth the range of high and low sales prices of
MidConn Bank Common Stock as reported on The Nasdaq National Market, as well
as cash dividends during the periods indicated:
<TABLE>
<CAPTION>
Market Price Cash
------------ ----
High Low Dividends Paid
---- --- --------------
<S> <C> <C> <C>
Quarter Ended:
December 31, 1993 $ 14.50 $ 11.00 $0.11
March 31, 1994 13.50 11.25 0.11
June 30, 1994 15.75 12.00 0.11
September 30, 1994 15.25 14.25 0.11
December 31, 1994 14.75 11.50 0.13
March 31, 1995 14.00 11.50 0.13
June 30, 1995 15.00 12.75 0.14
September 30, 1995 15.00 14.00 0.14
December 31, 1995 14.75 13.00 0.15
March 31, 1996 15.50 13.50 0.15
June 30, 1996 18.25 14.50 0.15
September 30, 1996 20.00 17.50 0.15
December 31, 1996 20.50 18.00 0.15
March 31, 1997 24.88 19.50 0.20
(through April 15, 1997) 23.63 22.75 -
</TABLE>
On January 27, 1997, the last trading day prior to the public announcement
of the Merger, the closing price of MidConn Bank Common Stock on The Nasdaq
National Market was $20.00. On April 15, 1997 (the most recent practicable
date prior to the printing of this Joint Proxy Statement/Prospectus), the
closing price of MidConn Bank Common Stock on The Nasdaq National Market was
$23.13. For a discussion of the restrictions on MidConn Bank's ability to pay
dividends, see "INFORMATION ABOUT MIDCONN BANK -- Management's Discussion and
Analysis of Financial Conditions and Results of Operations."
-60-
<PAGE>
DESCRIPTION OF EFC CAPITAL STOCK AND
COMPARISON OF SHAREHOLDER RIGHTS
Set forth below is a description of EFC's capital stock, as well as a
summary of the material differences between the rights of holders of MidConn
Bank Common Stock and their prospective rights as holders of EFC Common Stock.
If the Merger Agreement is approved and adopted and the Merger consummated,
the holders of MidConn Bank Common Stock will become holders of EFC Common
Stock. As a result, EFC's Restated Certificate of Incorporation and Bylaws,
and the applicable provisions of Delaware law, will govern the rights of
current shareholders of MidConn Bank Common Stock. The rights of those
shareholders currently are governed by the Amended and Restated Certificate of
Incorporation and Bylaws of MidConn Bank, and the applicable provisions of
Connecticut law.
The following comparison is based on the current terms of the governing
documents of EFC and MidConn Bank and on the provisions of Delaware and
Connecticut law. The discussion is intended to highlight important
similarities and differences between the rights of holders of EFC Common Stock
and MidConn Bank Common Stock.
EFC Capital Stock
The authorized capital stock of EFC consist of 8,000,000 shares of EFC
Common Stock and 2,000,000 shares of serial preferred stock, par value $.01
per share ("EFC Preferred Stock"). As of the EFC Record Date, 4,559,851
shares of EFC Common Stock and no shares of EFC Preferred Stock were issued
and outstanding. As of the EFC Record Date, EFC had outstanding stock options
granted to directors, officers and other employees for 444,631 shares of EFC
Common Stock. Each share of EFC Common Stock has the same relative rights and
is identical in all respects to each other share of EFC Common Stock. The EFC
Common Stock is non-withdrawable capital, is not of an insurable type and is
not insured by the FDIC or any other governmental entity.
Holders of EFC Common Stock are entitled to one vote per share on each
matter properly submitted to shareholders for their vote, including the
election of directors. Holders of EFC Common Stock do not have the right to
cumulate their votes for the election of directors, and they have no pre-
emptive or conversion rights with respect to any shares that may be issued.
EFC Common Stock is not subject to additional calls or assessments by EFC, and
all shares of EFC Common Stock currently outstanding are fully paid and
nonassessable. For a discussion of the voting rights of EFC Common Stock,
classification of EFC's Board of Directors and provisions of EFC's Restated
Certificate of Incorporation and Bylaws that may prevent a change in control
of EFC or that would operate only with respect to an extraordinary corporate
transaction involving EFC or its subsidiaries, see "-- Certificate of
Incorporation and Bylaw Provisions."
Holders of EFC Common Stock and any class or series of stock entitled to
participate therewith are entitled to receive dividends when and as declared
by the Board of Directors of EFC out of any assets legally available for the
payment of dividends. No such dividends may be declared or paid, however,
unless all accumulated dividends and any sinking fund, retirement fund or
other retirement payments have been paid or declared and set aside for payment
to the holders of outstanding shares of any other class of stock having
preference as to payments of dividends over the EFC Common Stock.
In the unlikely event of any liquidation, dissolution or winding up of EFC,
the holders of EFC Common Stock and any class or series of stock entitled to
participate therewith would be entitled to receive, after payment or provision
for payment of all debts and liabilities of EFC and after the liquidation
preferences of all outstanding shares of any class of stock having preference
over the EFC Common Stock have been fully paid or set aside, all remaining
assets of EFC available for distribution, in cash or in kind.
-61-
<PAGE>
Certificate of Incorporation and Bylaw Provisions
General. Certain provisions included in EFC's Restated Certificate of
Incorporation and Bylaws may serve to entrench current management and to
prevent a change in control of EFC even if desired by a majority of
shareholders. These provisions are designed to encourage potential acquirers
to negotiate directly with the Board of Directors of EFC and to discourage
other takeover attempts. The following discussion is a general summary of
certain provisions of EFC's Restated Certificate of Incorporation and Bylaws,
and a comparison of those provisions to similar types of provisions in MidConn
Bank's Amended and Restated Certificate of Incorporation and Bylaws. The
discussion is necessarily general and, with respect to provisions contained in
EFC's Restated Certificate of Incorporation and Bylaws, reference should be
made to the document in question, each of which is an exhibit to EFC's
Registration Statement.
Directors. Certain provisions of EFC's Restated Certificate of
Incorporation and Bylaws will impede changes in majority control of EFC's
Board of Directors. The Restated Certificate of Incorporation and the Bylaws
provide that the Board of Directors will be divided into three classes, with
directors in each class elected for three-year staggered terms. The Restated
Certificate of Incorporation further provides that the size of the Board of
Directors shall be within a seven to 15 range. The Bylaws currently provide
that there shall be 10 directors, and will be amended to increase the size of
the Board to 11 upon the Merger.
EFC's Restated Certificate of Incorporation and Bylaws provide that a
vacancy occurring in the Board of Directors, including a vacancy created by an
increase in the number of directors, shall be filled for the unexpired term by
a majority vote of the directors then in office. EFC's Restated Certificate
of Incorporation provides that a director may be removed only for cause and
then only by the affirmative vote of at least two-thirds of the total votes
eligible to be voted at a duly constituted meeting of shareholders called for
that purpose. It further provides that at least 30 days' written notice must
be provided to any director or directors whose removal is to be considered at
a shareholders' meeting.
The provisions of MidConn Bank's Amended and Restated Certificate of
Incorporation and Bylaws with regard to directors are substantially similar to
those of EFC. MidConn Bank's Amended and Restated Certificate of
Incorporation provides that the minimum number of directors is three. The
Bylaws provide that the Board of Directors shall be not less than eight nor
more than 12 directors and that the number of directors shall be fixed by
resolution of the Board of Directors. MidConn Bank currently has 10 directors.
The Bylaws provide that with respect to the removal of a director, any
director may be removed from office at any time only with cause and only by
the vote of a majority of the directors.
The Bylaws also impose certain restrictions on the nomination by
shareholders of candidates for election to the Board of Directors or the
proposal by shareholders of business to be acted upon at an annual meeting of
shareholders. EFC's Bylaws provide that each director is required to own not
less than 100 shares of EFC Common Stock and that each director must be a
resident of Connecticut and be regularly employed on a substantially full-time
basis in Connecticut. EFC's Bylaws also provide that more than three
consecutive absences from regular meetings of the Board of Directors, unless
excused by a Board resolution, shall automatically constitute a resignation.
MidConn Bank's Bylaws provide that no more than four officers of the
corporation may serve at any one time as directors.
Purpose. EFC's Restated Certificate of Incorporation provides that EFC may
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "DGCL").
MidConn Bank's Amended and Restated Certificate of Incorporation provides that
MidConn Bank may engage in any lawful act or activity that may be undertaken
by a capital stock savings bank under the laws of the State of Connecticut.
-62-
<PAGE>
Stated Capital. MidConn Bank's Amended and Restated Certificate of
Incorporation provides that the minimum amount of stated capital with which
the corporation shall commence business is $1,000,000, together with a surplus
of $1,000,000.
Call of Special Meetings. EFC's Restated Certificate of Incorporation
provides that a special meeting of shareholders may be called at any time but
only by the chairman of the board, the president or by the Board of Directors.
Shareholders are not authorized to call a special meeting. MidConn Bank's
Amended and Restated Certificate of Incorporation provides that a special
meeting of shareholders may be called at any time by the president, the Board
of Directors, or upon the written request of the holders of one-third of the
issued and outstanding shares entitled to vote at a meeting of shareholders.
Shareholder Action Without a Meeting. EFC's Restated Certificate of
Incorporation provides that shareholders may act by unanimous written consent.
MidConn Bank's Amended and Restated Certificate of Incorporation provides that
any action required or permitted to be taken by shareholders must be taken at
a duly called annual or special meeting and may not be effected by any consent
in writing.
Limitation on Liability of Directors. EFC's Restated Certificate of
Incorporation provides that no director shall be personally liable to the
corporation or its shareholders for monetary damages for breach of a fiduciary
duty as a director other than liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for any payment of a dividend or approval of a
stock repurchase that is illegal under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper personal benefit.
MidConn Bank's Amended and Restated Certificate of Incorporation provides that
the personal liability of a director to the corporation or its shareholders
for monetary damages for breach of duty as a director shall be limited to an
amount equal to the compensation received by such director for serving the
corporation during the year of the violation, if, and so long as, such breach
did not (a) involve a knowing and culpable violation of law by the director,
(b) enable the director or an associate, as defined in Subdivision (3) of
Section 33-843 of the CGS, to receive an improper personal economic gain, (c)
show a lack of good faith and a conscious disregard for the duty of the
director to the corporation under circumstances in which the director was
aware that his conduct or omission created an unjustifiable risk or serious
injury to the corporation, (d) constitute a sustained and unexcused pattern of
inattention that amounted to an abdication of the director's duty to the
corporation, or (e) create liability under Section 36a-58 of the CGS.
Cumulative Voting. The Restated Certificate of Incorporation of EFC denies
cumulative voting rights in the election of directors. The Amended and
Restated Certificate of Incorporation of MidConn Bank requires a certain
shareholder vote for the addition of cumulative voting articles. See "--
Amendment of Certificate of Incorporation and Bylaws."
Notice of Shareholder Meetings. EFC's Bylaws require that notice be mailed
or delivered at least seven days prior to each annual or special meeting of
shareholders. MidConn Bank's Bylaws provide that notice be given not less
than 10 nor more than 60 days before the date of a meeting.
Quorum. EFC's Bylaws provide that the holders of one-third of the issued
and outstanding capital stock entitled to vote thereat constitutes a quorum.
MidConn Bank's Bylaws provide that a majority of the issued and outstanding
stock entitled to vote at a meeting constitutes a quorum.
General Vote. Except as otherwise provided by law or in the Restated
Certificate of Incorporation, EFC's Bylaws provide that all questions shall be
decided by a vote of the holders of a majority of the shares present at a
meeting. MidConn Bank's Bylaws provide that any matter brought before a
meeting with shareholders shall be decided by a majority of the votes cast on
the matter.
-63-
<PAGE>
Authorized and Outstanding Common Stock. See "-- EFC Capital Stock" as to
authorized and currently outstanding shares of EFC Common Stock. MidConn Bank
has 8,000,000 authorized shares of MidConn Bank Common Stock, of which
1,955,469 shares were outstanding as of the MidConn Bank Record Date. In
addition, as of the MidConn Bank Record Date, MidConn Bank had outstanding
MidConn Options granted to directors, officers and other employees for 81,830
shares of MidConn Bank Common Stock, plus the Option for 485,319 shares of
MidConn Bank Common Stock granted to EFC in connection with the Merger.
Authorized and Outstanding Serial Preferred Stock. See "-- EFC Capital
Stock" as to the authorized and currently outstanding shares of serial
preferred stock of EFC. MidConn Bank's Amended and Restated Certificate of
Incorporation authorizes 1,000,000 shares of serial preferred stock, no par
value ("MidConn Bank Preferred Stock"), of which no shares have been issued
and are outstanding.
Dividend and Liquidation Rights. For a description of the provisions of
EFC's Restated Certificate of Incorporation with respect to dividends and
liquidation rights, see "-- EFC Capital Stock." MidConn Bank's Amended and
Restated Certificate of Incorporation provides that dividends on any
outstanding shares of MidConn Bank Preferred Stock shall be paid or declared
and set aside for payment before payment on the MidConn Bank Common Stock. It
further provides that in the event of liquidation, dissolution or winding up,
if the assets available for distribution to the holders of MidConn Bank
Preferred Stock are not sufficient to pay such holders the full preferential
amount to which they are entitled, such assets shall be distributed ratably
among the shares of MidConn Bank Preferred Stock in accordance with the
respective preferential amounts payable with respect thereto.
Approvals for Acquisitions of Control and Offers to Acquire Control. EFC's
Restated Certificate of Incorporation prohibits any person (whether an
individual, company or group acting in concert) from acquiring beneficial
ownership of 10% or more of EFC's voting stock, unless the acquisition has
received the prior approval of either at least two-thirds of EFC's outstanding
shares of voting stock, or in the event that the acquisition has been approved
by two-thirds of the directors then in office at a duly constituted meeting
called for that purpose, at least a majority of the outstanding shares of
voting stock, in either case at a duly called meeting of shareholders held for
such purpose. In addition, all required federal regulatory approvals must be
obtained. Furthermore, no person may make an offer to acquire 10% or more of
EFC's voting stock without obtaining prior approval of the offer by at least
two-thirds of EFC's Board of Directors at a duly constituted meeting called
for such purpose or, alternatively, before the offer is made, obtaining
approval of the applicable federal regulatory authority. These provisions do
not apply to the purchase of shares by underwriters in connection with a
public offering, and the provisions remain effective only so long as Eagle
Bank is a majority-owned subsidiary of EFC. Shares acquired in excess of
these limitations are not entitled to vote or take other shareholder action or
be counted in determining the total number of outstanding shares of voting
stock in connection with any matter involving shareholder action. These
excess shares are also subject to transfer to a trustee, selected by EFC, for
sale on the open market or otherwise, with the expenses of the trustee to be
paid out of the proceeds of such sale. The limitations on offers and
purchases do not apply to a public offering or any employee stock purchase
plan or other employee benefit plan of EFC or its subsidiaries.
MidConn Bank's Amended and Restated Certificate of Incorporation contains
similar provisions as to approvals for offers to acquire control of MidConn
Bank, except that only the approval of the Connecticut Commissioner is
required. Also, MidConn Bank's Amended and Restated Certificate of
Incorporation provides that with respect to an offer to acquire control (i)
written notice must be provided to the Board of Directors and the Board shall
not have disapproved such offer within 15 days of receipt or, alternatively,
(ii) prior approval of certain federal and state regulatory authorities must
be obtained. MidConn Bank's Amended and Restated Certificate of Incorporation
does not contain the limitation discussed above with respect to a majority-
owned subsidiary, does not provide an exception for employee stock purchase
plans or other employee benefit plans and does not contain a provision in
regard to the sale of excess shares by a trustee.
-64-
<PAGE>
Procedures for Certain Business Combinations. EFC's Restated Certificate
of Incorporation requires that certain business combinations between EFC (or
any majority-owned subsidiary thereof) and a 10% or more shareholder or its
affiliates or associates (collectively, the "Interested Shareholder") either
(i) be approved by at least 80% of the total number of outstanding shares of
voting stock of EFC, or (ii) be approved by at least two-thirds of EFC's
continuing directors (persons unaffiliated with the Interested Shareholder and
serving prior to the Interested Shareholder becoming such) at a duly
constituted meeting called for such purpose or involve consideration per share
generally equal to that paid by the Interested Shareholder when it acquired
its block of stock. The types of business combinations with an Interested
Shareholder covered by this provision include: any merger, consolidation and
share exchange; any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets other than in the usual and regular course of business;
an issuance or transfer of equity securities having an aggregate market value
in excess of 5% of the total market value of EFC's outstanding shares; the
adoption of any plan or proposal of liquidation or dissolution proposed by or
on behalf of an Interested Shareholder; and any reclassification of
securities, recapitalization of EFC, or any merger or consolidation of EFC
with any of its subsidiaries or any other transaction which has the effect of
increasing the proportionate ownership interest of an Interested Shareholder.
EFC's Restated Certificate of Incorporation excludes employee stock purchase
plans and other employee benefit plans from the definition of "Interested
Shareholder." MidConn Bank's Amended and Restated Certificate of
Incorporation contains similar provisions as to business combinations, except
that it provides that in addition to approval by the Board of Directors and
the holders of at least 80% of the voting power of the then outstanding shares
of voting stock, the affirmative vote of the holders of two-thirds of the
voting power of the outstanding shares of voting stock is also required
(excluding all shares of voting stock beneficially owned by an Interested
Shareholder). Also, MidConn Bank's Amended and Restated Certificate of
Incorporation provides that for certain mergers, consolidations and share
exchanges such voting requirements do not apply if the business combination is
approved by the Board of Directors or certain fair price and procedure
requirements are satisfied. For other business combinations, the requirement
with respect to approval by the Board of Directors described in the preceding
sentence must be satisfied. Further, with respect to such Board approval,
MidConn Bank's Amended and Restated Certificate of Incorporation provides that
the business combination must be approved by a resolution by the Board of
Directors at a time prior to the time that the Interested Shareholder first
became an Interested Shareholder.
Anti-Greenmail. EFC's Restated Certificate of Incorporation requires
approval by a majority of the outstanding shares of voting stock before EFC
may directly or indirectly purchase or otherwise acquire any voting stock
beneficially owned by a holder of 5% percent or more of EFC's voting stock, if
such holder has owned the shares for less than two years. Any shares
beneficially held by such person would be excluded in calculating majority
shareholder approval and the total number of outstanding shares. This
provision would not apply to a pro rata offer made by EFC to all of its
shareholders in compliance with the Exchange Act and the rules and regulations
thereunder or a purchase of voting stock by EFC if the Board of Directors has
determined that the purchase price per share does not exceed the fair market
value of such voting stock. MidConn Bank's Amended and Restated Certificate
of Incorporation contains a similar provision, except that it does not contain
the market value exception described above, the applicable percentage is 3%,
and it also applies to certain affiliates and assignees.
Criteria for Evaluating Offers. EFC's Restated Certificate of
Incorporation provides that the Board of Directors, when evaluating certain
acquisition offers, shall give due consideration to all relevant factors,
including, without limitation, the economic effects of acceptance of the offer
on depositors, borrowers and employees of its insured institution subsidiaries
and on the communities in which such subsidiaries operate or are located, as
well as to the ability of such subsidiaries to fulfill the objectives of an
insured institution under applicable federal statutes and regulations.
MidConn Bank's Amended and Restated Certificate of Incorporation contains a
similar provision which requires that in evaluating a business combination or
certain other acquisition offers, the Board of Directors shall, in addition to
considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors
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which it deems relevant: (i) the social and economic effects of the
transaction on the corporation and its subsidiaries, employees, depositors,
loan and other customers, creditors and other elements of the communities in
which the corporation and its subsidiaries operate or are located; (ii) the
business and financial obligations to be incurred in connection with the
acquisition and other likely financial obligations of the acquiring person or
persons, and the possible effect of such conditions upon the corporation and
its subsidiaries and the other elements of the communities in which the
corporation and its subsidiaries operate or are located; and (iii) the
competence, experience, and integrity of the acquiring person or persons and
its or their management.
Amendment to Certificate of Incorporation and Bylaws. Amendments to EFC's
Restated Certificate of Incorporation must be approved by at least two-thirds
of EFC's Board of Directors at a duly constituted meeting called for such
purpose and thereafter by the shareholders by the affirmative vote of the
holders of at least a majority of the shares entitled to vote thereon at a
duly called annual or special meeting; provided, however, that approval by the
affirmative vote of the holders of at least two-thirds of the shares entitled
to vote thereon is generally required for certain provisions (the provisions
which relate to the Board of Directors, amendment of the Bylaws, the calling
of special meetings of shareholders, acquisitions or offers to acquire
control, criteria for evaluating certain offers, anti-greenmail, shareholder
action without a meeting and amendment of the Restated Certificate of
Incorporation); and, provided, further, the provisions regarding certain
business combinations may be amended only by the affirmative vote of the
holders of at least 80% of the shares entitled to vote thereon. EFC's Bylaws
may be amended by the affirmative vote of at least two-thirds of the Board of
Directors or by shareholders by at least two-thirds of the total votes
eligible to be voted, at a duly constituted meeting called for such purpose.
MidConn Bank's Amended and Restated Certificate of Incorporation provides
that no article imposing cumulative voting in the election of directors may be
added and there may not be any amendment to certain provisions of the Amended
and Restated Certificate of Incorporation (the provisions which relate to
amendment of the Amended and Restated Certificate of Incorporation, the Board
of Directors, certain business combinations, the calling of special meetings
of shareholders, vacancies on the Board of Directors, the removal of
directors, nominations for directors (other than by the Board of Directors or
a committee thereof), shareholder action without a meeting, anti-greenmail and
acquisitions or offers to acquire 10%, of the voting stock) unless such action
is approved by the holders of not less than 80% of the voting power of the
issued and outstanding shares entitled to vote thereon. If there is an
Interested Shareholder, such 80% vote must include not less than two-thirds of
the voting power of the issued and outstanding shares entitled to vote thereon
held by persons other than the Interested Shareholder. MidConn Bank's Amended
and Restated Certificate of Incorporation provides that the Bylaws may be
amended by the Board of Directors or the shareholders. The Bylaws provide
that amendment by shareholders requires at least a majority of the voting
power of the shares entitled to vote thereon. The Amended and Restated
Certificate of Incorporation and the Bylaws further provide that amendments to
certain provisions of the Bylaws (the provisions related to the calling of
special meetings of shareholders, the Board of Directors and amendments to the
Bylaws) require the vote of not less than 80% of the voting power of the
issued and outstanding shares entitled to vote thereon, and that if there is
an Interested Shareholder, such 80% must include not less than two-thirds of
the voting power of the issued and outstanding shares entitled to vote thereon
held by persons other than the Interested Shareholder.
Applicable Law
The following discussion is a general summary of certain provisions of
Delaware, Connecticut and federal statutory and regulatory provisions that may
be deemed to have an "anti-takeover" effect.
Delaware Takeover Statute. Section 203 of the DGCL (the "Delaware Takeover
Statute") applies to Delaware corporations with a class of voting stock listed
on a national securities exchange, authorized for quotation on the NASDAQ
Stock
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Market, or held of record by 2,000 or more persons, and restricts transactions
which may be entered into by such a corporation and certain of its
shareholders. The Delaware Takeover Statute provides, in essence, that a
shareholder acquiring more than 15% of the outstanding voting stock of a
corporation subject to the statute and such person's affiliates and associates
(each, an "Interested Person") but less than 85% of such shares may not engage
in certain "Business Combinations" (as defined) with the corporation for a
period of three years subsequent to the date on which the shareholder became
an Interested Person unless (i) prior to such date the corporation's board of
directors approved either the Business Combination or the transaction in which
the shareholder became an Interested Person or (ii) the Business Combination
is approved by the corporation's board of directors and authorized by a vote
of at least two-thirds of the outstanding voting stock of the corporation not
owned by the Interested Person.
The Delaware Takeover Statute defines the term "Business Combination" to
include a wide variety of transactions with or caused by an Interested Person
in which the Interested Person receives or could receive a benefit on other
than a pro rata basis with other shareholders, including mergers, certain
asset sales, certain issuances of additional shares to the Interested Person,
transactions with the corporation which increase the proportionate interest of
the Interested Person or transactions in which the Interested Person receives
certain other benefits.
Connecticut Regulatory Restrictions on Acquisitions of Stock. Connecticut
banking statutes prohibit any person from directly or indirectly offering to
acquire or acquiring voting stock of a Connecticut-chartered savings bank
(such as MidConn Bank), a federal savings bank having its principal office in
Connecticut (such as Eagle Bank) or a holding company of any such entity (such
as EFC), that would result in such person becoming, directly or indirectly,
the beneficial owner of more than 10% of any class of voting stock of such
entity unless such person had previously filed an acquisition statement with
the Connecticut Commissioner and such offer or acquisition has not been
disapproved by the Connecticut Commissioner.
Federal Law. Federal law provides that, subject to certain exemptions, no
person acting directly or indirectly or through or in concert with one or more
other persons may acquire "control" of an insured institution or holding
company thereof, without giving at least 60 days prior written notice
providing specified information to the appropriate federal banking agency
(i.e., the OTS in the case of EFC and Eagle Bank and the FDIC in the case of
MidConn Bank). "Control" is defined for this purpose as the power, directly
or indirectly, to direct the management or policies of an insured institution
or to vote 25 percent or more of any class of voting securities of an insured
institution. Control is presumed to exist where the acquiring party has
voting control of at least 10 percent of any class of the institution's voting
securities which is registered under Section 12 of the Exchange Act and is
actively traded. The term "actively traded" is defined in the regulation to
mean securities that are either listed on a securities exchange or quoted on
The Nasdaq National Market. The OTS or FDIC may prohibit the acquisition of
control if such agency finds, among other things, that (i) the acquisition
would result in a monopoly or substantially lessen competition; (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the institution; or (iii) the competence, experience or integrity
of any acquiring person or any of the proposed management personnel indicates
that it would not be in the interest of the depositors or the public to permit
the acquisition of control by such person.
INFORMATION ABOUT MIDCONN BANK
Description of Business of MidConn Bank
General
MidConn Bank was originally chartered as a mutual savings bank in 1873
under the laws of the State of Connecticut. On September 18, 1986, MidConn
Bank converted from a mutual savings
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bank to a capital stock savings bank (the "Conversion"). Coincident with the
Conversion, the name of the bank was changed from Berlin Savings Bank to
MidConn Bank.
From MidConn Bank's offices, MidConn Bank serves depositors and borrowers
in an area that extends from Hartford to the northern suburbs of New Haven.
MidConn Bank's main office is located at 346 Main Street in Kensington, the
central district of the Town of Berlin, the geographical center of the State
of Connecticut.
The primary sources of funds for MidConn Bank's lending and investment
activities are deposits, loan interest and principal payments, borrowings, and
to a lesser extent, maturing investments and earnings on investments. In
recent years, MidConn Bank has concentrated on restructuring its loan
portfolio to more closely match the maturities of its assets and liabilities.
During the period from 1982 to 1992, MidConn Bank had originated for its own
portfolio primarily variable rate loans, selling fixed rate first mortgage
loans originated when prudent to reduce its fixed rate portfolio. Since
January 1, 1993, it has been MidConn Bank's policy to sell all current
production of 30 year, fixed rate loans which are saleable. As MidConn Bank
retains the servicing of the fixed rate loans it sells, such loans generate
fee income. As of September 30, 1996, the difference, or "gap," between
MidConn Bank's assets and liabilities which reprice or mature within one year
was (25.82)% of total assets, as compared to (19.24)% at September 30, 1995.
MidConn Bank commenced a commercial loan program in 1985 and as of
September 30, 1996, the commercial loan portfolio totaled $15.2 million,
representing 4.2% of total assets, and consisted of $12.6 million in
commercial real estate loans and $2.6 million in commercial business loans.
MidConn Bank's policy is to limit its commercial lending to loans which expose
MidConn Bank to low risk and which originate in its market area. Virtually
all of MidConn Bank's commercial business loans are collateralized by real
estate or other assets. See "-- Lending and Investment Activities."
MidConn Bank also has a savings bank life insurance department which sells
life insurance, group insurance and deferred annuities. MidConn Bank staffs
the department, originates policies and collects premiums, while The Savings
Bank Life Insurance Company ("SBLI") performs the underwriting functions and
services the policies. SBLI reimburses MidConn Bank for expenses and
disbursements and pays MidConn Bank fees for collecting insurance premiums.
MidConn Bank operates under Connecticut law and is subject to supervision,
examination, and regulation by the Connecticut Commissioner. MidConn Bank's
deposit accounts are insured up to $100,000 per insured depositor by the FDIC,
which also has supervisory and regulatory authority over MidConn Bank.
MidConn Bank's operations, like those of other financial institutions, are
significantly influenced by general economic conditions. MidConn Bank's
operations are further influenced by the policies and regulations of financial
institution regulatory authorities such as the FDIC and by the monetary,
fiscal, legislative and regulatory policies of the United States government.
The executive offices of MidConn Bank are located at 346 Main Street,
Kensington, Connecticut, 06037 and its telephone number is (860) 828-0301.
Lending and Investment Activities
As a Connecticut-chartered savings bank, MidConn Bank has statutory
authority to invest its funds in a variety of assets, principally loans.
Changes in Connecticut banking laws have allowed MidConn Bank to diversify its
loans from those which are primarily fixed-rate, long-term and real estate-
related to include a greater variety of variable rate mortgage loans, consumer
loans, and commercial loans.
Lending Activities. MidConn Bank's principal lending activities have
generally consisted of the origination of both conventional permanent and
construction loans on residential real estate. MidConn Bank provides first
mortgage loans for the purchase and refinancing of residential properties
primarily in its service area. MidConn Bank also provides commercial
mortgage, consumer installment, home
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equity, guaranteed education, and loans collateralized by deposits or
securities. MidConn Bank also offers commercial business loans, virtually all
of which are collateralized with real estate as additional collateral.
MidConn Bank's loan portfolio totaled $282.8 million at September 30, 1996,
representing 78.9% of its total assets. At September 30, 1996, 93.6% of
MidConn Bank's loan portfolio consisted of mortgage loans collateralized by
residential real estate, 4.5% were commercial real estate loans, 0.5% were
consumer loans, 0.5% were construction loans and 0.9% were other commercial
loans.
The following table sets forth the composition of MidConn Bank's loan
portfolio as of the dates indicated, as well as the percent of each category
of loans to total loans:
<TABLE>
<CAPTION>
September 30,
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
real estate... $264,816 93.6% $242,045 93.3% $254,751 96.1% $153,985 91.9% $150,694 92.6%
Commercial
real estate... 12,622 4.5 11,598 4.5 5,840 2.2 8,156 4.9 7,513 4.6
Real estate
construction.. 1,537 0.5 2,246 0.9 916 0.3 1,592 0.9 1,007 0.6
Commercial.... 2,559 0.9 2,085 0.8 2,303 0.9 2,970 1.8 2,430 1.5
Consumer...... 1,262 0.5 1,403 0.5 1,355 0.5 856 0.5 1,111 0.7
-------- ------ -------- ------ -------- ----- -------- ------ -------- ------
$282,796 100.0% $259,377 100.0% $265.165 100.0% $167,559 100.0% $162,755 100.0%
======== ====== ======== ====== ======== ===== ======== ====== ======== ======
</TABLE>
During fiscal year 1996, MidConn Bank originated $17.5 million in fixed
rate mortgage loans, $6.9 million of adjustable rate mortgage loans, and $42.6
million in other loans such as second mortgage loans, home equity loans and
lines of credit, collateral loans, and commercial loans. In addition, MidConn
Bank purchased $2.0 million of fixed rate and $34.1 million of adjustable rate
mortgage loans. During the 1996 fiscal year, MidConn Bank sold $0.4 million
of fixed rate mortgage loans with servicing retained. Loan originations and
purchases were partially offset by principal repayments, collections, charge-
offs and transfers to real estate owned.
Residential Mortgage Loans. MidConn Bank actively solicits residential and
certain commercial mortgage loan applications from customers and realtors,
with the majority of its mortgage loan originations derived directly from
borrowers. While MidConn Bank is authorized to make loans collateralized by
real estate located either within or outside the State of Connecticut, its
past and present policy is to concentrate on loans collateralized by
properties located in Connecticut, particularly in the geographic areas served
by its office facilities. MidConn Bank offers fixed rate loans with
contractual terms to maturity of 10 to 30 years, some of which are sold in the
secondary mortgage market as market conditions or MidConn Bank's gap position
warrants. For its own portfolio, MidConn Bank currently originates primarily
adjustable rate first mortgage loans, fixed rate mortgage loans with
maturities up to 15 years, and short-term construction loans collateralized by
residential properties.
MidConn Bank currently offers adjustable rate mortgages with one, three and
five year adjustment periods. MidConn Bank also offers one year adjustable
rate loans where the initial rate is fixed for the first seven or ten years.
Adjustable rate mortgage loans carry caps which generally limit MidConn Bank's
ability to vary the interest rate at each annual adjustment period to two or
three percentage points, while the lifetime cap is usually five or six
percentage points. Caps are operative with respect to both increases and
decreases in the interest rate. MidConn Bank bases the interest rates on its
adjustable rate mortgages on the U.S. Treasury security indices as published
by the Federal Home Loan Bank of Boston (the "FHLBB").
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MidConn Bank also offers construction loans both to builders and to private
individuals acting as their own general contractors. MidConn Bank also offers
land development loans, currently only for property located in the immediate
area. MidConn Bank has not participated in any shared appreciation or joint
venture development projects.
In its residential real estate lending, MidConn Bank generally follows the
underwriting guidelines established by the Federal Home Loan Mortgage
Corporation or the Connecticut Housing Finance Authority. MidConn Bank
generally lends up to 80% of the appraised value of owner occupied property.
However, on loans with loan-to-value ratios exceeding 80%, residential
borrowers are required to obtain private mortgage insurance covering any
excess over 80%. MidConn Bank requires title, fire and casualty, and, where
appropriate, flood hazard insurance policies on all first mortgage loans. All
conventional first mortgage loans include "due-on-sale" clauses giving the
lender the right to declare a loan immediately due and payable in the event
the borrower sells or otherwise disposes of the real property collateralizing
the loan.
Commercial Loans. MidConn Bank also engages in commercial real estate
lending. In dealing with its commercial customers, MidConn Bank distinguishes
between commercial real estate first mortgage loans for the purchase of
property and other commercial loans made for other business purposes, though
it generally collateralizes its other commercial loans with real estate as
additional collateral.
As of September 30, 1996, the commercial loan portfolio was $15.2 million.
Most of MidConn Bank's commercial loans are collateralized by real estate or
other assets. MidConn Bank's commercial lending program is directed primarily
to small businesses in its local market area.
The table below shows the maturity of commercial real estate, real estate
construction loans and commercial loans outstanding as of September 30, 1996.
Also provided are the amounts due after one year, classified according to the
sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
September 30, 1996
Maturing
-----------------------------------------
After one
Within and within After
one year five years five years Total
-------- ---------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C>
Commercial real estate loans......... $ 450 $ 3,077 $ 9,095 $12,622
Real estate construction loans....... 175 1,184 178 1,537
Commercial loans..................... 1,777 512 270 2,559
------ ------- ------- -------
$2,402 $ 4,773 $ 9,543 $16,718
====== ======= ======= =======
Loans maturing after one year with:
Fixed interest rates................ $ 1,657 $ 2,564 $ 4,221
Variable interest rates............. 3,116 6,979 10,095
------- ------- -------
$4,773 $ 9,543 $14,316
====== ======= =======
</TABLE>
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Allowance for Loan Loss. The following table summarizes MidConn Bank's
loan loss experience for each of the past five fiscal years:
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....... $2,154 $1,994 $1,138 $1,128 $ 698
Charge-offs:
Residential real estate............ 1,102 1,648 535 81 111
Commercial real estate............. 375 794 218 - -
Commercial......................... - 43 56 5 15
Consumer........................... - - 8 2 -
------ ------ ------ ------ ------
Total charge offs.................... 1,477 2,485 817 88 126
------ ------ ------ ------ ------
Recoveries:
Residential real estate............ 8 2 2 - 13
Commercial real estate............. 5 - - - -
Commercial......................... - 5 - 1 2
Consumer........................... - - 3 1 1
------ ------ ------ ------ ------
Total recoveries..................... 13 7 5 2 16
------ ------ ------ ------ ------
Allowance from FSB acquisition....... - - 1,328 - -
Net charge-offs...................... 1,464 2,478 812 86 110
Provision for loan losses:........... 1,225 2,638 340 96 540
------ ------ ------ ------ ------
Balance at end of period............. $1,915 $2,154 $1,994 $1,138 $1,128
====== ====== ====== ====== ======
Ratio of net charge offs to average
loans outstanding.................... 0.56% 0.95% 0.41% 0.06% 0.07%
</TABLE>
The allowance for loan losses is established through charges against income
and maintained at a level that MidConn Bank considers adequate to absorb
potential losses in the loan portfolio. The estimate of the adequacy of the
allowance for loan losses is based on periodic evaluations of the loan
portfolio. These evaluations consider special factors including but not limited
to economic conditions, loan portfolio composition, current real estate
appraisals, individual problem situations, prior loan loss experience, and
MidConn Bank's estimation of potential losses. The allowance for loan losses is
maintained at a level consistent with (i) identifiable loss potential, including
estimated losses on specific loans and when a permanent decline in value has
occurred, and (ii) the perceived risk in the portfolio. In connection with its
construction and commercial mortgage loan review, MidConn Bank reviews all loans
which are 90 days past due, along with consumer and commercial loans in excess
of $150,000 or any other loan it determines to involve other credit risks. Such
review includes a review of present appraisal values, other known credit risks
and present value analysis, as appropriate. Loans are charged against the
allowance for loan losses when MidConn Bank believes that collections are
unlikely. Any subsequent recoveries are credited to the allowance for loan
losses when received.
The following table shows the allocation of the allowance for loan losses
as of the end of each of the past five fiscal years:
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<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------- -------------- -------------- -------------- --------------
Amount % Amount % Amount % Amount % Amount %
------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate.. $ 774 40.4% $1,292 60.0% $1,233 61.8% $ 757 66.5% $ 658 58.3%
Commercial real estate... 966 50.5 258 12.0 207 10.4 110 9.7 295 26.2
Commercial............... 39 2.0 54 2.5 25 1.3 30 2.6 15 1.3
Installment.............. 6 0.3 11 0.5 10 0.5 6 0.5 - -
Unallocated.............. 130 6.8 539 25.0 519 26.0 235 20.7 160 14.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$1,915 100.0% $2,154 100.0% $1,994 100.0% $1,138 100.0% $1,128 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
MidConn Bank considers any allocation of the allowance to be
subjective. Therefore, the entire allowance is available to absorb loan
losses from any category of loans.
During fiscal 1996, $1.2 million was provided for loan losses versus
$2.6 million for the prior year. The allowance for loan losses at September
30, 1996 was $1.9 million, representing 0.7% of total loans compared to $2.2
million or 0.8% of the total loans at September 30, 1995. The allowance for
loan losses as a percent of nonperforming loans was 73.9% at September 30,
1996, compared to 89.7% at September 30, 1995. Net charge-offs were $1.5
million during fiscal 1996, compared to $2.5 million during fiscal 1995.
MidConn Bank believes that the allowance for losses on loans and writedowns
of real estate owned are adequate.
The following table sets forth the non-performing assets of MidConn
Bank at September 30, 1996, 1995, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more:
Nonaccrual.................................................. $1,457 $ 841 $ 2,056 $ 984 $ -
Accrual..................................................... 1,134 1,559 2,479 560 2,455
------ ------ ------- ------ -------
Other real estate owned (OREO):
In-substance foreclosures................................... - 32 163 686 2,039
Foreclosed properties....................................... 2,354 3,734 5,623 3,523 7,168
Allowance for losses........................................ (20) (100) (80) - -
------ ------ ------- ------ -------
Total non-performing assets................................. $4,925 $6,066 $10,241 $5,753 $11,662
====== ====== ======= ====== =======
Non-performing assets to total assets........................ 1.4% 1.7% 2.8% 2.5% 5.2%
Allowance for loan losses to total loans past due 90 days or
more........................................................ 73.9% 89.8% 44.0% 73.7% 45.9%
As a percentage of total loans:
Loans past due 90 days or more.............................. 0.9% 0.9% 1.7% 0.9% 1.5%
Allowance for loan losses................................... 0.7% 0.8% 0.8% 0.7% 0.7%
</TABLE>
It is MidConn Bank's policy to manage its loan portfolio so as to recognize
problem loans at an early point. MidConn Bank commences internal collection
efforts once a loan payment is more than 15 days past due. Loans are classified
as nonaccrual and placed on a cash basis for purposes of income recognition when
the collectibility of interest and principal become uncertain, generally 90 days
after becoming past due. Once a residential or commercial mortgage loan is 90
days past due, MidConn
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Bank reviews the loan, including the appraisal of the collateral, and will
request an updated appraisal if a current appraisal is not on file. If the value
of the collateral, based on such appraisal, is not sufficient to cover the loan
obligation, such loans will be classified as nonaccrual. Commercial loans are
generally automatically classified as nonaccrual after being 90 days past due.
Construction loans past due 90 days are subject to a present value analysis,
utilizing current appraisal data, to determine whether or not they will be
classified as nonaccrual. Generally, any uncollected but previously accrued
interest is charged against current income at that time. MidConn Bank's data
processing system generates delinquency reports on all of MidConn Bank's loans
twice a month and MidConn Bank reviews the loan portfolio on a monthly basis to
determine if past due loans should be placed on a nonaccrual basis. Unless the
customer is working with MidConn Bank toward repayment, once a loan payment is
90 days past due, MidConn Bank generally initiates foreclosure or other
appropriate legal action. Reinstatement of the loan to accrual status is done on
a case-by-case basis.
As of September 30, 1996, nonaccrual loans totaled $1.5 million compared to
$841,466 as of September 30, 1995 and $2.1 million as of September 30, 1994. If
interest income on nonaccrual loans had been recorded on an accrual basis, the
loans would have generated $177,682 interest income for the year ended September
30, 1996. Interest income recorded on nonaccrual loans was $51,420 during the
year ended September 30, 1996.
At September 30, 1996, foreclosed properties totaled $2.4 million, as
compared to $3.7 million as of September 30, 1995. Total non-performing assets
were 1.4% of total assets as of September 30, 1996, compared to 1.7% as of
September 30, 1995. Other real estate owned decreased 38% during the fiscal
year from $3.7 million as of September 30, 1995 to $2.3 million as of September
30, 1996. Non-performing loans remain at relatively low levels and comprised
only 0.7% of the total assets as of September 30, 1996.
The New England economy, and the real estate market in particular,
experienced a significant downturn in recent years, but showed signs of modest
recovery in 1996. Although it is impossible to predict the magnitude and effect
of such downturn, or the extent of the recovery, MidConn Bank believes that it
has adequately reserved for loan losses based on the factors noted above in
conjunction with its systematic loan review process. The downturn may continue
to adversely affect borrowers, including those of MidConn Bank. A substantial
portion of MidConn Bank's loans are collateralized by real estate in depressed
markets in Connecticut. In addition, all of the real estate owned are located
in those same depressed markets. Accordingly, the ultimate collectibility of a
substantial portion of MidConn Bank's loan portfolio and the recovery of a
substantial portion of the carrying amount of real estate owned are particularly
susceptible to changes in market conditions in Connecticut.
Investment Activities. As part of MidConn Bank's attempt to restructure
its assets to improve the matching of the maturities and interest rate
sensitivity of MidConn Bank's assets and liabilities, MidConn Bank has invested
primarily in short term or interest-rate-sensitive assets. In addition to
improving the interest rate sensitivity gap, a shift of funds into such assets
provides MidConn Bank with increased liquidity.
The following table sets forth the carrying amount of MidConn Bank's
investment and mortgage-backed securities, both held to maturity and available
for sale, at the dates indicated:
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<PAGE>
<TABLE>
<CAPTION>
September 30,
-----------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
(In thousands)
Available for sale:
U.S. Treasury securities.................. $ 4,494 $ 4,019 $ -
Marketable equity securities.............. 11,273 24,623 26,630
Net unrealized gain (loss) on securities
available for sale..................... 12 18 (75)
------- ------- -------
$15,779 $28,660 $26,555
======= ======= =======
Held to maturity:
U.S. Treasury securities.................. $ 2,542 $ 6,070 $20,243
Other U.S. Government agencies
and corporations....................... 17,944 14,926 2,908
Other bonds............................... 4,071 6,679 3,871
Mortgage-backed securities................ 12,188 14,271 16,978
------- ------- -------
36,745 $41,946 $44,000
======= ======= =======
</TABLE>
The following table sets forth the maturities of MidConn Bank's investment
securities, both held to maturity and available for sale, (exclusive of
marketable equity securities which have no maturity dates) at September 30,
1996, and the weighted average yields of such securities (calculated on the
basis of cost and effective yields weighted for the scheduled maturity of each
security).
<TABLE>
<CAPTION>
September 30, 1996
Maturing
------------------------------------------------------------------
After one After five years
Within and within and within After
one year five years ten years ten years
-------- ---------- --------- ---------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- -------- ----- ------ ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities.. $4,494 6.41% $ - -% $ - -% $ - -%
Held to maturity:
U.S. Treasury securities.. $ - -% $ 2,542 6.24% $ - -% - -%
Other bonds............... 755 6.62 13,260 6.64 8,000 7.49 - -
Mortgage backed
securities.............. - - 4,216 5.88 393 7.58 7,579 7.49
------ ----- -------- ----- ------ ------- ------- ------
$ 755 6.62% $20,018 6.43% $8,393 7.49% $7,579 7.49%
====== ===== ======== ===== ====== ======= ======= ======
</TABLE>
MidConn Bank's investment and mortgage-backed securities portfolio was $52.5
million at September 30, 1996, compared to $70.6 million at September 30, 1995
and $70.6 million at September 30, 1994. At September 30, 1996 gross unrealized
losses on marketable equity securities aggregated $5,022.
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<PAGE>
Deposits and Other Sources of Funds
Deposits. Deposits have traditionally been MidConn Bank's major source of
funds for investment. MidConn Bank also derives funds from loan amortizations,
prepayments, interest and dividend income, sales of assets, and borrowings from
the Federal Home Loan Bank (the "FHLB"). MidConn Bank offers a wide variety of
retail and commercial deposit accounts designed to attract both short- and long-
term funds.
Total deposits were $309.4 million as of September 30, 1996, a decrease of
$2.0 million or 0.6% from $311.4 million at September 30, 1995.
The average monthly amount of deposits and average rates paid on such
deposits is summarized for the periods indicated in the following tables:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------
1996 1995 1994
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits....... $ 14,366 - % $ 14,751 - % $ 11,053 - %
Interest bearing
demand and money
market deposits....... 19,535 1.06 19,548 1.06 8,659 1.14
Savings deposits........ 125,690 2.08 136,555 2.09 117,997 2.16
Time deposits........... 155,568 5.32 144,144 4.79 91,853 3.94
--------- --------- ---------
.............. $ 315,159 $ 314,998 $ 229,562
========= ========= =========
</TABLE>
MidConn Bank's deposit acquisition strategies aim at attracting long-term
retail deposit relationships that are generally less sensitive to market
interest rate changes. In keeping with this strategy MidConn Bank does not
currently accept brokered deposits. In addition, MidConn Bank generally will
not pay a premium rate to attract or retain time deposits with balances of
$100,000 or more, as they are considered by MidConn Bank to be sensitive to even
moderate rate changes. As a result, time certificates with balances of $100,000
or more amounted to $14.2 million at September 30, 1996.
Maturities of MidConn Bank's time certificates of deposit of $100,000 or
more outstanding at September 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996
Maturity
(In thousands)
--------------
<S> <C>
Three months or less........... $ 4,513
Over three through six months.. 4,061
Over six through 12 months..... 4,111
Over 12 months................. 1,551
-------
TOTAL.......................... $14,236
=======
</TABLE>
Borrowings. MidConn Bank is a member of the FHLB which makes substantial
borrowings available to its members. MidConn Bank uses FHLB advances to fund any
gap between growth in interest-earning assets and interest bearing deposits.
Advances from the FHLB totaled $10.2 million at September 30, 1996 and 1995.
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<PAGE>
The weighted average interest rate at September 30, 1996 and 1995 on FHLB
advances was 5.11% and 5.46%, respectively. The maximum amount of outstanding
short-term advances at any month end was $5.0 million and $10.0 million,
respectively, for the years ended September 30, 1996 and 1995. The average
amount of outstanding short-term advances for the years ended September 30, 1996
and 1995 was $0.8 million and $5.4 million, respectively. The weighted average
interest rate on short-term advances outstanding for the years ended September
30, 1996 and 1995 was 5.97% and 5.73%, respectively.
As a member, MidConn Bank is required to maintain a 5% ratio of liquid
assets to total assets. MidConn Bank's ratio was 11.5% at September 30, 1996,
compared to 19.1% as of September 30, 1995. MidConn Bank has access to a pre-
approved line of credit with the FHLBB totaling $7.3 million at September 30,
1996. MidConn Bank's borrowings from the FHLBB are limited to the amount of
qualified collateral that MidConn Bank holds. Based on available collateral, at
September 30, 1996, MidConn Bank had potential access to approximately $152.5
million in additional financing.
Capital Resources
At September 30, 1996, MidConn Bank's leverage capital ratio (Tier 1 equity
to assets) was 8.2% of total assets, compared to 7.8% as of September 30, 1995.
Depending on the FDIC's rating of MidConn Bank's overall performance, the
minimum leverage capital requirement is 3.0% for the highest rated banks, and
4.0% to 5.0% or higher for all other banks. The FDIC also requires banks to meet
supplemental capital adequacy standards which measure qualifying capital against
risk-weighted assets plus off-balance sheet items such as outstanding loan
commitments and letters of credit. The FDIC's minimum risk-based capital ratio
requirement is 8.00%. At September 30, 1996, MidConn Bank's Tier I risk-based
capital ratio was 13.86% and its total risk-based capital ratio was 14.76%.
During the year ended September 30, 1996, MidConn Bank paid dividends of
$.60 per share, representing a dividend payout ratio of 61.8%. This compares to
paid dividends of $.54 per share and a dividend payout ratio of 95.2% in fiscal
1995 and paid dividends of $0.44 per share and a dividend payout ratio of 41.7%
in fiscal 1994.
Competition
In general, competition in the financial services industry in Connecticut is
strong. Numerous commercial banks, savings banks and savings and loan
associations maintain offices in the central Connecticut area. Commercial banks,
savings banks, savings and loan associations, mortgage brokers, finance
companies, credit unions, insurance companies, investment firms and private
lenders compete with MidConn Bank for deposits, loans and employees. Many of
these competitors have far greater resources than MidConn Bank and are able to
conduct more intensive and broader based promotional efforts to reach both
commercial and individual customers.
Regulation
As a Connecticut-chartered state savings bank whose deposits are insured by
the FDIC, MidConn Bank is subject to extensive regulation and supervision by
both the Connecticut Commissioner and the FDIC. MidConn Bank is also subject to
various regulatory requirements of the Federal Reserve Board applicable to FDIC-
insured financial institutions. Such governmental regulation is primarily
intended to protect depositors, not stockholders.
-76-
<PAGE>
Description of Property of MidConn Bank
MidConn Bank has 10 branch offices, four of which are owned, five of which
are leased, and one of which is a building owned by MidConn Bank on leased land.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Year Ended September 30, 1996
This discussion focuses on MidConn Bank's financial condition and results of
operations. The information contained in this discussion should be considered in
conjunction with the financial data and the financial statements and notes
appearing elsewhere in this Joint Proxy Statement/Prospectus.
Sources and Uses of Funds
MidConn Bank functions as a financial intermediary and, as such, its
financial condition should be examined in terms of its sources and uses of
funds.
During fiscal 1996, total assets increased $0.1 million to $358.4 million
from $358.3 million at September 30, 1995. During fiscal 1995, total assets
decreased $8.0 million or 2.2% primarily as a result of the repayment of $5
million of borrowings from the FHLBB and a net savings outflow.
Total loans increased $23.4 million or 9.0% to $282.8 million at September
30, 1996 compared to $259.4 million at September 30, 1995. During fiscal 1996,
MidConn Bank originated $17.5 million of fixed rate loans, $6.9 million of
adjustable rate loans, and $42.6 million of other loans such as second mortgage
loans, home equity loans and lines of credit, collateral loans and commercial
loans. In addition, MidConn Bank purchased $2.0 million of fixed rate and $34.1
million of adjustable rate mortgage loans. MidConn Bank also sold $0.4 million
of fixed rate mortgage loans with servicing retained. During fiscal 1995, total
loans decreased $5.8 million or 2.2% to $259.4 million.
MidConn Bank's non-performing assets at September 30, 1996 were $4.9 million
or 1.4% of total assets, and were comprised of $2.3 million of real estate owned
and $2.6 million of loans 90 days or more past due. This compares to non-
performing assets of $6.1 million or 1.69% of total assets, at September 30,
1995, which was comprised of $3.5 million of real estate owned, $0.2 million of
in-substance foreclosed real estate and $2.4 million of loans 90 days or more
past due. Non-performing assets were $10.2 million, or 2.8% of total assets at
September 30, 1994 and were comprised of $5.5 million of real estate owned, $0.2
million of in-substance foreclosed real estate and $4.5 million of loans 90 days
or more past due.
MidConn Bank's securities portfolio was $52.5 million at September 30, 1996,
and was comprised of $15.8 million of available for sale securities and $36.7
million of held to maturity securities. At September 30, 1995, MidConn Bank's
securities portfolio was $70.6 million and was comprised of $28.7 million of
available for sale securities and $41.9 million of held-to-maturity securities.
During fiscal 1996, MidConn Bank invested $72.5 million in securities and
realized $90.5 million from sales, maturities and principal reductions of
securities. Cash and cash equivalents were $6.9 million at September 30, 1996
compared to $9.3 million at September 30, 1995 and $8.1 million at September 30,
1994.
Total deposits at September 30, 1996 were $309.4 million compared to $311.4
million at September 30, 1995. Savings deposits decreased $3.3 million to
$106.0 million at September 30, 1996 from $109.3 million at September 30, 1995.
Time deposits increased $3.0 million to $154.0 million at September 30, 1996
from $151.0 million at September 30, 1995. As a group, all other deposits
decreased $1.7 million from $51.1 million at September 30, 1995 to $49.4 million
at September 30, 1996. During fiscal 1996, MidConn Bank experienced both a net
outflow of funds and a shift in the composition of its deposit base. At
September 30, 1996, savings deposits represented 34.3% of total deposits
compared to 35.1% at September 30, 1995. Time deposits at September 30, 1996
represented 49.8% of total deposits compared to 48.5% at September 30, 1995. At
September
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<PAGE>
30, 1996 other deposits represented 15.9% of total deposits compared to 16.4% at
September 30, 1995.
Advances from the FHLB are utilized to fund any gap between the growth in
interest-bearing assets and deposits. At September 30, 1996, advances from the
FHLB totaled $10.2 million which was unchanged from September 30, 1995.
Liquidity
Liquidity is a measure of MidConn Bank's ability to meet its cash needs at a
reasonable cost. Cash needs arise primarily because of the need to fund lending
opportunities, the maturity of liabilities such as borrowings and the withdrawal
of deposits. Asset liquidity is achieved through the management of earning asset
maturities, loan amortization, deposit growth and access to borrowed funds.
At September 30, 1996, liquid assets totaled $41.3 million or 11.5% of total
assets compared to $68.3 million or 19.1% as of September 30, 1995. The decrease
in liquidity was the result of a combination of an increase in lending and a net
deposit outflow.
MidConn Bank is a member of the FHLB which makes substantial borrowings
available to its members. MidConn Bank's borrowings from the FHLB are limited
to the amount of qualified collateral that MidConn Bank holds. Based on
available collateral, at September 30, 1996, MidConn Bank had potential access
to approximately $152.5 million in additional financing, an amount well in
excess of its normal financing requirements. This arrangement allows MidConn
Bank to obtain advances from the FHLB rather than having to rely on commercial
bank lines of credit.
Capital Resources
At September 30, 1996, the Tier 1 leverage capital ratio was equal to 8.24 %
of total assets. Depending on the FDIC rating of MidConn Bank's overall
performance, the minimum leverage capital requirement is 3.00% for the highest
rated banks, and 4.00% to 5.00% for all other banks. The FDIC also requires
banks to meet supplemental capital adequacy standards that measure qualifying
capital against risk-weighted assets plus off-balance sheet items such as
outstanding loan commitments and letters of credit. The FDIC's minimum risk-
based capital ratio requirement is 8.00%. At September 30, 1996, MidConn Bank's
Tier 1 risk-based capital ratio was 13.86% and its total risk-based capital
ratio was 14.76%.
During the year ended September 30, 1996, MidConn Bank paid dividends of
$0.60 per share, representing a dividend payout ratio of 61.8%. This compares
to dividends paid of $0.54 per share and a dividend payout ratio of 95.2% for
the year ended September 30, 1995. During 1991, MidConn Bank revised its
dividend payment policy to limit dividends paid in any year to no more than 100%
of earnings, absent mitigating factors. This was done in the interest of
preserving capital that will be used in the continued growth and expansion of
MidConn Bank. MidConn Bank reviews its dividend payment policy based on current
earnings and by assessing the need to retain earnings to support long-term
growth. Connecticut banking laws limit the amount of annual cash dividends that
MidConn Bank may pay to an amount that approximates MidConn Bank's net income
for the current year, plus its net income for the prior two years, net of
dividends previously paid during the period. MidConn Bank is also prohibited
from paying a cash dividend that would reduce its capital to asset ratios below
minimum regulatory requirements.
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<PAGE>
Interest Rate Sensitivity
The following table summarizes MidConn Bank's short-term interest rate
sensitive assets and liabilities at the dates indicated. For this purpose,
these assets and liabilities either reprice or mature within one year.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Interest rate sensitive assets:
Interest bearing deposits................ $ 684 $ 267 $ 405
Securities due within one year........... 5,000 6,720 15,109
Variable rate securities................. 4,632 4,299 5,080
Federal funds sold....................... 150 3,000 2,000
Other investments, net................... 13,925 27,275 26,556
Loans.................................... 161,821 159,949 145,128
--------- --------- ---------
Total interest rate sensitive assets.. $ 186,212 $ 201,510 $ 194,278
========= ========= =========
Interest rate sensitive liabilities:
Regular accounts......................... $ 105,211 $ 108,446 $ 129,349
Money Minder investment accounts......... 16,246 19,005 20,883
Certificates due within one year......... 135,357 121,121 103,212
NOW accounts............................. 21,940 16,865 20,669
Advances due FHLBB....................... - 5,000 10,000
--------- --------- ---------
Total interest rate sensitive
liabilities.......................... $ 278,754 $ 270,437 $ 284,113
========= ========= =========
Interest rate sensitivity gap................ $ (92,542) $ (68,927) $ (89,835)
========= ========= =========
Total assets................................. $ 358,429 $ 358,326 $ 366,349
========= ========= =========
Interest rate sensitivity gap
as percentage of total assets............... (25.82)% (19.24)% (24.52)%
======== ======== ========
Ratio of interest sensitive assets to
interest sensitive liabilities.............. 66.80% 74.51% 68.38%
======== ======== ========
</TABLE>
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<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential
The following table summarizes the components of MidConn Bank's net
interest income, net interest spread and net interest margin.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Average Yield/ Average Yield/ Average Yield/
Balance(a) Interest Rate Balance(a) Interest Rate Balance(a) Interest Rate
---------- -------- ------ ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Loans (b)......................... $ 263,285 $ 20,366 7.74% $ 262,387 $ 19,559 7.45% $ 195,922 $ 14,247 7.27%
Investment securities............. 70,448 4,324 6.14 66,270 3,845 5.80 55,787 2,711 4.86
Federal funds..................... 1,677 171 10.20 3,208 308 9.60 4,978 246 4.94
FHLBB stock....................... 2,651 172 6.49 2,646 195 7.37 1,962 156 7.95
--------- -------- ----- --------- -------- ---- --------- -------- ----
Total interest
earning assets.................. 338,061 25,033 7.40 334,511 23,907 7.15 258,649 17,360 6.71
Non-interest earning assets:
Cash and due from banks........... 6,415 6,253 6,325
Bank premises and equipment........ 7,137 6,495 3,192
Accrued income receivable.......... 2,569 3,171 1,844
Goodwill........................... 5,742 6,382 3,389
Other assets....................... 1,967 5,202 5,662
-------- --------- ---------
Total Assets...................... $ 361,891 $ 362,014 $ 279,061
========= ========= =========
Liabilities and
Stockholders' Equity
Interest bearing liabilities:
Demand deposits................... $ 19,535 $ 207 1.06% $ 19,548 $ 208 1.06% $ 8,659 $ 99 1.14%
Savings deposits.................. 125,690 2,615 2.08 136,555 2,849 2.09 117,997 2,550 2.16
Time deposits..................... 155,568 8,283 5.32 144,144 6,901 4.79 91,853 3,615 3.94
Borrowed funds:
Short-term........................ 2,095 115 5.49 5,804 317 5.46 10,508 403 3.84
Long-term......................... 8,227 425 5.17 5,223 260 4.98 4,815 235 4.88
--------- -------- ----- --------- -------- ---- --------- -------- ----
Total interest bearing
liabilities..................... 311,115 11,645 3.74 311,274 10,535 3.38 233,832 6,902 2.95
Non-interest bearing liabilities:
Demand deposits................... 14,366 14,751 11,053
Other liabilities................. 1,830 1,833 1,368
Stockholders' equity.............. 34,580 34,156 32,808
--------- --------- ---------
Total Liabilities and
Stockholders' Equity.............. $ 361,891 $ 362,014 $ 279,061
========= ========= =========
Net interest income................ $ 13,388 $ 13,372 $ 10,458
======== ======== ========
Net interest spread................ 3.66% 3.77% 3.76%
===== ==== =====
Net interest margin(c)............. 3.96% 4.00% 4.04%
===== ==== =====
</TABLE>
(a) Based on monthly average balances.
(b) For purposes of these computations, non-accruing loans are included in the
average balances.
(c) Net interest income divided by average earning assets.
-80-
<PAGE>
Rate/Volume Analysis
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid, resulting from changes in volume
and changes in rate.
<TABLE>
<CAPTION>
1996 compared to 1995 1995 compared to 1994
--------------------- ---------------------
Increase (decrease) due to (a) Increase (decrease) due to (a)
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans...................... $ 65 $ 742 $ 807 $ 4,951 $ 361 $5,312
Investment securities...... 248 231 479 558 576 1,134
Federal funds.............. (157) 20 (137) (36) 98 62
FHLB stock................. (2) (21) (23) 49 (10) 39
----- ---- ------ ------- ------ ------
Total interest
earning assets.......... $ 154 $ 972 $1,126 $ 5,522 $1,025 $6,547
===== ==== ====== ======= ====== ======
Interest paid on:
Demand deposits............ $ (1) $ - $ (1) $ 116 $ (7) $ 109
Savings deposits........... (220) (14) (234) 377 (78) 299
Time deposits.............. 540 842 1,382 2,385 901 3,286
Borrowed funds-short term.. (204) 2 (202) (1,415) 1,329 (86)
Borrowed funds-long term... 155 10 165 21 4 25
----- ---- ------ ------- ------ ------
Total interest
bearing liabilities..... $ 270 $ 840 $1,110 $ 1,484 $2,149 $3,633
===== ==== ====== ======= ====== ======
- -----------------------
</TABLE>
(a) The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
Impact of Inflation
The financial statements and related financial data herein have been
presented in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. Inflation can affect MidConn Bank in a
number of ways, including increased operating costs and interest rate
volatility. MidConn Bank management attempts to minimize the effects of
inflation by maintaining an approximate match between interest-rate sensitive
assets and interest-rate sensitive liabilities and, where practical, by
adjusting service fees to reflect changing costs.
Comparative Analysis: Comparison of Years Ended September 30, 1996 and 1995
Results of Operations. MidConn Bank's earnings depend primarily upon the
difference (the "net interest spread") between the yield on its earning assets
and the cost of its interest bearing liabilities. The net interest spread is
affected by economic factors influencing loan demand, general interest rates,
savings flows and competition. MidConn Bank's earnings also depend on the sale
of investments, fees generated by loans, and fees for banking services offered
by MidConn Bank less operating expenses. The net revenue received is dependent
upon the volume of transactions
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<PAGE>
generated, the efficiency of MidConn Bank's operations and the market level of
prices for competitive products and services.
General. MidConn Bank reported net income of $1.9 million or $0.95 per
share for the fiscal year ended September 30, 1996 compared to $1.1 million or
$0.57 per share for the fiscal year ended September 30, 1995. The increase is
attributable to a combination of factors, as described below.
Interest Income. Interest income increased $1.1 million to $25.0 million
for the year ended September 30, 1996 compared to $23.9 million for the year
ended September 30, 1995. The increase in interest income is primarily
attributable to an increase in the general level of interest rates and the
upward repricing of adjustable rate loans.
Interest Expense. Interest expense increased $1.1 million to $11.6
million for the year ended September 30, 1996 compared to $10.5 million for the
year ended September 30, 1995. The increase in interest expense is attributable
to an increase in the general level of interest rates and a shift of some of
MidConn Bank's lower cost savings deposits into time deposits.
Net Interest Income. Net interest income increased $15,779 to $13.4
million at September 30, 1996 compared to $13.4 million at September 30, 1995.
The net interest spread decreased to 3.66% at September 30, 1996 compared to
3.77% at September 30, 1995. The decrease in net interest spread is the result
of MidConn Bank's interest rate sensitive liabilities repricing faster than its
interest rate sensitive assets.
Provision for Loan Losses. The provision for loan losses is based on
MidConn Bank management's assessment of the adequacy of the allowance for
possible loan losses after considering known and inherent risks in the loan
portfolio, existing and expected economic conditions, the level of non-
performing loans, charge-offs and past loan loss experience.
During the fiscal year ended September 30, 1996, $1.2 million was provided
for loan losses compared to $2.6 million for the prior fiscal year. The
allowance for loan losses totaled $1.9 million or 0.68% of the total loan
portfolio at September 30, 1996 compared to $2.2 million or 0.83% of the total
loan portfolio at September 30, 1995. At September 30, 1996, the allowance for
loan losses represented 38.9% of non-performing assets and 73.9% of non-
performing loans, compared to 35.5% and 89.7%, respectively, at September 30,
1995. During the fiscal year ended September 30, 1996, loans charged off, net
of recoveries, totaled $1.5 million compared to $2.5 million for the fiscal year
ended September 30, 1995.
While all segments of MidConn Bank's loan portfolio are subject to
continuous quality evaluation, there is no precise method for predicting loan
losses. An evaluation of the collectibility of a loan requires the exercise of
management's judgment. While management believes that actions taken with
respect to the provision and the allowance for loan losses have been adequate,
further provisions to the allowance for loan losses may be necessary if the
market in which MidConn Bank operates continues to deteriorate.
Other Income. Fees, service charges and other income decreased $81,442 to
$0.9 million for the year ended September 30, 1996 compared to $0.9 million for
the year ended September 30, 1995. The decrease in other income is primarily
attributable to a decrease in fees associated with checking accounts as more
customers maintained higher minimum balances in other accounts to avoid service
charges on checking accounts.
Other Expenses. Other expenses increased by $0.4 million to $10.3 million
for the year ended September 30, 1996 compared to $9.9 million for the year
ended September 30, 1995. The primary
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<PAGE>
reason for the increase in other expenses is the one-time special assessment
totaling $0.7 million imposed on MidConn Bank by the FDIC to cover the
capitalization of the SAIF.
Income Taxes. Income taxes for the year ended September 30, 1996 were
$0.9 million, an increase of $0.2 million from $0.7 million for the year ended
September 30, 1995. MidConn Bank's effective tax rate was 32.46% in fiscal 1996
compared to 40.48% in fiscal 1995. The decrease in the effective tax rate for
fiscal 1996 is primarily attributable to a State of Connecticut tax refund and
tax credits received in the current year.
Comparative Analysis: Comparison of Years Ended September 30, 1995 and 1994
General. MidConn Bank reported net income of $1.1 million or $0.57 per
share for the fiscal year ended September 30, 1995 compared to $2.0 million or
$1.05 per share for the fiscal year ended September 30, 1994. The decrease is
attributable to a combination of factors, as described below.
Interest Income. Interest income for the year ended September 30, 1995 was
$23.9 million compared to $17.4 million for the year ended September 30, 1994.
The increase in interest income is primarily attributable to the acquisition of
The Federal Savings Bank ("FSB") during the third quarter of fiscal 1994. Of
the $6.5 million increase, $5.5 million resulted from an increase in the level
of loans and investments due primarily to the acquisition and approximately $1.0
million was due to an increase in the yield on these assets.
Interest Expense. Interest expense for the year ended September 30, 1995
was $10.5 million compared to $6.9 million for the year ended September 30,
1994. The increase in interest expense is attributable to a combination of the
inclusion of FSB for all of 1995 and an increase in the general level of
interest rates. Of the $3.6 million increase in interest expense, $1.5 million
resulted from an increase in the volume of deposits due primarily to the
acquisition and $2.1 million resulted from an increase in interest rates in
general.
Net Interest Income. Net interest income increased by $2.9 million or
27.9% to $13.4 million at September 30, 1995 compared to $10.5 million at
September 30, 1994. The net interest spread increased slightly to 3.77% at
September 30, 1995 compared to 3.76% at September 30, 1994.
Provision for Loan Losses. The provision for loan losses is based on
MidConn Bank management's assessment of the adequacy of the allowance for
possible loan losses after considering known and inherent risks in the loan
portfolio, existing and expected economic conditions, the level of non-
performing loans, charge-offs and past loan loss experience.
During the fiscal year ended September 30, 1995, $2.6 million was provided
for loan losses versus $0.3 million for the prior fiscal year. The allowance
for loan losses totaled $2.2 million or .83% of the total loan portfolio at
September 30, 1995 compared to $2.0 million or .75% of the total loan portfolio
at September 30, 1994. At September 30, 1995, the allowance for loan losses
represented 35.5% of non-performing assets and 89.7% of non-performing loans,
compared to 19.47% and 43.96%, respectively, at September 30, 1994. During the
current fiscal year, loans charged off, net of recoveries, reduced the allowance
by $2.5 million.
During the fourth quarter of 1995, MidConn Bank charged-off $1.4 million of
loans and provided $1.9 million for future loan losses. This significant level
of charge-offs/provision was due, primarily, to two factors: a change in
philosophy with respect to one condominium project from a retail approach (hold
and sell gradually over an extended period of time) to a wholesale approach (to
value as if the entire property were to be sold immediately) and, second, a
recognition of the loss on one loan acquired as part of the FSB acquisition due
to the departure of two major tenants from an
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office complex that served as the primary source of repayment. The charge-offs
related to these two circumstances totaled $1.1 million in the fourth quarter.
While all segments of MidConn Bank's loan portfolio are subject to
continuous quality evaluation, there is no precise method for predicting loan
losses. An evaluation of the collectibility of a loan requires the exercise of
management's judgment. While management believes that actions taken with
respect to the provision and the allowance for loan losses have been adequate,
further provisions to the allowance for loan losses may be necessary if the
market in which MidConn Bank operates continues to deteriorate.
Other Income. Fees, service charges and other income increased by $0.3
million to $0.9 million for the year ended September 30, 1995 compared to $0.7
million for the year ended September 30, 1994. The increase in other income is
primarily attributable to increased fees due to FSB being included for all of
1995.
Net gains in the investment portfolio for fiscal 1995 amounted to $11,946
compared to $25,393 for fiscal 1994.
Other Expenses. Other expenses increased by $2.3 million to $9.9 million
for the year ended September 30, 1995 compared to $7.6 million for the year
ended September 30, 1994. The increase in other expenses is primarily
attributable to the acquisition of FSB. Fiscal 1995 figures reflect a full 12
months of expenses associated with the combined operations while fiscal 1994
figures reflect only 4 months of combined expenses.
Income Taxes. Income taxes for the year ended September 30, 1995 were $0.7
million, a decrease of $0.6 million from $1.4 million for the year ended
September 30, 1994. MidConn Bank's effective tax rate for fiscal 1995 was
40.48% compared to 42.9% in fiscal 1994.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Quarter Ended December 31, 1996
Financial Condition
Total assets as of December 31, 1996 were $363.2 million, an increase of
$4.7 million or 1.3% from total assets of $358.4 million at September 30, 1996.
The increase in total assets resulted primarily from an increase in total
deposits and mortgagor's escrow accounts.
Cash and cash equivalents increased $1.4 million or 20.9% to $8.3 million
as of December 31, 1996 compared to $6.9 million as of September 30, 1996. The
increase resulted primarily from the repayment of loans and a lower level of
lending.
Securities available for sale increased $6.5 million or 41.0% to $22.3
million as of December 31, 1996 compared to $15.8 million as of September 30,
1996. The increase resulted from a combination of the purchase of available
for sale securities, and the maturity of securities in this category.
Securities in the held to maturity category decreased $1.1 million or 3.1%
to $35.6 million as of December 31, 1996 compared to $36.7 million, as of
September 30, 1996. The decrease was primarily due to principal repayments on
mortgage-backed securities and maturities.
Total loans and loans held for sale decreased $2.0 million or 0.7% to
$278.1 million at December 31, 1996 compared to $280.2 million as of September
30, 1996. The decrease resulted
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primarily from a combination of loan originations of $3.3 million, loan
purchases of $1.0 million, transfers to OREO of $0.2 million and principal
repayments of $6.2 million. OREO increased $3,881 to $2.3 million as of December
31, 1996 compared to $2.3 million as of September 30, 1996. During the three
months ended December 31, 1996, two loans totaling $0.2 million were transferred
to OREO. Also, during the same period, MidConn Bank invested $22,901 of
additional funds toward the completion of one of the OREO properties, wrote down
properties in the amount of $0.1 million and received $0.1 million in proceeds
from the sale of OREO.
The following table sets forth the activity in MidConn Bank's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Balance at September 30,............. $1,915 $2,154
Provision for loan losses............ 200 125
Charge-offs.......................... 211 213
Recoveries........................... 1 6
------ ------
Balance at December 31,.............. $1,905 $2,072
====== ======
</TABLE>
On October 1, 1995, MidConn Bank adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 114 ("FASB 114"). Under
the new standard, a loan is considered impaired based on current information and
events, if it is probable that MidConn Bank will be unable to collect the
scheduled payments of principal and interest when due according to the
contractual terms of the loan agreement. The measurement of impaired loans and
the related allowance for loan losses is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral dependent loans are measured for impairment based on
the fair value of the collateral. As permitted by FASB 114, smaller balance
homogeneous loans, consisting of residential mortgages and consumer loans are
evaluated for reserves collectively based on historical loss experience. Prior
to October 1, 1995, the allowance for loan losses related to all loans was based
on undiscounted cash flows or the fair value of the collateral for collateral
dependent loans.
At December 31, 1996, MidConn Bank's recorded investment in loans for which
impairment has been recognized in accordance with FASB 114, consisting of
residential and commercial real estate, totaled $4.2 million, with a
corresponding valuation allowance of $0.6 million. For the three month period
ended December 31, 1996, the average recorded investment in impaired loans was
approximately $4.2 million. For the same period MidConn Bank recognized $36,206
of interest on impaired loans, all of which was recognized on the cash basis.
As of December 31, 1996, there were no commitments to lend additional funds for
loans considered impaired. When a loan or portion of a loan is determined to be
uncollectible, the portion deemed uncollectible is charged against the allowance
and subsequent recoveries, if any, are credited to the allowance.
Deposits, including mortgagor's escrow accounts, increased $3.9 million to
$315.0 million as of December 31, 1996 compared to $311.1 million as of
September 30, 1996. During the period, non-interest bearing demand deposits
increased $0.6 million to $11.8 million, interest bearing NOW and money market
deposits increased $2.6 million to $41.0 million, savings deposits decreased
$1.9 million to $103.4 million, time deposits increased $1.1 million to $155.8
million and mortgagor's escrow accounts increased $1.5 million to $3.2 million.
Stockholders' equity at December 31, 1996 was $35.4 million compared to
$34.8 million at September 30, 1996. The increase of $0.6 million is
attributable to net income of $0.7 million less dividends paid on MidConn Bank
Common Stock of $0.3 million, proceeds from the issuance of
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MidConn Bank Common Stock through the dividend reinvestment plan totaling
$24,097, proceeds from the exercise of options totaling $0.2 million and an
increase in net unrealized gain on available for sale securities of $12,434.
At December 31, 1996, MidConn Bank's leverage capital ratio was 8.45%
compared to 8.24% as of September 30, 1996. The FDIC also requires banks to
meet supplemental capital adequacy standards which measure qualifying capital
against risk-weighted assets plus off-balance sheet items such as outstanding
loan commitments and letters of credit. At December 31, 1996, MidConn Bank's
Tier I risk-based capital ratio was 14.35% and its total risk-based capital
ratio was 15.26%.
Results Of Operations
Net Income. Net income for the three months ended December 31, 1996 was
$0.7 million or $.35 per share compared to $0.6 million or $.34 per share for
the three months ended December 31, 1995.
Net Interest Income. Net interest income for the three months ended
December 31, 1996 was $3.4 million. This represents an increase of $0.1 million
when compared to net interest income of $3.3 million for the three months ended
December 31, 1995. The increase in net interest income is primarily
attributable to MidConn Bank's earning assets repricing upward at a faster pace
than its cost of funds.
Total interest income increased $50,412 to $6.3 million for the three
months ended December 31, 1996 compared to $6.3 million for the three months
ended December 31, 1995. MidConn Bank is experiencing an increase in interest
income for several reasons, including an increase in the level of earning assets
resulting from growth in the loan and investment portfolios and the upward
repricing of adjustable rate loans.
Total interest expense decreased $0.1 million to $2.9 million for the
quarter ended December 31, 1996 compared to $3.0 million for the quarter ended
December 31, 1995. The primary reason for the decrease in MidConn Bank's cost
of funds was a decrease in the overall level of interest rates in general.
Provision For Loan Losses. The provision for loan losses is charged to
operations based on the growth in the loan portfolio, the actual loss
experience, and MidConn Bank management's evaluation of the factors which may
affect potential future losses. For the three months ended December 31, 1996,
$0.2 million was charged to earnings to provide for the allowance for loan
losses compared to $0.1 million for the three months ended December 31, 1995.
At December 31, 1996, the allowance for loan losses was $1.9 million and
represented 38.7% of non-performing loans. Non-performing loans at December 31,
1996 were $4.9 million compared to $3.1 million at December 31, 1995.
Non-Interest Income And Expense. Non-interest income is comprised of fees,
service charges, gains on the sale of loans and fixed assets, miscellaneous
income, and securities gains and losses, which increased $15,744 to $0.2 million
for the three months ended December 31, 1996 compared to $0.2 million for the
three months ended December 31, 1995. This increase is primarily attributable
to MidConn Bank's implementation of a new value added interest bearing checking
account package which has been well received by customers. For the three
months ending December 31, 1996 and 1995, MidConn Bank did not recognize any
securities gains or losses.
Non-interest expense decreased $0.1 million to $2.2 million for the three
months ended December 31, 1996 compared to $2.3 million for the three months
ended December 31, 1995. The
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<PAGE>
decrease in non-interest expense is primarily attributable to a decrease in FDIC
insurance premiums.
Principal Shareholders
The following table shows as of the MidConn Bank Record Date, those persons
known to MidConn Bank (including any "group" as that term is used in section
13(d)(3) of the Exchange Act) to be beneficial owners of more than 5% of the
MidConn Bank Common Stock. In preparing the following table, MidConn Bank has
relied on information furnished by such persons in their Forms F-11 and F-11A,
as filed with the FDIC.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership Class
- -------------------------------------- --------------------- -----------
<S> <C> <C>
Annapiga Corporation 100,000 (1) 5.11%
The Colonnade
5500 Wayzata Boulevard, Suite 145
Golden Valley, MN 55416
Dimensional Fund Advisors, Inc. 143,600 (2) 7.34%
1299 Ocean Avenue
Santa Monica, CA 90410
PL Capital, LLC 133,700 (3) 6.84%
One Financial Place, Suite 1021
440 S. Lasalle
Chicago, IL 60605
</TABLE>
- -----------------------
(1) Bundi L.P., a Minnesota limited partnership ("Bundi"), is a private
investment limited partnership which is managed by its general partner,
Annapiga Corporation, a Minnesota corporation ("Annapiga") which is also
deemed to beneficially own the 100,000 shares of MidConn Bank Common Stock
directly owned by Bundi. Annapiga has sole voting power with respect to
such 100,000 shares, but shares the dispositive power with respect to such
shares with PL Capital, LLC, as noted below.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 143,600 shares of MidConn
Bank Common Stock as of December 31, 1996. All of such shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, for all of
which Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(3) Financial Edge Fund, L.P., a Delaware limited partnership ("Financial") is a
private investment limited partnership which is managed by its general
partner, PL Capital, LLC, a Delaware limited liability corporation
("Capital"), which is also deemed to beneficially own the 33,700 shares of
MidConn Bank Common Stock, or 1.72% of the total issued and outstanding
shares of MidConn Bank Common Stock, directly owned by Financial.
Capital also shares the right to direct the disposition, but not the vote,
of 100,000 shares of MidConn Bank Common Stock, or 5.11% of the total issued
and outstanding shares of MidConn Bank Common Stock, owned directly by Bundi
and managed by Annapiga.
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<PAGE>
Security Ownership of Management
The following table shows as of the MidConn Bank Record Date, the shares of
MidConn Bank Common Stock beneficially owned by each director and named
executive officer of MidConn Bank and the directors and executive officers of
MidConn Bank as a group. Except as indicated in the notes following the table
below, the directors and officers had sole voting and investment power of the
MidConn Bank Common Stock listed as being beneficially owned by them.
<TABLE>
<CAPTION>
Amount and Nature Percent
of Beneficial of
Name of Beneficial Owner Ownership (1) Class
- --------------------------- ---------- --------
<S> <C> <C>
Eugene R. Curcio, Director 500 *
Frank Fraprie, Director 9,600 (2) *
Allan W. Hall, Director 3,494 (3) *
John A. Kaestle, Director 7,800 (4) *
Francis L. Kinney, Director 3,500 (5) *
Richard J. Toman, Director, 43,429 (6) 2.22%
President and Chief Executive
Officer
Joanne G. Ward, Director 11,793 (7) *
Lindsley Wellman, Director 2,437 (8) *
David M. Wingfield, Director 1,226 (9) *
Theresa F. Yerkes, Director - *
All directors and executive 126,418 6.46%
officers as a group
</TABLE>
- -------------------------
* Less than one percent.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner, for purposes of this table, of any shares of
MidConn Bank Common Stock (1) over which such person has or shares voting or
investment power, or (2) of which such person has the right to acquire
beneficial ownership at any time within 60 days from April 17, 1997. As used
herein, "voting power" is the power to vote or direct the voting of shares
and "investment power" is the power to dispose or direct the disposition of
shares. All persons shown in the table above have sole voting and investment
power, except as otherwise indicated. The number of shares reflected for
each individual and the group includes shares subject to options which are
exercisable. All directors and executive officers as a group held options
for 51,580 shares. Nonexercisable options are included for the directors
because such options will become exercisable immediately prior to the
consummation of the Merger.
(2) Includes currently exercisable options to purchase 1,500 shares of MidConn
Bank Common Stock.
(3) Includes nonexercisable options to purchase 500 shares of MidConn Bank
Common Stock and currently exercisable options to purchase 2,000 shares of
MidConn Bank Common Stock; 108 shares of MidConn Bank Common Stock owned by
spouse; 216 shares of MidConn Bank Common Stock owned by spouse as custodian
for daughters; and 670 shares of MidConn Bank Common Stock held in spouse's
Individual Retirement Account.
(4) Includes 1,500 options; and 2,500 shares of MidConn Bank Common Stock owned
individually; 1,800 shares owned by spouse's Individual Retirement Account;
and 2,000 shares held in a living trust.
(5) Includes nonexercisable options to purchase 500 shares of MidConn Bank
Common Stock and currently exercisable options to purchase 2,000 shares of
MidConn Bank Common Stock; and 1,000 shares of MidConn Bank Common Stock
owned jointly with his spouse.
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<PAGE>
(6) Includes 7,300 shares of MidConn Bank Common Stock owned jointly with
spouse, 7,199 shares of MidConn Bank Common Stock allocated to his MidConn
Bank ESOP account; 800 shares of MidConn Bank Common Stock owned as
custodian for son; and currently exercisable options to purchase 28,130
shares of MidConn Bank Common Stock.
(7) Includes 1,500 options.
(8) Includes 967 shares of MidConn Bank Common Stock held in Individual
Retirement Account.
(9) Includes nonexercisable options to purchase 500 shares of MidConn Bank
Common Stock and currently exercisable options to purchase 500 shares of
MidConn Bank Common Stock.
Legal Proceedings
MidConn Bank is involved in certain litigation which arose in the ordinary
course of business. Management does not believe that any such litigation
constitutes material pending legal proceedings, other than ordinary routine
litigation incidental to the business of MidConn Bank, to which MidConn Bank is
a party or of which any of its properties is subject.
Independent Accountants
A representative of MidConn Bank's independent auditors, Coopers & Lybrand
L.L.P., is expected to be present at the MidConn Bank Meeting to respond to
shareholders' questions and to make a statement if he or she desires to do so.
Section 16(a) Compliance
Section 16(a) of the Exchange Act requires MidConn Bank's officers and
directors, and persons who own more than ten percent of a registered class of
MidConn Bank's equity securities, to file reports of ownership and changes in
ownership with the FDIC. Officers, directors and greater than ten percent
shareholders are required by FDIC regulation to furnish MidConn Bank with copies
of all Section 16(a) forms they file. Based solely on its review of the copies
of Forms F-7, F-8 and F-8A furnished to it, or written representations from
certain reporting persons that no such forms were required for those persons,
MidConn Bank believes that during fiscal 1996 all filing requirements applicable
to its executive officers, directors and greater than ten percent beneficial
owners were complied with.
ADJOURNMENT OF MIDCONN BANK AND EFC MEETINGS
The holders of MidConn Bank Common Stock will be asked to approve, if
necessary, the adjournment of the MidConn Bank Meeting to solicit further votes
in favor of the Merger Agreement. The proxies of MidConn Bank shareholders
voting against the Merger Agreement may not be used by management to vote in
favor of an adjournment pursuant to its discretionary authority.
The holders of EFC Common Stock will be asked to approve, if necessary, the
adjournment of the EFC Meeting to solicit further votes in favor of the issuance
of additional EFC Common Stock in connection with the Merger Agreement. The
proxies of EFC shareholders voting against the issuance may not be used to vote
in favor of an adjournment pursuant to its discretionary authority.
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<PAGE>
SHAREHOLDER PROPOSALS
Any proposal which an EFC stockholder wishes to have included in the proxy
materials of EFC with respect to EFC's 1998 Annual Meeting must be received by
EFC at EFC's principal executive offices at 222 Main Street, Bristol,
Connecticut 06010 no later than August 25, 1997.
If the Merger Agreement is approved and adopted and the Merger is
consummated, there will not be an annual meeting of MidConn Bank's shareholders
in 1998. However, if the Merger is not consummated, MidConn Bank anticipates
that its 1998 annual meeting will be held in January 1998. Therefore, any
proposal intended to be presented by a MidConn Bank shareholder for inclusion in
MidConn Bank's proxy statement for its 1998 annual meeting must be received by
MidConn Bank at its principal executive offices at 346 Main Street, Kensington,
Connecticut 06037 no later than August 20, 1997.
OTHER MATTERS
It is not expected that any matters other than those described in this
Joint Proxy Statement/Prospectus will be brought before the MidConn Bank Meeting
or the EFC Meeting. If any other matters are presented, however, it is the
intention of the persons named in the MidConn Bank proxy and the EFC proxy to
vote such proxy in accordance with the determination of a majority of the Board
of Directors of MidConn Bank and EFC, respectively, including, without
limitation, a motion to adjourn or postpone the MidConn Bank Meeting to another
time and/or place for the purpose of soliciting additional proxies in order to
approve the Merger Agreement or otherwise and a motion to adjourn or postpone
the EFC Meeting to another time and/or place for the purpose of soliciting
additional proxies in order to approve the issuance of additional EFC Common
Stock in connection with the Merger Agreement or otherwise.
EXPERTS
The consolidated financial statements of EFC at September 30, 1996 and
1995, and for each of the years in the three year period ended September 30,
1996, have been incorporated by reference into the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, which is incorporated herein by reference, and upon the authority
of said firm as experts in accounting and auditing. The report of KPMG Peat
Marwick LLP covering the September 30, 1996 consolidated financial statements
refers to changes in the methods of accounting for investment securities in 1995
and post-retirement benefits other than pensions and income taxes in 1994.
The consolidated financial statements of MidConn Bank at September 30, 1996
and 1995, and for each of the three years in the period ended September 30,
1996, included at Exhibit F to this Joint Proxy Statement/Prospectus, have been
---------
so presented in reliance upon the report of Coopers & Lybrand L.L.P.,
independent certified public accountants, included herein and upon the authority
of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the EFC Common Stock to be issued in the Merger has been
passed upon by Hogan & Hartson L.L.P., Washington, D.C. Hogan & Hartson L.L.P.
will be passing upon certain tax matters in connection with the Merger.
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Appendix A
----------
OSTROWSKI & COMPANY, INC.
Bank and Thrift Advisors
ONE WORLD TRADE CENTER WESTGATE OFFICE CENTER
SUITE 2135 700 WEST JOHNSON AVENUE
NEW YORK, NY 10048-0202 CHESHIRE, CT 06410-1135
212-432-0055 203-699-1445
FAX: 212-432-1254 FAX: 203-699-1447
January 27, 1997
Board of Directors
MidConn Bank
346 Main Street
Kensington, CT 06037
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, of the terms of an Agreement and Plan of Merger dated January 27, 1997
(the "Merger Agreement"), by and among Eagle Financial Corp. ("Eagle"), Eagle
Federal Savings Bank and MidConn Bank ("MidConn"), to the holders of MidConn
common stock, par value $1.00 ("MidConn Shareholders"). Pursuant to the terms
of the Merger Agreement, each share of MidConn common stock will be converted
into the right to receive 0.86 of a share of Eagle common stock, par value $.01,
subject to adjustment in certain circumstances as described in the Merger
Agreement.
Ostrowski & Company, Inc., as part of its bank and thrift advisory
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
purposes. We are familiar with MidConn, having provided financial advisory
services to the Board of Directors since 1994, and we participated in the
negotiations leading to the Merger Agreement. We have received and will receive
fees from MidConn for advisory services, and will receive fees for advisory
services in connection with the completion of the transactions contemplated in
the proposed Merger Agreement.
In connection with providing this opinion, we have examined and relied
upon, among other things: the Merger Agreement; annual reports to shareholders,
proxy statements and related audited financial statements for MidConn and Eagle
for each of the three fiscal years ended September 30, 1994, 1995 and 1996;
certain unaudited interim financial reports for MidConn and Eagle for the
quarter ended December 31, 1996, certain other financial information for MidConn
and Eagle, including pro forma financial statements and managements' estimates
relating to, among other things, earnings, asset quality, and capital. We have
conducted discussions with executive management of both MidConn and Eagle
concerning historical financial performance and condition, market area economic
conditions, future business prospects and financial forecasts. We have reviewed
stock market prices and trading activity for the common shares of MidConn and
Eagle. We have reviewed comparable financial, operating and market data for the
banking industry and selected peer groups; compared the terms of the Merger
Agreement with other bank and thrift merger and acquisition transactions; and
have considered such additional financial and other information deemed relevant.
In preparing our opinion, we have relied upon the accuracy, completeness
and fair presentation of all information supplied or otherwise made available to
us by, or on behalf of,
A-1
<PAGE>
Ostrowski & Company, Inc.
Board of Directors
January 27, 1997
Page 2
MidConn and Eagle. We have not independently verified such information or
undertaken an independent evaluation or appraisal of the assets or liabilities
of MidConn or Eagle, nor have we been furnished any such evaluations or
appraisals. With respect to forecasts of expected future financial performance,
we have been advised that they reflect the best currently available estimates
and judgment of the executive managements of MidConn and Eagle. This opinion is
necessarily based upon the information available to us and the market, economic
and other conditions, as they exist and can be evaluated, as of the date of this
letter.
This opinion is directed solely to the fairness, from a financial point of
view, of the terms of the Merger Agreement to MidConn Shareholders and does not
constitute a recommendation to any MidConn Shareholder as to how such MidConn
Shareholder should vote with respect to the Merger Agreement.
In reliance upon and subject to the foregoing, it is our opinion that as of
the date hereof, the terms of the Merger Agreement are fair, from a financial
point of view, to MidConn Shareholders.
Very truly yours,
/s/ Ostrowski & Company, Inc.
OSTROWSKI & COMPANY, INC.
A-2
<PAGE>
Appendix B
----------
KEEFE, BRUYETTE & WOODS, INC.
SPECIALISTS IN BANKING
TWO WORLD TRADE CENTER 85TH FLOOR NEW YORK, N.Y. 10048
TOLL FREE TELEPHONE
1-800-966-1559 212-323-8300
April 21, 1997
The Board of Directors
Eagle Financial Corp.
22 Main Street
Bristol, CT 06010
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to Eagle Financial Corp. ("Eagle") of the
exchange ratio in the proposed merger (the "Merger") of MidConn Bank ("MidConn")
with and into Eagle Bank, a wholly-owned subsidiary of Eagle, pursuant to the
Agreement and Plan of Merger, dated as of January 27, 1997, between MidConn and
Eagle (the "Agreement"). Pursuant to the terms of the Agreement, each
outstanding share of Common Stock, par value $1.00 per share, of MidConn will be
converted into .86 of a share of common stock, par value $.01 per share, of
Eagle.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business,
is continually engaged in the valuation of bank and bank holding company
securities in connection with acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for various other purposes. As specialists in the securities of
banking companies we have experience in, and knowledge of, the valuation of
banking enterprises. In the ordinary course of our business as a broker-dealer,
we may, from time to time, purchase securities from, and sell securities to,
MidConn and Eagle, and as a market maker in securities, we may from time to time
have a long or short position in, and buy or sell, debt or equity securities of
MidConn and Eagle for our own account and for the accounts of our customers. To
the extent we have any such positions as of the date of this opinion it has been
disclosed to Eagle. We have acted exclusively for the Board of Directors of
Eagle in rendering this fairness opinion and will receive a fee from Eagle for
our services.
In connection with this opinion, we have reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of MidConn and Eagle
and the Merger, including among other things, the following: (i) the Agreement;
(ii) the Annual Reports to Stockholders and Annual Reports on Form F-2 for the
three years ended September 30, 1996, 1995 and 1994 of MidConn and Annual
Reports to Stockholders and Annual Reports on Form 10-K for each of the three
years ended 1996 of Eagle; (iii) certain interim reports to stockholders and
Quarterly Reports on Form F-4 of MidConn and on Form 10-Q of Eagle and certain
other communications from MidConn and Eagle to their respective stockholders;
(iv) other financial information concerning the businesses and operations of
MidConn and Eagle furnished to us by MidConn and Eagle for purposes of our
analysis. We have also held discussions with senior management of MidConn and
Eagle regarding the past and current business operations, regulatory relations,
financial condition and future prospects of their respective companies and such
other matters as we have deemed relevant to our inquiry. In addition, we have
compared certain financial and stock market information for MidConn and Eagle
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent
B-1
<PAGE>
Keefe, Bruyette & Woods, Inc.
business combinations in the banking industry and performed such other studies
and analyses as we considered appropriate.
In conducting our review and arriving at our opinion, we have relied upon
the accuracy and completeness of all of the financial and other information
provided to us or publicly available and we have not assumed any responsibility
for independently verifying the accuracy or completeness of any such
information. We have relied upon the management of MidConn and Eagle as to the
reasonableness and achievability of the financial and operating forecasts and
projections (and the assumptions and bases therefor) provided to us, and we have
assumed that such forecasts and projections reflect the best currently available
estimates and judgments of such managements and that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by such managements. We are not experts in the independent
verification of the adequacy of allowances for loan and lease losses and we have
assumed with your consent, that the aggregate allowances for loan and lease
losses for MidConn and Eagle are adequate to cover such losses. In rendering
our opinion, we have not made or obtained any evaluations or appraisals of the
property of MidConn or Eagle, nor have we examined any individual credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others, the following: (i)
the historical and current financial position and results of operations of
MidConn and Eagle; (ii) the assets and liabilities of MidConn and Eagle; and
(iii) the nature and terms of certain other merger transactions involving banks
and bank holding companies. We have also taken into account our assessment of
general economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuation and knowledge of
the banking industry generally. Our opinion is necessarily based upon
conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the exchange ratio in the Merger is fair, from a financial point of
view, to Eagle.
Very truly yours,
/s/ Keefe, Bruyette & Woods, Inc.
Keefe, Bruyette & Woods, Inc.
B-2
<PAGE>
Appendix C
----------
Section 36a-125(h) of the Connecticut General Statutes
Upon the effectiveness of the agreement of merger or consolidation, the
shareholders, if any, of the constituent banks, except to the extent that they
have received cash, property or other securities of the resulting bank or shares
or other securities of any other corporation in exchange for or upon conversion
of their shares, shall be shareholders of a capital stock resulting bank.
Unless such agreement otherwise provides, the resulting bank may require each
shareholder to surrender such shareholder's certificates of stock in the
constituent bank and in that event no shareholder, until such surrender of that
shareholder's certificates, shall be entitled to receive a certificate of stock
of the resulting bank or to vote thereon or to collect dividends declared
thereon, or to receive cash, property or other securities of the resulting bank,
or shares or other securities of any other corporation. Any shareholder of any
such constituent bank who dissents from the merger or consolidation is entitled
to assert dissenters' rights under sections 33-855 to 33-872, inclusive. The
rights and obligations of the objecting shareholders and the bank shall be
determined in accordance with sections 33-855 to 33-872, inclusive. The stock
of a capital stock resulting bank up to an amount of the combined stock of the
constituent banks shall be exempt from any franchise tax.
Sections 33-855 to 33-872 of the Connecticut General Statutes
(S) 33-855. Definitions
As used in sections 33-855 to 33-872, inclusive:
(1) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action or the surviving or acquiring corporation
by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and in
the manner required by section 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at a rate that is
fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
(S) 33-856. Right to dissent
(a) A shareholder is entitled to dissent from, and obtain payment of
the fair value of his shares in the event of, any of the following corporate
actions:
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<PAGE>
(1) Consummation of a plan of merger to which the corporation is a
party (A) if shareholder approval is required for the merger by section 33-817
or the certificate of incorporation and the shareholder is entitled to vote on
the merger or (B) if the corporation is a subsidiary that is merged with its
parent under section 33-818;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale pursuant to
court order or a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale;
(4) An amendment of the certificate of incorporation that
materially and adversely affects rights in respect of a dissenter's shares
because it: (A) Alters or abolishes a preferential right of the shares; (B)
creates, alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of the
shares; (C) alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities; (D) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with similar voting
rights; or (E) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired for
cash under section 33-668; or
(5) Any corporate action taken pursuant to a shareholder vote to
the extent the certificate of incorporation, bylaws or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available to
a shareholder by this section, such remedy shall be his exclusive remedy as
holder of such shares against the corporate transactions described in this
section, whether or not he proceeds as provided in sections 33-855 to 33-872,
inclusive.
(S) 33-857. Dissent by nominees and beneficial owners
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
(S)(S) 33-858, 33-859. Reserved for future use
(S) 33-860. Notice of dissenters' rights
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are
C-2
<PAGE>
or may be entitled to assert dissenters' rights under section 33-855 to 33-872,
inclusive, and be accompanied by a copy of said sections.
(b) If corporate action creating dissenters' rights under section 33-
856 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 33-862.
(S) 33-861. Notice of intent to demand payment
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights (1) shall deliver to the corporation
before the vote is taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated and (2) shall not vote his shares
in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) of this section is not entitled to payment for his shares under sections 33-
855 to 33-872, inclusive.
(S) 33-862. Dissenters' notice
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after
the corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
(S) 33-863. Duty to demand payment
(a) A shareholder sent a dissenters' notice described in section 33-862
must demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to subdivision (3) of subsection (b) of said section and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
C-3
<PAGE>
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
(S) 33-864. Share restrictions
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(S) 33-865. Payment
(a) Except as provided in section 33-867, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with section 33-863 the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-860; and
(5) a copy of sections 33-855 to 33-872, inclusive.
(S) 33-866. Failure to take action
(a) If the corporation does not take the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
(S) 33-867. After-acquired shares
(a) A corporation may elect to withhold payment required by section 33-
865 from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
C-4
<PAGE>
(S) 33-868. Procedure if shareholder dissatisfied with payment or offer
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865
or offered under section 33-867 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within
sixty days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty days after the corporation made or offered payment
for his shares.
(S)(S) 33-869, 33-870. Reserved for future use
(S) 33-871. Court action
(a) If a demand for payment under section 33-868 remains unsettled,
the corporation shall commence a proceeding within sixty days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior
court for the judicial district where a corporation's principal office or, if
none in this state, its registered office is located. If the corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the superior court for the judicial district where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under section 33-867.
C-5
<PAGE>
(S) 33-872. Court costs and counsel fees
(a) The court in an appraisal proceeding commenced under section 33-
871 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable: (1)
Against the corporation and in favor of any or all dissenters if the court finds
the corporation did not substantially comply with the requirements of sections
33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
C-6
<PAGE>
Index to MidConn Bank Financial Statements Page
- ------------------------------------------ ----
Annual Financial Statements of MidConn Bank..................... F-2
Report of Independent Accountants............................. F-2
Statements of Condition - September 30, 1996 and 1995......... F-3
Statements of Income for the years ended
September 30, 1996, 1995 and 1994.......................... F-4
Statements of Stockholders' Equity for the years ended
September 30, 1996, 1995 and 1994.......................... F-6
Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994.......................... F-7
Notes to Financial Statements................................. F-9
Quarterly Financial Statements of MidConn Bank (Unaudited)...... F-27
Statement of Condition - December 31, 1996,
September 30, 1996 and December 31, 1995................... F-27
Statements of Income for the three months ended
December 31, 1996 and 1995................................. F-29
Statements of Changes in Stockholders' Equity for
the three months ended December 31, 1996 and 1995.......... F-30
Statements of Cash Flows for the three months ended
December 31, 1996 and 1995................................. F-31
Basis of Presentation......................................... F-33
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholders of MidConn Bank:
We have audited the accompanying statements of condition of MidConn Bank (the
"Bank") as of September 30, 1996 and 1995, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1996. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
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 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 financial statements referred to above present fairly, in
all material respects, the financial position of MidConn Bank as of September
30, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1996 in conformity with
generally accepted accounting principles.
As discussed in Notes A and C to the financial statements, effective October 1,
1994 the Bank adopted the provisions of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." As discussed
in Notes A, N and O to the financial statements, effective October 1, 1993, the
Bank adopted the provisions of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and No.
109, "Accounting for Income Taxes."
Coopers & Lybrand L.L.P.
Hartford, Connecticut
October 28, 1996
F-2
<PAGE>
MIDCONN BANK
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
As of September 30, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,057,660 $ 6,041,809
Interest bearing deposits 684,388 266,617
Federal funds sold 150,000 3,000,000
---------------------------
Cash and cash equivalents 6,892,048 9,308,426
Securities:
Available for sale (amortized cost:
$15,767,584 in 1996 and $28,642,054 in
1995) 15,779,435 28,660,330
Held to maturity (market value: $ 36,671,996
in 1996 and $42,267,147 in 1995) 36,744,651 41,945,473
Loans, net of allowance for loan losses of
$1,914,878 in 1996 and $2,154,000 in 1995 280,168,275 256,698,745
Bank premises and equipment 4,101,015 4,369,033
Accrued income receivable 2,356,590 3,030,337
Federal Home Loan Bank stock -- at cost 2,651,500 2,651,500
Real estate owned 2,333,628 3,665,618
Goodwill 5,497,889 5,986,383
Other assets 1,903,568 2,009,715
---------------------------
Total assets $358,428,599 $358,325,560
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $309,422,170 $311,411,087
Mortgagors' escrow accounts 1,658,073 1,691,547
Advances from Federal Home Loan Bank of Boston 10,150,000 10,150,000
Other liabilities 2,353,920 1,322,188
---------------------------
Total liabilities 323,584,163 324,574,822
Commitments and contingencies (Note P)
Stockholders' Equity
Preferred stock, no par value, authorized
1,000,000 shares, none issued and outstanding -- --
Common stock, par value $1.00; authorized
8,000,000 shares; issued and outstanding;
1,936,002 shares in 1996;
1,899,560 shares in 1995 1,936,002 1,899,560
Additional paid-in capital 15,073,611 14,721,105
Retained earnings 17,827,712 17,119,474
Net unrealized gain on securities available for
sale 7,111 10,599
---------------------------
Total stockholders' equity 34,844,436 33,750,738
---------------------------
Total liabilities and stockholders' equity $358,428,599 $358,325,560
===========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MIDCONN BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended September 30, 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Mortgage $18,491,884 $17,770,418 $13,120,594
Other 1,874,437 1,788,610 1,126,520
Interest and dividends on investment
securities:
U.S. Government and other bonds 3,010,503 2,681,540 2,190,710
Marketable equity securities 1,484,553 1,357,843 676,501
Other interest income 171,325 308,343 245,399
---------------------------------------
Total interest income 25,032,702 23,906,754 17,359,724
---------------------------------------
INTEREST EXPENSE
Interest on deposits:
Savings deposits 2,821,115 3,057,030 2,648,606
Time deposits 8,284,385 6,900,579 3,614,953
Interest on borrowings 539,517 577,239 638,062
---------------------------------------
Total interest expense 11,645,017 10,534,848 6,901,621
---------------------------------------
Net interest income 13,387,685 13,371,906 10,458,103
Provision for loan losses 1,225,000 2,638,444 340,000
---------------------------------------
Net interest income after
provision for loan losses 12,162,685 10,733,462 10,118,103
---------------------------------------
OTHER INCOME
Fees, service charges and other
income 856,653 938,095 669,785
Investment securities gains 284 11,946 25,393
---------------------------------------
856,937 950,041 695,178
---------------------------------------
OTHER EXPENSES
Salaries and employee benefits 4,532,852 4,479,004 3,376,968
Professional fees 440,311 373,606 410,776
Insurance expense 462,964 778,365 625,103
Occupancy expense, net 768,635 814,473 542,903
Furniture and equipment expense 571,109 591,630 340,119
Computer services 493,285 464,041 483,524
Real estate owned 464,023 664,373 655,812
Amortization of goodwill 488,494 500,029 208,686
SAIF assessment 745,900 -- --
Other 1,305,828 1,212,965 919,920
---------------------------------------
10,273,401 9,878,486 7,563,811
---------------------------------------
Income before income taxes and
cumulative effect of changes
in accounting 2,746,221 1,805,017 3,249,470
INCOME TAXES 891,370 730,643 1,394,083
---------------------------------------
Income before cumulative effect
of changes in accounting 1,854,851 1,074,374 1,855,387
</TABLE>
F-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING
Postretirement Benefits (net of
tax of $309,430) -- -- (434,570)
Income taxes -- -- 561,680
---------------------------------------
Net income $ 1,854,851 $ 1,074,374 $ 1,982,497
=======================================
PER SHARE DATA
Weighted average shares outstanding 1,906,507 1,893,989 1,879,569
Income before cumulative effect of
changes in accounting $ .95 $ .57 $ .99
Net Income $ .95 $ .57 $ 1.05
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MIDCONN BANK
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
EMPLOYEE (LOSS) GAIN ON
COMMON STOCK ADDITIONAL STOCK SECURITIES
--------------------- PAID-IN OWNERSHIP RETAINED AVAILABLE
SHARES AMOUNT CAPITAL PLAN EARNINGS FOR SALE
--------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED
SEPTEMBER 30, 1994
Balance at beginning of year 1,877,440 $1,877,440 $14,489,928 $ (158,950) $15,913,028 $ (3,475)
Net income -- -- -- -- 1,982,497 --
Issuance of common stock:
Dividend Reinvestment Plan 4,153 4,153 56,115 -- -- --
Options exercised 9,213 9,213 81,081 -- -- --
Cash dividends paid -- $.44 per share -- -- -- -- (827,562) --
Increase in net unrealized loss on
marketable equity securities -- -- -- -- -- (71,206)
Employee stock ownership plan -- -- -- 79,475 -- --
-------------------------------------------------------------------------------
Balance at end of year 1,890,806 1,890,806 14,627,124 (79,475) 17,067,963 (74,681)
YEAR ENDED
SEPTEMBER 30, 1995
Net income -- -- -- -- 1,074,374 --
Issuance of common stock:
Dividend Reinvestment Plan 5,974 5,974 74,302 -- -- --
Options exercised 2,780 2,780 19,679 -- -- --
Cash dividends paid -- $.54 per share -- -- -- -- (1,022,863) --
Adoption of FAS 115, net -- -- -- -- -- (78,007)
Increase in net unrealized gain on
securities available for sale -- -- -- -- -- 163,287
Employee stock ownership plan -- -- -- 79,475 -- --
-------------------------------------------------------------------------------
Balance at end of year 1,899,560 1,899,560 14,721,105 -- 17,119,474 10,599
YEAR ENDED
SEPTEMBER 30, 1996
Net income -- -- -- -- 1,854,851 --
Issuance of common stock:
Dividend Reinvestment Plan 3,025 3,025 38,594 -- -- --
Options exercised 33,417 33,417 313,912 -- -- --
Cash dividends paid -- $.60 per share -- -- -- -- (1,146,613) --
Decrease in net unrealized gain on
securities available for sale -- -- -- -- -- (3,488)
-------------------------------------------------------------------------------
Balance at end of year 1,936,002 $1,936,002 $15,073,611 $ -- $17,827,712 $ 7,111
===============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MIDCONN BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30, 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,854,851 $ 1,074,374 $ 1,982,497
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effect of changes in
accounting -- -- (127,110)
Provision for loan losses 1,225,000 2,638,444 340,000
Provision for depreciation and
amortization 500,053 523,947 284,262
Amortization of investment security
discounts and premiums 60,426 196,499 246,037
Amortization of loan fees (321,510) (195,519) (386,668)
Amortization of goodwill 488,494 500,029 208,686
Deferred income taxes (benefit) 54,453 (58,145) 184,283
ESOP contribution -- 79,475 79,475
Realized investment security gains (284) (11,946) (25,393)
Realized (gains) on real estate owned (36,923) (856,392) (156,711)
Writedown of other real estate owned 318,579 979,905 --
Gain on sale of fixed assets -- (11,788) (394)
Decrease (increase) in accrued
interest income receivable 673,747 (7,561) (673,283)
Other, net 1,086,361 (16,143) 554,133
------------------------------------------
Net cash provided by operating
activities 5,903,247 4,835,179 2,509,814
INVESTING ACTIVITIES:
Investment securities
Proceeds from sales and maturities -- -- 64,457,279
Purchases of securities -- -- (50,551,735)
Available for sale securities
Proceeds from sales and maturities 72,750,000 39,068,939 --
Purchases of securities (56,400,000) (26,086,093) --
Held to maturity securities
Proceeds from sales and maturities 13,605,430 -- --
Principal payments--mortgage backed
securities 4,167,525 2,674,827 --
Purchases of securities (16,107,803) (15,799,675) --
Proceeds from sale of loans 8,799,929 907,181 3,198,443
Purchase of loans (36,142,150) (7,932,046) (4,736,059)
Other decrease (increase) in loans 1,974,299 8,932,995 (3,672,707)
Net proceeds from sale of other real
estate owned 2,429,141 4,721,965 2,833,337
Additional investment in other real
estate owned (383,905) (1,287,384) (1,615,117)
Proceeds from sale of equipment 22,480 443,300 4,900
Purchases of premises and equipment (254,515) (377,038) (1,116,961)
Net cash paid from acquisition -- -- (2,990,669)
Proceeds from sale of FHLB Stock -- -- 190,600
Purchases of FHLB Stock -- (12,100) (78,900)
------------------------------------------
Net cash (used in) provided by
investing activities (5,539,569) 5,254,871 5,922,411
FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW
accounts, savings accounts and
escrow (4,994,300) (24,957,029) (6,049,697)
Net increase (decrease) in
certificates of deposit 2,971,909 22,057,398 (6,568,209)
Advances from Federal Home Loan Bank 5,000,000 20,000,000 55,000,000
Payments on Federal Home Loan Bank
advances (5,000,000) (25,000,000) (50,000,000)
Cash dividends (1,146,613) (1,022,863) (827,562)
Payments on other long-term
borrowings -- (79,475) (79,475)
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C> <C> <C>
Proceeds from exercise of stock
options 347,329 22,459 90,294
Proceeds from issuance of common
stock 41,619 80,276 60,268
------------------------------------------
Net cash used in financing
activities (2,780,056) (8,899,234) (8,374,381)
------------------------------------------
(Decrease) increase in cash
and cash equivalents (2,416,378) 1,190,816 57,844
Cash and cash equivalents at
beginning of year 9,308,426 8,117,610 8,059,766
------------------------------------------
Cash and cash equivalents at end of
year $ 6,892,048 $ 9,308,426 $ 8,117,610
==========================================
CASH PAYMENTS:
Interest $ 11,620,441 $ 10,507,564 $ 6,844,356
Income taxes 1,005,000 1,211,723 1,331,445
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Increase (decrease) in net
unrealized loss on securities $ 6,425 $ (92,956) $ 71,206
Transfer of loans to real estate
owned 994,902 1,517,777 1,914,504
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (SEPTEMBER 30, 1996)
NOTE A / SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Bank and the methods of
applying those policies are summarized as follows:
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 statements of condition and income for the period. Actual results
could differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near-term relate to the
determination of the allowance for loan losses and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for loan losses, management
obtains independent appraisals for significant properties.
A substantial portion of the Bank's loans are collateralized by real estate in
depressed markets in Connecticut. In addition, all of the real estate owned is
located in those same depressed markets. Accordingly, the ultimate
collectibility of a substantial portion of the Bank's loan portfolio and the
recovery of a substantial portion of the carrying amount of real estate owned is
particularly susceptible to changes in market conditions in Connecticut.
Management believes that the allowance for losses on loans and writedowns of
real estate owned are adequate. While management uses available information to
recognize losses on loans and real estate owned, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans and writedowns of
real estate owned. Such agencies may require the Bank to recognize additions to
the allowance or additional writedowns on real estate owned based on their
judgments of information available to them at the time of their examination.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash, interest-
bearing deposits and federal funds sold.
Securities: On October 1, 1994, the Bank adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS 115"). Under FAS 115, debt and equity securities are
classified into one of three categories.
Debt securities that the Bank has the intent and ability to hold until maturity
are classified as held to maturity and carried at amortized cost.
Securities purchased for resale, in anticipation of short-term gains, are
classified as trading account securities and are carried at fair value. Both
realized and unrealized holding gains and losses are included in trading account
gains and losses. The Bank has no trading account securities.
All other debt and equity securities are classified as available for sale.
Securities in this classification may be sold in response to changes in a number
of factors, including the Bank's liquidity needs and market interest rates.
Available for sale securities are carried at fair value and unrealized holding
gains and losses, net of income taxes, are reported as a separate component of
stockholders' equity.
F-9
<PAGE>
Gains and losses on the sale of securities are recorded on the trade date, and
are calculated utilizing the cost basis of the specific security sold. The cost
basis of a security that has experienced other than a temporary decline in fair
value is written down to fair value by a charge to security gains and losses.
Upon adoption of FAS 115, the Bank transferred $38.0 million in securities to
the available for sale classification. This resulted in a $78,007 reduction of
stockholders' equity.
Bank Premises and Equipment: Bank premises and equipment are stated at cost less
accumulated depreciation and amortization generally computed on the straight-
line method over the estimated useful lives of the assets. Maintenance, repairs
and minor improvements are charged to expense as incurred. Major improvements
are capitalized. Accumulated depreciation or amortization is reduced upon the
sale of bank premises and equipment and any resulting gain or loss is recorded
as income or expense.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level believed adequate by management to absorb potential 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, 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. Loans are charged against the allowance for loan losses
when management believes that collection is unlikely. Any subsequent recoveries
are credited to the allowance for loan losses when received.
Loan Interest: Interest on loans is included in operating income as earned based
on rates applied to principal amounts 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 not to reverse all of the accrued
interest when the estimated net realizable value of collateral is sufficient to
cover the principal balance and accrued interest. A nonaccrual loan is restored
to accrual status when it is no longer delinquent and the collectibility of
interest and principal is no longer in doubt. Loan origination fees and certain
direct loan origination costs are being deferred and the net amount amortized as
an adjustment of the loan's yield generally over the contractual life of the
related loan. When a loan is prepaid or sold, any remaining unamortized fees and
costs are recognized in income at that time.
Real Estate Owned: Real estate owned (REO) consists principally of properties
acquired through mortgage loan foreclosure proceedings and loans that have been
in-substance repossessed. These properties are initially transferred to REO at
the lower of the carrying value of the related loans or the estimated net
realizable value of the real estate acquired or in-substance repossessed. If, on
the date of transfer, the loan balance exceeds the estimated fair value of the
property, the excess is charged off against the allowance for loan losses. Any
subsequent decline in the fair value of the individual properties is charged to
REO expense.
Goodwill: The excess of the purchase price over the fair value of the tangible
net assets acquired from mergers and acquisitions has been allocated to
goodwill. Goodwill is being amortized on a straight-line basis over a period of
fifteen years. As part of its ongoing review, management estimates the value of
the Bank's intangible assets, taking into consideration any events or
circumstances which might have diminished such value.
Employee Benefits: The Bank sponsors postretirement health care and life
insurance benefit plans for retired employees that have met certain age and
service requirements. The postretirement health care and life insurance expense
is based on an actuarial computation of current and future benefits for
employees and retirees.
F-10
<PAGE>
Effective October 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("FAS 106"). The cumulative effect upon adoption resulted in a one
time decrease to earnings of $434,570.
Income Taxes: Effective October 1, 1993, the Bank adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("FAS
109"). The cumulative effect upon adoption resulted in a one time increase to
earnings of $561,680.
As required by FAS 109, the Bank changed its method of accounting for income
taxes from the deferred method to the asset and liability method. Under the
asset and liability method, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to temporary 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 tax rates and laws currently in effect for the years in which
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in enacted tax rates or laws is
recognized in the period that includes the enactment date. A valuation
allowance is established when it is more likely than not that all or a portion
of the Bank's deferred tax assets will not be realized.
Per Share Data: Net income per share is based on weighted-average shares
outstanding during the year plus the dilutive effect of stock options.
Reclassifications: Certain financial statement balances as previously reported
have been reclassified to conform to the 1996 financial statement presentation.
These reclassifications had no impact on previously reported net income.
NOTE B / FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" ("FAS 107") requires that the Bank disclose the
estimated fair values for certain of its financial instruments. Financial
instruments include items such as loans, deposits, securities, Federal Home Loan
Bank advances and other items as defined in FAS 107.
Fair value estimates are intended to represent estimates of the amounts at which
a financial instrument could be exchanged between willing parties in a current
transaction other than in a forced liquidation. However, in many instances
current exchange prices are not available for certain of the Bank's financial
instruments, since no active market generally exists for a significant portion
of the Bank's financial instruments. Accordingly, the Bank uses other valuation
techniques to estimate the fair values of its financial instruments such as
discounted cash flow methodologies and other methods allowable under FAS 107.
Fair value estimates are subjective in nature and are dependent on a number of
significant assumptions based on management's judgment regarding future expected
loss experience, current economic conditions, risk characteristics of various
financial instruments and other factors. In addition, because FAS 107 allows a
wide range of valuation techniques, it may be difficult to compare the Bank's
fair value information to independent markets or to other financial
institutions' fair value information.
The Bank generally holds its earning assets to maturity and settles its
liabilities at maturity. However, fair value estimates are made at a specific
point in time and are based on relevant market information and information about
the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Bank's entire
holdings of
F-11
<PAGE>
a particular instrument. Accordingly, as assumptions change, such as interest
rates, fair value estimates change and these amounts could not necessarily be
realized in an immediate sale. In addition, differences between carrying values
under historical cost accounting and fair value estimates can be significant
and, in particular, such differences arise in the loan portfolio, where the net
carrying value represents management's estimate of ultimate recoverable amounts
versus fair value estimates that represent a theoretical exchange value based on
current market conditions.
FAS 107 does not require disclosures about fair value information for items that
do not meet the definition of a financial instrument or certain other financial
instruments specifically excluded from its requirements. These items include
core deposit intangibles and other customer relationships, premises and
equipment, leases, income taxes, foreclosed properties, investments accounted
for under the equity method of accounting and capital accounts. Further, FAS
107 does not attempt to value future income or business. These items are
material and, accordingly, the fair value information presented does not purport
to represent, nor should it be construed to represent the underlying "market" or
franchise value of the Bank.
The estimated fair value of each material class of financial instruments as of
September 30, 1996 and 1995 and the related methods and assumptions used to
estimate fair value are as follows:
CASH AND CASH EQUIVALENTS AND ACCRUED INTEREST RECEIVABLE
The carrying amounts are a reasonable estimate of fair value.
SHORT-TERM INVESTMENTS AND FEDERAL HOME LOAN BANK STOCK
The carrying amount of short-term investments and Federal Home Loan Bank Stock
is a reasonable approximation of fair value.
INVESTMENT SECURITIES
Fair value of investment securities is based upon quoted market prices. For
other items for which no quoted market price exists, the carrying amount is a
reasonable estimate of fair value. The estimated fair value of investments at
September 30, 1996 and 1995 is $52,451,000 and $70,927,000, respectively.
LOANS
The estimated fair value of loans at September 30, 1996 and 1995 is
approximately $283,773,000 and $260,750,000, respectively.
For commercial real estate mortgages, construction loans and fixed rate
commercial loans, fair value is estimated by discounting the expected future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and remaining maturities. For floating
rate commercial loans, the carrying amounts are a reasonable estimate of fair
value.
For residential real estate mortgages, fair value is estimated by discounting
the expected future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and remaining maturities.
For home equity lines of credit and other variable rate installment loans, the
carrying amounts are a reasonable estimate of fair value. For fixed rate
installment loans, fair value is estimated by discounting the expected future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and remaining maturities.
For non-accrual loans and other loans with credit deficiencies, fair value is
generally estimated by applying a reasonable market value adjustment rate
against management's or an independent appraiser's estimate of the particular
loan collateral value.
F-12
<PAGE>
DEPOSIT LIABILITIES
The estimated fair value of deposits at September 30, 1996 and 1995 is
$309,295,000 and $311,667,000, respectively.
The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at September 30, 1996 and 1995. The fair value of
time deposits (fixed-maturity certificates of deposit and individual retirement
accounts) is estimated by discounting the expected future cash flows using the
rates currently offered for deposits of similar remaining maturities.
FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
The estimated fair value of FHLB advances and borrowings at September 30, 1996
and 1995 is $10,150,000.
The fair value of Federal Home Loan Bank advances is estimated by discounting
the expected future cash flows using the rates currently offered for advances of
similar remaining maturities.
NOTE C / SECURITIES
The cost, fair value, and gross unrealized gains and losses on securities held
to maturity were as follows:
F-13
<PAGE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1996
U.S. Treasury $ 2,541,804 $ 17,571 $ -- $2,559,375
U.S. agencies and corporations:
Mortgage-backed 12,187,677 161,086 83,616 12,265,147
Other 17,944,003 -- 217,753 17,726,250
Corporate bonds, notes and debentures 4,071,167 50,711 654 4,121,224
------------------------------------------------
Securities held to maturity $36,744,651 $229,368 $302,023 $36,671,996
================================================
SEPTEMBER 30, 1995
U.S. Treasury $ 6,070,325 $ 54,388 $ 3,775 $ 6,120,938
U.S. agencies and corporations:
Mortgage-backed 14,270,539 263,175 109,091 14,424,623
Other 14,926,046 78,193 35,439 14,968,800
Corporate bonds, notes and debentures 6,678,563 84,657 10,434 6,752,786
------------------------------------------------
Securities held to maturity $41,945,473 $480,413 $158,739 $42,267,147
================================================
</TABLE>
The cost, fair value, and gross unrealized gains and losses on securities
available for sale were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1996
U.S. Treasury $ 4,494,377 $18,448 $ 1,575 $ 4,511,250
Equity securities 11,273,207 -- 5,022 11,268,185
---------------------------------------------------
Securities available for sale $15,767,584 $18,448 $ 6,597 $15,779,435
===================================================
SEPTEMBER 30, 1995
U.S. Treasury $ 4,018,848 $33,340 $ -- $ 4,052,188
Equity securities 24,623,206 -- 15,064 24,608,142
---------------------------------------------------
Securities available for sale $28,642,054 $33,340 $15,064 $28,660,330
===================================================
</TABLE>
F-14
<PAGE>
Cost and fair value of debt securities, by contractual maturity, were as
follows:
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
COST FAIR VALUE COST FAIR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1996
Due in one year or less $ 755,392 $ 755,435 $15,767,584 $15,779,435
After one year through
five years 15,801,582 15,766,754 -- --
After five years through
ten years 8,000,000 7,884,660 -- --
---------------------------------------------------
Total 24,556,974 24,406,849 15,767,584 15,779,435
Mortgage-backed 12,187,677 12,265,147 -- --
---------------------------------------------------
Total debt securities $36,744,651 $36,671,996 $15,767,584 $15,779,435
===================================================
</TABLE>
Mortgage-backed securities have been disclosed separately as they are not due at
a single maturity date.
F-15
<PAGE>
Proceeds from the sale of available for sale securities amounted to $72,750,000
in 1996 and $5,039,996 in 1995. Gross realized gains on available for sale
securities amounted to $284 and $11,946 in 1996 and 1995, respectively. There
were no gross realized losses in 1996 and 1995.
Proceeds from the sale and maturities of debt securities amounted to
approximately $64,457,000 in 1994. Gross realized gains on sales of debt
securities amounted to $8,843 in 1994. There were no realized losses in 1994.
Net realized gains on marketable equity securities amounted to $16,550 in 1994.
At September 30, 1996, U.S. Treasury Notes with a book value of $748,216 and a
market value of $748,360 were pledged to collateralize public deposits and
Treasury Tax and loan deposits.
On October 20, 1995, the Financial Accounting Standards Board granted entities a
one-time opportunity to transfer securities from held to maturity category to
other categories. Within the allotted time period, the Bank transferred three
securities classified as held to maturity to available for sale. The cost of
these transferred securities was $3,496,039. The related net unrealized gain
associated with these securities was $12,401.
NOTE D / LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
September 30, 1996 1995
-------------------------------------------------------------------------
<S> <C> <C>
Residential real estate $264,815,362 $241,924,616
Commercial real estate 12,622,138 11,597,913
Real estate construction 1,537,372 2,246,085
Commercial 2,558,519 2,084,526
Installment 1,262,364 1,403,718
Residential loans held for sale -- 120,000
--------------------------------------
282,795,755 259,376,858
Less: Deferred loan fees (488,436) (477,402)
Unearned discounts (224,166) (44,439)
Allowance for loan losses (1,914,878) (2,154,000)
Valuation reserve -- loans
held for sale -- (2,272)
--------------------------------------
$280,168,275 $256,698,745
======================================
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1996 1995 1994
---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 2,154,000 $ 1,994,049 $ 1,138,132
Provision for loan losses 1,225,000 2,638,444 340,000
Loans charged off, net of
recoveries (1,464,122) (2,478,493) (812,518)
Allowance from The Federal
Savings Bank
acquisition -- -- 1,328,435
------------------------------------------
Balance at end of year $ 1,914,878 $ 2,154,000 $ 1,994,049
==========================================
</TABLE>
F-16
<PAGE>
Nonperforming loans were as follows:
<TABLE>
<CAPTION>
September 30, 1996 1995
----------------------------------------------------------------------------
<S> <C> <C>
Accruing loans past due 90 days or more $1,133,401 $1,558,968
Nonaccrual 1,457,193 841,446
-----------------------
$2,590,594 $2,400,414
=======================
</TABLE>
Loans serviced for others totaled $18,828,738 and $21,305,526 at September 30,
1996 and 1995, respectively.
Directors, executive officers, principal holders of the Bank's stock, and
certain of their associates were customers of and had other transactions with
the Bank in the ordinary course of business. As of September 30, 1996 and 1995,
loans to these individuals totaled $723,468 and $759,216, respectively, and were
performing currently. During the year ended September 30, 1996, $115,581 in
loans were granted to these individuals and payments of $90,602 were received,
and 1 loan totalling $60,727 is no longer included as the individual has
resigned from the Board.
On October 1, 1995, the Bank adopted Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114). Under
the new standard, a loan is considered impaired based on current information and
events, if it is probable that the Bank will be unable to collect the scheduled
payments of principal and interest when due according to the contractual terms
of the loan agreement. The measurement of impaired loans and the related
allowance for loan losses is generally based on the present value of expected
future cash flows discounted at the historical effective interest rate, except
that all collateral dependent loans are measured for impairment based on the
fair value of the collateral. As permitted by the statement, smaller-balance
homogeneous loans, consisting of residential mortgages and consumer loans, are
to October 1, 1995, the allowance for loan losses related to all loans was based
on undiscounted cash flows or the fair value of the collateral for collateral
dependent loans.
At September 30, 1996, the Bank's recorded investment in loans for which
impairment has been recognized in accordance with SFAS 114, consisting of
residential and commercial real estate, totalled $4,149,531, with a
corresponding valuation allowance of $630,435. For the twelve month period
ended September 30, 1996, the average recorded investment in impaired loans was
approximately $3,271,846. For the same period the Bank recognized $149,909 of
interest on impaired loans, all of which was recognized on the cash basis. As
of September 30, 1996, there were no commitments to lend additional funds for
loans considered impaired. Included in Impaired Loans, is one loan totalling
$1,010,702 that management believes may become nonperforming in fiscal year
1997.
When a loan or portion of a loan is determined to be uncollectible, the portion
deemed uncollectible is charged against the allowance and subsequent recoveries,
if any, are credited to the allowance.
F-17
<PAGE>
NOTE E/REAL ESTATE OWNED
Real estate owned consisted of the following:
<TABLE>
<CAPTION>
September 30, 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Property Type:
Single Family $ 542,297 $1,121,056
Condominium Developments 612,990 1,326,980
Multi Family 5,000 88,600
Commercial 1,162,886 1,039,563
Land 30,050 189,419
-------------------------
2,353,223 3,765,618
Less: Allowance for losses
on real estate owned 19,595 100,000
-------------------------
$2,333,628 $3,665,618
=========================
</TABLE>
Changes in the allowance for losses on real estate owned were as follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 100,000 $ 80,000 $ --
Provisions for losses on real
estate owned 238,174 999,905 80,000
Writedowns (318,579) (979,905) --
-----------------------------------
Balance at end of period $ 19,595 $ 100,000 $ 80,000
===================================
</TABLE>
NOTE F/FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank 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 Bank to credit risk in excess of amounts recognized in
the accompanying statement of condition.
The Bank's exposure to credit loss in the event of nonperformance by the
counterparty is represented by the contractual amount of those instruments.
Total credit exposure related to these items is summarized below:
<TABLE>
<CAPTION>
CONTRACT AMOUNT
September 30, 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Loan commitments:
Commitments to extend credit $1,929,300 $ 929,300
Unadvanced commercial lines of credit 5,456,641 5,781,767
Unadvanced portion of construction loans 726,770 553,821
Unused lines of home equity loans 6,438,325 4,767,122
Unused DDA reserve credit 275,589 225,593
Standby letters of credit 740,000 412,400
</TABLE>
Loan commitments are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Loan commitments are
subject to the same credit policies as loans and generally have fixed expiration
dates or other termination clauses. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained is based on management's credit evaluation of the counterparty.
Collateral held is primarily residential and commercial property. Interest
rates are generally variable with the exception of the unadvanced portions of
F-18
<PAGE>
construction loans, which have fixed rates of interest and generally mature
within one year. At September 30, 1996 the Bank had commitments to purchase
adjustable rate loans totalling $1.2 million.
Standby letters of credit commit the Bank to make payments on behalf of third-
party customers in the event of nonoccurrence of certain specified future
events. Standby letters of credit are subject to the Bank's underwriting and
collateral guidelines for extending credit. The amount of collateral, if any,
supporting outstanding letters of credit is based upon management's credit
analysis of the counterparty. Interest rates are generally variable.
NOTE G/SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Bank extends commercial and consumer credit to customers located primarily
in Connecticut. Within its portfolio, the Bank has a concentration of credit in
real estate related loans, commitments, and standby letters of credit. This
concentration includes residential real estate mortgages, real estate
construction loans and commercial mortgages. At September 30, 1996 and 1995,
such loans totalled approximately $278,974,862 and $255,889,000, respectively,
and such commitments and standby letters of credit totalled approximately
$9,834,000 and $6,662,000, respectively. All such loans, commitments and
standby letters of credit are collateralized by real estate located primarily in
Connecticut. Loan to value ratios are based on an analysis of each borrower's
creditworthiness.
NOTE H/BANK PREMISES AND EQUIPMENT
Cost and accumulated depreciation and amortization of the various categories of
bank premises and equipment were as follows:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
ACCUMULATED ACCUMULATED
DEPRECIATION DEPRECIATION
COST AND AMORTIZATION COST AND AMORTIZATION
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank buildings and land $3,450,194 $ 638,189 $3,457,096 $ 578,565
Leasehold improvements 508,979 315,491 507,642 255,869
Furniture and equipment 2,896,930 1,801,408 2,690,210 1,451,481
-----------------------------------------------------------
$6,856,103 $ 2,755,088 $6,654,948 $ 2,285,915
===========================================================
NOTE I/DEPOSITS
An analysis of deposits is as follows:
<CAPTION>
September 30, 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing demand deposits $ 11,249,455 $ 15,228,441
Interest-bearing demand and money market deposits 38,185,487 35,869,827
Savings accounts 105,990,261 109,287,761
Time deposits 153,996,967 151,025,058
------------------------------
$309,422,170 $311,411,087
==============================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
NOTE J/ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
Advances were as follows:
September 30, Rate 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Maturity Date
November 14, 1995 5.970% $ -- $ 5,000,000
October 27, 1998 4.990 5,000,000 5,000,000
February 16, 1999 5.270 5,000,000 --
September 24, 2007 4.000 150,000 150,000
------------------------------
$ 10,150,000 $10,150,000
==============================
</TABLE>
The Bank has access to a pre-approved line of credit with the Federal Home Loan
Bank of Boston (FHLBB) totalling $7,296,000 at September 30, 1996. The Bank's
borrowings from the FHLBB are limited to the amount of qualified collateral that
the Bank holds. Based on available collateral, at September 30, 1996, the Bank
had potential access to approximately $152.5 million in additional financing.
In accordance with an agreement with the FHLBB, the Bank is required to maintain
qualified collateral, as defined in the FHLBB Statement of Credit Policy, free
and clear of liens, pledges and encumbrances as collateral for the advances.
The Bank maintains adequate qualified collateral as defined by the FHLBB.
NOTE K/OTHER BORROWINGS
In connection with its purchase of the Bank's common stock on September 18, 1986
(See Note N), the Employee Stock Ownership Plan (the "Plan") borrowed $794,750
under term notes which expired October 3, 1995. The interest rate was 86.45% of
the lender's prime rate and principal payments were made in equal annual
installments of $79,475 over the life of the loan. The lender had the option to
call the loan on the anniversary date of any future year. The Bank reflected
this debt as other borrowings and as a reduction of stockholders' equity. As of
September 30, 1995, this debt has been fully repaid.
NOTE L/STOCKHOLDERS' EQUITY
On September 18, 1986 MidConn Bank converted from a state chartered mutual
savings bank to a state chartered stock savings bank. In connection with this,
the Bank established a liquidation account for a ten-year period in an amount
equal to its capital accounts as of August 31, 1986. The liquidation account,
which totalled $5,600,000 at September 30, 1995, is maintained for the benefit
of eligible account holders who maintain their savings accounts with the Bank
after the conversion. In the event of a complete liquidation (and only in such
an event), each eligible account holder will be entitled to receive a
distribution from the liquidation account, in the proportionate amount of the
lowest adjusted balance as of any subsequent annual closing date for savings
accounts held, before any liquidation distribution may be made with respect to
common stock.
F-20
<PAGE>
A portion of retained earnings, approximately $5,254,000 as of September 30,
1996, has been designated as a reserve for bad debts in accordance with
provisions of the Internal Revenue Code (the "Code") applicable to savings
banks. If the reserve were to be used for any purpose other than to absorb
losses on loans or if the Bank's qualifying assets as defined by the Code are
less than 60% of total assets, a federal income tax liability could be incurred.
It is not anticipated that the reserve will be made available for other purposes
or that qualifying assets will be less than 60% or that a tax liability thereon
will be imposed.
Connecticut banking laws limit the amount of annual dividends that the Bank may
pay to an amount which approximates the Bank's net income for the then current
year, plus the Bank's net income for the prior two years. The Bank is also
prohibited from paying a cash dividend or repurchasing any of its common stock
if the effect thereof would reduce its capital accounts below minimum regulatory
requirements, or below the amount required to be maintained in the liquidation
account.
NOTE M/STOCK OPTION PLANS
The Bank has an incentive stock option plan for employees and officers
under which options become exercisable upon issuance. A stock option plan for
outside directors also exists under which options become exercisable one year
after the date of grant. Options were granted during 1996, 1995 and 1994 at
exercise prices generally ranging from 85% to 100% of the fair market value of
Common Stock at the date of grant, and have a term not to exceed ten years.
Amounts received upon the exercise of options are credited to stockholders'
equity.
A summary of transactions under the plan follows:
<TABLE>
<CAPTION>
OPTION
SHARES UNDER PRICE RANGE
OPTION PER SHARE
------ ---------
<S> <C> <C>
Outstanding at September 30, 1993 109,240 $ 3.88-$14.13
Granted during 1994 9,640 $10.51-$11.75
Expired during 1994 -- $ --
Exercised during 1994 (9,213) $ 6.59-$12.13
-------
Outstanding at September 30, 1994 109,667 $ 3.88-$14.13
Granted during 1995 11,730 $11.88-$12.33
Expired during 1995 -- $ --
Exercised during 1995 (2,780) $ 5.53-$ 9.35
-------
Outstanding at September 30, 1995 118,617 $ 3.88-$14.13
Granted during 1996 7,000 $11.69-$14.00
Expired during 1996 (4,000) $ 9.35-$ 9.35
Exercised during 1996 (33,417) $ 5.38-$12.06
-------
Outstanding at September 30, 1996 88,200 $ 3.88-$14.13
=======
</TABLE>
Shares available for future grants were 157,600, 160,600 and 22,330 at
September 30, 1996, 1995 and 1994, respectively. Options exercisable at
September 30, 1996, 1995 and 1994 were 86,700, 117,117 and 108,167,
respectively.
F-21
<PAGE>
NOTE N/EMPLOYEE BENEFITS
DEFINED CONTRIBUTION PLAN
On January 1, 1996, the Bank established the MidConn Bank 401(K) Profit
Sharing Plan (the "Plan"). The Plan covers substantially all employees. Each
employee may elect to contribute to the Plan through payroll deductions, up to
10% of his/her salary, subject to certain limitations. The Plan provides for a
Bank match equal to 50% of a participant's contributions not to exceed 6% of a
participant's annual compensation, in addition to discretionary contributions as
determined by the Board of Directors. During the year ended September 30, 1996,
the Bank incurred $51,933 of expense related to the Plan.
DEFINED BENEFIT PLAN
Employees who have completed one full year of service and attained age 21
are eligible for membership in the retirement plan under a noncontributory group
annuity contract. At September 30, 1996, all eligible employees were covered
under the plan. The plan assets are invested in annuity contracts, fixed income
securities, long-term bonds and private placements. The Bank makes annual
contributions to the plan sufficient to meet the minimum funding requirements
set forth in the Employee Retirement Security Act of 1974, plus such additional
amounts as they may determine to be appropriate. Retirement benefits are based
on a percentage of compensation for each year of service up to 30 years. Total
pension expense for the years ended September 30, 1996, 1995 and 1994 was
$383,018, $317,662 and $309,663, respectively.
The following table sets forth the plan's funded status and amounts recorded in
the Bank's financial statements.
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
September 30, 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation, including
vested benefits of $1,869,394 in 1996 and
$1,834,756 in 1995 $ 1,933,530 $ 1,923,462
============================
Projected benefit obligation for
service rendered to date $(3,221,826) $(3,417,612)
Plan assets at fair value 2,423,670 1,947,794
----------------------------
Projected benefit obligation in excess of
plan assets (798,156) (1,469,818)
Unrecognized net asset (12,261) (13,794)
Unrecognized net loss 303,383 981,617
Unrecognized prior service cost 4,393 4,849
----------------------------
Accrued pension cost $ (502,641) $ (497,146)
============================
<CAPTION>
Net pension cost included the following components:
<S> <C> <C>
Service cost -- benefits earned during the
period $ 299,304 $ 254,469
Interest cost on projected benefit
obligation 229,117 202,974
Actual return on plan assets (191,340) (159,492)
Net amortization and deferral 45,937 19,711
----------- -----------
Net periodic pension cost $ 383,018 $ 317,662
=========== ===========
</TABLE>
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 7.75% and 5.5% at
F-22
<PAGE>
September 30, 1996 and 6.75% and 5.5% at September 30, 1995, respectively. The
expected long-term rate of return on plan assets was 9% in 1996 and 1995.
EMPLOYEE STOCK OWNERSHIP PLAN
The Bank sponsors an Employee Stock Ownership Plan (the "Plan" -- See Note K)
covering substantially all full-time employees. The Plan, which is a qualified
employee benefit plan, was adopted by the Board on September 18, 1986 to provide
retirement benefits for the employees of the Bank.
Subsequent to the Bank's conversion to a stock savings bank, the Plan purchased
85,000 shares of the Bank's newly issued common stock. This purchase was funded
by the Plan from the proceeds of a loan with an original balance of $794,750. As
of September 30, 1995, this loan has been repaid in full. The annual
contributions to the Plan of $0, $80,930 and $81,205 were expensed during the
years ended September 30, 1996, 1995 and 1994, respectively.
DEFINED BENEFIT POSTRETIREMENT PLAN
Effective October 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("FAS 106"). The cumulative effect upon adoption resulted in a one-
time decrease to earnings, net of taxes, of $434,570.
As required by FAS 106, the Bank changed its method of accounting for
postretirement benefits other than pensions by accruing the cost and recognizing
the liability for benefits to be provided to retired employees over the
employees' service period. Prior to the adoption of FAS 106, postretirement
benefits other than pensions were expensed as incurred.
The Bank sponsors two defined benefit postretirement plans that cover all
employees hired before October 1, 1993. One plan provides medical and dental
benefits, and the other provides life insurance benefits. The postretirement
health care plan is contributory, with retirees paying a graduated percentage of
the cost based on years of service completed; the life insurance plan is
noncontributory. Both retirement plans are unfunded.
The following table sets forth the plans' combined status and amounts recorded
in the Bank's Statements of Condition.
<TABLE>
<CAPTION>
September 30, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ (298,000) $ (314,000)
Fully eligible active plan participants (5,000) (5,000)
Other active plan participants (402,000) (360,000)
--------------------------
(705,000) (679,000)
Plan assets at fair value -- --
--------------------------
Accumulated postretirement benefit
obligation in excess of plan assets (705,000) (679,000)
Unrecognized net gain from past experience
different from that assumed and
from changes in assumptions (139,000) (83,000)
--------------------------
Accrued postretirement benefit cost $ (844,000) $ (762,000)
==========================
</TABLE>
F-23
<PAGE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<S> <C> <C>
Service cost-benefits earned during the period $ 8,000 $ 32,000
Interest cost on accumulated postretirement
benefit obligation 50,000 46,000
Amortization of (gain) due to changes in assumptions (2,000) (3,000)
-------------------
Net periodic postretirement benefit cost $ 86,000 $ 75,000
===================
</TABLE>
For measurement purposes, a 9.5 % annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1996; the rate was assumed
to decrease gradually to 5.5 % for 2004 and remain at that level thereafter.
The 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 1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of September 30, 1996 by $83,000 and the
aggregate of the service cost and interest cost components of net periodic
postretirement benefit cost for the year by $13,000. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.75 % and 7.50 % for 1996 and 1995, respectively. The rate of
increase in future compensation levels used in determining the accumulated
postretirement benefit obligation was 4% for 1996 and 1995.
NOTE O/INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended September 30, 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes:
Federal $ 645,878 $614,409 $ 909,300
State 191,039 174,379 300,500
----------------------------------
Total current income taxes 836,917 788,788 1,209,800
----------------------------------
Deferred income taxes:
Federal 178,079 (52,468) 133,321
State (123,626) (5,677) 50,962
----------------------------------
Total deferred income taxes (benefit) 54,453 (58,145) 184,283
----------------------------------
Provision for income taxes $ 891,370 $730,643 $1,394,083
==================================
</TABLE>
F-24
<PAGE>
Following is a reconcilement of the statutory federal income tax rate applied to
pre-tax accounting income with the income tax provisions in the statements of
income:
<TABLE>
<CAPTION>
Year Ended September 30, 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax at statutory federal income
tax rates $ 932,943 $ 613,706 $1,104,820
Increase (decrease) resulting from:
State tax, net of federal tax benefit 44,493 111,343 231,965
Dividends received deduction (161,586) (157,744) (62,936)
Amortization of goodwill 146,815 150,737 51,680
Other (71,295) 12,601 68,554
----------------------------------
Income tax provision $ 891,370 $ 730,643 $1,394,083
==================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
1996 1995
ASSET ASSET
September 30, (LIABILITY) (LIABILITY)
- -----------------------------------------------------------------------------
<S> <C> <C>
Deferred loan fees $ 131,532 $ 197,764
Allowance for loan losses 794,972 933,720
Securities valuation 82,190 116,171
Depreciation (188,117) (149,864)
Pension 175,107 187,985
Postretirement benefits 352,754 308,202
Connecticut tax credits 115,437 --
Other, net 61,941 (13,709)
-------------------------
Net deferred tax asset $1,525,816 $1,580,269
=========================
</TABLE>
On August 22, 1996, The Small Business Job Protection Act was signed into
law which repeals the tax bad debt method currently available to the Bank in
effect for fiscal year ending September 30, 1997. The Bank will be required to
change to the method prescribed under Internal Revenue Code Section 585. It is
not anticipated that the change will have a material impact on the Bank's
financial position or results of operations.
NOTE P/COMMITMENTS AND CONTINGENCIES
The Bank has noncancelable leases on six of its branch offices. The branch
office leases contain renewal options which extend for either five or ten years.
In connection with the acquisition of Connecticut Valley Bank in fiscal 1992,
the Bank assumed a land lease for the property on which the acquired branch is
located. Under the lease agreement, which expires April 15, 2018, the Bank has
the option (at the end of the lease) to purchase the land from the landlord for
a price equal to the sum of the fair market value of the land plus 60% of the
fair market value of the building and improvements. If the Bank does not
exercise this option, the landlord must purchase the building and improvements
from the Bank for 40% of their fair market value.
F-25
<PAGE>
Rental expense for fiscal years 1996, 1995 and 1994 was $270,453, $294,585 and
$178,248, respectively. Future minimum rental commitments as of September 30,
1996 for all noncancelable leases are as follows:
<TABLE>
<S> <C>
1997 $ 220,069
1998 208,148
1999 185,684
2000 186,338
2001 188,217
Thereafter 970,092
----------
$1,958,548
==========
</TABLE>
The Bank is involved in litigation arising in the normal course of business. The
Bank believes that resolution of these matters will not result in any payment
that, in the aggregate, would be material to the financial position or results
of operations of the Bank.
NOTE Q/RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" ("FAS 121") and Statement of
Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("FAS 125"). The Bank
will adopt these pronouncements in 1997, as required, and does not expect their
implementation to have a material impact on the Bank's financial condition or
results of operations.
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 122, "Accounting for Mortgage Servicing
Rights" ("FAS 122"). FAS 122 amends FAS 65 "Accounting for Certain Mortgage
Banking Activities" to require that a mortgage banking entity recognize as
separate assets rights to service mortgage loans for others, however those
servicing rights are acquired. FAS 65 required separate capitalization of the
cost of rights which were acquired through a purchase transaction but prohibited
separate capitalization when the rights were acquired through loan origination
activities. FAS 122 also requires that a mortgage banking entity assess
capitalized rights for impairment and establish valuation allowances based on
the fair value of those rights which includes rights acquired prior to adoption
of FAS 122. Prospective adoption of FAS 122 is required for fiscal years
beginning after December 15, 1995, although earlier implementation is
encouraged. The Bank has not yet assessed the impact that the adoption of FAS
122 may have on the Bank's operating results or financial condition.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 permits entities to measure stock
compensation costs using either the intrinsic value-based method or the fair
value-based method. When adopted in fiscal 1997, the Bank intends to continue
using the intrinsic value method and will provide the expanded disclosures
required by FAS 123.
F-26
<PAGE>
MIDCONN BANK
STATEMENT OF CONDITION
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1996 1996 1995
--------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,804,480 $ 6,057,660 $ 6,880,664
Interest bearing deposits 26,530 684,388 113,610
Federal funds sold 2,500,000 150,000 400,000
------------ ------------ ------------
Cash and cash equivalents 8,331,010 6,892,048 7,394,274
Securities:
Available for sale (at market) 22,252,061 15,779,435 36,121,664
Held to maturity (a) 35,610,879 36,744,651 39,710,831
Loans, net (b) 278,137,353 280,168,275 260,694,608
Residential loans held for sale (at market) -- -- 110,000
Bank premises and equipment 4,021,797 4,101,015 4,293,648
Real estate owned 2,337,509 2,333,628 3,408,235
Accrued interest receivable 2,466,394 2,356,590 2,726,745
Federal Home Loan Bank Stock at cost 2,651,500 2,651,500 2,651,500
Goodwill 5,375,765 5,497,889 5,864,260
Other assets 1,991,692 1,903,568 1,833,613
------------ ------------ ------------
Total Assets $363,175,960 $358,428,599 $364,809,378
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $311,793,591 $309,422,170 $315,468,926
Mortgagors' escrow accounts 3,195,496 1,658,073 3,310,292
Advances from Federal Home Loan Bank 10,641,302 10,150,000 10,150,000
Other liabilities 2,123,897 2,353,920 1,734,069
------------ ------------ ------------
Total Liabilities 327,754,286 323,584,163 330,663,287
------------ ------------ ------------
Stockholders' Equity
Preferred stock, no par value, authorized
1,000,000 shares, none issued and
outstanding -- -- --
Common stock, par value $1.00;
authorized 8,000,000 shares; issued and
outstanding, 1,953,469 shares at December 31,
1996; 1,936,002 shares at September 30, 1996;
1,901,590 shares at December 31, 1995. 1,953,469 1,936,002 1,901,590
Additional paid-in capital 15,228,519 15,073,611 14,746,949
Retained earnings 18,220,141 17,827,712 17,444,376
Unrealized gains on
securities available for sale, net 19,545 7,111 53,176
------------ ------------ ------------
Total Stockholders' Equity 35,421,674 34,844,436 34,146,091
------------ ------------ ------------
Total Liabilities And
Stockholders' Equity $363,175,960 $358,428,599 $364,809,378
============ ============ ============
</TABLE>
F-27
<PAGE>
(a) Market value $36,095,178 at December 31, 1996, $36,671,996 at September 30,
1996 and $40,288,234 at December 31, 1995.
(b) Excludes contingent liability of $740,000 at December 31, 1996, $740,000 at
September 30, 1996, and $763,600 at December 31, 1995, and outstanding
letters of credit.
F-28
<PAGE>
MIDCONN BANK
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Mortgage $4,903,894 $4,555,480
Other 449,893 504,308
Interest and dividends on securities:
U. S. government and other bonds 692,973 782,170
Marketable equity securities 253,313 336,375
Other interest income 30,058 101,386
---------- ----------
Total interest income 6,330,131 6,279,719
---------- ----------
INTEREST EXPENSE
Interest on deposits:
Savings deposits 712,827 697,975
Time deposits 2,048,947 2,137,927
Interest on borrowings 131,524 141,855
---------- ----------
Total interest expense 2,893,298 2,977,757
---------- ----------
Net interest income 3,436,833 3,301,962
Provision for loan losses 200,000 125,000
---------- ----------
Net interest income after
provision for loan losses 3,236,833 3,176,962
OTHER INCOME
Fees and service charges 207,599 191,855
Investment securities gains (losses) -- --
---------- ----------
Total other income 207,599 191,855
OTHER EXPENSES
Salaries and employee benefits 1,128,066 1,072,367
Occupancy expense, net 168,560 192,418
Computer services 119,822 115,961
Real estate owned 164,028 129,389
Amortization of goodwill 122,124 122,124
Other 533,539 705,390
---------- ----------
Total other expenses 2,236,139 2,337,649
---------- ----------
Income before income taxes 1,208,293 1,031,168
Income taxes 523,027 421,332
---------- ----------
Net Income $ 685,266 $ 609,836
========== ==========
Earnings per share $0.35 $0.32
Dividends paid per share $0.15 $0.15
Weighted average share outstanding 1,940,638 1,900,575
</TABLE>
F-29
<PAGE>
MIDCONN BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional Net unrealized gain
Common Stock paid-in Retained on securities
Shares Amount capital earnings available for sale Totals
------ ------ ------- -------- ------------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1995 1,899,560 $1,899,560 $14,721,105 $17,119,474 $10,599 $33,750,738
Net income -- -- -- 609,836 -- 609,836
Increase in net unrealized
gain on securities
available for sale -- -- -- -- 42,577 42,577
Issuance of common stock
Dividend Reinvestment Plan 2,030 2,030 25,844 -- -- 27,874
Issuance of common stock by
exercise of stock options -- -- -- -- -- --
Cash dividends paid --
$.15 per share -- -- -- (284,934) -- (284,934)
--------- ---------- ----------- ----------- --------- -----------
Balance at
December 31, 1995 1,901,590 $1,901,590 $14,746,949 $17,444,376 $53,176 $34,146,091
========= ========== =========== =========== ========= ===========
Balance at
September 30, 1996 1,936,002 $1,936,002 $15,073,611 $17,827,712 $ 7,111 $34,844,436
Net income -- -- -- 685,266 -- 685,266
Increase in net unrealized
gain on securities
available for sale -- -- -- -- 12,434 12,434
Issuance of common stock by
Dividend Reinvestment Plan 1,217 1,217 22,880 -- -- 24,097
Issuance of common stock
exercise of stock options 16,250 16,250 132,028 -- -- 148,278
Cash dividends paid --
$.15 per share -- -- -- (292,837) -- (292,837)
--------- ---------- ----------- ----------- --------- -----------
Balance at
December 31, 1996 1,953,469 $1,953,469 $15,228,519 $18,220,141 $19,545 $35,421,674
========= ========== =========== =========== ========= ===========
</TABLE>
F-30
<PAGE>
MIDCONN BANK
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
December 31, 1996 December 31, 1995
------------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 685,266 $ 609,836
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses 200,000 125,000
Provision for OREO losses 95,000 25,000
Provision for depreciation and amortization 112,521 127,279
Amortization of investments security discounts
and premiums 4,799 18,020
Amortization of loan fees discounts and premiums 7,664 (70,983)
Amortization of goodwill 122,124 122,124
Realized investment security (gains) losses -- --
(Gains) losses on sale of other real estate owned -- (21,132)
Writedown of other real estate owned -- --
(Gains) losses on sale of loans -- (53)
(Gains) losses on sale of fixed assets (4,943) --
(Increase) decrease in accrued income receivable (109,804) 303,591
(Increase) decrease in other assets (96,413) 145,272
Increase (decrease) in other liabilities (230,023) 411,881
------------ ------------
Net cash provided by operating activities 786,191 1,795,835
INVESTING ACTIVITIES:
Proceeds from sales and maturities of investment
securities 9,077,070 9,036,498
Purchases of investment securities (14,400,000) (14,207,803)
Proceeds from the sale of loans -- 337,424
Purchases of loans -- (5,774,226)
Net (increase) decrease in loans 1,656,463 921,494
Purchases of premises and equipment (38,410) (60,382)
Additional investment in other real estate owned (22,901) (148,151)
Proceeds from sale of other real estate owned 90,815 757,147
Proceeds from sale of fixed assets 10,050 8,488
Sale (purchase) of Federal Home Loan Bank stock -- --
------------ ------------
Net cash provided (used) by investing activities (3,626,913) (9,129,511)
FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, N.O.W.
accounts, savings accounts and escrow accounts 2,374,384 3,499,123
Net increase (decrease) in certificates of deposit 1,534,460 2,177,461
Proceeds from issuance of common stock 24,097 27,874
Proceeds from exercise of stock options 148,278 --
Increase (decrease) in Federal Home Loan Bank
advances 491,302 --
Cash dividends paid (292.837) (284,934)
------------ ------------
Net cash provided by (used in) financing activities 4,279,684 5,419,524
------------ ------------
Increase (decrease) in cash and
cash equivalents 1,438,962 (1,914,152)
</TABLE>
F-31
<PAGE>
<TABLE>
<S> <C> <C>
Cash and cash equivalents at
beginning of the period 6,892,048 9,308,426
---------- ---------
Cash and cash equivalents at
end of the period $ 8,331,010 $7,394,274
=========== ==========
</TABLE>
F-32
<PAGE>
Basis of Presentation:
The unaudited historical interim financial statements of MidConn Bank included
herein, as of and for the three-month periods ended December 31, 1996 and 1995
contain all adjustments which, in the opinion of MidConn Bank management, are
necessary to present a fair statement of the historical financial condition,
results of operations and cash flows for the interim periods reported.
Operating results for the interim periods are not necessarily indicative of
those expected for the full year.
These interim financial statements have been prepared under the presumption that
readers of the historical interim financial information have either read or have
access to MidConn Bank's audited financial statements for the year ended
September 30, 1996. Accordingly, footnote disclosures which would substantially
duplicate the disclosures contained in those audited financial statements have
been omitted from these historical interim financial statements. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such instruction, rules and regulation.
Although MidConn Bank believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these unaudited
historical interim financial statements be read in conjunction with the audited
financial statements and the notes thereto of MidConn Bank for the year ended
September 30, 1996.
F-33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
------------------------------------------
Section 145 of the DGCL sets forth certain circumstances under which
directors, officers, employees and agents may be indemnified against liability
that they may incur in their capacity as such. Section 145 of the Delaware
General Corporation Law, which is filed as Exhibit 99.1 to this Registration
Statement, is incorporated herein by reference.
Article IX of EFC's Bylaws, entitled "Indemnification," provides for
indemnification of EFC's directors, officers, trustees, employees and agents
under certain circumstances. Article IX of EFC's Bylaws, which are filed as
Exhibit 3.2 to this Registration Statement, is incorporated herein by reference.
EFC also has the power to purchase and maintain insurance on behalf of its
directors, officers, trustees, employees and agents and persons serving in such
capacities with other entities at EFC's request. EFC has in effect a policy of
liability insurance covering its directors and officers, the effect of which is
to reimburse the directors and officers of EFC against certain damages and
expenses resulting from certain claims made against them caused by their
negligent act, error or omission.
The foregoing indemnity and insurance provisions have the effect of
reducing directors' and officers' exposure to personal liability for actions
taken in connection with their respective positions.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Item 21. Exhibits and Financial Statement Schedules.
------------------------------------------
(a) Exhibits.
2.1 Agreement and Plan of Merger, dated as of January 27, 1997, by and
among EFC, Eagle Bank and MidConn Bank (incorporated by reference to
Exhibit 2.1 to EFC's Current Report on Form 8-K filed with the SEC on
February 5, 1997).
2.2 Option Agreement, dated as of January 27, 1997, between MidConn Bank
and EFC (incorporated by reference to Exhibit 2.2 to EFC's Current
Report on Form 8-K filed with the SEC on February 5, 1997).
2.3 MidConn Bank Stockholder Agreement, dated as of January 27, 1997, by
and among EFC and the stockholders of MidConn Bank identified therein
(incorporated by reference to Exhibit 2.1 to EFC's Current Report on
Form 8-K filed with the SEC on February 5, 1997).
II-1
<PAGE>
2.4 Eagle Financial Corp. Stockholder Agreement, dated as of January 27,
1997, by and among EFC and the stockholders of EFC identified therein
(incorporated by reference to Exhibit 2.1 to EFC's Current Report on
Form 8-K filed with the SEC on February 5, 1997).
3.1 Restated Certificate of Incorporation of EFC (incorporated herein by
reference to the Pre-Effective Amendment No. 2 to EFC's Registration
Statement on Form S-1 (No. 33-9166), filed with the SEC on December
24, 1986).
3.2 Bylaws of EFC, as amended to date (incorporated herein by reference to
EFC's Current Report on Form 8-K dated November 12, 1993).
5 Opinion of Hogan & Hartson L.L.P. as to the validity of the securities
registered hereunder, including the consent of that firm.*
8 Form of Opinion of Hogan & Hartson L.L.P. as to certain tax
matters.
23.1 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5 and
Exhibit 8).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Ostrowski & Company, Inc.
23.5 Consent of Keefe, Bruyette & Woods, Inc.
24 Power of attorney (incorporated herein by reference from the signature
page of the Registration Statement on Form S-4 filed by EFC with the
SEC on March 17, 1997).
99.1 Section 145 of the Delaware General Corporation Law.*
99.2 Form of MidConn Bank proxy card.*
99.3 Form of EFC proxy card.*
-----------------
*Previously filed.
Item 22. Undertakings.
------------
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the
II-2
<PAGE>
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not
exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the
SEC pursuant to rule 424(b) ((S) 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of
EFC's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(d) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415 ((S)
230.415 of this chapter), will be filed as a part of an amendment to
the Registration Statement and will not be used until such amendment
is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
(e) The undertaking concerning indemnification is included as part of the
response to Item 20.
(f) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Joint Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the Registration Statement when it became
effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bristol, State of
Connecticut, on the 21st day of April, 1997.
EAGLE FINANCIAL CORP.
By: /s/ Robert J. Britton
----------------------------------
Robert J. Britton
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 21st day of April, 1997.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Robert J. Britton Chairman of the Board, President
- -------------------------- and Chief Executive Officer
Robert J. Britton (Principal Executive Officer)
/s/ Mark J. Blum Vice President, Chief Financial Officer and
- -------------------------- Secretary (Principal Financial and Accounting
Mark J. Blum Officer)
/s/ Richard H. Alden* Director
- --------------------------
Richard H. Alden
/s/ George T. Carpenter* Director
- --------------------------
George T. Carpenter
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
/s/ Theodore M. Donovan* Director
- -------------------------------
Theodore M. Donovan
/s/ Thomas V. LaPorta* Director
- -------------------------------
Thomas V. LaPorta
/s/ Steven E. Lasewicz, Jr.* Director
- -------------------------------
Steven E. Lasewicz, Jr.
/s/ Ralph T. Linsley* Director
- -------------------------------
Ralph T. Linsley
/s/ John F. McCarthy* Director
- -------------------------------
John F. McCarthy
/s/ Ernest J. Torizzo* Director
- -------------------------------
Ernest J. Torizzo
*As power of attorney
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
-------
No. Exhibit
--- -------
<C> <S>
2.1 Agreement and Plan of Merger, dated as
of January 27, 1997, by and among EFC,
Eagle Bank and MidConn Bank
(incorporated by reference to Exhibit
2.1 to EFC's Current Report on Form 8-K
filed with the SEC on February 5, 1997).
2.2 Option Agreement, dated as of January
27, 1997, between MidConn Bank and EFC
(incorporated by reference to Exhibit
2.2 to EFC's Current Report on Form 8-K
filed with the SEC on February 5 1997).
2.3 MidConn Bank Stockholder Agreement,
dated as of January 27, 1997, by and
among EFC and the stockholders of
MidConn Bank identified therein
(incorporated by reference to Exhibit
2.1 to EFC's Current Report on Form 8-K
filed with the SEC on February 5, 1997).
2.4 Eagle Financial Corp. Stockholder
Agreement, dated as of January 27,
1997, by and among EFC and the
stockholders of EFC identified therein
(incorporated by reference to Exhibit
2.1 to EFC's Current Report on Form 8-K
filed with the SEC on February 5, 1997).
3.1 Restated Certificate of Incorporation
of EFC (incorporated herein by
reference to the Pre-Effective
Amendment No. 2 to EFC's Registration
Statement on Form S-1 (No. 33-9166),
filed with the SEC on December 24,
1996).
3.2 Bylaws of EFC, as amended to date
(incorporated herein by reference to
EFC's Current Report on Form 8-K dated
November 12, 1993).
5 Opinion of Hogan & Hartson L.L.P. as to
the validity of the securities
registered hereunder, including the
consent of that firm.*
8 Form of Opinion of Hogan & Hartson
L.L.P. as to certain tax matters.
23.1 Consent of Hogan & Hartson L.L.P.
(included as part of Exhibit 5 and
Exhibit 8).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Ostrowski & Company, Inc.
23.5 Consent of Keefe, Bruyette & Woods, Inc.
24 Power of attorney (incorporated herein
by reference from the signature page of
the Registration Statement on Form S-4
filed by EFC with the SEC on March 17,
1997).
99.1 Section 145 of the Delaware General
Corporation Law.*
99.2 Form of MidConn Bank proxy card.*
99.3 Form of EFC proxy card.*
--------------------------------------------------
</TABLE>
*Previously filed.
II-7
<PAGE>
Exhibit 8
---------
___________, 1997
Members of the Board of Directors
Eagle Financial Corp.
222 Main Street
Bristol, Connecticut 06010
Members of the Board of Directors
MidConn Bank
346 Main Street
Kensington, Connecticut 06037
Dear Board Members:
On January 27, 1997, Eagle Financial Corp., a Delaware corporation
("EFC"), Eagle Bank, a federally-chartered savings bank, which is wholly-owned
by EFC ("Eagle Bank"), and MidConn Bank, a Connecticut-chartered savings bank
("MidConn Bank") entered into an agreement and plan of merger (the "Merger
Agreement") pursuant to which MidConn Bank will be merged into Eagle Bank (the
"Merger"), with Eagle Bank surviving. In connection with the Merger, you have
requested that we render to you our opinion with respect to certain Federal
income tax consequences of the Merger.
Documents Reviewed
------------------
In connection with the preparation of this opinion, we have examined
and relied upon the following documents (including all exhibits and schedules
thereto) (the "Reviewed Documents"): (1) the Merger Agreement; (2)
representations and certifications made to us by EFC (attached hereto as Exhibit
-------
A); (3) representations and certifications made to us MidConn Bank and certain
- -
holders of five percent or more of MidConn Bank Common Stock (attached hereto as
Exhibits B and C); (4) the Registration Statement on Form S-4 filed with the
- ---------- -
Securities and Exchange Commission on March 17, 1997 (the "Registration
Statement"); and (5) such other instruments and documents related to the
E-1
<PAGE>
Eagle Financial Corp.
MidConn Bank
____________, 1997
Page 2
formation, organization and operation of EFC, Eagle Bank and MidConn Bank or to
the consummation of the Merger as we have deemed necessary or
appropriate.1/
The Merger
----------
Based solely upon our review of the documents set forth above, and
upon such information as EFC, Eagle Bank and MidConn Bank have provided to us
(which we have not attempted to verify in any respect), and in reliance upon
such documents and information, we understand that the proposed transaction and
the relevant facts with respect thereto are as follows:
EFC is a Delaware corporation and the holding company of Eagle Bank,
its wholly-owned, federally chartered, FDIC insured savings bank subsidiary.
Both EFC and Eagle Bank are headquartered in Bristol, Connecticut. Through
Eagle Bank, EFC provides a full range of financial services to customers from 19
traditional banking offices and four supermarket branch offices located in
Hartford and eastern Litchfield Counties in Connecticut. EFC, as a holding
company, is regulated primarily by the Office of Thrift Supervision at the
federal level and by the Connecticut Commissioner of Banking.
Eagle Bank, a federally chartered savings bank, is a wholly-owned
subsidiary of EFC. Eagle Bank will be the surviving bank in the Merger. Eagle
Bank, as a federal savings bank, is regulated primarily by the Office of Thrift
Supervision and as to certain matters by the Federal Deposit Insurance
Corporation.
MidConn Bank, a Connecticut-chartered savings bank, is headquartered
in Kensington, Connecticut. Deposits at MidConn Bank are FDIC insured. MidConn
Bank currently serves customers from eight branch offices located in Hartford
County and two branch offices located in Middlesex County. MidConn Bank is
engaged primarily in the business of attracting deposits from the general public
and using those funds and other sources of funds primarily for residential and
commercial mortgage loans. MidConn Bank, as a state-chartered savings bank, is
regulated by the Connecticut Commissioner and by the FDIC.
The purpose of the Merger is to enable EFC to acquire the assets and
business of MidConn Bank. The Merger will result in an expansion of EFC's
primary market area to include MidConn Bank's banking offices in Hartford
County, Connecticut. The assets and business of MidConn Bank's banking offices
will broaden EFC's existing operations in Hartford and eastern Litchfield
Counties. EFC expects to achieve reductions in the current operating expenses
of MidConn Bank upon the consolidation of MidConn Bank's operations into Eagle
Bank.
The EFC Board of Directors determined that the Merger is fair to, and
in the best interests of, EFC and its shareholders. In making this
determination the EFC Board of Directors considered, among other things, that,
after factoring in anticipated cost savings of thirty percent to forty percent,
EFC expects the Merger to be accretive to earnings per share within the first
year of post-Merger operation. The MidConn Bank Board of Directors determined
that the Merger is fair to, and in the best interests of, MidConn Bank and its
shareholders. In making this determination, the MidConn Bank Board of Directors
considered, among other things, the potential synergies resulting from
- ------------------
1/ All capitalized terms used herein and not otherwise defined shall have the
same meaning as they have in the Registration Statement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
E-2
<PAGE>
Eagle Financial Corp.
MidConn Bank
____________, 1997
Page 3
consolidation of the two companies' operations and the related potential for
appreciation and growth in earnings and book value of EFC as a result of the
Merger.
The Merger Agreement provides for the acquisition of MidConn Bank by
EFC through the merger of MidConn Bank with and into Eagle Bank, with Eagle Bank
being the Surviving Bank which will continue to be a wholly-owned subsidiary of
EFC. Upon the consummation of the Merger, each issued and outstanding share of
MidConn Bank Common Stock, except for (i) shares held as treasury stock or held,
directly or indirectly, by EFC, MidConn Bank or any of EFC's subsidiaries (other
than shares held in a fiduciary capacity or in respect of a debt previously),
which shall be canceled; and (ii) shares that are owned by shareholders who have
properly dissented from the Merger, will be converted into .86 of a share of EFC
Common Stock (the "Exchange Ratio").
Certificates for fractions of shares of EFC Common Stock will not be
issued. Under the Merger Agreement, in lieu of a fractional share of EFC Common
Stock, each holder of MidConn Bank Common Stock will be entitled to receive an
amount of cash equal to the fraction of a share of EFC Common Stock to which
such holder would otherwise be entitled multiplied by the average of the daily
closing prices per share of EFC Common Stock, as reported on The Nasdaq National
Market, for the 20 consecutive trading days on which shares of EFC Common Stock
are actually traded ending on the third trading day preceding the closing date
of the Merger. Following consummation of the Merger, no holder of MidConn Bank
Common Stock would be entitled to dividends or other rights in respect of any
such fraction.
As of the close of business on April 17, 1997, there were outstanding
options ("MidConn Options") to purchase _____ shares of MidConn Bank Common
Stock at an average exercise price of $___ per share, all of which are or will
be, immediately before the effectiveness of the Merger (the "Effective Time"),
vested and exercisable in full. Under the Merger Agreement, each holder of a
MidConn Option shall have the right to receive, at the Effective Time, in
substitution for and cancellation of such MidConn Option, shares of EFC Common
Stock in accordance with a specified formula which will generally result in the
option holder receiving shares of EFC Common Stock having a value (based on a
20-trading-day average price) essentially equal to the "spread" on the option
(that is, the value of shares of EFC Common Stock, based on the Exchange Ratio
and such average price, that the option holder would have received if he or she
had exercised the option, reduced by the applicable exercise price).
Under Connecticut law, the holders of MidConn Bank Common Stock are
entitled to dissenters' rights of appraisal in connection with the Merger.
Shares of MidConn Bank Common Stock that are issued and outstanding immediately
prior to the Effective Time and that are owned by shareholders who have properly
dissented from the pursuant the applicable provisions of the Connecticut General
Statutes, shall not be converted into the right to receive shares of EFC Common
Stock, unless and until such shareholders shall have failed to perfect or shall
have effectively withdrawn or lost their right of payment under applicable law.
If any such shareholder shall have failed to perfect or shall have effectively
withdrawn or lost such right of payment, the shares of MidConn Bank Common Stock
held by such shareholder shall thereupon be deemed to have been converted into
the right to receive and become exchangeable for, at the Effective Time, shares
of EFC Common Stock pursuant to the Merger Agreement.
E-3
<PAGE>
Eagle Financial Corp.
MidConn Bank
____________, 1997
Page 4
Assumptions and Representations
-------------------------------
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. All information contained in the Reviewed Documents is accurate.
2. The information presented in the Reviewed Documents or otherwise
furnished to us accurately and completely describes all material facts relevant
to our opinion.
3. There has been (or will be by the Effective Time) due execution
and delivery of the Reviewed Documents where due execution and delivery are
prerequisites to effectiveness thereof.
4. All of the Reviewed Documents are authentic, all copies of
original documents conform to the originals, and all such original documents are
authentic.
5. All of the obligations imposed by the Reviewed Documents have been
and will continue to be performed or satisfied in accordance with their
terms.
6. The Merger will be effective under the applicable state law.
7. All representations made in the exhibits hereto are true, correct,
and complete in all material respects. Any representation or statement made "to
the best of knowledge" or similarly qualified is correct without such
qualification.
Opinion - Federal Income Tax Consequences
-----------------------------------------
Based upon and subject to the assumptions and qualifications set forth
herein, it is our opinion that for Federal income tax purposes the following
will result:
(a) The Merger will qualify as a tax-free reorganization under the
provisions of section 368(a) of the Code.
(b) No gain or loss will be recognized to the MidConn Bank
shareholders on the exchange of their MidConn Bank Common Stock solely for EFC
Common Stock (section 354(a)(1)).
(c) The tax basis of the EFC Common Stock to be received by the
shareholders of MidConn Bank will be the same as the basis of the MidConn Bank
Common Stock to be surrendered in exchange therefore (section 358(a)(1)).
(d) The holding period of the EFC Common Stock received by the
shareholders of MidConn Bank will include the period during which MidConn Bank
Common Stock surrendered was held, provided the MidConn Bank Common Stock
surrendered was held as a capital asset by the shareholders of Midconn Bank at
the Effective Time (section 1223(1)).
(e) The payment of cash to a MidConn Bank shareholder in lieu of
fractional share interests of EFC Common Stock will be treated for Federal
income tax purposes as if the fractional shares were distributed as part of the
exchange and then redeemed by EFC. Generally, the shareholder will recognize
gain or loss (capital gain or loss if the shareholder held its MidConn Bank
Common Stock as a capital asset) equal to
E-4
<PAGE>
Eagle Financial Corp.
MidConn Bank
____________, 1997
Page 5
the difference between the shareholder's basis in the fractional share
(determined under (c) above) and the cash received in lieu of the fractional
share.
(f) Neither EFC, Eagle Bank, nor MidConn Bank will recognize any gain
or loss as a result of the Merger.
Our opinion set forth herein is based upon the description of Merger
as set forth above in the section captioned "The Merger" and in the Merger
Agreement and Registration Statement. For purposes of rendering our opinion, we
have not made an independent investigation of the facts set forth in any of the
Reviewed Documents. If the actual facts relating to any aspect of the Merger
differ from this description in any material respect, our opinion may become
inapplicable.
Further, our opinion is based upon the Code, Treasury Regulations
thereunder (including proposed and temporary Treasury Regulations), and
interpretations of the foregoing as expressed in court decisions, administrative
determinations, and legislative history as of the date hereof. These provisions
and interpretations are subject to changes, which may or may not be retroactive
in effect, that might result in material modifications of our opinion.
Our opinion is not intended to address the tax consequences to a
holder of a MidConn Option who receives shares of EFC Common Stock in exchange
therefor pursuant to the Merger. We hereby consent to the use of this opinion
letter as an exhibit to the Registration Statement and to the use of our name in
the Registration Statement. In addition, we hereby consent to making this
opinion letter available to the shareholders of MidConn Bank.
Sincerely yours,
E-5
<PAGE>
Exhibit 23.2
------------
Independent Auditors' Consent
-----------------------------
The Board of Directors and Shareholders
Eagle Financial Corp.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus. Our report
dated October 17, 1996, contains an explanatory paragraph that states 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.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
April 21, 1997
E-6
<PAGE>
Exhibit 23.3
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in the Pre-Effective Amendment No. 1 to this
registration statement on Form S-4 of our report, which includes an explanatory
paragraph regarding the adoption of the provisions of Financial Accounting
Standard No. 115 "Accounting for Certain Investments in Debt and Equity
Securities", effective October 1, 1994, and the adoption of the provisions of
Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and No. 109 "Accounting for Income Taxes",
effective October 1, 1993, dated October 28, 1996 on our audit of the financial
statements of MidConn Bank. We also consent to the reference to our firm under
the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Hartford, Connecticut
April 21, 1997
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<PAGE>
Exhibit 23.4
------------
OSTROWSKI & COMPANY, INC.
Bank and Thrift Advisors
ONE WORLD TRADE CENTER WESTGATE OFFICE CENTER
Suite 2135 700 West Johnson Avenue
New York, NY 10048-0202 Cheshire, CT 06410-1135
212-432-0055 203-699-1445
FAX: 212-432-1254 FAX: 203-699-1447
CONSENT OF OSTROWSKI & COMPANY, INC.
------------------------------------
We hereby consent to the use of our firm's name in the form S-4
Registration Statement of Eagle Financial Corp. ("Eagle") and amendments thereto
relating to the registration of shares of Eagle's common stock to be issued in
connection with the proposed acquisition of MidConn Bank. We also consent to
the inclusion of our opinion letter dated January 27, 1997 as an Appendix to the
Joint Proxy Statement/Prospectus included as part of the Form S-4 Registration
Statement, and the references to our opinion included in the Joint Proxy
Statement/Prospectus.
Ostrowski & Company, Inc.
/s/ Ostrowski & Company, Inc.
New York, New York
April 17, 1997
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<PAGE>
Exhibit 23.5
------------
KEEFE, BRUYETTE & WOODS, INC.
Specialists in Banking & Financial Services
ONE FINANCIAL PLAZA . HARTFORD, CONN. 06103
(860) 541-6700 . (800) 726-0006
KBW
===
CONSENT OF KEEFE, BRUYETTE & WOODS, INC.
----------------------------------------
We hereby consent to the use of our letter to the Board of Directors
of Eagle Financial Corp. to be included as an exhibit to the Proxy Statement,
and to all references to our firm in such Proxy Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
April 17, 1997
By: /s/ Frederick W. Wassmundt
--------------------------
Frederick W. Wassmundt
Vice President
E-9
