Item 1. Business
General
Eagle Financial Corp. ("Eagle" or the "Company") is the holding company of Eagle Federal Savings Bank ("Eagle Federal" or the "Bank"). Eagle was organized in 1986 under Delaware law for the purpose of becoming the holding company of First Federal Savings and Loan Association of Torrington, Connecticut ("Torrington") upon its conversion to a stock company in 1987. In 1988, BFS Bancorp, Inc., the holding company of Bristol Federal Savings Bank, Bristol, Connecticut ("Bristol"), merged into Eagle in a combination structured as a merger of equals and accounted for as a pooling-of-interests. Bristol had converted to a stock company in 1987. Torrington and Bristol have operated as savings institutions since 1919 and 1924, respectively. In January 1993, Eagle merged Bristol with Torrington under the new name Eagle Federal Savings Bank. Unless otherwise stated, all references herein to Eagle or the Company include Eagle Federal and other subsidiaries on a consolidated basis.
Eagle, at September 30, 1996, had total assets of $1.4 billion, net loans receivable of $814.5 million, deposits of $1.1 billion and shareholders' equity of $101.1 million. Through Eagle Federal, the Company provides consumer banking services through 19 traditional banking offices and 4 in-store supermarket branch offices in Connecticut, serving the Torrington, Bristol, and Hartford market regions. As a community oriented savings bank, Eagle Federal focuses on the financial needs of its customers in these local markets, seeking to develop long-term deposit and lending relationships. In its lending activities, the Bank stresses asset quality through its emphasis on 1-4 family residential first mortgage lending in its local markets and the use of conservative loan underwriting standards. Deposit accounts at the Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC").
Eagle's net income has increased each of the previous eight fiscal years from $3.5 million, or $1.06 per share, in fiscal 1989 to $13.6 million, or $2.89 per share, in fiscal 1996. Eagle intends to continue to concentrate on increasing its earnings, maintaining high asset quality, meeting customer needs in its existing local markets and expanding through selected future acquisitions.
The following table indicates selected ratios for the periods indicated:
(a) If the effect of the unrealized gains and losses on securities available for sale had been excluded, the return on equity ratio would have been 13.82% and 12.55% for the years ended September 30, 1996 and 1995, respectively.
(b) If the effect of the unrealized gains and losses on securities available for sale had been excluded, the average equity to average assets ratio would have been 7.23% and 7.58% for the years ended September 30, 1996 and 1995, respectively.
Eagle's principal executive office is located at 222 Main Street, Bristol, Connecituct 06010 and its telephone number is (860) 314-6400.
Acquisitions - In past years, Eagle has significantly expanded its operations through three federally assisted acquisitions in which Eagle Federal acquired certain assets and assumed deposit liabilities from the FDIC or the Resolution Trust Corporation ("RTC"). Substantially all of the loans acquired in these acquisitions consisted of 1-4 family residential first mortgage loans and home equity loans. In the largest and most recent assisted acquisition, the Bank of Hartford, Inc. ("Bank of Hartford") acquisition, Eagle Federal also acquired $72.7 million of investment securities, substantially all of which were U.S. Treasury and Government agency obligations, and loan servicing rights on $80.5 million of loans with an average loan servicing fee of 0.375%.
During 1996, Eagle reshaped the structure of its branch network as a result of two open market transactions. In October 1995, Eagle announced the purchase of five branch offices located in the greater Hartford market area 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"). In December 1995, Eagle announced the sale of seven branch offices located in the Danbury market to Union Savings Bank of Danbury ("Union"). The combination of these two transactions demonstrated Eagle's commitment to expanding its presence in the Hartford market area while at the same time creating a more efficient branch network made up of larger, more geographically concentrated branch offices.
Eagle purchased five branch offices in the Fleet/Shawmut transaction, assumed deposits totaling $253 million and acquired $36 million in loans, approximately $24 million of which were commercial loans. As a result of the premium paid on the deposits assumed, along with certain other purchase accounting adjustments, Eagle Federal recorded goodwill in the amount of $19.9 million. The transaction was completed in January 1996. Shortly thereafter, Eagle Federal closed two branch offices that were in close proximity to two of the acquired branch offices and transferred all customer accounts to the newly acquired branch offices.
The sale of the branches to Union, which was completed in March 1996, included $184 million of deposits and generated a $15.9 million gain principally due to the premium received on the deposits. This transaction removes Eagle from a highly competitive, geographically separate market place and allows for the focus of resources in a more concentrated area of Connecticut.
Eagle's expansion strategy, initially reflected in the Bank of Hartford acquisition and reinforced through the Fleet/Shawmut and Union transactions, represents a natural extension of Eagle's original markets since many residents of Bristol and Torrington commute to the Hartford area. The Hartford market area is contiguous to Eagle's original market areas, has a higher population density and is generally more affluent than the Bristol and Torrington markets.
Eagle believes that the operation of more geographically concentrated branch offices will not only provide for an efficient retail service network but also allow Eagle to maximize opportunities for residential and commercial loan production, in addition to other services.
Business - As a holding company, the business operations of Eagle are conducted through the Bank. The Bank primarily is engaged in the business of accepting deposits from the general public and using such funds in the origination of first mortgage loans for the purchase, refinance or construction of 1-4 family homes. At September 30, 1996, 90.3%, or $744.8 million, of the Bank's $824.7 million total gross loans receivable was secured by first mortgages on real estate. The Bank's real estate loans included $666.8 million of first mortgage loans secured by 1-4 family residential real estate (80.9% of total gross loans receivable) and $77.9 million of multi-family, construction, commercial real estate, and land loans (9.4% of total gross loans receivable). The remaining $79.9 million of loans (9.7% of total gross loans receivable) includes $38.4 million of home equity lines of credit (4.7% of total gross loans receivable), $27.5 million of second mortgage loans (3.3% of total gross loans receivable) and $6.9 million of commercial loans (0.8% of total gross loans receivable) with the remainder of the loans being primarily loans secured by deposits and personal loans.
Eagle has experienced increased loan originations, with $236.1 million of originations in fiscal 1996, compared to $155.7 million in fiscal 1995. The increase is primarily attributable to a favorable interest rate environment for the origination of fixed rate residential mortgage loans, which accounted for 48% of total loan production in 1996. Commercial loan originations of $22.8 million in 1996 compared to $700,000 in 1995 also contributed significantly to the improved loan origination activity. Residential mortgage lending has been and will continue to be Eagle Federal's main focus, however, the Bank is moving forward with its strategy to diversify the loan portfolio by originating commercial real estate and small business loans within its primary market area. The Bank began the commercial banking initiative in 1995, made significant progress in 1996 and expects to further the expansion of commercial banking in 1997. Eagle also intends to increase the emphasis on its home equity and consumer lending programs. The marketing of these loans will focus on Eagle's existing customer base, customers acquired as part of the Fleet/Shawmut acquisition and new relationships within Eagle's primary market areas. See "Lending Activities -- General."
Based on its lending strategy, Eagle has been able to maintain relatively stable asset quality. Total non-performing assets of Eagle were $12.3 million at September 30, 1994, $13.6 million at September 30, 1995 and $12.3 million at September 30, 1996. At those dates, non-performing assets constituted 1.51%, 1.89%, and 1.51% respectively, of total loans receivable and real estate owned. At September 30, 1996, Eagle's allowance for loan losses totaled $8.6 million, or 93% of total non-performing loans.
Eagle Federal's funding strategy is focused primarily on developing core deposits such as regular savings and checking accounts, and attracting term certificates of deposit.
Eagle also makes available to its customers various investment products through Liberty Securities Corporation, a registered broker-dealer not affiliated with Eagle. These products include mutual funds, unit investment trusts and fixed- and variable-rate annuity contracts, as well as discount brokerage services.
Regulation - Eagle, as a unitary thrift holding company, and Eagle Federal, as its wholly-owned subsidiary, are subject to comprehensive regulation, supervision and examination by the Office of Thrift Supervision ("OTS"), as the primary federal regulator of the Bank. The FDIC also has significant regulatory authority over the Bank. The Board of Governors of the Federal Reserve System ("FRB") has regulatory authority as to certain matters concerning the Bank. Eagle Federal is a member of the Federal Home Loan Bank ("FHLB") System. FHLB advances are a source of funds for the Bank. See "Regulation."
Lending Activities
General. Eagle traditionally has concentrated its lending activities on the origination and purchase of loans secured by first mortgage liens for the purchase, refinancing or construction of residential real property. At September 30, 1996, mortgage loans, including those secured by 1-4 family residential units, multi-family residential units, commercial real estate and land, aggregated $744.8 million or 90.3% of Eagle's gross loans receivable portfolio. At September 30, 1995 and 1994, such mortgage loans aggregated $654.6 million, or 90.7%, and $751.9 million, or 91.6%, respectively. The remainder of Eagle's portfolio consists of commercial and consumer loans, primarily home equity loans. At September 30, 1996, over 95% of Eagle's real estate mortgage loans were secured by property located in Connecticut. Substantially all of the remaining real estate secured loans were originated prior to 1982.
At September 30, 1996 commercial real estate loans totaled $39.5 million and are generally secured by a mix of retail and professional office properties. This represents a significant increase from the amount outstanding at September 30, 1995 of $15.0 million. The increase was principally the result of the acquisition of commercial real estate loans in the Fleet/Shawmut transaction totaling $22.2 million. At September 30, 1996, the Company had a total of $6.9 million of non-real estate commercial loans outstanding. Multi-family loans, secured by properties with 5 units or more, totaled $15.5 million as of September 30, 1996. This amount is down slightly from the September 30,1995 total of $16.7 million. Land development loans increased to $8.6 million at September 30, 1996 from $6.8 million at September 30, 1995.
Eagle made significant progress in implementing its strategy to emphasize the origination of commercial real estate and small business loans. Commercial related originations totaled $22.8 million for the year ended September 30, 1996 demonstrating strong growth from prior years. Eagle also significantly expanded both its commercial origination resources and credit administration resources. The origination of commercial based loans not only increases the overall yield on the portfolio but adds to the base of interest rate sensitive assets, as the rate structures for these loans generally call for annual, quarterly or monthly rate adjustments.
At September 30, 1996 consumer loans totaled $73.1 million compared to $66.5 million at September 30, 1995 and $67.7 million at September 30, 1994. The increase in consumer loans is attributable to the $13.2 million of home equity and other consumer loans acquired in the Fleet/Shawmut transaction. Eagle intends to continue emphasizing home equity lines of credit (52.5% of consumer loans at September 30, 1996), using its existing credit programs and personnel.
At September 30, 1996, the Company's largest loan relationship aggregated $12.8 million. That relationship represents eight loans, of which $2.4 million are secured by multi-family properties and $10.4 million are secured by commercial properties. At that date, the next largest lending relationship was $2.8 million, representing four loans, of which $2.7 million are secured by multi-family properties. No other lending relationship exceeded $2.5 million, in aggregate.
The following tables set forth the composition of the total loan portfolio of Eagle, in dollar amounts and in percentages, at the dates shown, and a reconciliation of loans receivable, net.
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(a) Loans for developed building lots, acquisition and development of land and unimproved land.
The following table sets forth certain information at September 30, 1996 regarding the dollar amount of loans maturing in Eagle's loan portfolio based on scheduled payments to maturity. Demand loans and loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.
The following table sets forth as of September 30, 1996 the dollar amount of all loans of Eagle due after one year which have predetermined interest rates and floating or adjustable interest rates.
One- to Four-Family First Mortgage Loans. At September 30, 1996, first mortgage loans (including construction loans) secured by one-to four-family homes comprised 82.6% of Eagle's portfolio, before net items. From time to time Eagle has experienced more rapid loan prepayments, primarily during periods of, and as a result of, a rapid decline in mortgage interest rates.
Federally chartered institutions, such as Eagle Federal, have substantial flexibility in structuring the terms of mortgage loans to adjust to changes in interest rates. Federal regulations permit mortgage loans to be written for varying maturities and at adjustable and fixed interest rates. See "Lending Activities -- Purchase and Sale of Loans and Loan Servicing."
Eagle currently offers a variety of adjustable rate loans including, a one-year adjustable rate loan with a limit on the maximum change per interest rate adjustment of 2% and several adjustable loans that have fixed rates for an initial period, from 3 to 10 years, and adjust annually thereafter with a maximum interest rate change of 2% per year. In addition, Eagle's adjustable rate loans have limits on the total interest rate adjustments during the life of the loan ranging from 4.0% to 6.0% depending upon the initial rate and type of the loan. Interest rate adjustments currently are based on changes in the rates on comparable maturity U.S. Treasury securities. There are no prepayment penalties for any of these adjustable rate loans. Origination fees ranging from no fees to 2% of the loan amount are charged on such loans.
Although adjustable rate mortgage loans allow Eagle to increase the sensitivity of its asset base to changes in interest rates, the extent of this interest-sensitivity is limited by the interest rate "caps" contained in adjustable-rate loans. The terms of such loans may also increase the likelihood of delinquencies in periods of high interest rates, particularly if such loans are originated at discounted interest rates. Under regulations adopted by the Federal Reserve Board, although no specific interest rate limit is set, lenders are required to impose interest rate caps on all adjustable-rate mortgage loans and all dwelling-secured consumer loans, including home equity loans, which provide for interest rate adjustments.
The rates offered on adjustable rate mortgage loans are set at levels that are intended to be competitive in the market areas served by Eagle and to produce a yield that provides an acceptable first-year profit margin over the cost of funds. Eagle from time to time offers mortgage loans at an initial, discounted interest rate (i.e., a rate which is less than the then-current index plus margin) until the first loan repricing period, at which time the interest rate generally is adjusted to equal the index plus margin. Eagle generally qualifies the borrower at the rate which would be in effect after one year, assuming the maximum upward adjustment.
Most of the fixed rate mortgage loans originated by Eagle include a "due-on-sale" clause, which is a provision giving Eagle the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. Due-on-sale clauses are an important means of increasing the rate on existing fixed rate mortgage loans during periods of rising interest rates, and Eagle actively enforces such clauses.
Multi-family and Commercial Mortgage Loans. Eagle also makes loans secured by mortgages on multi-family and commercial properties. At September 30, 1996, these loans totaled $55.0 million or 6.7% of the total loan portfolio, before net items. Multi-family loans generally are originated on a one-year, adjustable rate basis. Commercial real estate loans, secured by properties such as office buildings, are a mix of one-year or three-year adjustable rate loans or fixed rate loans, and the interest rates and fees are often negotiated with the borrower.
Loans secured by commercial and multi-family properties can involve greater risks than single-family residential mortgage lending. Such loans generally are substantially larger than single-family residential mortgage loans, and repayment of the loan generally depends on cash flow generated by the property. Because the payment experience on loans secured by such property is often dependent on successful operation or management of the security property, repayment of the loan may be subject to a greater extent to adverse conditions in the real estate market or the economy generally than is the case with one- to four-family residential mortgage loans. The commercial real estate business is cyclical and subject to downturns, overbuilding and local economic conditions. Eagle seeks to limit these risks in a variety of ways, including, among others, limiting the size of its commercial and multi-family real estate loans, generally requiring a personal guaranty from the borrower, limiting such loans to a lower maximum loan-to-value ratio and generally lending on the security of property located within its market areas. At September 30, 1996, multi-family and commercial real estate loans comprised 1.9% and 4.8%, respectively, of the total loan portfolio, before net items, compared to 2.3% and 2.1%, respectively, at September 30, 1995.
Construction Loans. Eagle makes a limited number of construction loans to individuals and, to a lesser extent, to professional builders who wish to construct one-to four-family residential properties, either as a primary residence or for investment or resale. The construction loans made by Eagle are typically construction/permanent loans that automatically convert to a permanent first mortgage loan at the end of the construction phase. At September 30, 1996, construction loans totaled $14.4 million or 1.7% of the total loan portfolio of Eagle, before net items, compared to $12.0 million or 1.7% at September 30, 1995.
Consumer Loans. At September 30, 1995, the consumer loan portfolio of Eagle included loans secured by deposit accounts, home equity lines of credit, second mortgages, education, personal and automobile loans and totaled $73.1 million or 8.9% of the total loan portfolio of Eagle before net items. The home equity loans and second mortgage loans are secured by the equity in a borrower's home.
Loan Originations. Residential loan originations principally come from three separate sources. Originations generated through the retail branch network accounts for approximately 30% of total originations. Traditional mortgage originators that cover the Bank's market area account for approximately 40% of total originations. In addition, Eagle also obtains approximately 30% of total originations through agreements with independent mortgage brokers in Connecticut. Multi-family and commercial real estate loan originations are currently obtained primarily from direct contacts with Eagle. Eagle seeks to attract consumer loans by direct advertising and solicitation of its customers.
Loan originations (excluding purchased loans and participations) were $236.1 million for the year ended September 30, 1996 compared to $155.7 million in fiscal 1995. Residential mortgage loan originations accounted for $193.1 million of the total originations in fiscal 1996. Of the total, $114.0 million or 59%, represented originations of fixed rate residential mortgage loans with the remaining $79.1 million representing a variety of adjustable rate residential loan products. The trend of originations changed significantly during the year, in the first half of fiscal 1996 fixed rate residential loans were more popular due to a lower interest rate environment that motivated borrowers to refinance their existing mortgage loans into lower rate residential mortgage loans. During the second half of fiscal 1996, as interest rates moved higher, fixed rate residential mortgage loans declined in popularity and adjustable rate residential mortgage loans became the product of choice. Approximately 67% of the fixed rate residential mortgage loans were originated in the first six months of fiscal 1996, while approximately 63% of the adjustable rate residential mortgage loans were originated in the last six months of fiscal 1996.
During the year ended September 30, 1996, Eagle emphasized the origination of fixed rate bi-weekly residential mortgage loans for a total of $45.8 million compared to $5.0 million in 1995. The fiscal 1996 amount accounted for 40% of the total fixed rate residential mortgage loans originated during the year. The largest category of the adjustable rate residential mortgage loan originations were 5-1 year product representing $41.7 million, or 52.7%, of the total adjustable rate originations. Adjustable rate loans that reprice annually accounted for only $8.0 million of the 1996 originations compared to $17.5 million in 1995.
Eagle makes single-family conventional first mortgage loans with up to a 95% loan-to-value ratio. In the case of loans with a higher loan-to-value ratio than 80%, the policy of Eagle is to require private mortgage insurance for a specified percentage of the amount of the outstanding principal balance of the loan. Eagle makes multi-family and commercial real estate loans with up to a 75% loan-to-value ratio. See "Lending Activities -- Purchase and Sale of Loans and Loan Servicing."
All property securing real estate loans originated by Eagle is appraised by one of several professionally qualified appraisers who have been pre-approved by Eagle. For all real estate loans, Eagle requires the borrower to obtain fire and extended casualty insurance and, where appropriate, flood insurance and loss of rents coverage. Eagle also requires either title insurance or a title opinion from an attorney experienced with title matters.
Eagle issues 30 to 90-day commitments to prospective borrowers to make loans subject to various conditions. Loan commitments generally are issued for long-term loans to finance residential properties and for construction and combined construction/permanent loans secured by multi-family residential and commercial properties. With respect to adjustable rate, single-family residential loans, it is the practice of Eagle to make commitments to lend at the rate of interest and the loan origination fee quoted to the borrower at the time of application. The proportion of the total value of commitments derived from any particular category of loan varies from time to time and depends on market conditions. At September 30, 1996 and 1995, loan commitments of $66.9 million and $49.4 million, respectively, were outstanding. These amounts include approximately $31.9 million and $23.5 million, respectively, in unadvanced home equity credit lines.
Eagle encounters certain environmental risks in its lending activities. Under federal and state environmental laws, lenders may become liable for the costs of cleaning up hazardous materials found on security properties. Certain states may also impose liens with higher priorities than first mortgages on properties to recover funds used in such efforts. Although the foregoing environmental risks are more usually associated with industrial and commercial loans, environmental risks may be substantial for residential lenders, like Eagle Federal, since environmental contamination may render the security property unsuitable for residential use. In addition, the value of residential
properties may become substantially diminished by contamination of nearby properties. In accordance with the guidelines of FNMA and FHLMC, appraisals for single-family homes on which Eagle Federal lends include comments on environmental influences and conditions. Eagle attempts to control its exposure to environmental risks with respect to loans secured by larger properties by training its underwriters to recognize the signs of environmental problems when they inspect properties; by requiring borrowers to represent and warrant that properties securing loans do not contain hazardous waste, asbestos or other such substances; by requiring borrowers to indemnify the lending bank, with personal recourse, against environmental losses and; by obtaining environmental reviews and tests on all loans secured by nonresidential properties. No assurance can be given, however, that the value of properties securing loans in Eagle's portfolio will not be adversely affected by the presence of hazardous materials or that future changes in federal or state laws will not increase Eagle's exposure to liability for environmental cleanup.
Purchase and Sale of Loans and Loan Servicing. From time to time Eagle may purchase mortgage loans and loan participations secured by properties outside of Connecticut, however no significant activity has occurred in several years.
In addition to servicing its own loans, Eagle services loans owned by others, which loans had a balance at September 30, 1996 and 1995 of $242.6 million and $234.8 million, respectively. Servicing fees have not historically been a significant source of income for Eagle but will become an area of focus for increasing revenue in the future.
During fiscal 1995, Eagle completed the securitization of $154.2 million of fixed rate loans into FHLMC mortgage-backed securities and subsequently sold $95 million of the securities. The remainder of the securities were sold in the first quarter of fiscal 1996. This securitization and sale allowed the Company to eliminate a portion of the long-term interest rate risk inherent in the balance sheet by replacing fixed rate assets with adjustable rate assets. Eagle sold $10.0 million of residential, fixed rate mortgage loans to FHLMC in fiscal 1994.
During fiscal 1996, Eagle changed its approach to holding fixed rate residential mortgage loans currently being originated in order to better manage the interest rate risk inherent in the balance sheet. Prior to 1996, Eagle retained all fixed rate originations in portfolio, contributing to the Bank's level of interest rate risk in rising rate environments. In order to eliminate placing additional risk on the balance sheet, Eagle began identifying the majority of its newly originated fixed rate residential mortgage loans as held for sale and then selling the loans into the secondary market. This strategy, along with the securitization of mortgage loans in fiscal 1995 and resultant sale of the securities created, has improved and should continue to improve Eagle's ability to manage its interest rate risk. The servicing created should also increase other income in the future.
Eagle has selected the following types of fixed rate residential mortgage originations for identification as held for sale: all 30-year term loans and 15-year term loans based on monthly pay amortization. Mortgage loans with 15-year terms but based on bi-weekly pay amortization are retained in portfolio as the expected life of these loans falls within the tolerance levels established by the Bank's Asset/Liability Committee (the "ALCO"). The identification of mortgage loans as held for sale is subject to future change based on assessments by ALCO regarding the acceptable level of risk that may be maintained on the balance sheet.
For the year ended September 30, 1996, Eagle sold or securitized a total of $35.6 million in mortgage loans and transferred $21.9 million of mortgage loans originally classified as held for sale back into the portfolio. The mortgage loans were transferred at their estimated market value at the date of transfer and the transfer was primarily the result of the determination that the mortgage loans, after initially being classified as held for sale, were not underwritten to secondary market standards. As a result of the mortgage banking activities, Eagle recorded a loss of $1.5 million for the year ended September 30, 1996. The loss is principally the result of a decline in the market value of the loans in the second quarter of fiscal 1996.
The table below shows Eagle's mortgage loan activities for the periods indicated.
* Consists of loans originated in connection with the refinancing of existing loans from Eagle. The corresponding pay-off of the original loan is included in the table under "principal repayments."
The following table shows the consumer loan activities of Eagle for the periods indicated.
Fee Income from Lending Activities. Currently, Eagle charges origination fees ranging from no fee to 2% of the amount of the loan, depending on the type of loan involved. Higher fees may be charged for construction financing or for loans secured by properties which are not owner-occupied. Fees for loan modifications, late payments, changes of property ownership and for related miscellaneous services are also charged. Income realized from these activities can vary significantly with the volume and type of loans in the portfolio and in response to competitive factors.
Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment to the related loan's yield. This amount is generally amortized over the contractual life of the related loans. At September 30, 1996, Eagle had deferred net loan fees of $1.3 million.
Usury Limitations. Federal legislation first enacted in 1980 has preempted all state usury laws concerning residential first mortgage loans unless the state legislature acted to override the preemption by April 1, 1983. The Connecticut State Legislature did not act to override the federal preemption. Connecticut law imposes no ceiling on interest rates on the types of loans currently originated by Eagle Federal.
NON-PERFORMING ASSETS
All loans generally are placed on a non-accrual basis when a loan is contractually delinquent for more than three complete calendar months, when full collection is in doubt or when legal action has been instituted. Management may elect to continue the accrual of interest when the estimated fair value of collateral is sufficient to cover the principal balance and accrued interest.
At September 30, 1996, the Company's total non-performing assets, including non-performing (or non-accrual) loans and real estate owned, was $12.3 million or 0.88% of total assets. This compares to non-performing assets of $13.6 million, or 1.10% of total assets, at September 30, 1995 and $12.3 million, or 1.15% of total assets, at September 30, 1994.
The following table sets forth information regarding Eagle's non-performing assets at the dates indicated.
Non-performing loans decreased $1.9 million, or 17%, from September 30, 1995 to September 30, 1996. This decrease can be attributed to several factors, although two primary factors are significant contributors to the decrease. The primary factors are an increase in foreclosures during the year and a higher level of charge-offs compared to prior years. Loans foreclosed into real estate owned totaled $4.3 million for the year ended September 30, 1996 compared to $2.2 million for fiscal 1995. Loan charge-offs increased 15.6% to $2.9 million during fiscal 1996 from $2.5 million during fiscal 1995.
As a result of managing non-performing loans, management expects a number of the non-performing loans to become real estate owned. The overall level of real estate owned will depend on the number of loans which can be resolved prior to foreclosure and the ability of Eagle to sell properties which it owns. The Company strives to aggressively market properties and has been able to reduce the level of real estate owned by more then 50% since September 30, 1992.
With respect to mortgage loans, when a borrower fails to make a required payment by the 15th day after payment is due, Eagle attempts to cause the deficiency to be cured by corresponding with the borrower. If the deficiency continues, Eagle corresponds further with the borrower and, through telephone calls and letters, attempts to determine the reason for and cure the delinquency. If the deficiency cannot be cured, Eagle generally institutes appropriate legal action through an approved collection attorney. Real estate acquired through foreclosure or by deed in lieu of foreclosure is placed on the books at the lower of the carrying value of the loan or the fair market value of the real estate based upon a current appraisal, less selling costs. Any reduction below the value previously recorded on the books is charged against income or against a valuation reserve. Any loss in excess of the reserve is charged against income. With respect to consumer loans, the borrower receives correspondence from Eagle after the loan is 10 to 15 days past due. If it appears, after further communications with the borrower, that the delinquency cannot be cured, legal action is instituted. These procedures may be accelerated further in certain cases, such as chronic delinquencies or unsecured loans.
In addition to non-performing loans, Eagle has $4.0 million of loans at September 30, 1996 which were classified as restructured loans. Restructured loans are the result of term modifications with borrowers that meet the following criteria; loan terms, particularly interest rate, that are consistent with those terms on newly originated loans, standard underwriting criteria such as income guidelines and loan-to-value ratios and consistent, on-time monthly payments. Based on the borrowers meeting the above criteria, management considers it appropriate to continue the accrual of interest on these loans. The majority of these borrowers have had short-term financial difficulties and do not represent chronically delinquent or slow-paying customers. During 1996, Eagle restructured loans totaling $4.2 million.
Beginning in 1996, Eagle began reporting impaired loans in accordance with the requirements of SFAS No. 114. Loans are considered impaired when management has concluded that it is probable that the Bank will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement. All amounts due include both principal and interest. In addition all restructured loans that have been modified have been classified as impaired. At September 30, 1996, impaired loans totaled $6.8 million, $4.8 million of which were classified as performing and $2.0 million of which were classified as non-performing. The non-performing impaired loans are included in the non-performing loan total of $9.3 million.
The Company's non-performing assets are predominately residential in nature with $12.4 million secured by one-to-four residential properties, including $1.1 million of non-performing home equity loans, and $1.2 million secured by multi-family or commercial real estate.
ALLOWANCE FOR LOAN LOSSES
At September 30, 1996, Eagle's allowance for loan losses totaled $8.6 million, compared to $7.5 million at September 30, 1995, and $8.3 million at September 30, 1994. Eagle added $2.0 million in provisions for loan losses to the allowance during fiscal 1996 compared to provisions of $1.5 million and $1.2 million during the years ended September 30, 1995 and 1994, respectively.
The following is a summary of activity in the allowance for loan losses for the periods indicated.
At September 30, 1996, Eagle had $8.6 million in loan loss reserves established for commercial real estate mortgage loans, residential mortgage loans, commercial loans and consumer loans. This reserve is maintained at a level believed adequate by management to absorb probable losses in the loan portfolio. Management's determination of the adequacy of the allowance at a particular time is based on an evaluation of the portfolio, past loan loss experience, then-current economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors. The allowance is increased by provisions for loan losses charged against income.
Management monitors the adequacy of the allowance for loan losses and periodically makes additions in the form of provisions for loan losses based upon an ongoing assessment of the loan portfolio. These provisions are based on an evaluation of the loan portfolio, past loan loss experience, current market and economic conditions, volume, growth and composition of the loan portfolio, and other relevant factors. The provisions are computed quarterly based on a review of the loan portfolio. The additional $1.9 million, $3.5 million and $1.8 million of allowance for loan losses that were recorded as part of Fleet/Shawmut, Bank of Hartford and Danbury Federal transactions, respectively, were based on management's evaluation of the loans acquired in these transactions. Such evaluation included an analysis of the loss of all delinquent loans as well as the risk of the remaining loans acquired. The additional allowances were accounted for as purchase accounting adjustments to the premiums paid by Eagle in the Fleet/Shawmut, Bank of Hartford and Danbury Federal transactions.
The following table presents an allocation of Eagle's allowance for loan losses by loan category and presents the percent of each loan category to the total loan portfolio at the dates indicated.
The ratio of allowance for loan losses to non-performing loans was 93%, 67% and 104% at September 30, 1996, September 30, 1995 and September 30, 1994, respectively. This coverage ratio will vary from time to time based upon the composition of, and management's analysis of the risk elements in the loan portfolio, as well as the composition of problem loans. The allowance for loan losses is not based on a percentage of non-performing loans, but on the total portfolio classified by risk group plus estimated losses on individual problem loans. The increase in 1996 in the ratio of allowance for loan losses to non-performing loans is due to additions to the allowance of $3.9 million.
The following table sets forth the amount of accruing loans delinquent 60-89 days, the amount of non-accrual loans, the balance of the Company's allowance for loan losses and the coverage ratio of such allowance to the total of loans at the dates indicated.
Various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for losses on loans and real estate owned. Such agencies may require the Bank to recognize additions to the allowances based on their judgments of information available to them at the examination. The OTS completed a regularly scheduled examination of the Bank during 1995 and no changes to the allowance for loan losses were required at that time.
At September 30, 1996, Eagle had $6.9 million of potential problem loans with $3.5 million classified as special mention and $3.4 million classified as watch. In aggregate the appraised value of the property securing these loans totaled $7.9 million at September 30, 1996. Commercial real estate and land loans comprised $2.8 million of the total
INVESTMENT ACTIVITIES
Federally chartered savings institutions have authority to invest in various types of liquid assets, including United States Treasury obligations, securities of federal agencies, certificates of deposit of federally insured banks and savings institutions, bankers' acceptances and federal funds. Subject to various restrictions, federally chartered savings institutions may also invest a portion of their assets in commercial paper, corporate debt securities, and mutual funds whose assets conform to the investments that a federally chartered savings institution is otherwise authorized to make directly. Federal laws and regulations also require savings institutions to maintain liquid assets at minimum levels which vary from time to time. See "Regulation -- Savings Institution Regulation -- Liquidity."
Eagle, as a Delaware corporation, has authority to invest in any type of investment permitted under Delaware law. As a savings and loan holding company, however, Eagle's investments are subject to certain regulatory restrictions described under "Regulation -- Savings and Loan Holding Company Regulation." Eagle Federal maintains an investment portfolio that provides not only a source of income but also a source of liquidity to meet lending demands and fluctuations in deposit flows. The relative mix of investment securities and loans in these investment portfolios is dependent upon management's judgment from time to time as to the attractiveness of yields available on loans as compared to investment securities. Neither Eagle, nor Eagle Federal invest in below-investment grade corporate bonds and notes.
The Company's total holdings of mortgage-backed and investment securities increased to $464.6 million at September 30, 1996 from $412.1 million at September 30, 1995. The Bank's portfolio is almost entirely made up of agency issued mortgage-backed securities and collateralized mortgage obligations which collectively total $448.0 million, or 96.4% of the total portfolio. This represents an increase from $353.1 million at September 30, 1995. Agency issued mortgage-backed securities decreased from $299.8 million at September 30, 1995 to $225.5 million at September 30, 1996 while collateralized mortgage obligations increased from $53.3 million at September 30, 1995 to $222.5 million at September 30, 1996.
The execution of two separate strategies were principally responsible for the shift in the balances of each respective investment category. The first strategy, which was implemented during the quarter ended March 31, 1996, involved the sale of approximately $100 million of the Bank's lowest yielding securities, of which 67.9% were agency issued mortgage-backed securities and 73.6% were adjustable or floating rate securities. The proceeds were primarily reinvested in fixed rate, short average life, approximately three to four years, collateralized mortgage obligations. This transaction was estimated to improve the yield on the $100 million of securities traded by approximately 150 basis points on average and resulted in a loss recorded in the consolidated statements of income of $1.2 million. The second strategy was to supplement balance sheet growth derived from the loan portfolio with periodic purchases of securities throughout the year. The majority of these purchases were fixed rate, short average life collateralized mortgage obligations.
The Company's security portfolio at September 30, 1996 was comprised primarily of mortgage-backed securities and collateralized mortgage obligations. Mortgage-backed securities are investments secured by pools of fixed rate or adjustable rate mortgage loans. Agency issued mortgage-backed securities represent $225.5, or 48.5%, of the security portfolio with $139.2 million secured by pools of adjustable rate loans and $86.3 million secured by pools of fixed rate loans. The payments of interest and principal on such loans are passed through to the securities holders after deducting a servicing fee. The collateralized mortgage obligation portion of the investment portfolio, which totals $222.5 million, contains no derivative investment securities such as interest only tranches, principal only tranches or strips. There were $38.4 million of adjustable or floating rate collateralized mortgage obligations outstanding at September 30, 1996. The mortgage-backed securities and collateralized mortgage obligations held by Eagle are subject to interest rate and prepayment risks customarily associated with such securities. The weighted average life of mortgage-backed securities and collateralized mortgage obligations will differ from contractual maturities, depending upon the rate of prepayments. Borrowers on the underlying mortgages may have the right to prepay their loans with or without prepayment penalties. In a declining interest rate environment, more borrowers than would otherwise be anticipated may choose to prepay their loans in order to refinance the loans at lower rates. As a result, the actual yield on mortgage-backed securities may differ from the expected yields based upon prepayment experience.
At September 30, 1996, the following details investments in any issuer where the aggregate book value exceeded 10% of Eagle's shareholder's equity.
All securities included above represent agency issued mortgage-backed securities or collateralized mortgage obligations.
The following table sets forth the composition of Eagle's mortgage-backed and investment portfolio at the dates indicated.
The following table sets forth the maturities of Eagle's mortgage-backed and investment securities at September 30, 1996 and the weighted average yields of such securities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities and collateralized mortgage obligations are presented in accordance with date of final maturity without consideration of scheduled amortization or anticipated prepayments.
SOURCES OF FUNDS
General. Deposits are the primary source of funds for use in the lending and investment activities of Eagle. In addition, funds are derived from loan payments (including interest, amortization of principal and prepayments), earnings on investments, amortization of investments, maturing investments and FHL Bank advances. Historically, Eagle has not relied on sales of loans and investment securities as sources of funds. Loan and investment repayments fluctuate significantly based on prevailing interest rates, while deposit inflows and outflows are significantly influenced by prevailing interest rates on alternative products and general economic conditions. Borrowings may be used on a short-term basis to compensate for reductions in normal sources of funds or on a longer term basis to support expanded lending or investing activities.
Deposits increased to $1.06 billion at September 30, 1996 from $951.8 million at September 30, 1995, an increase of $107.6 million or 11.3%. Total borrowings increased by $66.2 million to $221.7 million at September 30, 1996. Approximately $68.2 million, or 63.4%, of the increase in deposits is the net result of the Fleet/Shawmut and Union transactions. The increase in borrowings is principally a result of funding purchases of securities as part of Eagle's balance sheet management strategies.
Deposit Activities. Eagle has developed a variety of deposit products ranging in maturity from demand-type accounts to certificates with maturities of up to five years. Deposits are primarily derived from the areas in which the offices of Eagle Federal are located. Eagle does not actively solicit deposits outside the State of Connecticut or use brokers to obtain deposits. Eagle does occasionally use premiums and promotions to attract deposits.
The deregulation of various federal controls on insured deposits has allowed Eagle to be more competitive in the acquisition and retention of funds, but has also resulted in a more volatile cost of funds. Federal regulations no longer require Eagle to impose interest penalties for early withdrawal of deposits. However, to assist in maintaining the maturity and cost structure of their deposits, Eagle continues to impose such penalties. The deposit accounts offered by Eagle are reviewed on a systematic basis in order to determine whether such accounts continue to meet asset/liability management goals. Eagle attempts to control the flow of funds in its deposit accounts according to the need for funds and the cost of alternative sources of funds. The flow of funds is controlled primarily by the pricing of deposits, which is influenced to a large extent by competitive factors in the market area. Interest rates paid by Eagle generally are competitive with the rates offered by other institutions in its primary market areas. Eagle has maintained a strong liquidity position and has generally maintained its deposit base, but has not actively competed for deposits when funds were available from other sources or when its existing funds were sufficient to meet their liquidity needs.
The following table describes the deposit accounts offered by Eagle at September 30, 1996.
Minimum Interest Deposit Rate -------------------- -----------------
Passbook $ 10 2.00% NOW 500 .50 Money market accounts 1,000 2.50
Market-rate certificates: 31 day 5,000 2.96 91 day 500 3.93 Six month 500 4.65 Six month liquid 500 4.89 Nine month 500 4.65 Nine month bump 500 5.37 Nine month liquid 500 5.13 One Year 500 5.13 Fifteen month 500 5.13 Fifteen month bump 500 5.60 Eighteen month 500 5.08 Two year 500 5.03 Two and one-half year 500 4.98 Two and one-half year bump 500 5.84 Three year 500 5.37 Three and one-half year 500 4.98 Four year 500 5.84 Five year 500 5.60
IRA certificates: One and one-half year (variable rate) 50 4.65 One and one-half year (fixed rate) 500 5.08 Four and one-half year (fixed rate) 500 5.84
Eagle prices its deposits to take advantage of opportunities for profitable investment of the funds through regular lending activities, and to a lesser amount to encourage deposits in longer term accounts. Interest rates are primarily based on prevailing market conditions, the need for funds and ability to pay.
The following table sets forth the deposit flows for Eagle during the periods indicated.
The following table provides detail regarding the Bank's deposit accounts for the periods indicated.
The following table sets forth the deposit accounts of Eagle in dollar amounts and as percentages of total deposits at the dates indicated.
The following table presents, by various interest rate categories, the amounts of certificate accounts at Eagle as of the dates indicated.
The following table sets forth the amount and remaining maturities by interest rate of time deposits at September 30, 1996.
Certain information regarding the deposit accounts at Eagle in amounts of $100,000 or more at September 30, 1996 is shown in the table below.
Borrowings. The FHL Bank System functions in a reserve credit capacity for savings institutions and certain other home financing institutions. Members of the FHL Bank System are required to own capital stock in the FHL Bank. Members are authorized to apply for advances on the security of such stock and certain of their home mortgages and other assets (principally securities which are obligations of, or guaranteed by, the United States) provided certain creditworthiness standards have been met. See "Regulation -- Federal Home Loan Bank System." Under its current credit policies, the FHL Bank limits advances based on the value of a member's qualified collateral that has not been pledged to outside sources. Historically, Eagle Federal has not relied on FHL Bank advances and other borrowings to any significant extent as a source of funds. At September 30, 1996, Eagle Federal had authority to borrow up to $688 million from the FHL Bank of Boston, and will continue to use this source of funds to take advantage of lending and investment opportunities. Outstanding FHL Bank advances at September 30, 1996 totaled $207.0 million compared to $73.2 million at September 30, 1995 and $31.8 million at September 30, 1994. The weighted average interest rate on FHL Bank advances outstanding at September 30, 1996, 1995 and 1994 was 5.65%, 5.96% and 5.44% respectively.
On a consolidated basis, Eagle had other borrowed money in the amount of $14.7 million at September 30, 1996 compared to $82.3 million at September 30, 1995. Repurchase agreements constitute 100.0% and 99.9% of the other borrowed money total at September 30, 1996 and 1995, respectively. The weighted average interest rate on other borrowed money at September 30, 1996, 1995, and 1994 was 5.22%, 5.89%, and 5.20%, respectively.
INTEREST RATE SENSITIVITY GAP
A method used to measure the interest rate risk exposure of the Company's balance sheet is the interest rate sensitivity "gap", which is the difference between rate sensitive assets and rate sensitive liabilities repricing or maturing within specific time periods. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities, and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
The following table shows the estimated maturity/repricing structure of the interest sensitive assets and interest sensitive liabilities of Eagle at September 30, 1996:
(a) Loans are net of non-performing loans, undisbursed portion of loans due borrowers and unearned discounts and premiums. (b) Mortgage-backed securities include mortgage-backed securities held to maturity and mortgage-backed securities available for sale. (c) Investment securities include investment securities held to maturity, investment securities available for sale and FHL Bank stock.
The following assumptions were determined by management in order to prepare the gap table set forth above. Non-amortizing investment securities are shown in the period in which they contractually mature. Prepayment rates on loans, amortizing investment securities and mortgage-backed securities are based upon a combination of market consensus. Estimated decay rates on all deposit accounts are based upon the formula derived by the OTS.
The interest rate sensitivity of the Company's assets and liabilities could vary substantially if different assumptions were used or if actual experience differs from the assumptions used. For example, if all passbook deposits were assumed to reprice in one year or less, the Company's one-year cumulative gap to total assets would be negative 12.2%.
SERVICE CORPORATION ACTIVITIES
Federal regulations permit a federally chartered savings institution to invest an amount up to 2% of its assets in the stock, paid-in surplus, and unsecured obligations of subsidiary service corporations engaged in certain activities, and an additional 1% of its assets when the additional funds are used primarily for community or inner-city development or investment. In addition, federal regulations generally authorize such institutions which meet minimum regulatory capital requirements to invest up to 50% of regulatory capital in conforming first mortgage loans to service corporations. At September 30, 1996, Eagle Federal's direct investment (capital stock) in its service corporation, Eagle Service Corp., was $ 1,000. Eagle Service Corp. administers the securities brokerage and investment services made available to Eagle Federal's customers.
EMPLOYEES
At September 30, 1996, Eagle had 417 employees (including 115 part-time employees), all of whom are employed by Eagle Federal. None of these employees are represented by a collective bargaining group. Employee benefits for full-time employees include reimbursement of approved, business-related educational expenses, a pension plan, an ESOP, a 401k plan and life, health and disability insurance.
MARKET AREA AND COMPETITION
Eagle Federal is headquartered in Bristol, Connecticut and conducts business from four offices in Bristol, three offices in Hartford, two offices in West Hartford, and one office each in Bloomfield, Canton, Manchester, Rocky Hill and Simsbury (all of which are in Hartford County), two offices in Torrington, one office each in Litchfield, Terryville and Winsted (all of which are in Litchfield County). Eagle also operates supermarket branch offices in Bloomfield, East Hartford, Glastonbury and Avon.
Hartford, the capital of Connecticut, has a population of approximately 140,000 and is the governmental and economic center of Central Connecticut. Bristol, located in central Connecticut 18 miles west of Hartford, is a city of approximately 60,000 people with a broad-based economy. Over 100 manufacturing firms of all sizes operate in or near Bristol. The city of Torrington is located 27 miles west of Hartford at the northern end of the Route 8 corridor which runs from the northwest corner of Connecticut to the New Haven and Bridgeport metropolitan areas. Torrington has an estimated population of 30,000 and is the largest city in Litchfield County.
Eagle Federal faces substantial competition for deposits and loans throughout its market area. The primary factors stressed by Eagle Federal in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations and office hours. Competition for deposits comes primarily from other savings institutions, commercial banks, credit unions, money market funds and other investment alternatives. The primary factors in competing for loans are interest rates, loan origination fees, the quality and range of lending services and personalized service. Competition for origination of first mortgage loans comes primarily from other savings institutions, mortgage banking firms, commercial banks and insurance companies.
Connecticut law now permits Connecticut bank holding companies to engage in stock acquisitions of depository institutions in other New England states with reciprocal legislation. All New England states currently have some form of reciprocal legislation. As a result, bank holding companies from any state in New England can establish non-bank offices (including loan production offices) in Connecticut on a limited basis. The impact may be to significantly increase the competition faced by Eagle. The Connecticut legislature also has enacted legislation which reduces the home office protection enjoyed by Connecticut-chartered savings institutions and commercial banks. This and other legislative and regulatory changes may increase the size of the banking institutions competing in the general market area of Eagle.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"), amended the Bank Holding Company Act of 1956 (the "BHCA") to permit a bank holding company to acquire a bank located in any state, provided that the acquisition does not result in the bank holding company controlling more than 10% of the deposits in the United States, or 30% of deposits in the state in which the bank to be acquired is located (unless the state waives the 30% deposit limitation). Individual states are permitted to restrict the ability of an out-of-state bank holding company or bank to acquire an in-state bank that has been in existence for less than five years and to establish a state concentration limit of less than 30% if such reduced limit does not discriminate against out-of-state bank holding companies or banks.
Effective June 1, 1997, an "adequately capitalized" bank, with the approval of the appropriate federal banking agency, may merge with another adequately capitalized bank in any state that has not opted out of interstate branching and operate the target's offices as branches if certain conditions are satisfied. The same national (10%) and state (30%) deposit concentration limits and any applicable state minimum-existence restrictions (up to a maximum of 5 years) apply to interstate mergers as to interstate acquisitions. The applicant also must comply with any nondiscriminatory host state filing and notice requirements and demonstrate a record of compliance with applicable federal and state community reinvestment laws. A state may opt out of interstate branching by enacting a law between September 29, 1994 and June 1, 1997 expressly prohibiting interstate merger transactions.
The resulting bank to an interstate merger may establish or acquire additional branches at any location in a state where any of the banks involved in the merger could have established or acquired a branch. A bank also may acquire one or more branches of an out-of-state bank without acquiring the target out-of-state bank if the law of the target's home state permits such a transaction. In addition, a bank may establish a de novo branch in another state if the host state by statute expressly permits de novo interstate branching.
Furthermore, a bank subsidiary of a bank holding company is permitted to act as agent for other depository institutions owned by the same holding company for purposes of receiving deposits, renewing time deposits, closing or servicing loans, and receiving loan payments effective as of September 29, 1995. A savings association may perform similar agency services for affiliated banks to the extent that the savings association was affiliated with a bank on July 1, 1994 and satisfies certain additional requirements.
The OTS also has adopted a statement of policy on branching by federally chartered savings institutions providing that the OTS will generally permit such institutions to branch or merge across state lines to the same extent permitted under state law to a state-chartered provided that the federal institution continues to meet the domestic building and loan test as set forth in the Internal Revenue Code. See "Regulation - Savings and Loan Holding Company Regulation."
The foregoing provisions are expected to further increase competition within Eagle's existing market area.
REGULATION
GENERAL
The Company, as a savings and loan holding company, and the Bank, as a federally chartered savings bank, are subject to extensive regulation, supervision and examination by the OTS as their primary federal regulator. The Bank also is subject to regulation, supervision and examination by the FDIC and as to certain matters by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). See "Management's Discussion and Analysis" and "Notes to Consolidated Financial Statements" as to the impact of certain laws, rules and regulations on the operations of the Company and the Bank. Set forth below is a description of certain recent regulatory developments.
In September 1996, legislation (the "1996 legislation") was enacted to address the undercapitalization of the Savings Association Insurance Fund (the "SAIF"), of which the Bank is a member. As a result of the 1996 legislation, the Federal Deposit Insurance Corporation (the "FDIC") imposed a one-time special assessment of .657% on deposits insured by the SAIF as of March 31, 1995. The Bank incurred a one-time charge of $4.7 million (before taxes) to pay for the special assessment based upon on its level of SAIF deposits as of March 31, 1995. After the SAIF was deemed to be recapitalized, the Bank's deposit insurance premiums to the SAIF were reduced as of September 30, 1996. The Bank expects that its future deposit insurance premiums will continue to be lower than the premiums it paid prior to the recapitalization.
The 1996 legislation also contemplates the merger of the SAIF with the Bank Insurance Fund (the "BIF"), which generally insures deposits in national and state-chartered banks. The combined deposit insurance fund, to formally be known as the Depository Insurance Fund (the "DIF"), to be formed no earlier than January 1, 1999, will insure deposits at all FDIC insured depository institutions. As a condition to the formation of the DIF, however, no insured depository institution can be chartered as a savings association. To facilitate the abolition of the savings association charter, the Secretary of the Treasury is required to report to the Congress no later than March 31, 1997 with respect to the development of a common charter for all insured depository 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, the Bank may be required to convert its federal charter to either a new federal type of bank charter or to a state depository institution charter. Future legislation also may result in the Company becoming regulated at the holding company level by the Federal Reserve Board rather than by the OTS. Regulation by the Federal Reserve Board could subject the Company to capital requirements that are not currently applicable to the Company as a holding company under OTS regulation and may result in statutory limitations on the type of business activities in which the Company may
engage at the holding company level, which business activities currently are not restricted. The Company and the Bank are unable to predict whether such legislation will be enacted.
The 1996 legislation also, contained several provisions that could impact operations of the Bank, including augmenting the Bank's commercial lending authority by 10% of assets, provided that any loans in excess of 10% are used for small business loans. Furthermore, the qualified thrift lender test that the Bank must comply with was liberalized to provide that small business, credit card and student loans can be included without any limit, and that the Bank can qualify as a qualified thrift lender by meeting either the test set forth in the Home Owner's Loan Act or under the definition of a domestic building and loan association as defined under the Internal Revenue Code of 1986, as amended.
Separate legislation was enacted in 1996 to repeal most of Section 593 of the Internal Revenue Code pertaining to how qualified savings institutions calculate their bad debt deduction for federal income tax purposes. This legislation eliminated the Bank's ability to compute its bad debt deduction utilizing the percentage-of-taxable-income method or the reserve method based upon experience. It also suspended the recapture of the pre-1988 tax bad debt reserves and will require the recapture of these amounts only under very limited circumstances. It does require the recapture of the post-1987 tax bad debt reserves over a six year period. The Bank's pre-1988 tax bad debt reserves which have been suspended are $8.9 million and the amount of the post-1987 reserves which will be recaptured into income are $90,000.
During 1996, the OTS continued its comprehensive review of its regulations to eliminate duplicative, unduly burdensome and unnecessary regulations concerning lending and investments, corporate governance, subsidiaries and equity investments, conflicts of interest and usurpation of corporate opportunity. The OTS's revised lending and investments regulation generally imposes general safety and soundness standards, and also provides that commercial loans made by a service corporation of a savings association will be exempted from an institution's overall 10% limit on commercial loans. Such regulations now allow an institution to use its own cost-of-fund index in structuring adjustable rate mortgages, and eliminate percentage of assets limitations on credit card lending.
The OTS's revised subsidiaries and equity investments regulation consolidated all OTS regulations that apply to various types of subsidiaries of federal associations and updates the list of pre-approved service corporation activities to include activities that the OTS has deemed to be reasonably related to the activities of a federal savings institution, yet not previously included on OTS's pre-approved list. In general, if an activity is on the pre-approved list, institutions will merely have to provide the OTS and the FDIC with 30 days prior notice of such
activity. Activities not on the pre-approved list remain subject to an application process. The revised corporate governance regulation is intended to provide greater flexibility with respect to corporate governance of federal savings institutions, such as the Bank, consistent with safety and soundness and fairness to shareholders or members. For example, the OTS corporate governance regulations provide for after-the-fact notice for pre-approved charter and bylaw amendments and increase the list of pre-approved charter amendments, such as supermajority voting provisions and the eliminations of cumulative voting. In addition, institutions that are subsidiaries of holding companies, such as the Bank, no longer are required to have staggered terms for members of their board of directors, provide notice of shareholder meetings or compile shareholder voting lists.
The OTS also converted its policy statement on conflicts of interest to a regulation that is intended to be based upon common law principles of "duty of loyalty" and "duty of care." The new conflicts regulation provides that directors, officers, employees, persons having the power to control the management or policies of savings associations, and other persons who owe fiduciary duties to savings institutions will be prohibited from advancing their own personal or business interests, or those of others, at the expense of the institutions they serve. The OTS also eliminated its current "appearance of a conflict of interest" standard from the scope of the revised rule. The OTS also codified its interpretative position concerning the phrase "person having the power to control the management or policies of savings associations," to provide that the phrase includes holding companies, such as the Company. Finally, the OTS eliminated its corporate opportunity regulations and policy statements and adopted a standard similar to common law standards governing usurpation of corporate opportunity. Significantly under the revised regulation, transfer of a line of business within a holding company structure will not be deemed to be a usurpation of corporate opportunity if an institution receives fair market consideration for a line of business transferred to its holding company or its affiliate. In such transactions, the OTS will generally defer to decisions made by a holding conpany, subject to compliance with Sections 23A or 23B of the Federal Reserve Act and general safety and soundness principles.
SAVINGS AND LOAN HOLDING COMPANY REGULATION
Under the Home Owners Loan Act (the "HOLA"), the Director of the OTS has regulatory jurisdiction over savings and loan holding companies. Eagle, as a savings and loan holding company within the meaning of the HOLA, is subject to regulation, supervision and examination by, and the reporting requirements of, the Director of the OTS.
As a unitary holding company, the Company generally is not restricted under existing laws as to the types of business activities in which it may engage, provided that Eagle Federal continues to qualify as a qualified thrift lender ("QTL"). Eagle could be prohibited from engaging in any activity (including those otherwise permitted under the HOLA) not allowed for bank holding companies if Eagle fails to constitute a QTL or if Eagle subsequently becomes a multiple savings and loan holding company. See "Regulation -- Savings Institution Regulation -- Qualified Thrift Lender Requirement."
SAVINGS INSTITUTION REGULATION
General. As a federally chartered savings institution, Eagle Federal is subject to supervision and regulation by the Director of the OTS and by the FDIC in its capacity as administrator of the SAIF. Under OTS regulations, Eagle Federal is required to obtain audits by an independent accountant and to be examined periodically by the Director of the OTS. Examinations must be conducted no less frequently than every 12 months. Eagle Federal is subject to assessments by the OTS and FDIC to cover the costs of such examinations. The OTS may revalue assets of Eagle Federal, based upon appraisals, and require the establishment of specific reserves in amounts equal to the difference between such revaluation and the book value of the assets. The Director of the OTS also is authorized to promulgate regulations to ensure the safe and sound operations of savings institutions and may impose various requirements and restrictions on the activities of savings institutions. See "Regulation - Savings Institution Regulation - Safety and Soundness Guidelines." See "Regulation - Savings Institution Regulation - Insurance of Deposits".
Capital Requirements. Eagle Federal is subject to the capital adequacy regulations adopted by the OTS. Eagle Federal's ability to pay dividends to the Company and expand its business can be restricted if its capital falls below levels established by the OTS. Pursuant to OTS regulations, savings associations are required to maintain (i) "leverage capital" in an amount not less than 3% of total assets, (ii) "tangible capital" in an amount not less than 1.5% of total assets, and (iii) risk-based capital equal to 8.00% of risk-weighted assets. The capital standards established by the OTS for savings institutions must generally be no less stringent than those applicable to national banks of 4.0%.
The following table sets forth the actual and required minimum levels of regulatory capital for Eagle Federal under applicable OTS regulations as of September 30, 1996.
The following is a reconciliation of Eagle Federal's equity capital under GAAP to regulatory capital at September 30, 1996.
Prompt Corrective Action. The federal banking agencies have established by regulation, for each capital measure, the levels at which an insured institution is well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, and to take prompt corrective action with respect to insured institutions which fall below minimum capital standards. The degree of regulatory intervention mandated by FDICIA is tied to an insured institution's capital category, with increasing scrutiny and more stringent restrictions being imposed as an institution's capital declines. Any insured depository institution which falls below the minimum capital standards must submit a capital restoration plan. Any company that controls an under capitalized institution must, in connection with the submission of a capital restoration plan by the savings institution, guarantee that the institution will comply with the plan and provide appropriate assurances of performance. As of September 30, 1996, Eagle Federal was deemed to be well-capitalized. See "Regulation - Savings Institution Regulation - Insurance of Deposits."
Safety and Soundness Regulations. The OTS, along with the other federal banking agencies, adopted safety and soundness guidelines in July 1995 relating to (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth; and (vi) compensation and benefit standards for officers, directors, employees and principal shareholders. The HOLA requires that all regulations and policies of the Director of the OTS for the safe and sound operations of savings institutions are to be no less stringent than those established by the OCC for national banks. The foregoing operational, managerial and compensation issues are set out in the safety and soundness guidelines that the federal banking agencies issued to identify and address problems at institutions before capital becomes impaired.
Qualified Thrift Lender Requirement. Eagle Federal must maintain its status as a "qualified thrift lender" ("QTL") in order to exercise the powers granted to federally chartered savings institutions and maintain full access to FHL Bank advances. Eagle Federal will remain a QTL if its qualified thrift investments continue to equal or exceed 65% of the savings association's portfolio assets on a monthly average basis in 9 out of every 12 months, as defined by HOLA and the rules and regulations of the OTS. At September 30, 1996, qualified thrift investments as a percentage of portfolio assets for Eagle Federal was 96.6%. The qualified thrift investments of Eagle Federal equaled or exceeded 65% of its portfolio assets on a monthly average basis for at least 9 months during the fiscal year ended September 30, 1996.
The failure to maintain QTL status would require that Eagle Federal convert to a bank charter and will result in a limitation in future investments and activities including branching and payment of dividends. Eagle Federal also would be required to repay all outstanding FHL Bank advances and dispose of or discontinue any preexisting investments or activities not permitted for both savings institutions and national banks. Further, within one year of the loss of QTL status, the holding company of a savings institution that does not convert to a bank charter must register as a bank holding company and will be subject to all statutes applicable to bank holding companies.
Liquidity. Under applicable federal regulations, savings institutions are required to maintain an average daily balance of liquid assets (including cash, certain time deposits, certain bankers' acceptances, certain corporate debt securities and highly rated commercial paper, securities of certain mutual funds and specified United States government, state or federal agency obligations) equal to a monthly average of not less than a specified percentage of the average daily balance of the savings institution's net withdrawable deposits plus short-term borrowings. Under
the HOLA, this liquidity requirement may be changed from time to time by the Director of the OTS to any amount within the range of 4% to 10% depending upon economic conditions and the deposit flows of member institutions, and currently is 5%. Savings institutions are also required to maintain an average daily balance of short term liquid assets at a specified percentage (currently 1%) of the total of the average daily balance of its net withdrawable deposits and short-term borrowings. At September 30, 1996, Eagle Federal was in compliance with these liquidity requirements.
Restrictions on Dividends and Other Capital Distributions. Eagle Federal is subject to limitations an the extent to which it may pay dividends. Savings institution subsidiaries of holding companies generally are required to provide their OTS Regional Director with not less than 30 days' advance notice of any proposed declaration of a dividend on the institution's stock.
Applicable OTS regulations impose limitations on all capital distributions by savings associations (including dividends, stock repurchases and cash-out mergers) based upon an institution's level of regulatory capital both before and after giving effect to a proposed capital distribution. The FDIA also prohibits an insured depository institution from declaring any dividend, making any other capital distribution, or paying a management fee to a controlling person if, following the distribution or payment, the institution would be classified as undercapitalized, significantly undercapitalized or critically undercapitalized.
Insurance of Deposits. Deposits in the Bank are insured to a maximum of $100,000 for each insured depositor by the FDIC. Although the Bank is considered a SAIF-insured institution, as of September 30, 1996, approximately 47% of its deposits were BIF-insured.
FEDERAL HOME LOAN BANK SYSTEM
The Federal Home Loan Bank System consists of 12 regional FHL Banks, each subject to supervision and regulation by the Federal Housing Finance Board (the "FHFB"). The FHL Banks provide a central credit facility for member savings institutions. Eagle Federal, as a member of the FHL Bank of Boston, is required to own shares of capital stock in that FHL Bank in an amount at least equal to 1% of the aggregate principal amount of their unpaid residential mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or 1/20 of their advances (borrowings) from the FHL Bank, whichever is greater. Eagle Federal is in compliance with this requirement. The maximum amount which the FHL Bank of Boston will advance fluctuates from time to time in accordance with changes in policies of the FHFB and the FHL Bank of Boston, and the maximum amount generally is reduced by borrowings from any other source. In addition, the amount of FHL Bank advances that a savings institution may obtain will be restricted in the event the institution fails to constitute a QTL. See "Regulation -- Savings Institution Regulation -- Qualified Thrift Lender Requirement."
FEDERAL RESERVE SYSTEM
The Federal Reserve Board has adopted regulations that require savings institutions to maintain nonearning reserves against their transaction accounts (primarily NOW and regular checking accounts) and nonpersonal time deposits (those which are transferable or held by a person other than a natural person) with an original maturity of less than 1 1/2 years. At September 30, 1996, Eagle Federal was in compliance with these requirements. These reserves may be used to satisfy liquidity requirements imposed by the Director of the OTS. Because required reserves must be maintained in the form of vault cash or a non-interest-bearing account at a Federal Reserve Bank, the effect of this reserve requirement is to reduce the amount of the institution's interest-earning assets.
Savings institutions also have the authority to borrow from the Federal Reserve "discount window." Federal Reserve Board regulations, however, require savings institutions to exhaust all FHL Bank sources before borrowing from a Federal Reserve Bank. A Federal Reserve Bank's ability to extend advances to undercapitalized and critically undercapitalized depository institutions is limited. A Federal Reserve Bank generally may not have advances outstanding to an undercapitalized institution for more than 60 days in a 120-day period.
TAXATION
Federal. Eagle, on behalf of itself and its subsidiaries, files a September 30 tax year consolidated federal income tax return. Eagle and its subsidiaries report their income and expenses using the accrual method of accounting.
The Small Business Job Protection Act of 1996, signed into law on August 20, 1996, repealed the special thrift bad debt deductions provisions. This legislation eliminates the use of the percentage of taxable income method as a means of calculating deductions for bad debts, allows banks greater flexibility in diversifying their loan and investment portfolios and establishes requirements for the recapture of previously untaxed bad debt reserve accumulations.
Bad debt reserve accumulations prior to 1988 are exempt from recapture unless the Bank liquidates, pays a dividend in excess of earnings and profits or redeems stock. Post 1987 bad debt reserve accumulations will be taxed in equal amounts over six years beginning in 1996. The Bank may defer the recapture tax in 1996 or 1997 if it originates the same principal amount of mortgage loans that it had originated in the six years before 1996. The Bank does not expect the post 1987 recapture tax to have a material effect on the consolidated financial statements.
The federal income tax returns for Eagle Federal's predecessor savings institutions have been examined and audited or closed without audit by the IRS for tax years through September 30, 1989.
Savings institutions are also entitled to limited special tax treatment with respect to the deductibility of interest expense relating to certain tax-exempt obligations. Savings institutions are entitled to deduct 100% of their interest expense allocable to the purchase or carrying of tax-exempt obligations acquired before 1983. The deduction is reduced to 80% with respect to obligations acquired after 1982. For taxable years after 1986, the Tax Reform Act of 1986 eliminates the deduction entirely for obligations purchased after August 7, 1986 (except for certain issues by small municipal issuers).
Depending on the composition of its items of income and expense, a savings institution may be subject to the alternative minimum tax. For tax years beginning after 1986, a savings institution must pay an alternative minimum tax equal to the amount (if any) by which 20% of alternative minimum taxable income ("AMTI"), as reduced by an exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular taxable income increased or decreased by certain adjustments and increased by certain tax preferences. Adjustments and preferences include depreciation deductions in excess of those allowable for alternative minimum tax purposes, tax-exempt interest on most private activity bonds issued after August 7, 1986 (reduced by any related interest expense disallowed for regular tax purposes), the amount of the bad debt reserve deduction claimed in excess of the deduction based on the experience method and, for 1990 and succeeding years, 75% of the excess of adjusted current earnings ("ACE") over AMTI. ACE equals pre-adjustment AMTI ("PAMTI") increased or decreased by certain ACE adjustments, which include tax-exempt interest on municipal bonds for tax purposes, depreciation deductions in excess of those
allowable for ACE purposes and the dividend received deduction. PAMTI equals AMTI computed with all the preferences and adjustments other than the ACE adjustment and the alternative minimum tax net operating loss (AMTNOL). AMTI may be reduced only up to 90% by AMTNOL carryovers. The payment of alternative minimum tax will give rise to a minimum tax credit which will be available with an indefinite carry forward period available to reduce federal income taxes of the institution in future years (but not below the level of alternative minimum tax arising in each of the carry forward years).
State. State income taxation is in accordance with the corporate income tax laws of Connecticut. As a thrift, Eagle Federal is required to pay taxes equal to the larger of $250, 11.25% (scheduled to decrease in increments to 7.5% by 2001) of the year's taxable income (which, with certain exceptions, is equal to taxable income for federal purposes) or an amount equal to 4% for each year of the amount of interest or dividends credited by them on savings accounts of depositors or account holders during the taxable year preceding that in which the tax becomes due, provided that, in determining such amount, interest or dividends credited to the savings account of a depositor or account holder are deemed to be the lesser of the actual interest or dividends credited or the interest or dividend that would have been credited if it had been computed and credited at the rate of one-eighth of 1% per annum.
Item 2.

Item 2. Properties
Eagle's nineteen traditional branch offices and four supermarket branch offices are located in Hartford and Litchfield counties. Automated teller machines ("ATM") are located in all of the nineteen traditional offices and all four supermarket branches. Eagle also operates three free standing ATM locations. Eagle's ATM's participate in the "NYCE" ATM network which permits access to funds at approximately 13,200 locations and 57,000 "point-of-sale" terminals throughout the Northeast. Data processing services for Eagle are provided by Connecticut On-Line Computer Center, a data processing company jointly owned by a number of New England savings institutions including Eagle Federal.
The following table sets forth certain information concerning the business offices of Eagle at September 30, 1996.
The total net book value of properties owned and used for offices by Eagle at September 30, 1996 and the aggregate net book value of leasehold improvements on properties used for offices was $6.0 million.
Item 3.

Item 3. Legal Proceedings
As of September 30, 1996, there were no material pending legal proceedings to which Eagle, Eagle Federal or Eagle Service Corp. was a party or to which any of their property was subject.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Eagle shareholders during the fourth quarter of the fiscal year ended September 30, 1996.
PART II
Item 5.

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Information as to the principal market on which the Company's common stock is traded, the approximate number of holders of record as of September 30, 1996, the Company's dividend policy, and the high and low bid quotations or sales prices, as applicable, for each calendar quarter during the two most recent fiscal years is incorporated herein by reference to page 43 of the 1996 Annual Report to Shareholders.
Item 6.

Item 6. Selected Financial Data
Selected consolidated financial data for the five years ended September 30, 1996 is included under separate caption in Part I of this Form 10-K.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 8 to 17 of the 1996 Annual Report to Shareholders is incorporated herein by reference.
Item 8.

Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated by reference to pages 18 to 41 of the 1996 Annual Report to Shareholders.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information set forth under the captions "Election of Directors" and "Management -- Executive Officers" appearing in the Company's definitive proxy statement dated December 22, 1996, which information is incorporated herein by reference.
Item 11.

Item 11. Executive Compensation
Reference is made to the information set forth under the caption "Management -- Executive Compensation" appearing in the Company's definitive proxy statement dated December 22, 1996, which information is incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information set forth under the captions "Stock Owned by Management" and "Principal Holders of Voting Securities of Eagle" appearing in the Company's definitive proxy statement dated December 22, 1996, which information is incorporated herein by reference.
Item 13.

Item 13. Certain Relationships and Related Transactions
Reference is made to the information set forth under the caption "Management -- Certain Transactions" appearing in the Company's definitive proxy statement dated December 22, 1996, which information is incorporated herein by reference.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following consolidated financial statements of registrant and its subsidiaries and report of independent auditors are included in Item 8 hereof.
Report of Independent Auditors. Consolidated Balance Sheets - September 30, 1996 and 1995. Consolidated Statements of Income - Years Ended September 30, 1996, 1995 and 1994. Consolidated Statements of Shareholders' Equity - Years Ended September 30, 1996, 1995 and 1994. Consolidated Statements of Cash Flows - Years Ended September 30, 1996, 1995 and 1994. Notes to Consolidated Financial Statements.
(a)(2) All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
(a)(3) The following exhibits are either filed with this Report or are incorporated herein by reference:
3.1 Certificate of Incorporation, as amended, incorporated herein by reference from Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (No. 33-9166), filed with the SEC on December 24, 1986.
3.2 Bylaws of the Company, as amended to date, incorporated by reference from Eagle's Current Report on Form 8-K dated November 12, 1993.
10.1 Eagle Financial Corp. Stock Option Plan (incorporated herein by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1987 as filed with the SEC on December 22, 1987).
10.2 BFS Bancorp, Inc. Stock Option Plan, (incorporated by reference from the Company's Registration Statement on Form S-8 (No. 33-28403) filed with the SEC on April 28, 1989.)
10.3 Eagle Financial Corp. 1988 Stock Option Plan (incorporated by reference from the Company's definitive Proxy Statement dated December 21, 1988 for the 1989 Annual Meeting of Shareholders, as filed with the SEC on December 22, 1988).
10.4 Employment Agreement dated April 1, 1994 among the Company, the Bank and Ralph T. Linsley (incorporated by reference from Pre-effective Amendment No.1 to the Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994)
10.5 Consulting Agreement dated August 25, 1988 between the Company and Ralph T. Linsley (incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1988, as filed with the SEC on December 29, 1988).
10.6 Employment Agreement dated April 1, 1994 among the Company, the Bank and Robert J. Britton (incorporated by reference from Pre-effective Amendment No. 1 to the Company's Registration Statement of Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994).
10.7 Employment Agreement dated April 1, 1994 among the Company, the Bank and Ercole J. Labadia (incorporated by reference from the Company's Registration Statement of Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.8 Employment Agreement dated April 1, 1994 among the Company, the Bank and Mark J. Blum (incorporated by reference from the Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.9 Employment Agreement dated April 1, 1994 among the Company, the Bank and Irene K. Hricko (incorporated by reference from the Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.10 Employment Agreement dated April 1, 1994 among the Company, the Bank and Barbara S. Mills (incorporated by reference from the Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.11 The Bank deferred compensation plan (incorporated by reference from Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-4 (Reg. No. 33-31122) filed with the SEC on May 17, 1988).
10.12 Deferred Compensation Plan for Non-Employee Directors (incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1988, as filed with the SEC on December 29, 1988).
10.13 Outside Directors Post Retirement Plan, dated July 26, 1994 (incorporated by reference from the Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.14 Guarantee and Pledge Agreement dated November 1, 1990 between the Company and Bank of Boston Connecticut (incorporated by reference from the Company's Annual Report on Form 10-K for the year ended September 30, 1990, as filed with the SEC on December 28, 1990).
10.15 Annual Incentive Plan (incorporated by reference from the Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on August 9, 1994).
10.16 Amendment to Employment Agreement dated July 26, 1994 among the Company, the Bank and Ralph T. Linsley (incorporated by reference from Pre-effective Amendment No. 1 to the Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994).
10.17 Amendment to Employment Agreement dated July 26, 1994 among the Company, the Bank and Robert J. Britton (incorporated by reference from Pre-effective Amendment No. 1 to the Company's Registration Statement on Form S-2 (Reg. No. 33-54981) filed with the SEC on September 12, 1994).
12 Computation of Ratio of Earnings to fixed charges.
13 1996 Annual Report to Shareholders, portions of which have been incorporated by reference into this Form 10-K.
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
(b) No current reports on Form 8-K were filed by the Registrant during the fourth quarter of fiscal 1996. (c) Exhibits to this Form 10-K are attached or incorporated by reference as stated above. (d) Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EAGLE FINANCIAL CORP. ----------------------------------------- Registrant
By: /s/ Ralph T. Linsley ----------------------------------------- Ralph T. Linsley Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.