VERMONT FINANCIAL SERVICES CORP
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ACQUISITION OF
EASTERN BANCORP, INC.
NOVEMBER 14, 1996
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 1
Transaction Overview
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o Description of Eastern Bancorp, Inc.
o Terms and Structure
o Earnings Impact
o Current Eastern Bancorp Earnings
o Anticipated Noninterest Expense Savings and
Revenue Opportunities
o Estimated EPS Dilution is Breakeven by 12/31/97
with Accretion of 5%+ in 1998
o Internal Rate of Return of approximately 20%
o Merger Related Charges
o Pro Forma Balance Sheet
o Pricing Relative to Recent Transactions
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 2
Description of Eastern Bancorp, Inc.
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o Eastern's Branch Network Significantly Enhances
VFSC's Existing Franchise
- 19% Pro Forma Share of Statewide Deposits in
Vermont
- 17% Pro Forma Share of Strongest Market in
Vermont - ▇▇▇▇▇▇▇▇▇▇ County
- Entry into Attractive Southern New Hampshire
Market
[Map showing branch locations of banks in Vermont, New Hampshire
and Massachusetts]
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 3
Description of Eastern Bancorp, Inc.
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Primary Business Retail Deposit Gathering
Residential and Commercial
Mortgage Lending
Consumer Lending
Headquarters Dover, NH
Subsidiary Vermont Federal Bank
Branches 25: 15 - Vermont Federal Bank
10 - First Savings of New
Hampshire
Employees 422
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 4
Description of Eastern Bancorp, Inc.
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Fiscal Year Ended 9/30/96
Assets..............................................................$869 million
Deposits............................................................$641 million
Loans...............................................................$489 million
Equity..............................................................$ 64 million
Net Income (1)......................................................$5.7 million
Return on Average Assets (1)...............................................0.69%
Return on Average Equity (1)...............................................9.01%
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(1) Excludes effects of one-time SAIF special assessment of $2.4 million, net of
taxes.
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 5
Terms and Structure
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o Price......................... $89.1 million, or $24.23 per EBCP share
(based on a 20 day avg. VFSC price of
$34.66)
o Exchange Ratio................ Each EBCP share to be exchanged for stock
or cash consideration equal to the value
of $7.25 cash and 0.4900 shares of VFSC.
o Form of Consideration......... Fixed pools of VFSC common stock and
cash, subject to collar adjustments.
o Election Option............... Election option to receive consideration
in form of stock or cash, subject to
aggregate limits.
o Accounting/Tax Treatment...... Purchase accounting. Stock component
tax-free.
o Collars ...................... Capped price per share of $26.83 if
VFSC's stock rises above $39.96.
Floor price per share of $21.72 if VFSC's
stock falls to between $29.54 and $26.06.
Max. exchange ratio of $7.25 cash and
0.5553 shares if VFSC's stock falls below
$26.06.
o Walkaway Provision............ EBCP termination right if VFSC's stock
price falls below $26.06 (representing
merger consideration value of $21.72 per
EBCP share), subject to VFSC option to
cure.
o Stock Option.................. Option granted to VFSC for 19.9% of
stock, with related $1 million fee.
o Fully Diluted Shares Approximately 6.8 million post-closing.
Outstanding...................
o Due Diligence................. Completed
o Approvals..................... Shareholders of both companies. Standard
regulatory reviews.
o Anticipated Closing........... June 1997
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 6
Earnings Impact
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EBCP SHARE PAYOUT DIAGRAM
[Graph showing consideration to be paid in merger based on value
of VFSC Stock]
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 7
Earnings Impact
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EASTERN CURRENT EARNINGS (1)
Fiscal Year Ended 9/30/96 ($000s)
Net Interest Income $28,933
Loan Loss Provision 895
Noninterest Income 11,273
Noninterest Expense 30,173
Pre-Tax Income 9,138
Net Income $5,728
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(1) Excludes effects of one-time SAIF special assessment of $2.4 million, net of
tax.
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 8
Earnings Impact
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ANTICIPATED EXPENSE SAVINGS (Annual) (1)(2)
($000s)
Holding Company Costs $1,100
Corporate Functions 1,800
Data Processing 1,600
Lending Functions 1,400
Branches 1,200
Operations 700
Marketing 600
Other 600
Total $9,000
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(1) 70% of cost savings of $9.3 million anticipated to be captured by 12/31/97
and 100% by 6/30/98.
(2) Represents 31% of EBCP non-interest expense for the 12 months ended 9/30/96,
excluding SAIF assessment.
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 9
Earnings Impact
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ANTICIPATED REVENUE ENHANCEMENTS (Annual) (1)
($000s)
ATM and Debit Card Income $ 400
Checking Account Service Charges 250
Credit Card and Merchant Services Income 150
Corporate Cash Management Services Income 100
Credit Card Income 100
Trust Services Income 100
Total $1,100
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(1) 100% of revenue enhancements anticipated to be realized by
6/30/98.
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 10
Merger Related Charges
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NON-RECURRING ITEMS IN 1997
($000s)
Investment Portfolio Mark to Market $8,800
Loan Loss Reserve/OREO Adjustments 6,300
Personnel 2,500
Facilities & Equipment 1,300
Branch Related 750
Other 2,600
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 11
Pro Forma Balance Sheet
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Pro Forma Pro Forma
As of 9/30/96($mil)(1) VFSC EBCP Combined Adjustments as Adjusted
Cash & Investments $ 322 $ 343 $ 655 $(140) $ 525
Loans 893 489 1,382 (5) 1,377
Premises & Equipment 22 17 39 (1) 38
Other Assets 40 20 60 52 112
------ ------ ------ ------ ------
Total Assets $1,277 $ 869 $2,146 $2,052
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Deposits $1,074 $ 641 $1,715 $1,715
Borrowings 78 154 232 (100) 132
Other Liabilities 9 10 19 19
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Total Liabilities 1,161 805 1,966 1,866
Shareholders' Equity $ 116 $ 64 $ 179 5 $ 184
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(1) Adjusted for estimated transaction-related restructuring charges,
purchase accounting adjustments, and a paydown of borrowings.
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 12
Pricing Relative to Recent Transactions
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SELLER/BUYER Price Assets Price to Price to
($mil) ($mil) Book Earnings
Eastern Bancorp/VFSC $ 89 $869 140% 15.6
Family Bancorp/Peoples Heritage 113 887 164% 12.2
Marble Financial/Albank 61 413 156% 8.5
NFS Financial/BayBanks 98 614 160% 12.3
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 13