SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):August 5, 1996 (August 5, 1996)
FIRST ESSEX BANCORP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-16143 04-2943217
(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification Number)
Incorporation)
71 Main Street
Andover, MA 01810
(Address of Principal Executive Offices)
(508) 475-4313
(Registrant's Telephone Number, including Area Code)
Page 1 of 7
<PAGE>
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Item 5. OTHER EVENTS.
On August 5, 1996, First Essex Bancorp, Inc. ("Bancorp") entered into an
Agreement and Plan of Reorganization (the "Acquisition Agreement") by and among
Bancorp, Finest Financial Corp., a New Hampshire corporation ("Finest"), and
Pelham Bank and Trust Company, a New Hampshire trust company and the wholly
owned subsidiary of Finest ("Pelham"). Pursuant to the Acquisition Agreement,
Finest shall merge with and into Bancorp (the "Acquisition"). In conjunction
with the consummation of the Acquisition and pursuant to an Agreement and Plan
of Merger dated as of August 5, 1996 between Pelham and First Essex Bank, FSB
(the "Bank"), Pelham will be merged with and into the Bank, (the "Bank Merger
Agreement"), and, thereafter, Pelham's three New Hampshire branches will be
operated as branch offices of the Bank. Upon the effectiveness of the
Acquisition, the shareholders of Finest will receive cash and/or shares of
common stock of Bancorp with an aggregate value of $20.25 in exchange for their
current shares of Finest common stock. Subject to certain restrictions, Finest's
shareholders may elect to receive all cash, all stock or any combination
thereof, provided that 50% of the total number of outstanding Finest shares
shall be converted into shares of Bancorp common stock. The portion of the
purchase price to be paid in stock may be increased, up to a maximum of 62%, to
the extent necessary to preserve the tax-free nature of the Acquisition.
The Acquisition and related merger of Pelham into the Bank are intended to
constitute tax-free reorganizations and no gain or loss is expected to be
recognized by Bancorp, the Bank, Finest or Pelham. The Acquisition will be
accounted for as a purchase.
The Acquisition Agreement provides each party with certain customary termination
rights, including failure to complete the Acquisition by July 31, 1997. In
addition, under certain circumstances, if the Acquisition is not completed and,
within twelve months following the termination of the Acquisition Agreement,
Finest engages in, or it is proposed that Finest engage in, an Alternative
Transaction (as defined in the Acquisition Agreement), Finest has agreed to pay
Bancorp a fee in the amount of $2 million.
The consummation of the Acquisition and the transactions contemplated by the
Acquisition Agreement are subject to certain conditions, including, among
others, approval from the stockholders of Bancorp and Finest and receipt of all
necessary regulatory approvals. No assurance can be given that the acquisition
will be consummated.
Certain additional information regarding the Acquisition is contained in
Bancorp's press release (the "Press Release") dated August 5, 1996, included as
an exhibit hereto and incorporated herein.
Bancorp has also scheduled a telephonic meeting with, among others, financial
analysts who follow Bancorp's stock. Certain materials prepared for
dissemination during such meeting are included as an exhibit hereto.
<PAGE>
-3-
CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
This Current Report and the exhibits attached hereto contains certain
"forward-looking statements," including statements concerning plans, objectives,
future events or performance, assumptions, and other statements which are other
than statements of historical fact. Bancorp wishes to caution readers that the
following important factors, among others, may have affected, and could in the
future affect, Bancorp's actual results and could cause Bancorp's actual results
for subsequent periods to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, Bancorp herein.
Economic Conditions and Real Estate Risk. Bancorp's lending operations are
concentrated primarily in Massachusetts and southern New Hampshire and Finest's
lending operations are concentrated in New Hampshire. As a result, the financial
condition and results of operations of the combined company will be subject to
the effects of changes in the business cycle and downturns in the local,
regional and national economies, as well as other general economic conditions,
particularly, the conditions in the single-family or multi-family residential
real estate markets prevailing in those states. In an economic downturn, there
tends to be a run-off in deposits. If economic conditions in those states worsen
or if the market for residential real estate in particular declines, the
combined company may not be able to originate the volume of high quality
single-family or multi-family residential mortgage loans or achieve the level of
deposits on which the forward-looking statements are based.
The New Hampshire economy and its real estate market showed signs of recovery in
1994 and 1995 from the recessionary levels of the early 1990's, and consequently
Finest's delinquencies, non-performing assets and loss provisions improved from
earlier periods. The forward-looking statements regarding Finest's results of
operations assume that the New Hampshire economy and real estate market will
continue the trend of improvement. A worsening of current economic conditions or
a significant decline in real estate values in New Hampshire could cause actual
results to vary materially from the forward-looking statements.
Similarly, the Massachusetts economy and its real estate market showed signs of
recovery in 1994 and 1995 from earlier recessionary levels, and consequently
Bancorp's delinquencies, non-performing assets and loss provisions improved from
earlier periods. The forward-looking statements regarding Bancorp's results of
operations assume that the Massachusetts economy and real estate market will
continue the trend of improvement. A worsening of current economic conditions or
a significant decline in real estate values in Massachusetts could cause actual
results to vary materially from the forward-looking statements.
Interest Rate Risk. Each of Bancorp and Finest realizes its income principally
from the differential between the interest earned on loans, investments and
other interest-earning assets, and the interest paid on deposits, borrowings and
other interest-bearing liabilities. Net interest spreads are affected by the
difference between the repricing characteristics of interest-earning assets and
deposits and other liabilities. Loan volumes and yields, as well as those of
investments, deposits and borrowings, are affected by market interest rates.
Generally, Bancorp will experience increased interest rate spreads during
<PAGE>
-4-
sustained periods of downward interest rate movement and decreased interest rate
spreads during sustained periods of upward interest rate movement. In contrast,
Finest will experience increased interest rate spreads during sustained periods
of upward interest rate movement and decreased interest rate spreads during
sustained periods of downward interest rate movement. To the extent that
interest rates generally are increasing during the period to which the
forward-looking statements apply, the combined company's actual interest rate
spread, and thus net income, may be materially less than set forth in the
forward-looking statements.
Operational Issues. The forward-looking statements utilize Finest's internal
estimates of growth and results of operations and generally make no provisions
for any possible negative effects of the Acquisition. In addition, the
forward-looking statements estimate certain cost savings from the consolidation
of operations which may not materialize or which may be delayed as a result of
difficulties in consolidating operations. To the extent that events differ from
the assumptions, actual results of operations may vary materially from the
forward-looking statements.
The ability of the combined company to operate efficiently, at least in the
short term, will be enhanced by the ability to retain existing management
personnel. If Bancorp is not able to retain certain key management personnel of
Finest, the consolidation of the two companies may be more time-consuming,
difficult and expensive, and may negatively affect the predicted cost savings.
The forward-looking statements assume that the deposit base of both Bancorp and
Finest will remain substantially intact pending the Acquisition and will grow at
historical rates following the Acquisition. To the extent that the change in
ownership of Finest or other factors result in either a temporary or long-term
loss of deposits, actual results of operations may vary materially from the
forward-looking information presented.
Competition. Bancorp and Finest both face significant competition in their
respective markets. Increasing consolidation within the banking and financial
services industry, as well as increased competition from larger regional and
out-of-state banking organizations and nonbank providers of various financial
services, may adversely affect the combined company's ability to meet its
financial goals. Many of these large competitors have more significant financial
resources, larger market share and greater name recognition in the market area
served by the combined company than the combined company will itself have. The
existence of such competitors may make it difficult for the combined company to
achieve the financial goals reflected in the forward-looking statements.
Laws and Regulations. The business of Bancorp and Finest are subject to federal
and state regulation. Changes in laws and regulations, including federal and
state banking laws and regulations, with which Bancorp and its subsidiaries must
comply, and the associated costs of compliance with such laws and regulations,
could cause actual results to vary from the forward- looking statements. Changes
in accounting policies and practices, as may be adopted by applicable regulatory
<PAGE>
-5-
agencies as well as by the Financial Accounting Standards Board, or in Bancorp's
organization, compensation and benefit plans also could cause actual results to
vary from the forward-looking statements.
<PAGE>
-6-
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
99.1 Press Release of Bancorp dated August 5, 1996.
99.2 Analyst Meeting Materials
<PAGE>
-7-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Bancorp has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST ESSEX BANCORP, INC.
Date: August 5, 1996 By: /s/ David W. Dailey
David W. Dailey
Executive Vice President and Chief
Financial Officer
EXHIBIT 99.1
FIRST ESSEX BANCORP, INC, TO ACQUIRE FINEST FINANCIAL CORP.
Andover, MA
August 5, 1996
First Essex Bancorp, Inc., (NASDAQ-FESX), and Finest Financial Corp. announced
today that they have signed a definitive merger agreement under which First
Essex would acquire all of the outstanding shares of Finest. The transaction is
valued at $29.94 million, or $20.25 per share for each of Finest's 1,478,750
shares outstanding. The agreement provides that 50% of the purchase price
($14.97 million) will be paid in First Essex common stock, provided that the
portion will be increased, up to a maximum of 62% ($18.56 million), to the
extent necessary to preserve the tax free nature of the transaction.
The number of shares of First Essex common stock to be issued will be determined
in accordance with a floating exchange ratio based on the average closing bid
price of First Essex common stock for the twenty consecutive days ending on the
fifth business day prior to the closing date of the acquisition. However, if the
average closing price for First Essex stock during that twenty day period is
less than $9.50 or greater than $11.50, the exchange ratio will become fixed at
2.132 and 1.761, respectively, assuming full payment of $20.25 for a share of
Finest common stock with First Essex common stock. Finest has the right to
terminate the agreement if First Essex's average stock price is below $8.75,
unless First Essex agrees to increase the exchange ratio.
The transaction is subject to approval by First Essex and Finest shareholders
and various regulatory agencies. It is anticipated that the transaction will
close in December 1996. As a result of the transaction, Pelham Bank and Trust
Company will be merged into First Essex Bank, FSB. The transaction will be
accounted for as a purchase.
In announcing the transaction, Leonard A. Wilson, First Essex's President and
Chief Executive Officer stated, "The expansion of our presence in New Hampshire
has been one of our strategic objectives and is consistent with our ongoing
efforts to add to earnings and increase the return we generate on shareholders'
equity. The acquisition more than doubles our deposit base in Rockingham County,
and extends our presence into nearby Hillsborough County, resulting in total
deposits of approximately $230 million in New Hampshire. We look forward to
further extending our long tradition of community banking to Rockingham and
Hillsborough Counties, two of New Hampshire's largest and most attractive
banking markets."
Mr. Wilson added, "We expect the acquisition to be accretive to fully-taxed Wall
Street estimates of $1.05 in the first year, 1997, by approximately $0.11 per
share or 10%, assuming 50% of the purchase price consists of First Essex common
stock. Assuming 62% of the purchase price consists of First Essex common stock,
the acquisition is expected to be accretive by $0.07 per share or approximately
7% in 1997."
Brian W. Thompson, President of Finest said: "We are very pleased about the
pending affiliation with First Essex, an institution which shares our commitment
to community banking. The acquisition will allow us to better serve customers by
broadening the products and services we offer, while maintaining the same strong
level of personal service and community focus."
<PAGE>
First Essex Bancorp, Inc., headquartered in Andover, MA, is the holding company
of First Essex Bank, FSB, a federally chartered savings bank. First Essex Bank,
originally founded in 1847, operates ten branch banking offices in Andover,
North Andover, Lawrence, Methuen and Haverhill, MA and one branch banking office
in Londonderry, NH. First Essex additionally operates separate commercial and
mortgage lending facilities in Wellesley, MA and North Hampton and Nashua, NH.
At June 30, 1996 First Essex had total assets of $842.9 million, total deposits
of $508.1 million and total equity of $62.3 million.
Finest Financial Corp. is the parent holding company of Pelham Bank and Trust
Company, a New Hampshire-chartered trust company organized in 1968 and
headquartered in Pelham, NH and is not publicly traded. Pelham Bank and Trust
Company operates three branch banking offices in the southern New Hampshire
communities of Pelham, Salem and Windham. At June 30, 1996, Finest had total
assets of $179.3 million, total deposits of $157.7 million and total equity of
$18.6 million.
<PAGE>
Summary Information:
Reasons for the Acquisition
(1) Significant cost savings. Given First Essex's existing presence in southern
New Hampshire and the ability to fold Pelham Bank and Trust into First Essex
Bank, FSB, the acquisition of Finest offers significant opportunity for cost
savings. Cost savings are expected to be 35% of Finest estimated 1997
non-interest expense, with full cost savings of 47% of non-interest expense
expected to be achieved in 1998. These cost savings are expected to contribute
to the acquisition being accretive to fully-taxed Wall Street estimates of $1.05
in 1997 by approximately $0.11 per share or 10%, or $0.07 per share or 7%
assuming First Essex common stock component of the total purchase price of 50%
and 62%, respectively. (This constitutes "forward-looking information" that is
subject to significant risks and uncertainties. See Current Report on Form 8-K
filed by First Essex with the SEC on August 5, 1996.)
(2) Acquisition results in First Essex establishing critical mass in its New
Hampshire franchise. With the acquisition of Finest deposits of $157.7 million
in southern New Hampshire, First Essex increases its market share rank to
approximately number 6 from number 11 in Rockingham County and enters contiguous
Hillsborough County with an approximate number 8 market share rank. Following
the acquisition, First Essex will have $230 million of deposits, 4 branches and
2 loan production offices in southern New Hampshire.
(3) Finest's base of approximately 20,000 customer deposit accounts provides
First Essex with significant cross selling opportunities.
<TABLE>
<CAPTION>
Acquisition Information
<S> <C>
Aggregate Purchase Price $29.94 million
Price/June 30, 1996 Book Value 1.61x.
Price/June 30, 1996 Tangible Book Value 1.61x.
Price/Annualized net income for six months
ended June 30, 1996 before nonrecurring
expenses, normalized 34% tax rate 12.3x.
June 30, 1996 Core Deposit Premium 7.99%
Shares Issued (@$10.50/share FESX price) 1,425,938 assuming 50% First Essex common stock
1,768,163 assuming 62% First Essex common stock
Accounting Treatment Purchase.
Expected Consummation Date December 1996.
</TABLE>
<PAGE>
Statistics at June 30, 1996
($ Millions) First Essex Finest
Headquarters Andover, MA Pelham, NH
Branches (10) Andover, North Andover, (3) Pelham, Salem,
Lawrence, Methuen, Haverhill, Windham, NH.
MA; Londonderry, NH
Assets $842.9 $179.3
Net Loans $522.4 $95.7
Deposits $508.1 $157.7
Equity $62.3 $18.6
Equity/Assets 7.40% 10.40%
Non-Performing Assets/Total 0.60% 1.53%
Assets
Loan Loss Reserves/Non- 194% 220%
Performing Loans
Six Month Pre-Tax Earnings $3.9 $1.8
Before Nonrecurring Expense
FTE Employees 245 55
For more information contact: William F. Burke, Senior Vice President
First Essex Bancorp, Inc.
(508) 623-8003
EXHIBIT 99.2
FIRST ESSEX BANCORP, INC.
Acquisition of Finest Financial Corp.
Special Note Regarding Forward-Looking Information
This presentation contains forward-looking statements (within the meaning
of the Private Securities Litigation Reform Act of 1995), including
estimates of future operating results, financial condition and cost
savings, which involve significant risks and uncertainties. Actual results
may differ materially from the results discussed in these forward-looking
statements. Factors that might cause such differences include, but are not
limited to, economic conditions and real estate risks, interest rate risks,
operational issues, competitive conditions, changes in applicable law and
regulations, and other risks detailed from time to time in the Company's
SEC reports, including those discussed in the Company's Current Report on
Form 8-K dated August 5, 1996, as filed with the Securities and Exchange
Commission, to which report reference is hereby made.
<PAGE>
Strategic Rationale
o Significantly enhances FESX community banking franchise in attractive
Southern New Hampshire banking market.
o Significant cost savings achievable given current FESX New Hampshire
presence.
o Accretive to EPS in year one (1997).
o Attractive revenue enhancement opportunities through cross-selling
capabilities to expanded customer base.
1
<PAGE>
<TABLE>
<CAPTION>
Transaction Summary
(Based on June 30, 1996 Financial Data)
<S> <C> <C>
o Pricing: Purchase Price $29.945 million/$20.25
per share
Price/book value and tangible book value 1.61x
Price/Finest six month annualized net income before
nonrecurring expense (normalized 34% tax rate) 12.3x
Core deposit premium 7.99%
o Terms: Purchase price to be paid in combination of FESX stock
and cash at election of Finest shareholders. Portion
paid in FESX stock to range from 50% to 62% dependent
on tax considerations.
Once final percentages determined:
Cash component to be fixed.
Number of shares of FESX stock issued based on 20 day
average price prior to five business days before
acquisition close. If FESX average stock price is $9.50
- $11.50 exchange rate floats to maintain value of stock
portion of payment. Exchange rate fixed if FESX average
stock price is below $9.50 or above $11.50, at 2.132 and
1.761, respectively, assuming full payment of $20.25 for
a share of Finest stock with FESX stock.
Walk away option if FESX stock price below $8.75.
o Structure: Purchase accounting transaction.
Pelham Bank and Trust Co. to be merged into First Essex
Bank, FSB.
o Timing: Subject to normal regulatory and FESX and Finest shareholder
approval.
Targeted to close December 1996.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Balance Sheet
(At June 30, 1996)(1)
(Dollars in Millions)
Purchase Pro Forma
FESX Finest Adjustments Combined
------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Cash and Investment Securities $299.5 $77.6 ($0.7)(2) $376.4
Net Loans 522.4 95.7 (0.3)(3) 617.7
Intangible Assets 0 0 13.9 (4) 13.9
Other Assets 21.0 6.0 - 27.0
-------- -------- --------- ----------
Total Assets $842.9 $179.3 $12.9 $1,035.1
Liabilities and Equity
Total Deposits $508.1 $157.7 - $665.8
Other Liabilities 272.5 3.0 $14.7 (5) 290.2
-------- -------- --------- ----------
Total Liabilities $780.6 $160.7 $14.7 $956.0
Total Equity 62.3 18.6 (1.8)(6) 79.1
-------- -------- --------- ----------
Total Liabilities and Equity $842.9 $179.3 $12.9 $1,035.1
<FN>
(1) Assumes 56% of purchase price paid in FESX common stock.
(2) After-tax investment portfolio valuation adjustment of $422 thousand and after-tax general reserve adjustment of
$264 thousand.
(3) After-tax residential loan portfolio valuation adjustment of $330 thousand.
(4) Goodwill of $13.9 reflects premium to book value, after-tax reduction to Finest equity of $1.0 due to asset
valuation allowances, and $1.5 in capitalized restructuring expenses.
(5) Borrowings of $13.2 cash payment plus capitalized restructuring charges of $1.5.
(6) New issue equity of $16.8 less Finest equity of $18.6.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA ASSET QUALITY AND CAPITAL
(At June 30, 1996)(1)
(Dollars in Millions, Except Per Share Amounts)
Asset Quality Pro Forma
FESX Finest Combined
------ -------- ----------
<S> <C> <C> <C>
Nonperforming Loans $3.6 $1.8 $5.4
REO 1.5 0.9 2.4
Nonperforming Assets 5.1 2.7 7.8
Loan Loss Reserve 7.0 4.1 11.0
NPA/(Loans+REO) 0.96% 2.71% 1.24%
LLR/NPLs 194% 220% 203%
LLR/Total Loans 1.32% 4.05% 1.75%
Capital Ratios
Equity/Assets 7.40% 10.40% 7.64%
Tangible Equity/Tangible Assets 7.40% 10.40% 6.39%
Average Common & Equivalent Shares Outstanding 6,158,390 1,478,750 7,780,607(2)
Book Value Per Share $10.31 $12.61 $10.17
Tangible Book Value Per Shares 10.31 12.61 8.39
<FN>
(1) Assumes 56% of purchase price paid in FESX common stock.
(2) Fully diluted pro forma shares outstanding.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA LOAN PORTFOLIO AND DEPOSIT BASE
(At June 30, 1996)
(Dollars in Millions)
Purchase
% of Adjust- Pro-Forma % of
Loan Portfolio FESX Total Finest ments(1) Combined Total
- -------------- ---- ----- ------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Residential Mortgage Loans $219.5 42% $47.0 ($0.3) $266.2 43%
Commercial Mortgage Loans 56.8 11% 43.1 99.9 16%
Construction & Dev. Mortgage Loans 11.5 2% 3.9 15.4 2%
Commercial Loans 74.2 14% 4.3 78.5 13%
Consumer Loans 158.5 31% 1.8 160.3 26%
Other 0 0% 0.1 0.1 0%
-------- ----- ------- --------- ------- -----
Total Loan Portfolio $520.5 100% $100.2 ($0.3) $620.4 100%
Loan Loss Reserve (7.0) (4.1) (11.0)
Deferred Fees, Gains/Unearned Premium 0.0 (0.4) (0.4)
Mortgage Loans Held for Sale 8.8 0.0 8.8
-------- ------- --------- -------
Net Loans $522.4 $95.7 ($0.3) $617.8
Deposits
Demand and NOW $65.9 13% $27.5 $93.4 14%
Savings and Money Market 121.5 24% 54.5 176.0 26%
CDs under $100,000 291.8 57% 59.3 351.1 53%
CDs over $100,000 28.9 6% 16.4 45.3 7%
--------- ------ ------- ------- -----
Total Deposits $508.1 `100% $157.7 $665.8 100%
Core Deposits/Total Deposits 94% 90% 93%
<FN>
(1) After-tax residential loan portfolio valuation adjustment of $330 thousand.
</FN>
</TABLE>
5
<PAGE>
ESTABLISHES CRITICAL MASS IN SOUTHERN
NEW HAMPSHIRE FRANCHISE
o Southern New Hampshire is a natural contiguous extension to FESX's core
Essex County, Massachusetts market.
o Results in Southern New Hampshire franchise with:
$230 million of deposits
4 branches
2 loan production offices
o Acquisition doubles FESX deposit presence in Rockingham County and extends
presence into contiguous Hillsborough County:
<TABLE>
<CAPTION>
Rockingham County, NH(1) Hillsborough County, NH(1)
------------------------ --------------------------
Deposits Deposits
Branches ($MM) Rank Branches ($MM) Rank
-------- -------- ---- -------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
First Essex Bancorp, Inc. 1 $ 72.7 11 -- -- --
Finest Financial Corp. 2 $ 74.9 10 1 $82.8 8
Pro Forma Combined 3 $147.6 6 1 $82.8 8
<FN>
(1) Deposits totals for First Essex and Finest as of June 30, 1996. Competitor deposit totals as of June 30, 1995.
</FN>
</TABLE>
[Graphic Material: Map of Eastern Massachusetts and Southeastern New
Hampshire indicating locations of FESX and Finest branches in Hillsborough and
Rockingham Counties, NH, and Essex County, MA]
6
<PAGE>
Southern New Hampshire Market
o Rockingham and Hillsborough Counties are New Hampshire's most populous and
affluent banking markets:
<TABLE>
<CAPTION>
Rockingham, NH Hillsborough, NH Essex, MA
-------------- ---------------- ---------
<S> <C> <C> <C>
Estimated 1995 Population 256,522 349,171 680,006
1995 Average Household Income $ 57,036 $ 51,738 $ 54,161
Projected 2000 Avg. Household Income $ 64,540 $ 55,972 $ 60,658
Source: SNL Securities, Inc.
</TABLE>
o New Hampshire has one of the strongest economies in New England with a
diverse economic base:
o Highest personal income growth rate in New England over the past five
years of 5.5% per year.(1)
o Lowest unemployment rate in New England of 4.0% versus 4.9% in
Massachusetts and 4.8% in Connecticut.(2)
o Major employers in Southern New Hampshire include:
Digital Equipment Fidelity
Hadco Lockheed Martin
- -------------
(1) Source: Bureau of Economic Analysis.
(2) Source: Bureau of Labor Statistics.
7
<PAGE>
<TABLE>
<CAPTION>
Comparative Earnings Data
(Dollars in Millions, Except Per Share Amounts)
First Essex Finest
----------- ------
Six Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Interest Income $12.6 $23.8 $4.0 $8.0
Provision (0.8) (0.8) (0.2) (1.6)
Non-interest Income 2.1 3.7 0.5 0.9
Non-interest Expense (10.0) (19.2) (2.5) (6.0)
-------- -------- -------- -------
Net Income Before Taxes 3.9 7.5 1.8 1.2
Tax (Expense)/Benefit (0.0) (0.0) (0.0) 0.2
-------- -------- -------- -------
Net Income Before 3.9 7.5 1.8 1.4
Nonrecurring Exp.
Nonrecurring Expense 0.0 0.0 (0.2) 0.0
-------- -------- -------- -------
Net Income $3.9 $7.5 $1.6 $1.4
Earnings Per Share $0.63 $1.22 $1.10 $0.75
Average Common & Equivalent
Shares Outstanding 6,158,390 6,104,579 1,478,750 1,458,550
ROAA 0.95%(1) 0.91% 1.85%(1) 0.77%
ROAE 12.57%(1) 12.79% 17.94%(1) 8.18%
NIM 3.19%(1) 2.99% 4.72%(1) 4.56%
<FN>
(1) Six months ended June 30, 1996 annualized.
</FN>
</TABLE>
8
<PAGE>
Estimated Expense Reductions
(Dollars in Millions)
1997 1998
---- ----
Personnel $1.0 $1.4
Occupancy $0.0 $0.1
Other (1) $0.7 $0.9
---- ----
Total Pre-Tax $1.7 $2.4
Total After-Tax (2) $1.1 $1.6
As a % of Finest Expense Base:
Total Estimated Finest Expenses $5.0 $5.2
Pre-Tax 35% 47%
(1) Director fees, advertising, audit/exam/filing, other.
(2) 34% tax rate.
9
<PAGE>
<TABLE>
<CAPTION>
Estimated Pro Forma Earnings
(Dollars in Millions, Except Per Share Amounts)
Assuming 50% FESX Stock Assuming 62% FESX Stock
1997 1997
---- ----
Net Income on stand alone basis:
Total Per Share Total Per Share
----- --------- ----- ---------
<S> <C> <C> <C> <C>
FESX(1) $6.5 $1.05 $6.5 $1.05
Finest(1) $2.6 - $2.6 -
After-tax Adjustments:
Expense Reductions $1.1 $1.1
Goodwill/Restructuring/ ($1.4) ($1.3)
------ ------
Interest Expense
Total Net Income $8.8 $1.16 $8.9 $1.12
Accretion(2) $0.11 per share $0.07 per share
10% 7%
Pro Forma Fully Diluted 7,609,495 7.951,720
Shares(2)
- ---------------
<FN>
(1) FESX 1997 earnings are based on fully taxed "Wall Street" estimates of
$1.05 per share. Finest 1997 earnings are presented for illustrative
purposes only and reflect an approximate 6.5% increase from six months
ended June 30, 1996 annualized net income before nonrecurring expense
with normalized 34% tax rate of $2.4. This information constitutes
"forward-looking information". See Special Note on cover page.
(2) At $10.50 FESX stock price.
</FN>
</TABLE>
10
<PAGE>
Summary
o Significant franchise enhancement.
o In-market transaction providing significant cost savings.
o Attractive EPS accretion.
o Achieves returns higher than those available on a stand alone basis.
11
<PAGE>
<TABLE>
<CAPTION>
Appendix
Finest Financial Corp. Historical Financial Data
Balance Sheet and Asset Quality Data
(Dollars in Millions)
At December 31,
At June 30, -------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet
Assets $179.3 $181.1 $178.0 $180.4 $177.8 $194.1
Gross Loans 100.2 107.2 108.3 110.3 115.6 141.1
Loan Loss Reserve (4.1) (4.1) (3.7) (3.7) (4.3) (3.0)
Deferred Fees,
Gains/Unearned Premium (0.4) (0.5) (0.6) (0.7) (0.5) (0.6)
------- ------- ------- ------- ------- -------
Net Loans 95.7 102.6 103.9 106.0 110.8 137.4
REO 0.9 1.5 7.9 15.9 30.3 28.7
Non-Performing Loans 1.8 3.7 5.9 2.0 1.6 3.1
Deposits $157.7 $161.7 $161.4 $164.0 $162.4 $175.0
Equity 18.6 17.3 15.3 14.8 14.4 16.3
Equity/Assets 10.40% 9.53% 8.58% 8.21% 8.08% 8.41%
Asset Quality
NPLs/Total Loans 1.85% 3.44% 5.47% 1.82% 1.39% 2.21%
NPA/(Loans + REO) 2.71% 4.78% 11.93% 14.18% 21.85% 18.72%
LLR/NPLs 220% 112% 63% 182% 269% 97%
LLR/Total Loans 4.05% 3.86% 3.46% 3.32% 3.75% 2.15%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Appendix
Finest Financial Corp. Historical Financial Data
Income Statement and Profitability Data
(Dollars in Millions)
Six Months Year Ended December 31,
Ended June 30, -----------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income Statement
Net Interest Income $4.0 $8.0 $7.0 $6.7 $7.0 $6.5
Provision (0.2) (1.6) (0.6) (2.1) (3.2) (5.3)
Non-interest Income 0.5 0.9 0.9 1.0 1.1 0.6
Non-interest Expense (2.5) (6.0) (6.7) (6.0) (6.2) (6.0)
----- ----- ----- ----- ----- -----
Net Income Before 1.8 1.2 0.6 (0.5) (1.4) (4.3)
Taxes
Tax (Expense)/Benefit 0.0 0.2 0.5 0.7 (0.5) 1.1
----- ----- ----- ----- ----- -----
Net Income Before 1.8 1.4 1.0 0.2 (1.9) (3.2)
Nonrecurring exp.
Nonrecurring expense (0.2) 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- -----
Net Income $1.6 $1.4 $1.0 $0.2 ($1.9) ($3.2)
Profitability
- -------------
ROAA 1.85%(1) 0.77% 0.57% 0.11% (1.02%) (1.59%)
ROAA 17.94%(1) 8.18% 6.61% 1.31% (11.60%) (15.59%)
Non-interest 2.80%(1) 3.44% 3.78% 3.44% 3.37% 3.02%
Expense/Average
Assets
Efficiency Ratio 54.87%(1) 68.52% 85.30% 79.17% 77.30% 84.89%
Net Interest Margin 4.72%(1) 4.56% 4.45% 4.51% 4.99% 4.25%
<FN>
(1) Six months ended June 30, 1996 annualized.
</FN>
</TABLE>
13
