Beacon Financial Corporation · NYSE:BBT
Beacon Financial — Berkshire Hills Bancorp — Keefe, Bruyette & Woods Regional Bank Conference (March 2006)
54 slides from Beacon Financial's conference presentation, Mar 1, 2006
Slide 1: Keefe, Bruyette & Woods Regional Bank Conference
Keefe, Bruyette & Woods Regional Bank Conference Michael P. Daly President and Chief Executive Officer Boston, Massachusetts March 1, 2006
Slide 2: Cautionary Statement
Cautionary Statement Statements contained in this presentation contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and expectations of management as well as the assumptions made using information cur
Slide 3: Today's Agenda
Today’s Agenda Culture and people Growth Asset quality Asset liability management Operational efficiencies Strategic capital allocation
Slide 4: Culture and People
Culture and People Attract and retain good people Strengthen team, stay focused, single vision, pay for performance Continually strengthen board Instill culture of enthusiasm, teamwork and energy Team transformation Culture and People Growth Asset Quality Asset Liability Efficiencies Capital Allocat
Slide 5: Profile
Profile Berkshire County, MA Pioneer Valley, MA Capital Region, NY State chartered savings bank with commercial bank balance sheet Ownership Profile – December 31, 2005 Institutional holders 41% Insiders* 9% Individuals 43% Foundation 7% Corporate Profile – December 31, 2005 Market capitalization $2
Slide 6: Primary Market Area
Primary Market Area $41 New York State $1,371 Total Branches 12/31/05 Deposits (millions) Market $473 $857 Pioneer Valley Berkshire County Our values will drive our success in expanded markets Culture and People Growth Asset Quality Asset Liability Efficiencies Capital Allocation
Slide 7: Growth
Growth Significant annual growth in every division Culture and People Growth Asset Quality Asset Liability Efficiencies Capital Allocation Core Deposits $795 Core deposit compound growth rate excluding Woronoco = 6% Core deposit compound growth = 21% Core deposits in NY represent 40% of total deposi
Slide 8: Growth
Growth Significant annual growth in every division Culture and People Growth Asset Quality Asset Liability Efficiencies Capital Allocation $570 Compound growth rate since 2002 exclusive of Woronoco = 13% Compound growth rate since 2002 = 23% Strong growth trends in NY despite lack of meaningful bran
Slide 9: Growth
Growth Significant annual growth in every division Culture and People Growth Asset Quality Asset Liability Efficiencies Capital Allocation Compound growth rate since 2002 exclusive of Woronoco and sub-prime auto loans = 14% Compound growth rate since 2002 exclusive of sub-prime auto loans = 29% Auto
Slide 10: Growth
Growth Significant annual growth in every division Culture and People Growth Asset Quality Asset Liability Efficiencies Capital Allocation Assets under management compounded growth rate = 18% Wealth Management Asset Growth $418 $253 $303 $358 Total
Slide 11: Non-Interest Income
Non-Interest Income Main drivers of non-interest income: wealth management, insurance, loan service and customer service fees Culture and People Growth Asset Quality Asset Liability Efficiencies Capital Allocation Note: Exclusive of security gains
Slide 12: Asset Quality
Asset Quality 0.15 810.5 1.13 0.14 1,152 0.35 280.4 1.13 0.40 3,199 0.87 275.5 1.43 0.72 5,241 0.07 1096.0 0.92 0.08 1,186 NCOs/avg. loans (%) Allowance/NPLs (%) Allowance/loans (%) NPAs/loans + REO (%) NPAs ($000s) Reduce credit risk Culture and People Growth Asset Quality Asset Liability Efficienc
Slide 13: Asset Liability Management
Asset Liability Management Stable margins against rising rates and flattening yield curve Effective interest rate risk management Culture and People People Growth Asset Quality Asset Liability Efficiencies Capital Allocation
Slide 14: Operating Efficiencies
Operating Efficiencies Reorganization Sale of sub-prime loans Sale of EastPoint Technologies Culture and People Growth Asset Quality Asset Liability Efficiencies Capital Allocation (1) Exclusive of merger and conversion expenses, other non-recurring items, and amortization of intangible assets (2) E
Slide 15: Operating Efficiencies
Operating Efficiencies Six Sigma – Improving business performance 11 employees certified as Green Belts 9 additional Green Belt candidates in progress Hired 2 certified Black Belts Projects range from sales to marketing to recruiting 36% ROI $250,000 gross savings Berkshire Six Sigma…is the new way
Slide 16: Strategic Capital Allocation
Strategic Capital Allocation Stock buybacks Expansion Woronoco acquisition De novo branches Fee income Divested sub-prime auto loans 2000 - 2003 Divested technology company 2004 Returned capital to shareholders & invested for future growth Culture and People Growth Asset Quality Asset Liability Effi
Slide 17: Strategic Capital Allocation
Strategic Capital Allocation Effectively employed excess capital Culture and People Growth Asset Quality Asset Liability Efficiencies Capital Allocation
Slide 18: Where We Are Now
Where We Are Now 1.02 0.87 0.81 0.76 Core Tangible ROA % 7.89 9.06 7.28 1.54 ROE 0.96 0.89 0.80 0.20 ROA *Annualized **Please see appendix for reconciliation of non-GAAP financial measures 62.73 3.61 7.97 4Q05* 57.14 60.66 64.55 Efficiency ratio % Key Measures ** 3.36 3.37 4.18 Net interest margin (
Slide 19: Regional Growth
Regional Growth Extend our success beyond Berkshire County
Slide 20: Competition
Competition Capital Region Under $1.5 Billion 48 banks & CUs $30 Billion + 6 - B of A, Citizens HSBC, Key, M&T, & Banknorth Berkshire County Under $1.5 Billion 19 banks & CUs $30 Billion + 2- Citizens & Banknorth Regional bank niche opportunity $1.5 - $30 Billion 4 – First Niagara, NBT, Trustco & Be
Slide 21: Retail Banking
Retail Banking 4,000 3,500 Mortgage Originations (2004) ($millions) 2,801 3,185 2,418 Population/ branch 13.9 9.1 2.7 Deposits 6/05 ($billions) 3.46% 2.23% -1.65% 5 Year projected growth $49,634 Pioneer Valley Capital Region Berkshire County $46,954 $51,351 Median HH income Population (000s) Regiona
Slide 22: Retail Banking - Deposit Gathering
Retail Banking - Deposit Gathering De novo branching Double number of branches by 2008 Total Berkshire County Pioneer Valley New York Projected Yr End
Slide 23: Retail Banking – Deposit Gathering
Retail Banking – Deposit Gathering Strategy and goals Maintain Berkshire County dominance Branding Centers of influence Improve calling effort Municipal banking Deposit insurance fund Double Pioneer Valley market share Gain 3% market share in Capital Region
Slide 24: Retail Banking - Deposit Gathering
Retail Banking - Deposit Gathering 46% $2,000 N/A $1,371 Total 724% $338 <1% $ 41 New York State $748 $914 Projected Deposits 4.6% 31.7% Estimated Market Share Projected Growth Through 2008 Deposits 12/31/05 (millions) Market $473 $857 58% 7% Pioneer Valley Berkshire County Regional growth goals 90%
Slide 25: Retail Banking - Mortgages
Retail Banking - Mortgages 42% $781 N/A $549 Total 605% 33% 13% $141 $361 $291 .5% 2% $20 12% $271 Projected Mortgages 2005-2008 (millions) Estimated Market Share Projected Growth Through 2008 Mortgages 12/31/05 (millions) Market $258 Capital Region Pioneer Valley Berkshire County Regional growth 42
Slide 26: Retail Banking - Mortgages
Retail Banking - Mortgages Strategy and goals Engage branch personnel Triple outside origination staff Capitalize on second home market and metropolitan relocation
Slide 27: Retail Banking - Mortgages
Retail Banking - Mortgages Portfolio protected Interest only loans: None Uninsured mortgages with LTV in excess of 80%: None Losses 2000 – 2005: None Average LTV: 61% Average FICO: 728 Average delinquency 2005: 0.22% Maintain credit standards
Slide 28: Retail Banking – Consumer Lending
Retail Banking – Consumer Lending 32% $169 1.2% $128 Total 1050% 13% 19% $23 $71 $75 .1% 5% $2 12% $63 Projected Equity Lines 2005-2008 (Millions) Estimated Market Share Projected Growth Through Equity Lines 12/31/05 (Millions) Market $63 Capital Region Pioneer Valley Berkshire County Equity Lines R
Slide 29: Retail Banking - Consumer Lending
Retail Banking - Consumer Lending Equity Lines Maintain credit quality HELOC LTV in excess of 80%: None Losses 2002 - 2005: None Average FICO 2004-2005: 756 Average LTV: 55% Average delinquency 2005: 0.14% Maintain credit standards
Slide 30: Retail Banking - Consumer Lending
Retail Banking - Consumer Lending Indirect Auto Regional growth opportunity Active BHLB Dealers 21% 34% 8% 94% Penetration 27% Southern Vermont 45% Capital Region 29% 94% Penetration Active BHLB Dealers # of Dealers Market Pioneer Valley Berkshire County Opportunity in contiguous markets
Slide 31: Retail Banking – Consumer Lending
Retail Banking – Consumer Lending Indirect Auto Regional growth goals Absolutely no subprime loans 12/31/05 - $148 Million 2008 - $268 Million 81% growth
Slide 32: Retail Banking - Consumer Lending
Retail Banking - Consumer Lending Strategy and goals Advertise service Benefit from Six Sigma principles Answers in 30 minutes Payments to dealers same day Call program on high quality dealers Utilization of branch network Continue personal contact…people dealing with people Absolutely no subprime l
Slide 33: Retail Banking - Consumer Lending
Retail Banking - Consumer Lending Indirect Lending Maintain credit quality Sub-prime loans since 2001: None Average FICO of portfolio: 716 Average 2005 FICO: 732 Average delinquency 2005: 0.45% Losses 2005: 0.43% Maintain credit standards
Slide 34: Retail Banking
Retail Banking 27% 45% 45% 42% 46% % Increase $17,009 $3,213 $432 $781 $2,000 Projected (billions) 13% 13% 12% 13% CAGR $13,431 Pretax income (annualized 4Q05) $2,217 Total $297 $549 12/31/2005 Annualized (billions) $1,371 Consumer loans Mortgages Deposits Growth
Slide 35: Commercial Banking
Commercial Banking Massachusetts Why we have been successful Not a priority for large banks Smaller banks have been acquired Mid-cap borrowers prefer local relationship Community involvement leads to business Corporate commitment to commercial banking Growth plan Maintain dominance in Berkshire Coun
Slide 36: Commercial Banking
Commercial Banking New York Region - Why Ignored Market Pioneer Valley - Why Lack of focus by larger banks Tech Valley growth initiative Demand for regional bank presence Lack of focus by larger banks Demand for regional bank presence Leveraging investment in WRO
Slide 37: Commercial Banking
Commercial Banking 1% 3% 36% BHLB estimated market share BHLB commercial loans ($M) 47,926 32,216 7,781 Total business revenues ($M) 4,250 23,736 Pioneer Valley Capital Region Berkshire County 1,025 6,984 6,300 31,434 Estimated commercial loans ($M) Total businesses Regional growth opportunity Oppor
Slide 38: Commercial Banking
Commercial Banking Deposits (billion) Sales (billion) Businesses Median HH Income Projected Growth Population (000s) Market $76.9 $7.7 $19.1 $2.7 50,207 6,984 2.74% -1.65% 1,039 $60,534 $46,954 Northern Connecticut Berkshire County Potential growth in northern Connecticut
Slide 39: Commercial Banking
Commercial Banking Deposits (billion) Sales (billion) Businesses Median HH Income Projected Growth Population (000s) Market $5.3 $7.7 $1.5 $2.7 5,241 6,984 1.07% -1.65% $43,769 $46,954 Southern Vermont Berkshire County Potential growth in southern Vermont
Slide 40: Commercial Banking
Commercial Banking 72% $21,419 $12,455 Pretax income (annualized 4Q05) 95% $1,109 $570 Totals 301% 131% $345 $275 1% 3% $489 Projected Commercial Loans 2008 (millions) 36% Estimated Current Market Share 34% Percentage Increase 2005 - 2008 Commercial Loans 12/31/05 (millions) Market $86 $119 $365 Cap
Slide 41: Wealth Management
Wealth Management 16.9% 18.4% 19.3% Annual growth rate $418.4 $357.9 $302.3 $253.3 Assets under management $253.3 $302.3 $357.9 $418.4
Slide 42: Wealth Management
Wealth Management Client centered/consultative wealth management relationship Financial planning platform with 5 CFPs Investment management capabilities are not outsourced Credible investment results – 10 year history Emphasis on personal investment management Strategy and goals Key to our strategy
Slide 43: Wealth Management
Wealth Management $14.8 $11.2 $2.4 Estimated Market (billions) 90% $795 $418 Total $186 $84 $525 Projected AUM 2008 (millions) <1% <1% 16% Estimated Market Share Projected Growth Through AUM 12/31/05 (millions) Market $2 $23 $393 9200% 265% 34% Capital Region Pioneer Valley Berkshire County Regional
Slide 44: Insurance – An Emerging Business
Insurance – An Emerging Business Referral source of over 400 people Captive audience with existing customers Qualified leads through lending activities Additional lines of business Life Disability Health Expect 15-20% pretax profit margin within 3 years Overview
Slide 45: Financial Highlights
Financial Highlights Service fee income 44% three year Growth; 13% CAGR
Slide 46: Capital Management
Capital Management Remain well capitalized Execute de novo branching and commercial banking strategy without raising capital Capital alternatives Trust preferred Subordinated debt 10.1% 11.1% Total risk based capital (bank) 7.4% 7.8% Tier 1 leverage capital (bank) 7.0% 7.6% Tangible equity/assets Pr
Slide 47: Wrap – Up
Wrap – Up Strategic Highlights
Slide 48: Wrap up Strategic Highlights
Wrap up Strategic Highlights Maintain focus on our strengths Culture and people Growth Asset quality Asset liability management Operational efficiencies Strategic capital allocation
Slide 49: Wrap up Competition
Wrap up Competition Capital Region Under $1.5 Billion 48 banks & CUs $30 Billion + 6 - B of A, Citizens HSBC, Key, M&T, & Banknorth Berkshire County Under $1.5 Billion 19 banks & CUs $30 Billion + 2- Citizens & Banknorth Regional bank niche opportunity $1.5 - $30 Billion 4 – First Niagara, NBT, Trus
Slide 50: Wrap up Financial Highlights
Wrap up Financial Highlights 1.03% 1.02% Return on tangible assets 3.36% 57.14% 13.49% Actual Q4 2005 Annualized ProForma FY 2008 3.49% Net interest margin 57.62% Efficiency ratio 14.10% Return on tangible equity
Slide 51: Wrap up Strategic Highlights Summary
Wrap up Strategic Highlights Summary Significant organic growth Double branch network size Double commercial loans Double size of wealth management Emerging insurance business 44% increase in total fee income 46% increase in deposits 55% increase in consumer loans 42% increase in mortgages
Slide 52: KBW Regional Bank Conference
KBW Regional Bank Conference March 1, 2006 If you have any questions, please contact: Wayne F. Patenaude , CFA Senior Vice President and CFO (413) 236-3195 wpatenaude@berkshirebank.com Company website: www.berkshirebank.com
Slide 53: Transitioning to a Regional Bank
“Transitioning to @ Regional Bank? Berxshit: HirrsBaxcorp
Slide 54: Reconciliation of Non-GAAP Financial Measures
BERS SIORE WILES BANE ORY. INE AND SUBS MLARIES. [RECONCILIATION OF NON-CAAE FINANCIAL MEASURES ‘Yes end December 3 (8 tbousmds 2008 208 2003 002 Nevicame 8 4838 § so g96s 6 2087 Les Can onal of secures net (a cs0a) Or) 1883) Phe: Tamintin of BSOD 168 702 Ph: Merge ad comesion apa 352 Phe: Sub of br
Berkshire Hills Bancorp — Keefe, Bruyette & Woods Regional Bank Conference (March 2006) on 6ix