Beacon Financial Corporation · NYSE:BBT
Beacon Financial — Berkshire Hills Bancorp — Investor Presentation (December 2005)
83 slides from Beacon Financial's investor presentation, Dec 1, 2005
Slide 1: Banking as a Business
Banking as a Business Lawrence A. Bossidy Chairman Michael P. Daly President & Chief Executive Officer New York City December 1, 2005
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: Agenda
Agenda Overview Part I: 1997-2002 Where We Started Part II: 2002 - 2005 Where We Are Today How We Got Here Part III: 2005-2008 Where We Are Going How We Will Get There Wrap Up
Slide 4: Overview
Overview Mission Statement Berkshire Bank is committed to being the financial institution of choice for individuals, businesses, and municipalities in the markets we serve. We will achieve this position of competitive leadership by consistently meeting and exceeding the expectations of our customers
Slide 5: Lawrence Bossidy
Lawrence Bossidy Berkshire Bank is a bank managed as a business, with the ongoing support and wisdom of Mr. Bossidy Former Vice-chair of General Electric Company Former Chairman and CEO of AlliedSignal Inc. Retired Chairman and CEO of Honeywell International Named CEO of the Year – 1994 – by Financi
Slide 6: Overview - Today
Overview - Today Berkshire County Pioneer Valley Capital Region State chartered savings bank with commercial bank balance sheet Ownership Structure – September 30, 2005 Institutional holders 39% Insiders* 12% Individuals 42% Foundation 7% Corporate Profile – September 30, 2005 Market capitalization
Slide 7: Part I: 1997 - 2002
Part I: 1997 - 2002 Where We Started
Slide 8: We Started 1997-2002
Where We Started 1997-2002 Confined to Berkshire County 1997 Merger Berkshire County Savings Bank Great Barrington Savings Bank Branches $723 $498 Loans ($M) $782 $539 Deposits ($M)
Slide 9: We Started 1997 - 2002
Where We Started 1997 - 2002 Merger Cultural integration Initial IPO Capital deployment Data processing company Sub-prime lending Constant throughout Commercial lending discipline Lacked management strength & depth
Slide 10: Part II: 2002 - 2005
Part II: 2002 - 2005 “Management Changes and Gaining Credibility” Where We Are Today and How We Got Here
Slide 11: Mike Daly – President and CEO
How We Got Here 2002 - 2005 20 years commercial banking experience Bank of Boston MBA from Columbia University Co-chair with Massachusetts Lt. Governor; Regional Competitiveness Council Member Massachusetts Business Roundtable Mike Daly – President and CEO
Slide 12: How we got here: Mike's Agenda
How we got here Mike’s Agenda Culture People Growth Asset quality Asset liability management Operational efficiencies Strategic capital allocation Turnaround keys
Slide 13: How we got here: Culture
How we got here Culture Realign team, stay focused, breakdown barriers Strengthen board Instill culture of enthusiasm, teamwork, energy and cross-selling Drive customer satisfaction Team transformation Culture People Growth Asset Quality Asset Liability Efficiencies Capital Allocation
Slide 14: How we got here: People
How we got here People Attract and retain very good people Committed Ambitious Accountability Pay for performance Six Sigma training Corporate governance Team committed to accelerated growth Culture People Growth Asset Quality Asset Liability Efficiencies Capital Allocation
Slide 15: How we got here: People
How we got here People Culture People Growth Asset Quality Asset Liability Efficiencies Capital Allocation Diversified and experienced management
Slide 16: How we got here: Growth by Region
How we got here Growth by Region $29 New York State $1,348 Total Branches 9/30/05 Deposits ($millions) Market $464 $855 Pioneer Valley Berkshire County Expansion has exceeded our expectations Culture People Growth Asset Quality Asset Liability Efficiencies Capital Allocation
Slide 17: How we got here: Growth
How we got here Growth Significant annual growth in every division Culture People Growth Asset Quality Asset Liability Efficiencies Capital Allocation
Slide 18: How we got here: Growth by Product Line
How we got here Growth by Product Line Balance sheet composition Less “thrift-like” Culture People Growth Asset Quality Asset Liability Efficiencies Capital Allocation Loans Deposits
Slide 19: How we got here: Non-Interest Income
How we got here Non-Interest Income Main drivers of non-interest income: wealth management, insurance, loan service and customer service fees Culture People Growth Asset Quality Asset Liability Efficiencies Capital Allocation
Slide 20: How we got here: Asset Quality
How we got here Asset Quality *Annualized 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 0.04 841.2 0.93 0.11 $1,560 3Q05* NCOs/avg. loans (%) Allowance/NPLs (%) Allowance/loans (%) NPAs/loans + REO (%) NPAs (000s) Reduce credit risk Culture People Growth Asset Q
Slide 21: How we got here: Asset Liability Management
How we got here Asset Liability Management Stable margins against rising rates and flattening yield curve 1.95 1.00 1.46 3.31 3.37 3.42 3.59 3.46 1.74 4.36 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Net Interest Margin Effective Fed Funds Sub-Prime Sale Culture People Growth Asset Qualit
Slide 22: How we got here: Operating Efficiencies
How we got here Operating Efficiencies D M A I C Six Sigma literally means 3.4 defects per million opportunities It is also means continual process improvement that is: Customer focused A disciplined approach to problem solving Six Sigma – Improving business performance Berkshire Six Sigma…is the ne
Slide 23: Operating Efficiencies: Green Belts
How we got here Operating Efficiencies 11 employees certified as Green Belts Hired certified Black Belt for training Created customized materials for in-house training 9 additional Green Belt candidates in progress Projects range from sales to marketing to recruiting Culture People Growth Asset Qual
Slide 24: Operating Efficiencies: Efficiency through acquisition
How we got here Operating Efficiencies Efficiency through acquisition 41% Data Processing 24% 1,655 1,816 1,140 Occupancy (18%) 2,120 1,996 1,291 Other 50% Prof. Services 12,379 $7,172 Total 1Q05 10,582 $5,699 Combined 3Q05* *Excludes expenses from operating new branches of $190,000, and merger and
Slide 25: Operating Efficiencies: Efficiency ratio
How we got here Operating Efficiencies 64.55% 62.73% 60.66% 55.32% Grow into infrastructure 2.89% 2.49% 2.25% 2.09% 50.00% 52.00% 54.00% 56.00% 58.00% 60.00% 62.00% 64.00% 66.00% 3Q 05 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% Efficiency Ratio (1) Non-Interest Expense/ Average Assets (2) (1) E
Slide 26: Strategic Capital Allocation
How we got here Strategic Capital Allocation Stock buybacks Repurchased 16.1% of outstanding stock 2002-2005 Over 1 million shares; average price: $25.49 Expansion Woronoco Non-interest income Berkshire Financial Planning, Inc. Two insurance agencies De novo branches Returned capital to shareholders
Slide 27: Strategic Capital Allocation: Divested non-core assets
How we got here Strategic Capital Allocation Technology subsidiary Nearly $500 thousand per year pretax loss between 2001-2004 Divested in 2004 Sub-prime auto Nearly $3.5 million net charge-offs per year between 2000-2003 Divested in 2003 Meet income standards or gone Culture People Growth Asset Qua
Slide 28: Strategic Capital Allocation
How we got here Strategic Capital Allocation Effectively employed excess capital Culture People Growth Asset Quality Asset Liability Efficiencies Capital Allocation
Slide 29: We Are Now
Where We Are Now 13.45 9.72 7.60 1.54 ROTE % 0.97 0.90 0.81 0.20 ROTA % *Annualized **All measures, except net interest margin, exclude non-recurring items, securities gains, and intangible amortization. The non-interest expense to average assets includes intangible amortization. 8,988 2.49 62.73 3.
Slide 30: Part III: 2005 - 2008
Part III: 2005 - 2008 “ Transitioning to a Regional Bank ” Where We Are Going and How We Will Get There Regional Growth Retail Banking Deposit Gathering Mortgage Lending Consumer Lending Commercial Banking Wealth Management Insurance Financial Highlights Corporate
Slide 31: We are going: Regional Growth
Where we are going Regional Growth Extend our success beyond Berkshire County
Slide 32: We are going: Competition
Where we are going 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
Slide 33: Retail Banking
Part III: 2005 - 2008 Retail Banking
Slide 34: Retail Banking - Deposit Gathering
Where we are going Retail Banking - Deposit Gathering 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) Regional growth opp
Slide 35: Retail Banking - Deposit Gathering: De novo branching
Where we are going Retail Banking - Deposit Gathering De novo branching Double number of branches by 2008 Total Berkshire County Pioneer Valley New York Projected Yr End
Slide 36: Deposit Gathering: Strategy and goals
Where we are going Retail Banking - Deposit Gathering Strategy and goals Maintain Berkshire County dominance Branding Centers of influence Relentless calling effort Municipal banking Deposit insurance fund Double Pioneer Valley market share Gain 3% market share in Capital Region
Slide 37: Deposit Gathering: Regional growth goals
Where we are going Retail Banking - - Deposit Gathering 48% $2,000 N/A $1,348 Total 1066% $338 <1% $ 29 New York State $748 $914 Projected Deposits (millions) 4.6% 31.7% Estimated Market Share Projected Growth Through 2008 Deposits (millions) Market $465 $854 61% 7% Pioneer Valley Berkshire County R
Slide 38: Retail Banking – Mortgages
Where we are going Retail Banking – Mortgages $4,000 $3,500 $800 Mortgage originations 2004 (millions) 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) Regional growth opportunity Opportunity in conti
Slide 39: Mortgages: Regional growth
Where we are going Retail Banking - Mortgages 42% $781 N/A $551 Total 327% 28% 23% $141 $361 $291 .5% 2% $33 12% $282 Projected Mortgages 2005-2008 (millions) Estimated Market Share Projected Growth Through 2008 Mortgages (millions) Market $236 Capital Region Pioneer Valley Berkshire County Regional
Slide 40: Mortgages: Strategy and goals
Where we are going Retail Banking - - Mortgages Strategy and goals Engage branch personnel Triple outside origination staff Capitalize on second home market and metropolitan relocation
Slide 41: Mortgages: Overvalued Real Estate
Where we are going Retail Banking - Mortgages 6% Albany 8% Pittsfield 17% Springfield 21% Boston 40% Long Island 48% Cape Cod % Overvalued Market Overvalued Real Estate * Source National City Bank 1 st Qtr 2005 Credit risk partially protected from bubble
Slide 42: Mortgages: Portfolio protected
Where we are going 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 Delinquency 2005: .12% Maintain credit standards
Slide 43: Consumer Lending: Regional growth
Where we are going Retail Banking – Consumer Lending 29% $169 1.2% $131 Total 360% 13% 20% $23 $85 $61 .1% 5% $5 12% $75 Projected Growth 2005-2008 (Millions) Estimated Market Share Projected Growth Through Equity Loans 9/05 (Millions) Market $51 Capital Region Pioneer Valley Berkshire County Equity
Slide 44: Consumer Lending: Equity Lines credit quality
Where we are going 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% Delinquency 2005: .25%
Slide 45: Consumer Lending: Indirect Auto opportunity
Where we are going Retail Banking - Consumer Lending Indirect Auto Regional growth opportunity 21% Southern Vermont 34% Capital Region 8% 94% Penetration Active BHLB Dealers # of Dealers Market Pioneer Valley Berkshire County Opportunity in contiguous markets
Slide 46: Consumer Lending: Indirect Auto growth goals
Where are we going Retail Banking – Consumer Lending Indirect Auto Regional growth goals Absolutely no subprime loans 3Q05 - $150 Million 2008 - $268 Million 79% growth
Slide 47: Consumer Lending: Strategy and goals
Where we are going 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 Cri
Slide 48: Indirect Lending: Maintain credit quality
Where we are going Retail Banking - - Consumer Lending Indirect Lending Maintain credit quality Sub-prime loans since 2001: None Average FICO of portfolio: 715 Average 2005 FICO: 732 Delinquency 2005: .47% Losses 2005: .42%
Slide 49: Retail Banking: Growth
Where we are going Retail Banking $17,009 $3,213 $432 $781 $2,000 Projected 25% 46% 43% 42% 48% % Increase $13,557 Pretax income $2,201 Total $302 $551 9/30/2005 Annualized $1,348 Consumer loans Mortgages Deposits Growth Note: All numbers in millions except pretax income which is in thousands.
Slide 50: Commercial Banking
Part III: 2005 - 2008 Commercial Banking
Slide 51: Commercial Banking: Why we have been successful
Where we are going 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 dominanc
Slide 52: Commercial Banking: Why the Capital Region
Where we are going Commercial Banking Why the Capital Region Lack of focus by larger banks Tech Valley growth initiative Demand for local bank presence Capital Region Ignored Market
Slide 53: Commercial Banking: Capital Region growth plan
Where we are going Commercial Banking What we have now 4 lenders with 125 years combined experience $83 million loans, $44 million pipeline Growth plan Add 2 seasoned lenders by 3/31/2006 Add 2 lenders in 2007 Grow to $345 million by 2008 Capital Region
Slide 54: Commercial Banking: Regional growth opportunity
How we will get there Commercial Banking 1% 3% 35% BHLB estimated market share BHLB commercial loans ($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 gr
Slide 55: Potential growth in northern Connecticut
Where we are going 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 $46,954 Northern Connecticut Berkshire County Potential growth in northern Connecticut
Slide 56: Potential growth in southern Vermont
Where we are going Commercial Banking Deposits ($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 57: Commercial Banking: Regional growth goals
How we will get there Commercial Banking 71% $21,419 $12,492 Pretax income 98% $1,109 $559 Totals 316% 127% $345 $275 1% 3% $489 Projected Commercial Loans 2008 (millions) 35% Estimated Current Market Share 38% Percentage Increase 2005 - 2008 Commercial Loans 9/05 (millions) Market $83 $121 $355 Cap
Slide 58: Wealth Management
Part III: 2005 - 2008 Wealth Management
Slide 59: Wealth Management: Assets under management
Where are we going Wealth Management 11.2% 18.4% 19.3% Annual growth rate $397.9 $357.9 $302.3 $253.3 Assets under management $253.3 $302.3 $357.9 $398.0
Slide 60: Wealth Management: Strategy and goals
Where are we going 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 B
Slide 61: Wealth Management: Peer comparison
Where are we going Wealth Management Peer comparison Ranked 374th largest trust department out of 1,500 Ranked 12th largest in Massachusetts out of 35 departments Ranked 9th (tied) nationally out of the largest 400 trust departments (fiduciary income as percent of trust assets) Favorable peer compar
Slide 62: Wealth Management: Regional growth
How we will get there Wealth Management 100% $795 $398 Total $186 $84 $525 Projected AUM 2008 (millions) <1% <1% 19.7% Estimated Market Share Projected Growth Through 2008 AUM 9/30/05 (millions) Market $2 $23 $373 920% 265% 41% Capital Region Pioneer Valley Berkshire County Regional growth
Slide 63: Wealth Management: Regional growth
How we will get there Wealth Management Regional growth 51.31 49.82 47.13 % of households $50K+ Population (000s) $1.3 $23.3 $373.4 BHLB AUM (millions) $14.8 $11.2 $2.4 Estimated market (billions) 23.95 Pioneer Valley Capital Region Berkshire County 30.25 24.27 % of population 55+
Slide 64: Insurance
Part III: 2005 - 2008 Insurance
Slide 65: Insurance – An Emerging Business
Where are we going 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 66: Insurance: Strategy and goals
Where are we going Insurance Strategy and goals Key to our strategy going forward Percent of Revenues 25% 10% 5% 0% Capital Region Pioneer Valley Berkshire County Market 100% 0% 85% 10% 70% 20% 45% 30%
Slide 67: Insurance: Regional growth
How we will get there Insurance Population (000’s) <0.1% <1.0% <0.1% Market share $774 $585 $172 Estimated insurance revenue (millions) 23,736 Pioneer Valley Capital Region Berkshire County 6,984 31,434 Businesses Regional growth
Slide 68: Financial Highlights
Part III: 2005 - 2008 Financial Highlights
Slide 69: Financial Highlights: Loan Growth
Financial Highlights Loan Growth 17% Total 14% Consumer lending 12% Residential mortgages 23% Commercial CAGR Actual 9/30/05 (millions) ProForma 12/31/08 (millions)
Slide 70: Financial Highlights: Deposit Growth
Financial Highlights Deposit Growth 13% Total -29% Brokered Time 18% Time 11% MMDA & Savings 13% Transaction CAGR Actual 9/30/05 (millions) ProForma 12/31/08 (millions)
Slide 71: Financial Highlights: Revenue Distribution
Financial Highlights Revenue Distribution 3 rd Qtr 2005 ProForma 2008 13% Total Revenues 16% Sub total 20% Wealth Mgmt & Ins 21% Comm’l 13% Retail CAGR
Slide 72: Financial Highlights: Pretax Profit Distribution
Financial Highlights Pretax Profit Distribution 3 rd Qtr 2005 ProForma 2008 11% Total Pretax Profit 14% Sub-total 82% Wealth Mgmt & Ins 18% Comm’l 7% Retail CAGR
Slide 73: Financial Highlights: Service fee income
Financial Highlights Service fee income
Slide 74: Financial Highlights: Capital Management
Financial Highlights Capital Management Remain well capitalized Execute de novo branching and commercial banking strategy without raising capital Capital alternatives Trust preferred Subordinated debt 10.1% 10.9% Total risk based capital (bank) 7.4% 7.3% Tier 1 leverage capital (bank) 7.0% 7.6% Tang
Slide 75: Wrap-Up: Strategic Highlights
Part III: 2005 - 2008 Wrap – Up Strategic Highlights
Slide 76: Wrap up: Strategic Highlights
Wrap up Strategic Highlights Maintain focus on our strengths Culture People Growth Asset quality Asset liability management Operational efficiencies Strategic capital allocation
Slide 77: We are going: Competition
Where we are going 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
Slide 78: Wrap up: Financial Highlights
Wrap up Financial Highlights 1.02% 1.05% Core ROTA (excl. intangible amortization) 3.31% 55.32% 0.97% 14.52% 13.45% Actual Q3 2005 Annualized ProForma FY 2008 3.49% Net interest margin 57.62% Efficiency ratio 1.00% Return on tangible assets 14.54% Core ROTE (excl. intangible amortization) 14.15% Ret
Slide 79: Wrap up: Projected core EPS performance
Wrap up Strategic Highlights 14.0% 4.8% Accretion/(Dilution) to core baseline Projected core EPS performance *Exclusive of security gains and non-recurring expenses
Slide 80: Wrap up: Summary
Wrap up Strategic Highlights Summary Significant organic growth Double branch network size Double Commercial loans Double size of wealth management Emerging insurance business 58% increase in total fee income 48% increase in deposits 43% increase in consumer loans 42% increase in mortgages
Slide 81: Banking as a Business
Banking as a Business Lawrence A. Bossidy Chairman Michael P. Daly President & Chief Executive Officer New York City December 1, 2005
Slide 82: “Transitioning to @ Regional Bank? Berxshit: HirrsBaxcorp
“Transitioning to @ Regional Bank? Berxshit: HirrsBaxcorp
Slide 83: Appendix: Reconciliation of GAAP and Core Income
Appendix: Reconciliation of GAAP and Core Income $1.31 $1.54 $1.92 $0.54 Diluted core earnings per share $7,702 $8,785 $10,987 $4,743 Net core earnings Add: Amortization of intangibles, net of tax - Add: Disallowance of the dividend received deduction on the Bank’s REIT 9,211 1,107 Add: Net losses a
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