Bank of America Smid Cap Conference

54
Boston Private: Long-Term Value Creation Q2 2007 Timothy L. Vaill Chairman and Chief Executive Officer Walter M. Pressey President and Interim Chief Financial Officer

Transcript of Bank of America Smid Cap Conference

Page 1: Bank of America Smid Cap Conference

Boston Private:Long-Term Value Creation

Q2 2007

Timothy L. VaillChairman and Chief Executive Officer

Walter M. PresseyPresident and Interim Chief Financial Officer

Page 2: Bank of America Smid Cap Conference

2

Forward Looking Statements

Statements in this presentation that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These factors include, among others, strategic growth rates, the strength of the company's business, the quality of the company’s loan portfolio, changes in the interest rate environment, adverse conditions in the capital markets and the impact of such conditions on Boston Private’s asset management activities, competitive pressures from other financial institutions, the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired, and risks related to the identification and implementation of acquisitions, as well as the other risks and uncertainties detailed in Boston Private's Annual Report on Form 10-K and other filings submitted to the Securities and Exchange Commission. Boston Private does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Page 3: Bank of America Smid Cap Conference

3

Agenda

1. Overview

2. Strategy

3. Results

4. Future

Conclusion

Page 4: Bank of America Smid Cap Conference

Overview

Boston Private Today

Page 5: Bank of America Smid Cap Conference

Boston Private’s Mission:

To provide wealth management solutions to

successful people, their families, private companies

and selected institutions through trusted relationships

that help preserve, grow and transfer assets over the

client’s financial lifecycle.

Page 6: Bank of America Smid Cap Conference

6

Corporate Profile

• Six regions• 14 affiliates• 45 offices• 1,039 employees

AUM/advisory: $34 billion Bank assets: $5.6 billion

Loans: $4.5 billion Deposits: $4.1 billion

Geography Balances

People Economics

• Experienced team in the field• Shared values and culture• Key Driver: client service

Annualized Revenues: $368 million Annualized Net income: $52 million Q1 2007 EPS: GAAP – $0.34

Cash – $0.44

Market cap: $1 billion

* Geography includes Charter. Economics and Balances exclude Charter.

Page 7: Bank of America Smid Cap Conference

7

Wealth Management Members

Private Banking Wealth Advisory Investment Management

Page 8: Bank of America Smid Cap Conference

8

Recent Events

• On March 5, 2007, Boston Private announced the acquisition of Charter Bank in Bellevue, Washington

• Charter is a $320 million commercial bank with 4 locations in key demographic areas

• Charter will work closely with Coldstream Capital Management to bring comprehensive wealth management services to the HNW and small business markets

Page 9: Bank of America Smid Cap Conference

9

Recent Events (con’t)

• Charter had double-digit growth over last 5 years in loans deposit and net income

0

10

20

30

40

0 1 2 3 4 5

Earnings Total Assets Total Deposits

• Entire management team has been retained

• The transaction will close in the third quarter

38%

18%

16%

Page 10: Bank of America Smid Cap Conference

10

National Association of Corporate Directors Board of the Year Award

• 30-year old national organization

• Inaugural NACD Board of the Year Award

• Honoring excellence across the Board

• Outstanding contributions to the Company

• Maintaining high levels of professional standards

Page 11: Bank of America Smid Cap Conference

11

Primary Focus: High Net Worth Market

Preserve, grow and transfer assets. . .

Private BankingTrust Services

Jumbo Mortgages

Business LoansInvestment Management

Estate Planning

Tax StrategiesFinancial Planning

Philanthropy

. . . and create a unique “customer experience”

Page 12: Bank of America Smid Cap Conference

12

Corporate Leadership Team

Executive Title Years Previous

Tim Vaill Chairman & CEO 35+ The Boston Company

Walt Pressey President 35+ The Boston Company

Jon Parker President, Western Region

30+ Edgar, Dunn Consulting

Jay Cromarty President, Eastern Region

20+ State Street Global Advisors

Megan Chambers General Counsel 20+ Ropes & Gray, Loomis Sayles

Katie Kearney Corporate Development 10+ Lesavoy Financial Planning

Extensive experience across business disciplines

Page 13: Bank of America Smid Cap Conference

Strategy

Capitalizing on a Unique Business Model

Page 14: Bank of America Smid Cap Conference

Boston Private’s Strategic Vision:

To build a national wealth management franchise that is

broadly recognized ― particularly among the newly affluent--

as the preferred place to have financial assets managed, and

to generate an above average total return to our

shareholders over the long-term

Page 15: Bank of America Smid Cap Conference

15

How are we different?

Sustainable Organic Growth

Capital StewardshipUnique

BusinessModel

Enabled by

Strategic Acquisitions

Targeted Market

Research

Adding Distribution Channels

Guided by

Foundation of HC Support

Diversification Focus

Balanced Affiliate

Management

In - Market Business

Expansion

Page 16: Bank of America Smid Cap Conference

16

Millionaire Households

49%

77%89%

$1 to $10 million $10 - $50 million > $50 million

U.S. HNW Individuals

$14T

$9T

2004 2009

Source: CapGemini; World Wealth Report 2005.

8.4% Annually

HNW Investable Assetsand Related Fee Income

Focus on HNW demographic and private companies

Percent of MillionairesWho Own Private Companies

Targeted Market Research

Source: VIP Forum

$45B $75B

Page 17: Bank of America Smid Cap Conference

17

Follow intellectual and investment capital

IntellectualCapital

InvestmentCapital

BusinessFormation

Infrastructure

Support

AttractiveRegions ForAcquisitions

WealthAccumulatio

n

Strategic Acquisitions

Page 18: Bank of America Smid Cap Conference

18

In - Market Business Expansion

Fund expansion and growth in numerous ways

• Local tie-in acquisitions

― Encino, Kanon Bloch Carre, CH&P

• Experienced team lift-outs with clients and AUM

• New office development

― Beverly, Hingham, Lexington, Los Altos, Naples, New York

• Aggressive marketing and sales programs

― Advertising campaigns, sales training

Page 19: Bank of America Smid Cap Conference

19

Adding Distribution Channels

•Small platform, high-touch environments

•Firms embedded in local communities

•Centers-of-influence

Wealth Advisory

PrivateBanking

Local

InvestmentManagemen

t

Diversify and expand business growth via sales/delivery systems

National

•National intermediaries― Broker/Dealers― Institutional consultants

•Managed accounts― Sub-advisory and SMA

Page 20: Bank of America Smid Cap Conference

20

Intellectual Capital

• Market research

• Strategic advice and counsel

• Legal, compliance, HR

• Leadership/succession planning

Financial Strength• Access to public capital

• Co-investing for business growth

• Consolidated balance sheet

• Liquidity for principals

Entrepreneurial Culture

• Consultative advisor

• Safety net enables risk taking

• Support autonomy

Communications Network

• Exchange of best practices

• Professional forums

• Internet/Intranet development

Value added by the holding company

Foundation of Support

Page 21: Bank of America Smid Cap Conference

21

Efficient cash management and capital deployment

HoldingCompany

External Capital

Dividends to Shareholders

Capital Stewardship

Capital UsersCapital Generators

Page 22: Bank of America Smid Cap Conference

22

Foundations &Endowments:11%

ERISA /Public:23%

High NetWorth:49%

Sub-Advisory:14%

Equity (Growth):40%

Equity (Value):31%

Fixed Income:7%

Corporate:3%

Alternative:8%

Balanced:14%

Banking Activity

DEPOSITS $4.1B

MMDA: 50%DDAs: 18%

CDs: 23%

Commercial: 58%

Residential Mortgage:

36%

NOW: 9%

Consumer &Home Equity:

6%

LOANS $4.5B

PrivateBanking:50%

Wealth Advisory:8%

InvestmentManagement:

42%

AUM By Client Type

AUM By Investment Style

New York:8%

Florida:15%

New England:53%

N. California:16%

Revenue By Geography

Revenue By Business Type

S. California:8%

Diversification Focus

Enables sustainable & non-volatile returns

Page 23: Bank of America Smid Cap Conference

23

Autonomy with strong governance

GovernanceCompliance

Capital

Market / Clients EmployeesOperations

Holding Company Affiliate Partners

Oversight Independence

Balanced Affiliate Management

Page 24: Bank of America Smid Cap Conference

Results

UniqueBusiness

Model

Overall Business Growth

Sustainable Organic Growth

Page 25: Bank of America Smid Cap Conference

25

Overall Revenue Growth

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Private Banking Investment Managers Wealth Advisors

10 Year CAGR 25%

$344.9

$263.3

$196.8

$116.0

$133.6$82.5 $105.

4$66.3$53.2

$36.6$45.1$30.4

Q1 07 Total Revenues: $92 million

Page 26: Bank of America Smid Cap Conference

26

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Acquisition

Market Impact

Organic Growth

Overall AUM Growth

$2.2B $2.6B$3.7B

$5.7B$6.5B $6.4B

$11.0B

$19.3B

$21.3B

$0.7B

10 Year CAGR 46%

$29.8

Q1 07 Total AUM: $34 billion

Page 27: Bank of America Smid Cap Conference

27

Overall Loan and Deposit Growth*

Loans Deposits

1996 2006

10 Year CAGR 36%

10 Year CAGR 35%

$206M

$4.3B

$209M

$4.1B

* Includes Acquisitions

Q1 07 Total Loans and Deposits: $4.5 and $4.1 billion

Page 28: Bank of America Smid Cap Conference

28

Overall Net Income Growth

$5.5 $6.6 $7.7 $9.6$13.2

$16.7$21.2 $21.8

$33.6

$46.3

$54.4

$23.7

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

10 Year CAGR 23%

Q1 07 Net Income: $13.1 million

Page 29: Bank of America Smid Cap Conference

29

Overall Earnings Per Share Growth

10 Year CAGR 16% Cash Basis

Cash Basis

10 Year CAGR 15% GAAP Basis$1.82

Q1 07 Cash and GAAP EPS: $0.44 and $0.34

Page 30: Bank of America Smid Cap Conference

30

Sustainable Organic Growth

Organic Growth After 3 Years Ownership

by Boston Private

Note: Based on Revenues

Page 31: Bank of America Smid Cap Conference

31

0

176%

93%

0%

119%107%

2001 2006

AUM Revenue Net Income

Loans Deposits

Westfield AUM: +686%

Borel Net Income: +103%

Boston Private Bank

Assets: +2,860%

Sustainable Organic Growth

No acquisitionsduring this time

5 Year Organic Growth Record in New England

Organic Growth at AffiliatesSince Acquisition

Page 32: Bank of America Smid Cap Conference

32

Executive Retention Rates

* Absent normal retirements or forced terminations

Retention Rates Since Acquisition

Page 33: Bank of America Smid Cap Conference

33

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Dividends Paid to Shareholders

6 Year CAGR 18%

Commenced Dividend in 2000

Page 34: Bank of America Smid Cap Conference

34

Sustainable Growth Metrics

Personnel: Succession, Governance

Existing Markets Growth Opportunities: Products, Distribution

Industry Dynamics: Growth, Regulatory Environment, Demographic Changes

Competitive Market

Strategic Plan & Execution

Financial: Capital Ratios, Cash, Debt Coverage, etc.

Long Term EPS Growth

Margins

Return on Invested Capital

Cost of Capital

Total Return to

Shareholders

PERFORMANCEINDICATORS

RESULT

MANAGEMENT FOCUS

Page 35: Bank of America Smid Cap Conference

35

Long-Term Value Creation

BPFH Total Return To Investors (12/1995 – 12/2006)

Page 36: Bank of America Smid Cap Conference

Future

Steps to additional Value Creation

Page 37: Bank of America Smid Cap Conference

37

1. Enhance Existing Platform

• Co-invest with affiliates in marketing / sales to generate organic growth

• Execute on in-market business growth opportunities

• Fill out core capabilities in existing clusters

Page 38: Bank of America Smid Cap Conference

38

2. Build-Out Wealth Management Franchise

Existing location Potential location

Be located in 15 of top 30 newly-affluent geographic regions

European Theater?Asian Theater?

Page 39: Bank of America Smid Cap Conference

39

3. Expand Product & Distribution

• Provide affiliates access to “best of breed” in all investment categories

• Private banking, family office and philanthropic services nationwide

• National platform – broad scale distribution of proprietary products

• More products through existing distribution channels

Build broad-scale access to products and national distribution

Page 40: Bank of America Smid Cap Conference

40

4. Employ a Distinctive Brand Strategy

Members of Boston Private Wealth Management Group

Endorsement model unifies and distinguishes local brands

Enduring Excellence

Page 41: Bank of America Smid Cap Conference

41

5. Attract and Retain Top Talent

• Foster culture of values, opportunity and respect

• Communicate with clarity and consistency

• Emphasize the complete person = skills + cultural fit

• Provide creative compensation programs

• Actively endorse entrepreneurship

Page 42: Bank of America Smid Cap Conference

42

Conclusion

• Unique and validated business model

• Demonstrated acquisition success and organic growth

• Financial sustainability through diversification

• Uncompromising commitment to entrepreneurial environment which attracts and retains superior professionals

• Attractive total returns to shareholders over ten-year period

Boston Private is creating long-term value for shareholders

Page 43: Bank of America Smid Cap Conference

Boston Private:Long-Term Value Creation

Q2 2007

Timothy L. VaillChairman and Chief Executive Officer

Page 44: Bank of America Smid Cap Conference

44

Appendix

• Financial Performance― EPS― Revenue― Expenses

• Segment Financial Summary― Private Banking― Wealth Advisory― Investment Management

• Capital Management

Page 45: Bank of America Smid Cap Conference

45

Growth

Consistent long term EPS growth

$0.44

$1.04 $1.09

$1.37

$1.70$1.82

5 Year CAGR Cash Earnings

13%

5 Year CAGR GAAP Earnings

12%

$0.98

$0.34

Page 46: Bank of America Smid Cap Conference

46

Operating Revenue

Dramatic revenue increases

($ Millions) 5 Year CAGR 27%

Page 47: Bank of America Smid Cap Conference

47

($ Millions)

Operating Expenses

Affiliates increasing in size and investing in future growth

Page 48: Bank of America Smid Cap Conference

48

Private Banking

Core Strengths:

Lending, Deposits, Mortgages and Cash Management

Partners: Assets ($M) Loans Deposits

Boston Private Bank & Trust $2,441 1,844 1,749

Gibraltar Private Bank & Trust 1,513 1,245 941

Borel Private Bank & Trust 1,702 934 964

Charter Bank 320 220 249

First Private Bank & Trust 559 433 467

*Total: $5,905 $4,661 $4,370

*Percentage of Revenue: 50%

* Total and Percentage of Revenue exclude Charter.

Page 49: Bank of America Smid Cap Conference

49

Private Banking Results

Loan Growth ($M)

$4,459$4,311

$3,623$2,248$1,613

$1,302$1,105

2001 2002 2003 2004 2005 2006 Q12007

Deposits ($M)

5 year deposit CAGR: 29%

• 5 year loans CAGR: 31%• Credit quality remains pristine

with non-performing at 0.21%

Robust loan growth with heightened competition for deposits

$2,386

$1,400 $1,658

$3,748

$1,145

2001 2002 2003 2004 2005 2006 Q1 2007

Acquisitions

Consolidated$4,078 $4,101

Page 50: Bank of America Smid Cap Conference

50

Core Net Interest Income and Margin

3.76%

Net interest margin experienced pressure in Q1 ‘07

Page 51: Bank of America Smid Cap Conference

51

Loan Portfolio

Residential Mortgage:

36%

Home Equity: 5% Commercial:

58%

Consumer: 1%

Diversified loan portfolio

Page 52: Bank of America Smid Cap Conference

52

Wealth Advisory

Core Strengths:

Fee-based financial planning, tax strategies and asset allocation

Partners: Assets Under Advisory ($B)

KLS Professional Advisors Group $3.9

Bingham, Osborn & Scarborough 1.9

RINET Company 1.2

Sand Hill Advisors 1.3

Coldstream Capital 1.1

Total: $9.4

Percentage of Revenue: 8%

Page 53: Bank of America Smid Cap Conference

53

Asset New Business Growth ($B)

$0.9$0.6

$0.1 -$0.4

$2.2

$0.8$0.3

2001 2002 2003 2004 2005 2006 Q1 2007

11%

14%

35%

8%

Assets Under Advisory ($B)

2001 2002 2003 2004 2005 2006 Q1 2007

Unconsolidated

Acquired

Core

Cumulative Assets Acquired $17.8B

$30.7$23.7

$21.1

$11.5$6.9$6.5

Wealth advisory growth less dependent on markets

Wealth Advisory Fees ($M)

Wealth Advisory and Investment Management Results

1.7%0.4%

$5.0 $5.9 $7.0 $7.9 $8.3

$20.8$19.1

2001 2002 2003 2004 2005 2006 Q1 2007

$7.3

0.5%

$33.9

Page 54: Bank of America Smid Cap Conference

54

Investment Management

Core Strengths:

Full spectrum of portfolio management products and services

Partners: Core Style AUM ($B)

Westfield Capital Management US Growth $10.5

Anchor US Value 6.9

Dalton Greiner US Value 2.0

Boston Private Value Investors Large Cap Value 1.0

Boston Private Bank Balanced 2.4

Gibraltar Private Bank Growth & Income 1.0

Borel Private Bank Fixed Income 0.7

Total Assets Managed: $24.5

Percentage of Revenue: 42%