Boston Private Financial Holdings Inc
Boston Private Financial — Proxy Contest (February 2021)
67 slides from Boston Private Financial's proxy contest presentation, Feb 2, 2021
Slide 1: Letter to Board of Boston Private
441 Lexington Avenue, 15th Floor New York, NY 10017 212-785-5567 January 5, 2021 Steve Waters Boston Private Financial Holdings, Inc. Chairman of the Board Ten Post Office Square Boston, MA 02109 Anthony DeChellis Boston Private Financial Holdings, Inc. President and CEO Ten Post Office Square Bosto
Slide 2: Letter to Board (continued)
grossly too low, and we have several concerns following our review of the transaction and the call hosted by SVB’s management team. Our primary concern is that, based on comments made on the call and our review of the transaction metrics, it does not appear BPFH conducted a competitive process to ma
Slide 3: Letter: requested steps for the Board
For these reasons, we urge the Board to ensure that that the following steps are taken promptly: 1) Sale Process: Shareholders should be provided with information that would enable us to determine whether the sales process undertaken was comprehensive and competitive. Specifically: (1) how long did
Slide 4: Presentation to the Board of Directors of Boston Private Financial Holdings
Presentation to the Board of Directors of Boston Private Financial Holdings (ticker: BPFH) January 5, 2021
Slide 5: Disclaimer
Disclaimer This presentation (the “Presentation”) is for discussion and general informational purposes only. This Presentation is not investment advice, an investment recommendation, or an offer to buy or sell or the solicitation of an offer to buy or sell any securities, including without limitatio
Slide 6: Table of Contents
Table of Contents 3 I. ABOUT HOLDCO 10 II. EXECUTIVE SUMMARY 14 III. HOW BPFH GOT HERE 17 I V. HOLDCO’S CONCERNS WITH BPFH’S PERFORMANCE 27 V. HOLDCO’S CONCERNS WITH BPFH’S LEADERSHIP 37 VI. H O L D C O ’ S C O N C E R N S W I T H B P F H ’ S W E A LT H S T R AT E G Y 49 VII. B PFH’S POTENTIAL VALUE
Slide 7: I. About HoldCo
HOLDCO ASSET MANAGEMENT |. ABOUT HOLDCO
Slide 8: Who we are
Who we are • HoldCo Asset Management, LP (“HoldCo”) is pleased to provide this Presentation to the Board of Directors of Boston Private Financial Holdings, Inc. (“BPFH”) • HoldCo, through one of its managed funds, is a large owner of BPFH common stock: – We own 4,049,713 shares of common stock as of
Slide 9: Who we are (cont'd)
Who we are (cont’d) • HoldCo’s funds are deliberately structured differently than most hedge funds to enable a long-term disposition with respect to our investments and allow us to “think like a stakeholder of a business” rather than an owner of a speculative financial instrument – Short-term consid
Slide 10: HoldCo's principals have significant experience investing in banks and turnaround stories
HoldCo’s principals have significant experience investing in banks and bank holding company turnaround stories HoldCo was formed and invested in dozens of Fund II invested 41% of Fund III invested distressed debt its capital commitments Principals invested 70% of its capital instruments issued by in
Slide 11: HoldCo's historical approach to bank activism
HoldCo’s historical approach to bank activism has typically involved non-public dialogue with management teams / boards • Since the financial crisis, HoldCo and/or its principals have been stakeholders in dozens of misguided, stressed, or distressed U.S. bank holding companies across a broad range o
Slide 12: HoldCo has launched only one public engagement effort in the banking sector
HoldCo has launched only one public engagement effort in the banking sector • As described on the prior slide, HoldCo typically opts to engage with company boards and management teams behind the scenes – However, in certain select circumstances, particularly when we believe that a company’s leadersh
Slide 13: Our FNBC campaign was covered extensively by media outlets
Our FNBC campaign was covered extensively by local and national media outlets “External pressure is compounding internal issues at First NBC Bank Holding in New Orleans….The $4.8 billion-asset company, which has been grappling with financial-reporting problems and problematic energy loans for months
Slide 14: II. Executive Summary
HOLDCO ASSET MANAGEMENT Il. EXECUTIVE SUMMARY 10
Slide 15: What is the purpose of this Presentation
What is the purpose of this Presentation • In HoldCo’s 10 years of operation, we have rarely felt the need to express our views on an investment publicly and generally only do so to protect our investment when we believe the company’s current direction is likely to significantly erode shareholder va
Slide 16: What is the purpose of this Presentation (cont'd)
What is the purpose of this Presentation (cont’d) • Yet instead of addressing the glaring profitability issues at the private bank, which contributed over 80% of BPFH’s pre-tax pre-provision income in 2019(1) , BPFH’s Board of Directors (“the Board”) and management appear to be myopically focused on
Slide 17: What is the purpose of this Presentation (cont'd)
What is the purpose of this Presentation (cont’d) • More than anything else, we believe this speaks to a gross mismanagement of the Company’s resources and a clear failure in leadership • We hope the Board (who own extremely little stock and receive generous board fees) and new management (who also
Slide 18: III. How BPFH Got Here
HOLDCO ASSET MANAGEMENT Il. HOW BPFH GOT HERE 14
Slide 19: A timeline of key events since BPFH emerged from the Great Recession
A timeline of key events since BPFH emerged from the Great Recession • BPFH was hit hard during the Great Recession, with after-tax losses of $422 million in 2008, $35 million in 2009 and $21 million in 2010(1), primarily driven by problem loans in its Southern California markets • This precipitated
Slide 20: A timeline of key events (cont'd)
A timeline of key events since BPFH emerged from the Great Recession (cont’d) • While Banyan added significant scale to BPFH’s existing wealth business, it also created a culture clash that resulted in the departure of a number of wealth advisors and significant AUM outflows • Subsequently, in 2018,
Slide 21: IV. HoldCo's Concerns with BPFH's Performance
IV. HOLDCO’S CONCERNS WITH BPFH’S PERFORMANCE 17
Slide 22: Several factors have weighed on BPFH's franchise value
We believe several factors have weighed on BPFH’s franchise value Our Perspectives on BPFH ▪ BPFH continues to trade below liquidation value(1) and underperform the broader bank index despite its meaningful scale, strong credit culture, high-quality core deposit base, diversified revenue stream and
Slide 23: BPFH has underperformed the broader bank index over any relevant timeframe
BPFH has underperformed the broader bank index over any relevant timeframe, even before the onset of the pandemic Total Stockholder Return Through 1/4/21 (Current) BPFH SNL U.S. Bank 40.3% (4.1%) (14.8%) (14.6%) (28.5%) (40.1%) 1-Year 3-Year 5-Year Total Stockholder Return Through 12/31/2019 (Pre-Co
Slide 24: BPFH is one of the lowest valued banks in the country
BPFH is one of the lowest valued banks in the country despite its attractive franchise ▪ 87 publicly traded U.S. banks between 87 $5B and $15B in assets(1) ▪ Only 5 of those 87 banks trade at a 5 lower tangible book value multiple than BPFH ▪ BPFH is the only bank in the bottom six 1 with an enviabl
Slide 25: The private bank's poor profitability creates a drag on valuation
The private bank’s consistently poor and worsening profitability creates a significant drag on valuation Efficiency Ratio Peer 25th-75th Percentile Peer Median BPFH Private Bank 75% 72% 70% 67% 66% 67% 67% 61% 62% 60% 58% 58% 57% 57% 55% 55% 2015 2016 2017 2018 2019 Q1 2020 Q2 2020 Q3 2020 Pre-Tax P
Slide 26: The private bank's profitability ranks near dead last among similarly sized banks
The private bank’s profitability ranks near dead last among similarly sized banks Efficiency Ratio 2015 2016 2017 2018 2019 Q1 2020 Q2 2020 Q3 2020 BPFH Private Bank 67% 61% 66% 67% 67% 75% 72% 70% Peer Median 62% 60% 58% 57% 57% 58% 55% 55% Peer 25th % 66% 66% 63% 61% 61% 63% 58% 58% Rank vs. 87 Pe
Slide 27: Low margin lending is somewhat responsible for sub-par profitability
While the private bank’s low margin lending is somewhat responsible for its sub-par profitability… Yield on Loans Peer 25th-75th Percentile Peer Median BPFH 5.06% 4.88% 4.73% 4.49% 4.46% 4.51% 4.27% 4.16% 4.03% 3.94% 3.78% 3.65% 3.53% 3.50% 3.45% 3.28% 2015 2016 2017 2018 2019 Q1 2020 Q2 2020 Q3 202
Slide 28: Other low-margin banks compensate through more efficient operations
…other low-margin banks compensate through more efficient operations • BPFH’s private bank ranks at or near dead last on expense and profitability metrics compared to peers with lower net interest margins • In other words, all but one of the banks below generate better profitability than BPFH’s priv
Slide 29: BPFH should be cutting costs to bring operating margins in line with peers
Any way we look at it, BPFH should be cutting costs to bring operating margins in line with peers • In the analysis below, we compare BPFH’s expenses to three groups: (1) low margin peers (see page 24), (2) Peapack Gladstone, a low-margin, wealth-focused bank in NJ and (3) Washington Trust, a slight
Slide 30: While more efficient banks are cutting costs, BPFH is growing its wealth business
While more efficient banks are cutting costs, BPFH is growing its wealth business – what’s wrong with this picture? Selected Banks With Publicly Announced Cost Savings Initiatives: Median Efficiency Ratio Before Cost Reductions: 60% Private Bank Efficiency Ratio: 70% Source: S&P Global Market Intell
Slide 31: V. HoldCo's Concerns with BPFH's Leadership
V. HOLDCO’S CONCERNS WITH BPFH’s LEADERSHIP 27
Slide 32: HoldCo's concerns with BPFH leadership
HoldCo’s concerns with BPFH leadership • In our view, a bank with BPFH’s poor profitability and depressed valuation should be: 1) Cutting costs aggressively to bring profitability in line with peers 2) Exploring a sale 3) Buying back stock with any excess capital • But instead of doing any of these
Slide 33: HoldCo's concerns with BPFH leadership (cont'd)
HoldCo’s concerns with BPFH leadership (cont’d) • In fact, there is significant inertia to changing direction: – Mr. DeChellis and his team are wealth management industry veterans, not community bankers, who are far more likely to be interested in growing the wealth management business than focusing
Slide 34: CEO Clay Deutsch's abrupt replacement removed shareholder alignment
CEO Clay Deutsch’s abrupt replacement removed any semblance of shareholder alignment from the board room • Former CEO Clay Deutsch was investors’ last hope for a shareholder advocate in the boardroom – Mr. Deutsch owned 737,204 shares at the time of his departure, nearly 3x the shares owned by the o
Slide 35: Clay Deutsch's departure dashed investors' hopes for a sale
Clay Deutsch’s departure dashed investors’ hopes for a sale • BPFH had been rumored to be a potential seller given its scarcity value in attractive markets • In February 2015, The Wall Street Journal reported that both Canadian Imperial Bank of Commerce (“CIBC”) and Royal Bank of Canada (“RBC”) had
Slide 36: Remaining insiders barely own any stock
Clay Deutsch’s departure is particularly concerning considering the remaining insiders barely own any stock Insider Ownership % (1) 4.0% ▪ 86 publicly traded U.S. banks between 86 $5B and $15B in assets(1) 1.2% ▪ Only 3 of those 86 banks have lower 3 insider ownership than BPFH BPFH $5B-$15B Bank Me
Slide 37: Directors have profited from fees despite abysmal stock performance
BPFH’s directors have profited handsomely from director fees despite abysmal stock performance • BPFH has massively underperformed the broader bank index over each of the current directors’ tenures – BPFH’s TSR has averaged nearly 70% underperformance relative to the SNL U.S. Bank Index under the cu
Slide 38: BPFH's compensation structure fails to align new management with shareholders
BPFH’s compensation structure fails miserably to align new management with shareholders • BPFH’s executive compensation structure consists of three components: cash base salary, cash annual-executive short-term incentive plan and equity based long-term incentives • While only the base salary is tech
Slide 39: New management stands to make a lot of money just for showing up
Like the Board, new management stands to make a lot of money just for showing up to work • Management can make a considerable amount of money through the end of 2022 while shareholders wait to see if the strategic plan will be successful – Mr. DeChellis could make more than $4M in cash over a three-
Slide 40: BPFH's decision to kick the can down the road on credit
BPFH’s decision to kick the can down the road on credit is further evidence of a clear misalignment with shareholders • Instead of granting 90-day or 180-day deferrals to commercial borrowers facing hardship, BPFH chose a completely different approach pursuant to which almost every single commercial
Slide 41: VI. HoldCo's Concerns with BPFH's Wealth Strategy
VI. HOLDCO’S CONCERNS WITH BPFH’S WEALTH STRATEGY 37
Slide 42: HoldCo's concerns with BPFH's wealth strategy
Holdco’s concerns with BPFH’s wealth strategy • BPFH has announced an aggressive wealth management growth plan targeting $50B in AUM (from ~$16B today) and a doubling of wealth advisors by the end of 2022(1) • While we have no issues with the wealth business per se – and believe it can be an excelle
Slide 43: HoldCo's concerns with BPFH's wealth strategy (cont'd)
Holdco’s concerns with BPFH’s wealth strategy (cont’d) • HoldCo believes there are very good reasons to doubt BPFH’s ability to rebuild this business: 1) Losing Track Record: BPFH has already failed in its attempt to build this business, selling two affiliates back to management and suffering from c
Slide 44: BPFH is a small fish in the large wealth management industry
BPFH is a small fish in the large and competitive wealth management industry U.S. Private Wealth Name Client AUM Managers 1 Bank of America $1.3TR 20,398 2 Morgan Stanley $1.3TR 15,682 • BPFH’s $16B AUM 3 J.P. Morgan $774B 1,332 represents only 0.1% of the $29TR wealth industry 4 Wells Fargo $604B 1
Slide 45: Wealth management woes began in 2018 with loss of nearly half its AUM
BPFH’s wealth management woes began in 2018 with the loss of nearly half its AUM from the sale of Anchor and BOS BPFH Assets Under Management ($B) Wealth Management and Trust DGHM Anchor BOS 30.5 27.6 27.6 15.9 16.8 16.3 2015 2016 2017 2018 2019 Q3 2020 BPFH Wealth and Investment Management Fee Inco
Slide 46: BPFH has struggled to contain AUM outflows
Since then, BPFH has struggled to contain AUM outflows, even as the wealth segment has generated new business BPFH Wealth Management Net Flows ($M) $176 “Net flows of negative $100M “The segment's outflow for were driven by $271M of “…overall net flows were slightly the quarter were primarily outflo
Slide 47: BPFH is stubbornly committed to rebuilding the wealth business
Yet despite its failures in wealth management, BPFH is stubbornly committed to rebuilding the business • BPFH has not only failed to grow its wealth management business but to keep it from shrinking through continued advisor departures and AUM outflows • While the excuses for AUM outflows vary from
Slide 48: BPFH has committed to an unrealistic $50B AUM target by 2022
BPFH has committed to an unrealistic and potentially very costly $50B AUM target by 2022 • BPFH’s $50B AUM target is >200% above current AUM • The Company has made no progress toward its target, with 3Q20 AUM of $16.3B vs $16,1B when the plan came out • BPFH has said it will not acquire RIAs given c
Slide 49: Poor hiring progress: BPFH will struggle to attract advisors without paying more
Based on the poor hiring progress to date, we believe BPFH will struggle to attract advisors without paying them more “I have 54 advisers right now out of 756 BPFH Advisor Hiring Progress employees where you can expect to see -- (In number of advisors) and Paul's already put some numbers out there,
Slide 50: Upfront payments to attract wealth advisors could total hundreds of millions
We estimate upfront payments to attract wealth advisors could total in the hundreds of millions • Based on our understanding of the wealth management industry, BPFH will need to make significant upfront and back-end payments in cash to attract high-performing wealth advisors: – When moving from one
Slide 51: BPFH will sacrifice margin for growth like First Republic Bank
We are concerned BPFH will sacrifice margin for growth like its aspirational peer, First Republic Bank FRC AUM and AUA ($B) $151.0 $126.2 $107.0 $83.6 $72.3 2015 2016 2017 2018 2019 FRC Wealth Segment Operating Expenses / Fees 91.8% 89.8% 88.9% 89.8% 84.4% 76.3% 2015 2016 2017 2018 2019 BPFH 2019 So
Slide 52: Wall Street analysts share our lack of confidence in the wealth business
Wall Street analysts share our lack of confidence in BPFH’s ability to successfully grow the wealth business Firm(1) Rating Price Target “All told, as we discussed after BPFH’s investor day in May we believe the more Piper Sandler & Co. Hold $6.50 than tripling of its AUM base is an incredibly KBW H
Slide 53: VII. BPFH's Potential Value in a Sale / Merger
VII. BPFH’S POTENTIAL VALUE IN A SALE / MERGER 49
Slide 54: HoldCo requests that BPFH commit to running a sale process
HoldCo requests that BPFH commit to running a sale process • Based on the Company’s operating and market performance, we think it is clear BPFH has not “earned its independence” and request that the Board evaluate all options including a sale of the bank to maximize value • We believe the franchise,
Slide 55: A number of banks could be interested in acquiring or merging with BPFH
We believe a number of banks could be interested in acquiring or merging with BPFH • The list below is not intended to be an exhaustive list of potential acquirers Overview of Potential Acquirers Bank HQ Location Assets ($B) (1) Market Cap ($B) Price/TBV(1) P/2022 EPS (2) Dividend RBC Toronto, CAD $
Slide 56: Acquisition evaluation by EBC, PBCT and INDB: key assumptions
We have evaluated an acquisition of BPFH by EBC, PBCT and INDB using the following key assumptions • EBC (100% cash); PBCT (100% stock); • Assumes acquirer runs off BPFH’s 1-4 Loan Portfolio INDB (100% stock) family loans over five years and replaces Consideration Remixing • BPFH options cashed out
Slide 57: Selected acquirer: EBC overview
Selected acquirer: EBC overview • Following its October 14, 2020 mutual-to-stock conversion, EBC has the scale and capital to acquire BPFH, which would be an excellent fit for its Greater Boston franchise Overview EBC / BPFH Massachusetts Branch Footprint Ticker: NASDAQ: EBC BPFH Headquarters: Bosto
Slide 58: Selected acquirer: EBC's acquisition readiness
Selected acquirer: EBC’s acquisition readiness • EBC completed its mutual-to-stock conversion on October 14, 2020, raising $1.8B in gross proceeds • Throughout its offering prospectus (see excerpts below), EBC emphasizes its interest in pursuing strategic acquisitions • The bank has completed seven
Slide 59: Selected acquirer: EBC merger impact (100% cash)
Selected acquirer: EBC merger impact (100% cash) • Our analysis indicates that EBC could offer BPFH shareholders up to ~$14.25 per share Purchase Premium Analysis Assuming 45% Cost Savings Merger at Premium of: EBC BPFH 50.0% 60.0% 70.0% Standalone Standalone BPFH Merger Valuation: 50.0% 60.0% 70.0%
Slide 60: Selected acquirer: PBCT overview
Selected acquirer: PBCT overview • PBCT has a significant presence in Greater Boston as well as a wealth management business that could realize synergies in a combination with BPFH Overview PBCT / BPFH Massachusetts Branch Footprint Ticker: NASDAQ: PBCT BPFH Headquarters: Bridgeport, CT PBCT MRQ Ass
Slide 61: Selected acquirer: PBCT merger impact (100% stock)
Selected acquirer: PBCT merger impact (100% stock) • Our analysis indicates that PBCT could offer BPFH shareholders up to ~$13.50 per share Purchase Premium Analysis Assuming 45% Cost Savings Merger at Premium of: PBCT BPFH 40.0% 50.0% 60.0% Standalone Standalone BPFH Merger Valuation: 40.0% 50.0% 6
Slide 62: Impact on BPFH of PBCT stock merger
Selected acquirer: Impact on BPFH of PBCT stock merger • A deal with PBCT in the 50% premium area would be very attractive to current BPFH shareholders • Beyond the day 1 premium, current BPFH shareholders could benefit from value created through transaction synergies as well as a higher dividend Va
Slide 63: Selected acquirer: INDB overview
Selected acquirer: INDB overview • INDB and BPFH share similar business models that would offer significant synergy opportunities and provide the necessary scale to compete with larger banks Overview INDB / BPFH Massachusetts Branch Footprint Ticker: NASDAQ: INDB BPFH Headquarters: Rockland, MA INDB
Slide 64: Selected acquirer: INDB merger impact (100% stock)
Selected acquirer: INDB merger impact (100% stock) • Our analysis indicates that INDB could offer BPFH shareholders up to ~$19 per share Purchase Premium Analysis Assuming 45% Cost Savings Merger at Premium of: INDB BPFH 110.0% 120.0% 130.0% Standalone Standalone BPFH Merger Valuation: 110.0% 120.0%
Slide 65: Impact on BPFH of INDB stock merger
Selected acquirer: Impact on BPFH of INDB stock merger • A deal with INDB in the 120% premium area would be very attractive to current BPFH shareholders • Beyond the day 1 premium, current BPFH shareholders would benefit from value created through transaction synergies as well as the potential for I
Slide 66: BPFH should be aggressively repurchasing shares at these levels
As BPFH prepares for a sale, the Company should be aggressively repurchasing shares at these levels • Trading at 0.88x TBV, BPFH could generate significant accretion to both EPS and TBV through share repurchases instead of deploying capital toward its aggressive wealth management growth plan • At Se
Slide 67: Acquirers could pay more following a share repurchase and loan remixing
Potential acquirers could pay significantly more for BPFH following a share repurchase and loan portfolio remixing • In addition to the undeniable benefits of repurchasing stock on a standalone basis, BPFH could generate even more value in a sale by reducing the share count at today’s bargain price
Boston Private Financial Holdings — Proxy Contest (February 2021) on 6ix