Boston Private Financial Holdings, Inc. Reports Second Quarter 2013 Results

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Boston Private Financial Holdings, Inc. Reports Second Quarter 2013 Results

Second Quarter Highlights:

  • Core earnings growth: Excluding the effect of the significant transactions in the second quarter, Net Income Attributable to the Company was $15.1 million, or $0.18 per share, versus Net Income of $13.2 million, or $0.15 per share in the first quarter of 2013.
  • Repurchased preferred stock held by an affiliate of The Carlyle Group: Resulted in a second quarter 2013 charge to EPS of $11.7 million, or $0.14 per diluted share.
  • Completed sale of Pacific Northwest offices: Resulted in a second quarter 2013 pre-tax gain of $10.6 million.
  • Loan and deposit growth: Total Loans increased 1% linked quarter to $4.8 billion. Deposits increased 1% linked quarter to $4.6 billion.
  • Fee-based revenues increased: Investment Management segment fees increased 8% linked quarter and 13% year-over-year. Wealth Advisory fees increased 2% linked quarter and 12% year-over-year.
  • Criticized Loans declined: Criticized Loans declined 14% linked quarter and 36% year-over-year.
  • Provision credit: The Company recorded a provision credit of $2.0 million in the quarter due to recoveries of previously charged-off loan amounts, a reduction in Criticized Loans and continued improvement in credit quality.
  • Quarterly dividend increased: The Board of Directors of the Company raised the quarterly dividend from $0.05 per share to $0.07 per share.

BOSTON--(BUSINESS WIRE)-- Boston Private Financial Holdings, Inc. (NAS: BPFH) (the "Company" or "BPFH") today reported second quarter 2013 GAAP Net Income Attributable to the Company of $21.3 million, compared to $13.2 million in the first quarter of 2013. Second quarter GAAP Net Income included a $6.3 million after-tax gain on the sale of the Company's Pacific Northwest private banking offices, which closed during the second quarter. BPFH reported second quarter diluted earnings per share of $0.11 compared to $0.15 in the first quarter of 2013. Second quarter diluted earnings per share was adversely impacted by the $11.7 million deemed dividend resulting from the repurchase of the preferred stock held by an affiliate of The Carlyle Group. While this deemed dividend impacted earnings per share, it did not impact Net Income Attributable to the Company.


On a year-over-year basis, GAAP Net Income Attributable to the Company increased 51% from $14.2 million in the second quarter of 2012. Diluted earnings per share decreased 35% from $0.17 in the same period, due to the above noted deemed dividend related to the Company's preferred stock repurchase.

"In the second quarter, we completed two significant transactions: the sale of our Pacific Northwest private banking offices and the repurchase of our preferred shares held by The Carlyle Group," said Clayton G. Deutsch, Chief Executive Officer and President. "While these transactions complicated our second quarter results, they strengthened the Company. With these transactions completed, we are fixated on core business growth and performance."

Fee-Based Revenues Held Steady

Core Fees and Income (Investment Management and Trust Fees, Private Bank Investment Management and Trust Fees, Wealth Advisory Fees, Other Banking Fee Income and Gain on Sale of Loans) for the second quarter increased 1% to $30.1 million from $29.9 million in the first quarter of 2013. Core Fees and Income increased 14% from $26.4 million on a year-over-year basis.

Total Assets Under Management/Advisory ("AUM") decreased to $21.8 billion in the second quarter, down 1% from $21.9 billion in the first quarter of 2013. AUM increased 14% from $19.1 billion in the second quarter of 2012. The Company experienced second quarter 2013 AUM net outflows of $228 million, as compared to first quarter 2013 AUM net inflows of $181 million. AUM net inflows for the second quarter of 2012 were $16 million.

Net Interest Income Declined Due to Lower Volumes

Net Interest Income in the second quarter was $43.9 million, down 1% from $44.3 million in the first quarter of 2013 due to lower volumes related to the sale of the Pacific Northwest private banking offices. On a year-over-year basis, Net Interest Income declined 6% from $46.6 million in the second quarter of 2012.

Net Interest Margin was 3.14% in the second quarter, up four basis points from 3.10% in the first quarter. On a year-over-year basis, Net Interest Margin decreased 21 basis points from 3.35% in the second quarter of 2012.

Total Expenses Flat Linked Quarter

Total Expenses for the second quarter of 2013 were $56.7 million, flat with $56.6 million in the first quarter of 2013. Second quarter expenses were elevated due to a $1.4 million charge related to liability restructuring. On a year-over-year basis, Total Expenses increased 2% from $55.3 million (including restructuring costs of $0.6 million) in the second quarter of 2012.

Criticized Loans Decreased 14% Linked Quarter, 36% YOY

The Company recorded a $2.0 million credit to its Provision for Loan Losses in the second quarter of 2013, compared to no provision in the first quarter. The provision credit was driven by recoveries of previously charged-off loan amounts, a reduction in Criticized Loans and continued improvement in credit quality. In the second quarter of 2012, there was a provision of $1.7 million.

Criticized Loans decreased 14% to $191.4 million on a linked quarter basis, and decreased 36% year-over-year. Nonaccrual Loans ("Nonaccruals") decreased 28% to $52.3 million, down from $73.0 million on a linked quarter basis. On a year-over-year basis, Nonaccruals decreased 22% from $67.4 million. As a percentage of Total Loans, Nonaccruals were 1.08% at June 30, 2013, down 45 basis points from 1.53% at March 31, 2013. On a year-over-year basis, Nonaccruals as a percentage of Total Loans decreased 24 basis points from 1.32%.

Additional credit metrics are listed below on a linked quarter and year-over-year basis:

       
(In millions)June 30,
2013
March 31,
2013
June 30,
2012
Total Criticized Loans$191.4$223.5$298.6
Total Loans 30-89 Days Past Due and Accruing (13)$11.5$17.3$14.2
Total Net Loans (Charged-off)/ Recovered$0.5$(1.8)$(0.5)
Allowance for Loan Losses/ Total Loans1.67%1.72%1.95%
 

Transactions Drove More Efficient Capital Base

"The transactions we completed during the second quarter made our capital base more efficient," said David J. Kaye, Chief Financial Officer. "Selling our Pacific Northwest private banking offices allowed us to free up stranded capital and reinvest it at a higher rate of return. By repurchasing our preferred stock from Carlyle and completing the Non-Cumulative Perpetual Preferred offering, we were able to secure a lower cost of capital that will be accretive to future EPS and Return on Common Equity."

Capital ratios are listed below on a linked quarter and year-over-year basis:

    June 30,
2013
 March 31,
2013
 June 30,
2012
Total Risk-Based Capital *15.6%14.9%14.3%
Tier I Risk-Based Capital *14.3%13.6%12.2%
Tier I Leverage Capital *10.4%10.1%9.3%
TCE/TA7.6%8.2%7.4%
Tier I Common Equity/ Risk Weighted Assets *9.9%10.5%9.0%
TCE/Risk Weighted Assets *10.1%10.8%9.9%

*June 30, 2013 data is presented based on estimated data.

Dividend Payments

Concurrent with the release of the second quarter 2013 earnings, the Board of Directors of the Company declared a cash dividend to common shareholders of $0.07 per share, up from $0.05 per share last quarter. The record date for this dividend is August 8, 2013, and the payment date is August 22, 2013.

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures, such as Net Income excluding the effect of significant transactions, earnings per share excluding the effect of significant transactions, the TCE/TA and TCE/Risk Weighted Assets ratios, and Operating Expenses excluding restructuring charges, to provide information for investors to effectively analyze financial trends of ongoing business activities, and to enhance comparability with peers across the financial sector. A detailed reconciliation table of the Company's GAAP to the non-GAAP measures is attached.

Conference Call

Management will hold a conference call at 8 a.m. Eastern Time on Thursday, July 18, to discuss the financial results, business highlights and outlook. To access the call:

Dial In #: (888) 317-6003
International Dial In #: (412) 317-6061
Elite Entry Number: 0075374

Replay Information:

Available from July 18 at 12 noon until July 25
Dial In #: (877) 344-7529
International Dial In #: (412) 317-0088
Conference Number: 10030922

The call will be simultaneously webcast and may be accessed on www.bostonprivate.com.

Boston Private Financial Holdings, Inc.

Boston Private Financial Holdings, Inc. is a national financial services organization that owns Wealth Management and Private Banking affiliates in Boston, New York, Los Angeles and the San Francisco Bay Area. The Company has a $6 billion Private Banking balance sheet, and manages over $20 billion of client assets.

The Company positions its affiliates to serve the high net worth marketplace with high quality products and services of unique appeal to private clients. The Company also provides strategic oversight and access to resources, both financial and intellectual, to support affiliate management, marketing, compliance and legal activities. (NAS: BPFH)

For more information about BPFH, visit the Company's website at www.bostonprivate.com.

Forward-Looking Statements

Certain statements in this press release that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements include, among others, statements regarding our strategy, evaluations of future interest rate trends and liquidity, prospects for growth in assets, and prospects for overall results over the long term. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Company's control. Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. The Company's actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, adverse conditions in the capital and debt markets and the impact of such conditions on the Company's private banking, investment management and wealth advisory activities; changes in interest rates; competitive pressures from other financial institutions; the effects of continued weakness in general economic conditions on a national basis or in the local markets in which the Company operates, including changes which adversely affect borrowers' ability to service and repay our loans; changes in loan defaults and charge-off rates; changes in the value of securities and other assets, adequacy of loan loss reserves, or decreases in deposit levels necessitating increased borrowing to fund loans and investments; increasing government regulation; the risk that goodwill and intangibles recorded in the Company's financial statements will become impaired; the risk that the Company's deferred tax asset may not be realized; risks related to the identification and implementation of acquisitions, dispositions and restructurings; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company's Annual Report on Form 10-K and updated by the Company's Quarterly Reports on Form 10-Q; and other filings submitted to the Securities and Exchange Commission. Forward looking statements speak only as of the date on which they are made. The Company 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.

Note to Editors:

Boston Private Financial Holdings, Inc. is not to be confused with Boston Private Bank & Trust Company. Boston Private Bank & Trust Company is a wholly-owned subsidiary of BPFH. The information reported in this press release is related to the performance and results of BPFH.

Boston Private Financial Holdings, Inc.
Selected Financial Data
(Unaudited)
       
(In thousands, except share and per share data)

Jun 30, 2013

Mar 31, 2013

Jun 30, 2012

 
Assets:
Cash and cash equivalents$67,654$54,136$102,826
Investment securities available for sale724,153736,610734,362
Loans held for sale (1)12,414289,18012,336
Total loans4,838,7134,783,4675,091,128
Less: Allowance for loan losses 80,800  82,286  99,054 
Net loans4,757,9134,701,1814,992,074
Other real estate owned ("OREO")7762,3293,054
Stock in Federal Home Loan Banks40,62240,43643,089
Premises and equipment, net29,09329,01428,919
Goodwill110,180110,180110,180
Intangible assets, net22,71223,81326,389
Fees receivable9,95010,4528,363
Accrued interest receivable14,83114,77416,667
Deferred income taxes, net60,01960,63464,968
Other assets 116,613  123,682  121,016 
Total assets$5,966,930 $6,196,421 $6,264,243 
Liabilities:
Deposits$4,576,383$4,517,351$4,595,758
Deposits held for sale (1)

188,252

Securities sold under agreements to repurchase26,700122,187100,842
Federal funds purchased65,00050,00085,000
Federal Home Loan Bank borrowings448,706461,411616,749
Junior subordinated debentures133,168133,835174,397
Other liabilities 90,035  88,869  96,654 
Total liabilities 5,339,992  5,561,905  5,669,400 
Redeemable Noncontrolling Interests17,66117,43819,221

Shareholders' Equity:

Preferred stock, $1.00 par value; authorized: 2,000,000 shares;
 

Series B, issued and outstanding (contingently convertible): 0 shares at June 30, 2013, 401 shares at March 31, 2013 and June 30, 2012; liquidation value: $100,000 per share

58,08958,089
 

Series D, 6.95% Non-Cumulative Perpetual, issued and outstanding: 50,000 shares at June 30, 2013, 0 shares at March 31, 2013 and June 30, 2012; liquidation preference: $1,000 per share

47,754
 

Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 79,734,389 shares at June 30, 2013; 79,053,668 shares at March 31, 2013; and 78,822,462 shares at June 30, 2012

79,73479,05478,822
Additional paid-in capital626,950641,918641,992
Accumulated deficit(142,215)(163,543)(206,351)
Accumulated other comprehensive income/ (loss) (3,081) 1,560  3,070 
Total Company's shareholders' equity 609,142  617,078  575,622 
Noncontrolling interests 135     
Total shareholders' equity 609,277  617,078  575,622 
Total liabilities, redeemable noncontrolling interests and shareholders' equity$5,966,930 $6,196,421 $6,264,243 
 
       
Boston Private Financial Holdings, Inc.
Selected Financial Data
(Unaudited)
Three Months EndedSix Months Ended
(In thousands, except share and per share data)Jun 30, 2013Mar 31, 2013Jun 30, 2012Jun 30, 2013Jun 30, 2012
Interest and dividend income:
Loans$48,339$49,350$53,402$97,689$105,349
Taxable investment securities4935141,0781,0072,335
Non-taxable investment securities7788397521,6171,600
Mortgage-backed securities1,3401,4021,6042,7423,206
Federal funds sold and other short-term borrowings 175  176 72  351  221
Total interest and dividend income 51,125  52,281 56,908  103,406  112,711
Interest expense:
Deposits3,1203,7864,4356,9069,338
Federal Home Loan Bank borrowings2,8182,8313,7475,6497,692
Junior subordinated debentures1,1561,1541,6902,3103,443
Repurchase agreements and other borrowings 132  234 440  366  874
Total interest expense 
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