Boston Private Financial Holdings, Inc. Reports Third Quarter 2012 Results

Boston Private Financial Holdings, Inc. Reports Third Quarter 2012 Results

Third Quarter Highlights:

  • Earnings continue to build: GAAP Net Income increased 17% to $16.5 million in the quarter, and 41% year-over-year.
  • Fee-based revenue and AUM increase due to positive market action and positive flows: Fee-based revenue increased 4% to $26.7 million in the quarter, and 2% year-over-year. AUM increased 5% to $20.1 billion in the quarter, and 16% year-over-year. Third quarter AUM net inflows were $223 million, up from $16 million linked quarter, and up from AUM net outflows of ($236) million in the third quarter of 2011.
  • Provision decreases: Provision for Loan Losses was a credit of ($4.0) million in the quarter, an improvement from a provision of $1.7 million in the second quarter of 2012 and $4.5 million year-over-year.
  • Baseline expenses flat; Operating Expenses up due to management restructuring: Operating Expenses (including $3.6 million in restructuring costs) increased 5% to $58.2 million in the quarter.
  • Capital builds: Tangible Common Equity/Tangible Assets ratio increased by 31 basis points to 7.7% in the quarter, and 56 basis points year-over-year.

BOSTON--(BUSINESS WIRE)-- Boston Private Financial Holdings, Inc. (NAS: BPFH) (the "Company" or "BPFH") today reported third quarter 2012 GAAP Net Income Attributable to the Company of $16.5 million, compared to GAAP Net Income Attributable to the Company of $14.2 million in the second quarter of 2012. BPFH reported third quarter diluted earnings per share of $0.19 compared to diluted earnings per share of $0.17 in the second quarter of 2012.

On a year-over-year basis, GAAP Net Income Attributable to the Company increased from $11.7 million in the third quarter of 2011. Earnings per share increased from $0.14 on a year-over-year basis.

"Our third quarter results reflect the three management initiatives we're executing to offset continuing pressure on Net Interest Income," said Clayton G. Deutsch, CEO and President. "These initiatives are to place greater emphasis on growing our fee-based businesses; continue to improve our credit quality; and continue to tightly manage expenses. This month we have implemented a senior executive restructuring that will enable us to save in excess of $5 million per year of senior executive costs. We remain focused on these three initiatives as we continue our efforts to build earnings," concluded Mr. Deutsch.

Net Interest Income Flat, Fee Revenue Up in Q3

Net Interest Income in the third quarter was $46.4 million, down 1% from $46.6 million in the second quarter of 2012. Year-over-year, Net Interest Income increased 3% from $45.1 million. Fees and Other Income for the third quarter increased 2% to $28.6 million from $28.0 million in the second quarter of 2012. On a year-over-year basis, Fees and Other Income decreased 4% from $29.7 million.

Net Interest Margin was 3.11% in the third quarter, down 24 basis points from 3.35% in the second quarter of 2012. Net Interest Margin in the third quarter was negatively impacted by a short term deposit that inflated Average Assets. In addition, Net Interest Margin in the second quarter of 2012 had the positive effect of pre-payment penalties and the recovery of nonaccrual interest income. On a year-over-year basis, Net Interest Margin decreased 14 basis points from 3.25%.

Total Assets Under Management/Advisory ("AUM") increased to $20.1 billion, up 5% from $19.1 billion in the second quarter of 2012. AUM increased 16% from $17.3 billion in the third quarter of 2011 due to market appreciation and net positive flows. The Company experienced third quarter 2012 AUM net inflows of $223 million, as compared to AUM net inflows of $16 million in the second quarter of 2012. AUM net outflows for the third quarter of 2011 were ($236) million.

Operating Expenses Increase in Q3 Due to Management Restructuring

Operating Expenses (excluding restructuring costs of $3.6 million) in the third quarter of 2012 were $54.6 million and were flat (excluding second quarter restructuring costs of $0.6 million) on a linked quarter basis. On a year-over-year basis, Operating Expenses (excluding third quarter 2011 restructuring costs of $1.1 million) were up 1% from $53.8 million.

The $3.6 million in restructuring charges resulted from severance costs due to changes made in the management structure at the Holding Company and at Boston Private Bank & Trust Company, the Company's largest subsidiary.

Provision Declines in Q3 Due Primarily to Improvements in Criticized Loans

Provision for Loan Losses in the third quarter was a credit of ($4.0) million, down from a provision of $1.7 million in the second quarter of 2012. On a year-over-year basis, Provision for Loan Losses decreased from a provision of $4.5 million in the third quarter of 2011.

Nonaccrual Loans ("Nonaccruals") increased 9% to $73.4 million on a linked quarter basis. On a year-over-year basis, Nonaccruals were flat at $73.4 million. As a percentage of Total Loans, Nonaccruals were 1.48% in the third quarter of 2012, up 16 basis points from 1.32% in the second quarter of 2012. On a year-over-year basis, Nonaccruals as a percentage of Total Loans declined 16 basis points from 1.64%.

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

(In millions)  

September 30, 2012


June 30, 2012


September 30, 2011

Total Criticized Loans  $275.5  $298.6  $355.4
Total Loans 30-89 Days Past Due and Accruing (10)  $9.5  $14.2  $20.9
Total Net Loans (Charged-off)/Recovered  ($3.9)  ($0.5)  ($4.5)
Allowance for Loan Losses/Total Loans  1.83%  1.95%  2.20%

Capital Ratios Strengthen in Q3

Both regulatory risk-based capital ratios and tangible common equity ratios increased on a linked quarter basis. The Tier 1 Leverage ratio declined slightly due to a larger Average Balance Sheet.

"Strong Net Income and a reduction in the disallowed portion of our Deferred Tax Asset drove the 90 basis point increase in our Tier 1 Risk-Based Capital ratio in the third quarter," said David J. Kaye, Chief Financial Officer.

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


September 30, 2012

  June 30, 2012  September 30, 2011
Total Risk-Based Capital*  14.7%  14.3%  15.5%
Tier I Risk-Based Capital*  13.1%  12.2%  12.5%
Tier I Leverage Capital*  9.2%  9.3%  8.6%
TCE/TA  7.7%  7.4%  7.1%
TCE/Risk Weighted Assets*  10.4%  9.9%  10.4%

*September 30, 2012 data is presented based on estimated data.


Dividend Payments

Concurrent with the release of the third quarter 2012 earnings, the Board of Directors of the Company declared a cash dividend to shareholders of $0.01 per share. The record date for this dividend is November 16, 2012, and the payment date is November 30, 2012.

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures, such as 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, October 18, to discuss the financial results in more detail. To access the call:

Dial In #: (877) 883-0383
International Dial In #: (412) 902-6506
Elite Entry Number: 7158329

Replay Information:
Available from October 18 at 12 noon until October 26, 2012
Dial In #: (877) 344-7529
International Dial In #: (412) 317-0088
Conference Number: 10019250

The call will be simultaneously webcast and may be accessed on

Boston Private Financial Holdings, Inc.

Boston Private Financial Holdings, Inc. is a national financial services organization with Wealth Management and Private Banking affiliates in Boston, New York, Los Angeles, San Francisco and Seattle. 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

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.

Statements in this press release that are not historical facts are 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, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; 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; 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. 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.

Boston Private Financial Holdings, Inc.
Selected Financial Data
(In thousands, except share and per share data)September 30, 2012June 30, 2012September 30, 2011
Cash and cash equivalents$83,585$102,826$329,585
Investment securities available for sale755,125734,362846,267
Loans held for sale135,16912,33613,275
Total loans4,967,6075,091,1284,488,719
Less: Allowance for loan losses 91,129  99,054  98,759 
Net loans4,876,4784,992,0744,389,960
Other real estate owned ("OREO")3,1863,0549,161
Stock in Federal Home Loan Banks42,88643,08944,248
Premises and equipment, net28,39028,91928,707
Intangible assets, net25,30626,38929,690
Fees receivable9,4608,3637,998
Accrued interest receivable16,73116,66716,504
Deferred income taxes, net62,96464,96875,570
Other assets123,324121,016112,627
Assets of discontinued operations (1) -  -  10,549 
Total assets$6,272,784 $6,264,243 $6,024,321 
Securities sold under agreements to repurchase106,713100,842108,294
Federal funds purchased85,00085,000-
Federal Home Loan Bank borrowings552,946616,749527,481
Junior subordinated debentures158,647174,397188,645
Other liabilities91,40796,65490,664
Liabilities of discontinued operations (1) -  -  1,622 
Total liabilities 5,657,507  5,669,400  5,450,782 
Redeemable Noncontrolling Interests19,67519,22121,885
The Company's Shareholders' Equity:
Preferred stock, $1.00 par value; authorized: 2,000,000 shares;
Series B, issued and outstanding (contingently convertible): 401 shares at September 30, 2012, June 30, 2012, and September 30, 2011; liquidation value: $100,000 per share58,08958,08958,089
Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 78,929,750 shares at September 30, 2012; 78,822,462 shares at June 30, 2012; and 78,004,135 shares at September 30, 201178,93078,82278,004
Additional paid-in capital644,801641,992655,165
Accumulated deficit(189,838)(206,351)(243,079)
Accumulated other comprehensive income 3,620  3,070  3,475 
Total shareholders' equity 595,602  575,622  551,654 
Total liabilities, redeemable noncontrolling interests and shareholders' equity$6,272,784 $6,264,243 $6,024,321 
Boston Private Financial Holdings, Inc.
Selected Financial Data
   Three Months Ended  Nine Months Ended
(In thousands, except share and per share data) 9/30/2012   6/30/2012  9/30/2011  9/30/2012  9/30/2011
Interest and dividend income:
Taxable investment securities8901,0781,4563,2254,230
Non-taxable investment securities7827529052,3822,922
Mortgage-backed securities1,5371,6041,8734,7435,521
Federal funds sold and other 290  72 242  511 842
Total interest and dividend income 56,032  56,908 57,519  168,743 173,705
Interest expense:
Federal Home Loan Bank borrowings3,5013,7474,20311,19312,856
Junior subordinated debentures1,5071,6901,8514,9505,648
Repurchase agreements and other short-term borrowings 452  440 485  1,326 
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