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BPFH > SEC Filings for BPFH > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for BOSTON PRIVATE FINANCIAL HOLDINGS INC

Form 10-Q for BOSTON PRIVATE FINANCIAL HOLDINGS INC


8-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of and for the three and nine months ended September 30, 2012 Certain statements contained in this Quarterly Report on Form 10-Q 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, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. These statements include, among others, statements regarding our strategy, effectiveness of our investment programs, evaluations of future interest rate trends and liquidity, expectations as to growth in assets, deposits and results of operations, receipt of regulatory approval for pending acquisitions, success of acquisitions, future operations, market position, financial position, and prospects, plans and objectives of management. 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 others, factors referenced herein under the section captioned "Risk 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 the value of the securities and other assets; changes in loan default and charge-off rates; the adequacy of loan loss reserves; reductions in deposit levels necessitating increased borrowing to fund loans and investments; changes in 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 assets may not be realized; risks related to the identification and implementation of acquisitions; and changes in assumptions used in making such forward-looking statements, as well as the other risks and uncertainties detailed in the Company's Annual Report on Form 10-K and updated in 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.


Executive Summary
The Company offers a wide range of wealth management services to high net worth
individuals, families, businesses and select institutions through its three
reportable segments: Private Banking, Investment Management, and Wealth
Advisory. This Executive Summary provides an overview of the most significant
aspects of our operating segments and the Company's operations in the third
quarter of 2012. Details of the matters addressed in this summary are provided
elsewhere in this document and, in particular, in the sections immediately
following.
                                             Three months ended September 30,
                                                 2012                 2011             Change        % Change
                                                   (In thousands, except per share data)
Total revenues                            $        74,970       $        74,783     $       187          - %
Provision/ (credit) for loan losses                (4,000 )               4,500          (8,500 )       nm
Total operating expenses                           58,150                54,916           3,234          6 %
Net income/ (loss) from continuing
operations                                         15,696                10,825           4,871         45 %
Net income/ (loss) attributable to
noncontrolling interests                              855                   740             115         16 %
Net income/ (loss) attributable to the
Company                                            16,513                11,679           4,834         41 %
Diluted earnings/ (loss) per share:
From continuing operations                $          0.17       $          0.12     $      0.05         42 %
From discontinued operations              $          0.02       $          0.02     $         -          - %
Attributable to common shareholders       $          0.19       $          0.14     $      0.05         36 %


________________
nm =  not meaningful

Net income attributable to the Company was $16.5 million for the three months ended September 30, 2012, compared to $11.7 million in the same period of 2011. The Company recognized diluted earnings per share of $0.19 for the three months ended September 30, 2012, compared to diluted earnings per share of $0.14 for the same period of 2011.
Key items that affected the Company's results in the third quarter of 2012 compared to the same period of 2011 include:
?            The Company recorded a credit to the provision for loan losses of
             $4.0 million for the three months ended September 30, 2012, compared
             to a provision for loan losses of $4.5 million in the same period of
             2011. The loan loss provision was elevated in 2011 due to the
             adverse credit issues experienced primarily in the San Francisco Bay
             market. The 2012 year-to-date provision for loan losses is at lower
             levels than 2011 as a result of the continued improvement in credit
             quality, including reductions in criticized loans and reductions in
             the loss factors, primarily related to recent positive and improving
             trends in historical net loan charge-offs, and partially offset by
             loan growth.


?            The low interest rate environment continues to affect net interest
             income. Net interest margin ("NIM") decreased 14 basis points to
             3.11% for the three months ended September 30, 2012 as compared to
             the same period in 2011. Net interest income for the three months
             ended September 30, 2012 was $46.4 million, an increase of $1.3
             million, or 3%, compared to the same period in 2011. This increase
             was due to prepayment penalties, the increase in volume of the loan
             portfolio, and lower average rates paid on the Company's deposits
             and borrowings. These factors were partially offset by the lower
             average yields on loans.


?            Operating expenses increased 6% due to additional restructuring
             charges taken in the third quarter of 2012. Excluding restructuring
             charges, total operating expenses increased $0.8 million, or 1%,
             from $53.8 million for the three months ending September 30, 2011 to
             $54.6 million for the same period in 2012. The $3.6 million in
             restructuring charges in the third quarter of 2012 primarily related
             to severance costs for changes made in the management structure at
             the Bank and the Holding Company.

The Company's Private Banking segment reported net income attributable to the Company of $14.8 million in the third quarter of 2012, compared to net income attributable to the Company of $11.5 million in the same period of 2011. The $3.3 million, or 29%, increase was a result of the credit to the provision for loan losses, offset by decreased other income and


increased restructuring expense for the three months ended September 30, 2012. AUM increased $0.4 billion, or 10%, to $3.8 billion at September 30, 2012 from $3.4 billion at September 30, 2011, due primarily to investment performance. The Company's Investment Management segment reported net income attributable to the Company of $1.0 million in the third quarter of 2012, compared to net income attributable to the Company of $1.2 million in the same period of 2011. The $0.2 million, or 15%, decrease was primarily due to decreases in investment management and trust fees. Most fee-based revenue is determined based on beginning-of-period AUM data, and as a result the decrease in investment management and trust fees was related to net outflows from June 30, 2011 through June 30, 2012. AUM increased $1.4 billion, or 20%, to $8.6 billion at September 30, 2012 from $7.1 billion at September 30, 2011, due to investment performance. The Company's Wealth Advisory segment reported net income attributable to the Company of $1.3 million in the third quarter of 2012, compared to net income attributable to the Company of $1.2 million in the same period of 2011. The $0.1 million, or 8%, increase was due to increased wealth advisory fee revenue offset by increased salaries and employee benefits expense and increased professional services expense. AUM increased $1.1 billion, or 16%, to $7.8 billion at September 30, 2012 from $6.7 billion at September 30, 2011, due to positive net flows and investment performance.

Critical Accounting Policies
Critical accounting policies reflect significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that its most critical accounting policies upon which its financial condition depends, and which involve the most complex or subjective decisions or assessments are the allowance for loan and lease losses, the valuation of goodwill and intangible assets and analysis for impairment, and tax estimates. These policies are discussed in Part II. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. There have been no changes to these policies through the filing of this Quarterly Report on Form 10-Q.

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