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BPFH > SEC Filings for BPFH > Form 10-Q on 6-Nov-2013All Recent SEC Filings

Show all filings for BOSTON PRIVATE FINANCIAL HOLDINGS INC

Form 10-Q for BOSTON PRIVATE FINANCIAL HOLDINGS INC


6-Nov-2013

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, 2013 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 (the "Exchange Act"), 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 that adversely affect borrowers' ability to service and repay our loans; changes in the value of securities in the Company's investment portfolio; 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, dispositions and restructurings; 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 2013. 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,
                                              2013                 2012            $ Change       % Change
                                               (In thousands, except per share data)
Total revenues                         $        72,396       $        74,970     $   (2,574 )         (3 )%
Provision/ (credit) for loan losses             (6,000 )              (4,000 )       (2,000 )         50  %
Total operating expenses                        51,953                58,150         (6,197 )        (11 )%
Net income from continuing operations           17,886                15,696          2,190           14  %
Net income attributable to
noncontrolling interests                           871                   855             16            2  %
Net income attributable to the Company          18,336                16,513          1,823           11  %
Diluted earnings per share:
From continuing operations             $          0.20       $          0.17     $     0.03           18  %
From discontinued operations           $          0.02       $          0.02     $        -            -  %
Attributable to common shareholders    $          0.22       $          0.19     $     0.03           16  %

Net income attributable to the Company was $18.3 million for the three months ended September 30, 2013, compared to $16.5 million in the same period of 2012. The Company recognized diluted earnings per share of $0.22 for the three months ended September 30, 2013, compared to diluted earnings per share of $0.19 for the same period of 2012.
Key items that affected the Company's results in the third quarter of 2013 compared to the same period of 2012 include:

?            The Company recorded a $6.0 million credit to the provision for loan
             losses for the three months ended September 30, 2013, compared to a
             credit to the provision for loan losses of $4.0 million in the same
             period of 2012. The credit to the provision for the three months
             ended September 30, 2013 was primarily driven by recoveries of
             previously charged-off loan amounts and a reduction in
             adversely-classified loans.


?            The low interest rate environment continues to affect net interest
             income. Net interest margin ("NIM") decreased 12 basis points to
             2.99% for the three months ended September 30, 2013 compared to the
             same period in 2012. Net interest income for the three months ended
             September 30, 2013 was $42.3 million, a decrease of $4.1 million, or
             9%, compared to the same period in 2012. This decrease was due to
             lower average yields on loans and investments, and a decrease in the
             average balance of loans and investments, partially offset by lower
             average rates paid on the Company's deposits and borrowings and a
             decrease in volume of borrowings.


?            Fees and other income increased 5% to $30.1 million for the three
             months ended September 30, 2013, compared to $28.6 million in the
             same period of 2012. This increase was driven by fee-based revenue,
             consisting of a 13% increase in wealth advisory fees, a 7% increase
             in investment management and trust fees, and a 9% increase in other
             banking fees. Together, these fee-based revenue line items represent
             41% of total revenue for the three months ended September 30, 2013,
             compared to 36% of total revenue in the same period of 2012.


?            Operating expenses decreased $6.2 million, or 11%, to $52.0 million
             for the three months ended September 30, 2013, compared to $58.2
             million in the same period of 2012. Excluding the 2012 restructuring
             charges, operating expenses decreased $2.6 million, or 5%. Decreases
             in salaries and employee benefits, occupancy and equipment, and FDIC
             insurance expense were the primary drivers of the overall decrease.

The Company's Private Banking segment reported net income attributable to the Company of $16.8 million in the third quarter of 2013, compared to net income attributable to the Company of $14.8 million in the same period of 2012. The


$1.9 million, or 13%, increase was a result of decreased operating expenses, decreased interest expense, a larger credit to the provision for loan losses in the third quarter of 2013, and increased fee-based noninterest income, offset by decreased interest income, and increased income tax expense for the three months ended September 30, 2013. AUM increased $0.5 billion, or 13%, to $4.3 billion at September 30, 2013 from $3.8 billion at September 30, 2012, due to both investment performance and net inflows.
The Company's Investment Management segment reported net income attributable to the Company of $1.00 million in the third quarter of 2013, compared to net income attributable to the Company of $1.02 million in the same period of 2012. The 2% decrease was due to increased operating expenses, primarily due to increased salaries and employee benefits and a charge for trading errors, partially offset by increased investment management and trust fees. Most fee-based revenue is determined based on beginning-of-period AUM data, and, as a result, the increase in investment management and trust fees was related to changes in AUM from June 30, 2012 through June 30, 2013. AUM increased $1.1 billion, or 13%, to $9.7 billion at September 30, 2013 from $8.6 billion at September 30, 2012, due to investment performance, partially offset by net outflows.
The Company's Wealth Advisory segment reported net income attributable to the Company of $1.7 million in the third quarter of 2013, compared to net income attributable to the Company of $1.3 million in the same period of 2012. The $0.4 million, or 29%, increase was due to increased wealth advisory fee revenue, partially offset by increased operating expenses, primarily due to increased salaries and employee benefits offset by decreased professional services expense. AUM increased $1.0 billion, or 13%, to $8.8 billion at September 30, 2013 from $7.8 billion at September 30, 2012, 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, 2012. There have been no changes to these policies through the filing of this Quarterly Report on Form 10-Q.


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