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BPFH > SEC Filings for BPFH > Form 10-Q on 6-Aug-2014All Recent SEC Filings

Show all filings for BOSTON PRIVATE FINANCIAL HOLDINGS INC

Form 10-Q for BOSTON PRIVATE FINANCIAL HOLDINGS INC


6-Aug-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of and for the three and six months ended June 30, 2014 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; changes in the value of 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, 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 second
quarter of 2014. 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 June 30,
                                             2014               2013           $ Change       % Change
                                             (In thousands, except per share data)
Total revenues                         $      80,642       $      84,883     $   (4,241 )         (5 )%
Provision/ (credit) for loan losses           (5,000 )            (2,000 )       (3,000 )         nm
Total operating expense                       54,402              56,666         (2,264 )         (4 )%
Net income from continuing operations         20,907              19,516          1,391            7  %
Net income attributable to
noncontrolling interests                       1,025                 969             56            6  %
Net income attributable to the Company        21,332              21,328              4            -  %
Diluted earnings per share:
From continuing operations             $        0.23       $        0.08     $     0.15           nm
From discontinued operations           $        0.02       $        0.03     $    (0.01 )        (33 )%
Total attributable to common
shareholders                           $        0.25       $        0.11     $     0.14           nm


_____________________

nm not meaningful
Net income attributable to the Company was $21.3 million for the three months ended June 30, 2014, compared to $21.3 million for the same period of 2013. The Company recognized diluted earnings per share of $0.25 for the three months ended June 30, 2014, compared to diluted earnings per share of $0.11 for the same period of 2013. Earnings per share for the three months ended June 30, 2013 was impacted by the repurchase of the Series B preferred stock and the gain on sale of the Pacific Northwest offices. Excluding the impact of these two transactions, diluted earnings per share for the three months ended June 30, 2013 would have been $0.18 per share.
Key items that affected the Company's results in the second quarter of 2014 compared to the same period of 2013 include:
?            The Company recorded a $5.0 million credit to the provision for loan
             losses for the three months ended June 30, 2014, compared to a
             credit to the provision for loan losses of $2.0 million for the same
             period of 2013. The credit to the provision for the three months
             ended June 30, 2014 was primarily due to net recoveries and the sale
             of commercial loans from the loan portfolio during the quarter.


?            Fees and other income decreased 16% to $34.4 million for the three
             months ended June 30, 2014, compared to $41.0 million for the same
             period of 2013. Excluding the $10.6 million gain on sale of the
             Pacific Northwest offices in the second quarter of 2013, fee and
             other income increased $4.0 million, or 13%. This increase was
             driven by fee-based revenue consisting of a 16% increase in wealth
             advisory fees, an 8% increase in investment management fees, and a
             9% increase in private banking wealth management and trust fees.
             Total fee and other income revenue line items represent 43% of total
             revenue for the three months ended June 30, 2014, compared to 48% of
             total revenue for the same period of 2013.


?            Operating expenses decreased $2.3 million, or 4%, to $54.4 million
             for the three months ended June 30, 2014, compared to $56.7 million
             for the same period of 2013. The decrease is primarily related to
             the second quarter 2013 liability restructuring charge and a tax
             related reserve, which increased other expense in that period by
             $2.4 million.

The Company's Private Banking segment reported net income attributable to the Company of $19.2 million in the second quarter of 2014, which is flat compared to the same period of 2013. Excluding the gain on sale of the Pacific Northwest offices of $6.3 million net of tax in the second quarter of 2013, Private Banking segment net income attributable to the


Company increased $6.2 million, or 48%. The increase was a result of the increased credit to the provision for loan losses, a 5% increase in net interest income, and decreased operating expenses for the three months ended June 30, 2014. Private Banking AUM increased $0.6 billion, or 14%, to $4.7 billion at June 30, 2014 from $4.1 billion at June 30, 2013, primarily due to investment performance and also to positive net flows.
The Company's Investment Management segment reported net income attributable to the Company of $1.24 million in the second quarter of 2014, compared to net income attributable to the Company of $1.21 million for the same period of 2013. The 3% increase was due to increased investment management fees, partially offset by increased operating expenses, primarily due to increased professional services expense. Most fee-based revenue is determined based on beginning-of-period AUM data. Investment Management AUM increased $1.8 billion, or 19%, to $10.9 billion at June 30, 2014 from $9.1 billion at June 30, 2013, primarily due to investment performance, partially offset by net outflows. The Company's Wealth Advisory segment reported net income attributable to the Company of $1.9 million in the second quarter of 2014, compared to net income attributable to the Company of $1.7 million for the same period of 2013. The $0.2 million, or 12%, increase was due to increased wealth advisory fee revenue, partially offset by increased operating expenses, primarily due to increased salaries and employee benefits and professional services expenses. Wealth Advisory AUM increased $1.2 billion, or 15%, to $9.8 billion at June 30, 2014 from $8.5 billion at June 30, 2013, primarily due to investment performance and also to positive net flows.

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, 2013. There have been no changes to these policies through the filing of this Quarterly Report on Form 10-Q.


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