<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For quarterly period ended: SEPTEMBER 30, 1996
OR
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
------------ ------------
Commission File No: 0-17089
BOSTON PRIVATE BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
COMMONWEALTH OF MASSACHUSETTS 04-2976299
- --------------------------------- -------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
TEN POST OFFICE SQUARE, BOSTON, MA 02109
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(617) 556-1900
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes (X) No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of October 31, 1996:
----------------
Common Stock - Par Value $1.00 5,862,496 shares
------------------------------ ----------------
(class) (outstanding)
<PAGE> 2
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
PAGE NUMBER
-----------
Cover Page 1
Index 2
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis or Plan of Operations 9-16
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 17-18
Item 2 Changes in Securities 18
Item 3 Default upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
Signature Page 19
2
<PAGE> 3
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 8,124 $ 8,695
Federal funds sold 3,625 500
Investment securities available for sale (amortized cost of $21,912 and $22,106
at September 30, 1996 and December 31, 1995,
respectively) 21,704 22,292
Investment securities held to maturity (market value of $8,370 and
$12,783 at September 30, 1996 and December 31, 1995, respectively) 8,389 12,809
Mortgage-backed securities available for sale (amortized cost of $119 at
December 31, 1995) -- 119
Mortgage-backed securities held to maturity (market value of $26,789 and
$31,967 at September 30, 1996 and December 31, 1995, respectively) 27,025 31,933
Stock in Federal Home Loan Bank of Boston 3,317 3,317
Loans:
Commercial 84,830 72,729
Residential mortgage 93,093 74,447
Home equity 10,738 7,783
Other 332 297
-------- --------
Total loans 188,993 155,256
Less allowance for loan losses (2,363) (1,942)
-------- --------
Net loans 186,630 153,314
Other real estate owned 285 245
Premises and equipment, net 1,101 1,174
Excess of costs over net assets acquired, net 4,149 4,390
Accrued interest receivable 1,673 1,694
Deferred income tax asset, net 989 847
Other assets 605 222
-------- --------
Total assets $267,616 $241,551
========= ========
LIABILITIES:
Deposits $195,525 $178,885
Securities sold under agreements to repurchase 7,346 3,798
Federal Home Loan Bank of Boston borrowings 43,422 38,143
Payable due to acquisition 1,022 2,017
Accrued interest payable 458 508
Other liabilities 643 796
-------- --------
Total liabilities 248,416 224,147
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value per share;
shares authorized - 18,000,000;
shares issued - 5,862,496 in 1996 and 5,756,704 in 1995 5,862 5,757
Additional paid-in capital 12,375 12,114
Retained earnings (deficit) 1,096 (541)
Treasury stock - 20,017 shares in 1995 -- (45)
Unrealized gain (loss) on securities available for sale, net (133) 119
-------- --------
Total stockholders' equity 19,200 17,404
-------- --------
Total liabilities and stockholders' equity $267,616 $241,551
======== ========
</TABLE>
3
<PAGE> 4
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1996 1995 1996 1995
------ ------ ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest and dividend income:
Commercial loans $1,976 $1,607 $ 5,403 $4,245
Residential mortgage loans 1,648 1,279 4,625 3,346
Home equity and other loans 209 174 575 498
Investment securities 405 521 1,389 1,637
Mortgage-backed securities 431 490 1,350 1,518
FHLB stock dividends 54 52 159 178
Federal funds sold 14 13 58 137
Deposits in banks 21 13 53 14
------ ------ ------- ------
Total interest and dividend income 4,758 4,149 13,612 11,573
------ ------ ------- ------
Interest expense:
NOW 53 52 156 158
Savings 31 42 96 153
Money market 718 595 2,161 1,378
Certificates of deposit 812 748 2,235 2,331
Federal funds purchased 56 44 125 86
Securities sold under agreements to 88 123 248 250
repurchase
FHLB borrowings 616 617 1,802 1,810
Payable due to acquisition 13 -- 53 --
------ ------ ------- ------
Total interest expense 2,387 2,221 6,876 6,166
------ ------ ------- ------
Net interest income 2,371 1,928 6,736 5,407
Provision for loan losses 212 219 423 447
------ ------ ------- ------
Net interest income after provision for
possible loan losses 2,159 1,709 6,313 4,960
------ ------ ------- ------
Fees and other income:
Trust and investment management 801 511 2,384 865
Deposit account service charges 40 31 121 102
Gain (loss) on sale of loans 22 8 88 8
Gain (loss) on sale of investment 2 162 8 230
securities
Gain (loss) on sale of mortgage-backed -- -- (2) --
securities
Other 65 37 173 84
------ ------ ------- ------
Total fees and other income 930 749 2,772 1,289
------ ------ ------- ------
Operating expense:
Salaries and employee benefits 1,334 1,130 3,960 2,838
Occupancy 110 119 340 285
Equipment 88 56 259 144
Data processing 31 36 84 101
FDIC insurance premiums 1 (8) 1 144
Legal expense 55 90 201 215
Marketing 87 62 244 198
Amortization of intangibles 80 57 242 75
Other 422 432 1,306 1,087
------ ------ ------- ------
Total operating expense 2,208 1,974 6,637 5,087
------ ------ ------- ------
Income before income taxes 881 484 2,448 1,162
Income tax expense 299 10 811 19
====== ====== ======= ======
Net income 582 $ 474 $ 1,637 $1,143
====== ====== ======= ======
Net income per share $ 0.10 $ 0.08 $ 0.27 $ 0.20
====== ====== ======= ======
Weighted average common and common
equivalent shares outstanding 6,107,200 5,682,736 6,088,763 5,607,467
========= ========= ========= =========
</TABLE>
4
<PAGE> 5
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES
COMMON PAID-IN RETAINED TREASURY AVAILABLE FOR
STOCK CAPITAL EARNINGS STOCK SALE, NET TOTAL
------ --------- -------- -------- -------------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $5,590 $11,684 $(2,281) $(45) $(144) $14,804
Net income -- -- 1,740 -- -- 1,740
Proceeds from issuance of
166,667 shares of common stock 167 430 -- -- -- 597
Increase in unrealized gain (loss) on
securities available for sale, net -- -- -- -- 263 263
------ ------- ------- ---- ----- -------
Balance at December 31, 1995 $5,757 $12,114 $ (541) $(45) $ 119 $17,404
====== ======= ======= ==== ===== =======
Net income -- -- 1,637 -- -- 1,637
Proceeds from issuance of
83,333 shares of common stock 83 215 -- -- -- 298
Stock options exercised 22 46 45 113
Increase in unrealized gain (loss) on
securities available for sale, net -- -- -- -- (252) (252)
====== ======= ======= ==== ===== =======
Balance at September 30, 1996 $5,862 $12,375 $ 1,096 $ -- $(133) $19,200
====== ======= ======= ==== ===== =======
</TABLE>
5
<PAGE> 6
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,637 $ 1,143
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization 456 402
(Gain) loss on sale of securities (6) (230)
(Gain) loss on sale of loans (88) (8)
Provision for loan losses 423 447
Payments received on other real estate owned -- 19
Loans originated for sale (10,342) (1,879)
Proceeds from sale of loans 10,430 1,887
(Increase) decrease in:
Accrued interest receivable 21 108
Deferred income tax asset, net -- (13)
Other assets (383) (306)
Increase (decrease) in:
Accrued interest payable (50) 278
Other liabilities (153) 274
-------- --------
Net cash provided by operating activities 1,945 2,122
-------- --------
Cash flows from investing activities:
Net decrease (increase) in fed funds sold (3,125) 7,200
Investment securities available for sale:
Purchases (23,144) (33,787)
Sales 11,602 27,762
Maturities 13,300 7,150
Investment securities held to maturity:
Purchases (2,934) --
Maturities 5,775 5,000
Mortgage-backed securities available for sale:
Sales 117 --
Mortgage-backed securities held to maturity:
Principal payments 4,891 2,138
Net increase in loans (33,886) (32,375)
Recoveries on loans previously charged off 62 84
Proceeds from sale of OREO 160 --
Assets acquired from acquisition -- (4,336)
Capital expenditures (164) (556)
-------- --------
Net cash used by investing activities (27,346) (21,720)
-------- --------
Cash flows from financing activities:
Net increase in deposits 16,640 16,220
Net increase in federal funds purchased -- 1,500
Net increase in repurchase agreements 3,548 699
FHLB advances:
Proceeds 103,300 24,453
Repayments (98,021) (26,162)
Net increase (decrease) in payable due to acquisition (1,048) 1,966
Proceeds from issuance of common stock 411 597
-------- --------
Net cash provided by financing activities 24,830 19,273
-------- --------
Net decrease in cash and due from banks (571) (325)
Cash and due from banks at beginning of year 8,695 4,581
-------- --------
Cash and due from banks at end of period 8,124 $ 4,256
======== ========
</TABLE>
6
<PAGE> 7
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Supplementary Disclosures:
Cash paid during the period for interest $ 6,881 $ 5,888
Cash paid during the period for income taxes 870 58
Non-cash transactions:
Change in unrealized gain (loss) on securities
available for sale, net of estimated income taxes (252) (147)
</TABLE>
7
<PAGE> 8
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The consolidated financial statements include the accounts of Boston Private
Bancorp, Inc. (the "Company"), its wholly-owned subsidiary Boston Private Bank &
Trust Company (the "Bank"), and the Bank's wholly owned subsidiaries, BPB
Securities Corporation, and Boston Private Asset Management Corporation. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ from those estimates. Material estimates
that are particularly susceptible to change relate to the determination of the
allowance for possible loan losses and the valuation of other real estate owned.
In connection with the determination of the allowance for possible loan losses
and the carrying value of other real estate owned, management obtains
independent appraisals for significant properties.
The unaudited interim consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles and
include all necessary adjustments which, in the opinion of management, are
required for a fair presentation of the results and financial condition of the
Company.
These interim financial statements should be read in conjunction with the
December 31, 1995 consolidated financial statements and accompanying notes
included in the Annual Report to Shareholders. The interim results of
consolidated operations are not necessarily indicative of the results for the
entire year.
(2) Earnings Per Share
The earnings per share calculation is based upon the weighted average number
of common shares and common share equivalents outstanding during the period.
(3) Reclassifications
Certain fiscal 1995 information has been reclassified to conform with the
1996 presentation.
8
<PAGE> 9
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
- -------
Boston Private Bancorp, Inc., (the "Company"), is a one-bank holding company
which holds all of the issued and outstanding shares of capital stock of Boston
Private Bank & Trust Company (the "Bank"), a Massachusetts chartered trust
company. Of the 18,000,000 shares of $1.00 par value common stock authorized,
5,862,496 shares of Boston Private Bancorp, Inc. common stock were issued and
outstanding at September 30, 1996.
The Company pursues a "private banking" mission and is principally engaged
in providing banking, investment and fiduciary services to successful
individuals, their families and their businesses as well as to foundations and
institutional clients. The Company offers a full range of banking and investment
management services to its domestic and international clientele. The Company's
deposit services include checking and savings accounts with automated teller
machine ("ATM") access, and cash management services through sweep accounts and
repurchase agreements. The Company also offers commercial, residential mortgage,
home equity and consumer loans and credit card services. In addition, it
provides investment advisory and asset management services, securities custody
and safekeeping services, trust and estate administration and IRA and Keogh
accounts.
On July 31, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of the investment management business of Cunningham,
Henderson, and Papin Incorporated ("CH&P, Inc.") for a purchase price of
approximately $4.2 million, of which $2.1 million, consisting of $1.5 million in
cash and 166,667 shares of the Company's common stock, was paid at closing. In
January and July 1996, the Company made scheduled payments consisting of
$375,000 in cash and 41,667 shares of the Company's common stock. The balance of
the purchase price is payable in two remaining semi-annual installments of
$375,000 in cash and 41,667 shares of the Company's common stock in January and
July 1997. The acquisition was accounted for as a purchase. Accordingly, the
results of operations of CH&P, Inc. have been included with those of the Company
subsequent to the date of the acquisition.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
-- Liquidity. Liquidity is defined as the ability to meet current and future
financial obligations of a short-term nature. The Company further defines
liquidity as the ability to respond to the needs of depositors and borrowers as
well as to earnings enhancement opportunities in a changing marketplace. Primary
sources of liquidity consist of deposit inflows, loan repayments and sales,
borrowed funds, maturities of investment securities and sales of securities from
the available for sale portfolio. These sources fund the Company's lending and
investment activities.
9
<PAGE> 10
Management is responsible for establishing and monitoring liquidity targets
as well as strategies and tactics to meet these targets. At September 30, 1996,
cash, federal funds sold and securities available for sale amounted to $33.5
million, or 12.5% of total assets. This compares to $31.6 million, or 13.1% of
total assets at December 31, 1995. In general, the Company maintains a liquidity
target of 10-20% of total assets. The Bank is a member of the Federal Home Loan
Bank of Boston ("FHLB of Boston"), and as such has access to both short and
long-term borrowings. In addition, the Bank maintains a line of credit at the
FHLB of Boston as well as other lines of credit with several correspondent
banks. Management believes that the Bank has adequate liquidity to meet its
commitments.
In contrast to the Bank, the holding company maintains minimal liquidity
because substantially all of its assets consist of the stock of the Bank. The
holding company's potential sources of funds are dividends from the Bank,
issuance of additional common stock, and borrowings.
-- Capital Resources. Total stockholders' equity of the Company at September
30, 1996 was $19.2 million, as compared to $17.4 million at December 31, 1995.
This increase was the result of the Company's net income for the first nine
months of 1996, plus the issuance of common stock relating to the acquisition of
CH&P, Inc. and the exercise of stock options, adjusted for the change in the
unrealized gain (loss) on securities available for sale, net of estimated income
taxes.
The Bank is subject to a number of regulatory capital measures. At September
30, 1996, the Bank's Tier I leverage capital ratio was 5.70%, compared to 5.54%
at December 31, 1995. The Bank is also subject to a risk-based capital measure.
The risk-based capital guidelines include both a definition of capital and a
framework for calculating risk-weighted assets by assigning balance sheet assets
and off-balance sheet items to broad risk categories. According to these
standards, the Bank had a Tier I risk adjusted capital ratio of 9.73% and a
Total risk adjusted capital ratio of 10.98% at September 30, 1996. This compares
to a Tier I risk adjusted capital ratio of 10.31% and a Total risk adjusted
capital ratio of 11.54% at December 31, 1995. The minimum Tier I leverage, Tier
I risk adjusted, and Total risk adjusted capital ratios necessary to be
classified for regulatory purposes as a "well capitalized" institution are
5.00%, 6.00% and 10.00%, respectively. The Bank, therefore, is considered to be
"well capitalized."
BALANCE SHEETS
- --------------
-- Total Assets. Total assets increased $26.0 million, or 10.8%, to $267.6
million at September 30, 1996, from $241.6 million at December 31, 1995. An
increase in loan balances during the first nine months of 1996 was the primary
reason for the change. The increase in total assets was funded by growth in
deposit balances, which increased $16.6 million, or 9.3%, and growth in
borrowings, which increased $8.8 million, or 21.1%.
-- Loans. Total loans were $189.0 million, or 70.6% of total assets, at
September 30, 1996, compared to $155.3 million, or 64.3% of total assets, at
December 31, 1995. This increase of $33.7 million, or 21.7%, was primarily
attributable to increased loan originations in both the residential and
commercial loan portfolios. Residential mortgage loans increased $18.6 million,
or 25.0% to $93.1 million at September 30, 1996 from $74.4 million at December
31, 1995, while commercial loans increased $12.1 million, or 16.6% to $84.8
million at September 30, 1996 from $72.7 million at December 31, 1995, and home
equity and other loans increased $3.0 million, or 37.1% to $11.1 million at
September 30, 1996 from $8.1 million at December 31, 1995. The Company continues
its efforts to identify quality lending opportunities.
10
<PAGE> 11
-- Investments. Total investments (consisting of federal funds sold,
investment securities, mortgage-backed securities, and stock in the FHLB of
Boston) totaled $64.1 million, or 23.9% of total assets, at September 30, 1996,
compared to $71.0 million, or 29.4% of total assets, at December 31, 1995. Of
the total investment portfolio at September 30, 1996, $21.7 million were
securities identified as available for sale. The available for sale portfolio
carried a total of ($208,000) in unrealized losses at September 30, 1996.
-- Deposits and Borrowings. Total deposits increased $16.6 million, or 9.3%,
during the first nine months of 1996, from $178.9 million, or 74.1% of total
assets, at December 31, 1995, to $195.5 million, or 73.1% of total assets, at
September 30, 1996. This increase was primarily attributable to continued growth
in the level of money market deposit balances resulting from the introduction of
a new premium money market product in 1995. Total borrowings (consisting of
federal funds purchased, securities sold under agreements to repurchase
("repurchase agreements") and Federal Home Loan Bank ("FHLB") borrowings)
increased $8.8 million, or 21.0%, during the first nine months of 1996. This
increase was necessary to partially fund new loan originations. Management will
from time to time take advantage of opportunities to fund asset growth with
borrowings, but on a long-term basis, the Company's strategy is to replace a
portion of its borrowings with deposits.
ASSET QUALITY
- -------------
<TABLE>
-- Non-Performing Assets. The following table sets forth information
regarding non-performing assets, restructured loans and delinquent loans 30-89
days past due as to interest or principal at the dates indicated.
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 210 $443
Loans past due 90 days or more, but still accruing 91 194
------ ----
Total non-performing loans 301 637
Other real estate owned 285 245
------ ----
Total non-performing assets $ 586 $882
====== ====
Restructured loans $ 763 $ --
====== ====
Delinquent loans 30-89 days past due $1,407 $304
====== ====
Non-performing loans as a percent of gross loans .16% .41%
Non-performing assets as a percent of total assets .22% .37%
Delinquent loans 30-89 days past due as a percent of
gross loans .74% .20%
</TABLE>
At September 30, 1996, the Company had non-performing assets of $586,000,
which represented .22% of total assets. The Company's non-performing assets
consisted of three non-accruing loans totaling $210,000, eight loans with an
aggregate balance of $91,000, over 90 days past due and still accruing interest,
and two OREO properties totaling $285,000. The decrease of $336,000, or 52.7%,
in non-performing loans, from $637,000 at December 31, 1995, to $301,000 at
September 30, 1996 is primarily attributable to one loan, totaling $200,000,
which was transferred to OREO during the
11
<PAGE> 12
second quarter of 1996. Although no specific reserves have been set aside for
any of the non-performing loans, the quality rating of these credits has been
factored into the overall allowance for possible loan losses. See also
discussion under "Allowance for Loan Losses." Non-performing assets decreased
$296,000, or 33.6%, from $882,000 at December 31, 1995, to $586,000 at September
30, 1996, as a result of the final disposition of a former OREO property. The
Company continues to evaluate the underlying collateral and value of each of its
non-performing assets and pursues the collection of all amounts due.
At September 30, 1996, the Company had two restructured loans to one
borrower aggregating $763,000. The two loans constitute a troubled debt
restructuring. The repayment schedules of the loans were restructured to
interest only for a period of time in response to the borrower's cash flow
problems. During the three months ended September 30, 1996, the borrower made a
$417,000 payment upon the sale of a portion of the real estate securing the
loans. At September 30, 1996, the borrower was in compliance with the modified
terms of the loan agreements and neither loan was included in non-performing
assets.
-- Delinquencies. At September 30, 1996, loans with an aggregate balance of
$1.4 million were 30 to 89 days past due, an increase of $1.1 million, or
362.8%, from $304,000 reported at December 31, 1995. The increase in
delinquencies is primarily due to two loans for $496,000 and $299,000 which were
57 and 66 days past due, respectively, and have since been paid current.
Delinquent loans include both secured and unsecured credits and management's
success in keeping these borrowers current varies from month to month.
-- Allowance for Loan Losses. During the first nine months of 1996, the
Company made provisions to the allowance for loan losses totaling $423,000 and
had $2,000 in charge-offs net of recoveries, bringing the balance in the
allowance to $2,363,000, compared to $1,942,000 at December 31, 1995. The
allowance, expressed as a percentage of total loans, stood at 1.25% as of
September 30, 1996, and December 31, 1995. The allowance for loan losses was
785.1% of non-performing loans at September 30, 1996, compared to 304.9% of
non-performing loans at December 31, 1995.
While management evaluates currently available information in establishing
the allowance for loan losses, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the assumptions used
in making the evaluations. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review a financial
institution's allowance for loan losses. These agencies may require additions to
the allowances based on their own judgments about information available to them
at the time of their examination.
As the Company continues to be affected by changes in the risk
characteristics of the loan portfolio, levels of non-performing loans, trends in
delinquencies and charge-offs, and current economy, it will continue to evaluate
the adequacy of the allowance for loan losses. Notwithstanding these future
evaluations, management believes that the allowance for loan losses as of
September 30, 1996 is adequate based upon the information currently available.
12
<PAGE> 13
STATEMENTS OF INCOME, THREE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
- --------------------------------------------------------------------
-- Net Income. The Company recorded net income of $582,000, or $.10 per
share, for the three months ended September 30, 1996, compared to $474,000, or
$.08 per share, for the same period in 1995. This represents a 22.8% increase in
net income and a 25.0% increase in earnings per share between periods. Revenues
generated by significant increases in loan volumes and fees derived from assets
under management were more than sufficient to offset increases in funding costs
and operating expense.
-- Net Interest Income. For the quarter ended September 30, 1996, net
interest income was $2.4 million, an increase of $443,000, or 23.0%, over the
same period in 1995. The net interest margin increased to 3.85% for the third
quarter 1996 from 3.55% for the same period in 1995, an increase of 30 basis
points, or 8.5%. This increase was primarily attributable to an increase in
the average balance of earning assets, which was $29.6 million, or 13.7%, higher
than during the comparable period a year earlier. This increase in average
earning assets were funded in part by an increase in average interest-bearing
liabilities of $25.8 million, or 13.7%.
-- Interest Income: Loans. Income on commercial loans was $2.0 million for
the three months ended September 30, 1996, compared to $1.6 million for the same
period in 1995. Income from residential mortgage loans was $1.6 million,
compared to $1.3 million, and home equity and other loan interest was $209,000,
compared to $174,000, for the same periods, respectively. The average balances
of commercial and residential mortgage loans increased in the aggregate $16.6
million, or 25.9%, and $22.6 million, or 33.3%, compared with the third quarter
of 1995, respectively. Meanwhile, the yields on commercial and residential
mortgage loans decreased in the aggregate 24 basis points, to 9.78%, and 25
basis points, to 7.30%, compared with the prior year's period, respectively.
-- Interest Income: Investments. Income from the investment portfolio
decreased to $925,000 during the third quarter of 1996, compared to $1.1 million
during the same period in 1995. The decrease in total investment income of
$164,000, or 15.1%, was primarily attributable to a decrease in the average
balance of investments of $12.8 million, or 16.7%. The average balance of
investments decreased due to the fact that cash flow from the investment
portfolio was used to help fund the increase in loan demand. The effect on
income of the decrease in average balance was partially offset by an increase of
11 basis points, to 5.79%, in the overall yield on investments.
-- Interest Expense: Deposits and Borrowings. Interest paid on deposits and
borrowings increased $166,000, or 7.5%, to $2.4 million for the three months
ended September 30, 1996, from $2.2 million for the same period during 1995.
This increase in the Company's interest expense primarily reflects an increase
in the average balance of interest-bearing liabilities of $25.8 million, or
13.7%, between the two periods. Partially offsetting the increase in the average
balance, the overall cost of interest-bearing liabilities decreased 26 basis
points from 4.74% for the third quarter of 1995 to 4.48% for the third quarter
of 1996.
-- Provision for Loan Losses. The provision for loan losses was $212,000 for
the quarter ended September 30, 1996, compared to $219,000 for the same period
in 1995. Management frequently evaluates several factors including new loan
originations, estimated charge-offs, and risk characteristics of the loan
portfolio when determining the provision for the quarter. See also discussion
under "Asset Quality -- Allowance for Loan Losses."
13
<PAGE> 14
-- Fees and Other Income. Fees and other income were $930,000 for the three
month period ending September 30, 1996, compared to $749,000 for the same period
in 1995. Investment management and trust fees accounted for substantially all of
the increase in total fees and other income, as assets under management
increased 24.0% to $661 million as of September 30, 1996.
-- Operating Expense. Total operating expense for the third quarter of 1995
increased to $2.2 million, compared to $2.0 million for the same period in 1995.
An increase in salary and benefit expense of $204,000, or 18.1%, and an increase
in the remainder of non-interest expenses of $30,000, or 3.6%, were primarily
the result of the acquisition of CH&P, Inc., and the Company's continued growth
in loan and deposit balances.
-- Income Tax Expense. The Company became fully taxable during the first
quarter of 1996, having fully utilized its remaining deferred tax asset
valuation reserve during 1995. As a result, the Company's effective tax rate for
financial statement purposes was 33.9% during the third quarter of 1996,
compared to 2.1% for the third quarter of 1995. The Company anticipates
remaining fully taxable for the foreseeable future.
14
<PAGE> 15
STATEMENTS OF INCOME, NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
- --------------------------------------------------------------------
-- Net Income. The Company recorded net income of $1.6 million, or $.27 per
share, for the nine months ended September 30, 1996, compared to $1.1 million,
or $.20 per share, for the same period in 1995. This represents a 43.2% increase
in net income and a 35.0% increase in earnings per share between periods.
Increases in interest income and investment management fees were more than
sufficient to offset increases in funding costs and operating expense.
-- Net Interest Income. For the first half of 1996, net interest income was
$6.7 million, an increase of $1.3 million, or 24.6%, over the same period in
1995. The net interest margin increased to 3.77% for the nine months ended
September 30, 1996 from 3.62% for the same period in 1995, an increase of 15
basis points, or 4.1%. This increase was primarily attributable to higher
business volumes. Average earning assets increased $30.5 million, or 14.7%, to
$238.4 million, and average interest-bearing liabilities increased $27.6
million, or 15.3%, to $207.5 million, from the comparable period a year earlier.
-- Interest Income: Loans. Income on commercial loans was $5.4 million for
the nine months ended September 30, 1996, compared to $4.2 million for the same
period in 1995. The average balance of commercial loans increased $17.6 million,
or 30.3%, for the nine month period. Income from residential mortgage loans was
$4.6 million, compared to $3.3 million. The average balance of residential
mortgage loans increased $21.9 million, or 35.3%, for the same period. During
these same periods, the yield on commercial loans decreased 23 basis points, to
9.55%, while the yield on residential mortgage loans increased 16 basis points,
to 7.34%.
-- Interest Income: Investments. Income from the investment portfolio
decreased to $3.0 million for the nine months ended September 30, 1996, compared
to $3.5 million during the same period in 1995. This decrease in total
investment income of $475,000, or 13.6%, was primarily attributable to a
decrease of $11.6 million, or 14.4%, in the average balance of investments to
partially fund the Company's growth.
-- Interest Expense: Deposits and Borrowings. Interest expense on deposits
and borrowings increased $710,000, or 11.5%, to $6.9 million for the nine months
ended September 30, 1996, from $6.2 million for the same period in 1995. This
increase in the Company's interest expense primarily reflects an increase in the
average balance of interest-bearing liabilities of $27.6 million, or 15.3%,
between the two periods, which was partially offset by a decrease in the overall
cost of interest bearing liabilities of 38 basis points from 4.80% during 1995,
to 4.42% during 1996.
-- Provision for Loan Losses. The provision for loan losses was $423,000 for
the nine months ended September 30, 1996, compared to $447,000 for the same
period in 1995. Management frequently evaluates several factors, including the
risk characteristics of the loan portfolio, actual and estimated charge-offs,
and new loan originations, when determining the provision for loan losses. The
Company's ratio of loan loss allowance to total loans was 1.25% at September 30,
1996 and December 31, 1995. See also discussion
under "Asset Quality -- Allowance for Loan Losses."
15
<PAGE> 16
-- Fees and Other Income. Total fees and other income were $2.8 million for
the nine months ended September 30, 1996, compared to $1.3 million for the same
period in 1995. Investment management and trust fees accounted for substantially
all of the increase in total fees and other income and increased $1.5 million,
or 175.6%, to $2.4 million for the nine months ended September 30, 1996 from
$865,000 for the same period in 1995 as the result of fees generated by accounts
acquired from CH&P of $1.1 million, and growth in investment management and
trust business.
-- Operating Expense. Total operating expense for the nine months ended
September 30, 1996 increased to $6.6 million, from $5.1 million for the same
period in 1995. An increase in salary and benefit expense of $1.1 million, or
39.5%, and an increase in the remainder of non-interest expenses of $428,000, or
19.0%, were primarily the result of the acquisition of CH&P, Inc. and the
Company's continued growth and relocation to Ten Post Office Square, Boston.
-- Income Tax Expense. The Company became fully taxable at the beginning of
1996, having fully utilized its remaining deferred tax asset valuation reserve
during 1995. As a result, the Company's effective tax rate for financial
statement purposes was 33.1% for the nine months ended September 30, 1996,
compared to 1.6% for the same period during 1995. The Company anticipates
remaining fully taxable for the foreseeable future.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1994, the Bank became aware of a dispute among various parties
involved in a transaction in which it served as bank of deposit for certain
certificates stated to reflect debt obligations of a foreign bank.
In December 1994, the party which allegedly purchased the certificates filed
a complaint in the United States District Court for the District of
Massachusetts alleging certain claims against numerous individuals and entities,
including the Bank and one of its former officers, arising out of the
transaction, and seeking equitable relief and damages. The Bank believes it has
valid defenses to any and all claims and other allegations of wrongdoing in
connection with the transaction. The plaintiff's counsel has advised the Bank
that the plaintiff has recovered a significant portion of its damages from other
persons involved in the transaction.
In August 1995, the Bank filed for summary judgment against the plaintiff's
claims. The plaintiff also filed a motion for partial summary judgment on one of
its claims. On March 19, 1996, the court granted the Bank's summary judgment
motion and denied the plaintiff's motion, resulting in the dismissal of all
claims against the Bank. The plaintiff is currently seeking reconsideration of
its motion, which the Bank is vigorously opposing.
On December 6, 1995, Robert S. Lappin, Esq., one of the Bank's depositors,
filed a Complaint in the Massachusetts Superior Court entitled LAPPIN, ET AL. V.
ORSTEIN, ET AL., Suffolk Superior Court, Civil Action No. 95-6207-B. As part of
the Complaint, Mr. Lappin included counts against the Bank (and three other
Boston banks) alleging that he had sustained losses from his client funds
account at the Bank and from other funds of clients maintained in separate
deposit accounts by him as Trustee, due to the misappropriation of these funds
by a former secretary. Mr. Lappin alleged that the Bank was liable for these
misappropriated funds due to the fact that the Bank had cleared numerous checks
on Lappin's various accounts at the Bank which had unauthorized signatures
and/or endorsements.
On January 19, 1996, Dorothy Wallace and others filed a separate civil
action in the Massachusetts Superior Court entitled WALLACE, ET AL. V. LAPPIN,
ET AL., Suffolk Superior Court, Civil Action No. 96-0330-B. In this action, the
Wallaces alleged that most of the misappropriated funds referred to by Lappin in
his Complaint were in fact funds belonging to the Wallaces. The Wallaces allege
that Lappin was responsible for all of the misappropriated funds due to his
breach of fiduciary responsibilities as attorney and Trustee to the Wallaces.
The Wallaces allege that the Bank was also liable for the misappropriations due
to the fact that the Bank cleared numerous instruments bearing unauthorized
endorsements and in some cases accepted deposits without proper endorsements.
The Wallaces included similar counts against three other Boston banks.
In September, 1996, the Massachusetts Superior Court entered an Order
consolidating the two civil actions referred to above. Then on October 1, 1996,
the Wallaces filed an Amended Consolidated Complaint, in which they reiterated
the allegations made by the Wallaces in Civil Action No. 96-0330-B and added
another count against the four banks alleging that the banks aided and abetted
Lappin in the breach of his fiduciary responsibilities by clearing instruments
and accepting deposits without proper authorization.
17
<PAGE> 18
On October 29, 1996, the Bank answered the Wallace's Amended Consolidated
Complaint denying any and all claims and other allegations of wrongdoing against
it, setting forth substantial defenses in connection with the transaction and
filing claims against Mr. Lappin for negligence and breach of duty, and seeking
funds owed to it as a result of an overdraft and related costs.
ITEM 2. CHANGE IN SECURITIES
No changes in security holders' rights have taken place.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
No defaults upon senior securities have taken place.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No submissions of matters to a vote of the security holders have taken
place.
ITEM 5. OTHER INFORMATION
No information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No information to report.
18
<PAGE> 19
BOSTON PRIVATE BANCORP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOSTON PRIVATE BANCORP, INC.
(Registrant)
/s/ Timothy L. Vaill
November 13, 1996 -----------------------------------
(Date) Timothy L. Vaill
President and
Chief Executive Officer
/s/ Walter M. Pressey
November 13, 1996 -----------------------------------
(Date) Walter M. Pressey
Senior Vice President and
Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,124
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,625
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,704
<INVESTMENTS-CARRYING> 35,414
<INVESTMENTS-MARKET> 35,159
<LOANS> 188,993
<ALLOWANCE> 2,363
<TOTAL-ASSETS> 267,616
<DEPOSITS> 195,525
<SHORT-TERM> 7,346
<LIABILITIES-OTHER> 2,123
<LONG-TERM> 43,422
<COMMON> 5,862
0
0
<OTHER-SE> 13,338
<TOTAL-LIABILITIES-AND-EQUITY> 267,616
<INTEREST-LOAN> 10,603
<INTEREST-INVEST> 2,739
<INTEREST-OTHER> 270
<INTEREST-TOTAL> 13,612
<INTEREST-DEPOSIT> 4,648
<INTEREST-EXPENSE> 6,876
<INTEREST-INCOME-NET> 6,736
<LOAN-LOSSES> 423
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 6,637
<INCOME-PRETAX> 2,448
<INCOME-PRE-EXTRAORDINARY> 2,448
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,637
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 7.61
<LOANS-NON> 210
<LOANS-PAST> 91
<LOANS-TROUBLED> 763
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,942
<CHARGE-OFFS> 64
<RECOVERIES> 62
<ALLOWANCE-CLOSE> 2,363
<ALLOWANCE-DOMESTIC> 2,363
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
