<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: JUNE 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 July 31, 1996:
-------------
Common Stock - Par Value $1.00 5,849,071 shares
------------------------------ ----------------
(class) (outstanding)
<PAGE> 2
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
FORM 10-QSB
<TABLE>
INDEX
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Cover Page 1
Index 2
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis or
Plan of Operations 7-14
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Default upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Signature Page 16
</TABLE>
2
<PAGE> 3
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 8,138 $ 8,695
Federal funds sold 3,500 500
Investment securities available for sale (amortized cost of $21,683 and
$22,106 at June 30, 1996 and December 31, 1995, respectively) 21,400 22,292
Investment securities held to maturity (market value of $10,905 and $12,783
at June 30, 1996 and December 31, 1995, respectively) 10,946 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 $28,598 and
$31,967 at June 30, 1996 and December 31, 1995, respectively) 29,017 31,933
Stock in Federal Home Loan Bank of Boston 3,317 3,317
Loans:
Commercial 77,006 72,729
Residential mortgage 88,191 74,447
Home equity 9,326 7,783
Other 261 297
-------- --------
Total loans 174,784 155,256
Less allowance for possible loan losses (2,158) (1,942)
-------- --------
Net loans 172,626 153,314
Other real estate owned 285 245
Premises and equipment, net 1,107 1,174
Excess of costs over net assets acquired, net 4,229 4,390
Accrued interest receivable 1,790 1,694
Deferred income tax asset, net 1,016 847
Other assets 584 222
-------- --------
Total assets $257,955 $241,551
======== ========
LIABILITIES:
Deposits $197,518 $178,885
Securities sold under agreements to repurchase 10,519 3,798
Federal Home Loan Bank of Boston borrowings 29,215 38,143
Payable due to acquisition 1,532 2,017
Accrued interest payable 439 508
Other liabilities 358 796
-------- --------
Total liabilities 239,581 224,147
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value per share;
shares authorized - 18,000,000;
shares issued - 5,803,004 in 1996 and 5,756,704 in 1995 5,803 5,757
Additional paid-in capital 12,239 12,114
Retained earnings (deficit) 514 (541)
Treasury stock - 20,017 shares in 1995 -- (45)
Unrealized gain (loss) on securities available for sale, net (182) 119
-------- --------
Total stockholders' equity 18,374 17,404
-------- --------
Total liabilities and stockholders' equity $257,955 $241,551
======== ========
</TABLE>
3
<PAGE> 4
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ --------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest and dividend income:
Commercial loans $ 1,721 $ 1,442 $ 3,428 $ 2,638
Residential mortgage loans 1,547 1,126 2,977 2,067
Home equity and other loans 188 165 366 324
Investment securities 476 527 983 1,116
Mortgage-backed securities 444 549 919 1,028
FHLB stock dividends 53 54 105 126
Federal funds sold 29 38 44 124
Deposits in banks 17 -- 32 1
---------- ---------- ---------- ----------
Total interest and dividend income 4,475 3,901 8,854 7,424
---------- ---------- ---------- ----------
Interest expense:
NOW 54 54 103 106
Savings 33 57 65 111
Money market 786 439 1,443 783
Certificates of deposit 671 780 1,424 1,583
Federal funds purchased 26 39 69 42
Securities sold under agreements to 78 79 160 127
repurchase
FHLB borrowings 571 638 1,186 1,193
Payable due to acquisition 19 -- 39 --
---------- ---------- ---------- ----------
Total interest expense 2,238 2,086 4,489 3,945
---------- ---------- ---------- ----------
Net interest income 2,237 1,815 4,365 3,479
Provision for possible loan losses 144 190 211 228
---------- ---------- ---------- ----------
Net interest income after provision for
possible loan losses 2,093 1,625 4,154 3,251
---------- ---------- ---------- ----------
Fees and other income:
Trust and investment management 850 180 1,583 354
Deposit account service charges 41 33 81 71
Gain (loss) on sale of loans 31 -- 66 --
Gain (loss) on sale of investment 3 68 6 68
securities
Gain (loss) on sale of mortgage-backed -- -- (3) --
securities
Other 48 19 108 47
---------- ---------- ---------- ----------
Total fees and other income 973 300 1,841 540
---------- ---------- ---------- ----------
Operating expense:
Salaries and employee benefits 1,263 869 2,626 1,708
Occupancy 119 72 230 166
Equipment 84 46 171 88
Data processing 25 38 52 65
FDIC insurance premiums 1 76 1 152
Legal expense 97 72 146 125
Marketing 91 37 157 136
Amortization of intangibles 80 9 161 19
Other 493 347 884 654
---------- ---------- ---------- ----------
Total operating expense 2,253 1,566 4,428 3,113
---------- ---------- ---------- ----------
Income before income taxes 813 359 1,567 678
Income tax expense 259 9 512 9
========== ========== ========== ==========
Net income $ 554 $ 350 $ 1,055 $ 669
========== ========== ========== ==========
Net income per share $ 0.09 $ 0.06 $ 0.17 $ 0.12
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding 6,088,209 5,569,833 6,084,150 5,569,833
========== ========== ========== ==========
</TABLE>
4
<PAGE> 5
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,055 $ 669
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization 346 269
(Gain) loss on sale of securities (3) (68)
(Gain) loss on sale of loans (66) --
Provision for possible loan losses 211 228
Payments received on other real estate owned -- 19
Loans originated for sale (8,130) --
Proceeds from sale of loans 8,196 --
(Increase) decrease in:
Accrued interest receivable (96) (97)
Deferred income tax asset, net -- (12)
Other assets (362) (190)
Increase (decrease) in:
Accrued interest payable (69) 145
Other liabilities (438) (190)
-------- --------
Net cash provided (used) by operating activities 644 773
-------- --------
Cash flows from investing activities:
Net decrease (increase) in fed funds sold (3,000) 6,600
Investment securities available for sale:
Purchases (17,970) (11,334)
Sales 7,118 5,200
Maturities 11,280 3,000
Investment securities held to maturity:
Purchases (2,934) --
Maturities 4,775 5,000
Mortgage-backed securities available for sale:
Sales 116 --
Mortgage-backed securities held to maturity:
Principal payments 2,903 1,271
Net decrease (increase) in loans (19,742) (22,905)
Recoveries on loans previously charged off 61 56
Proceeds from sale of OREO 160 --
Capital expenditures (86) (419)
-------- --------
Net cash provided (used) by investing activities (17,319) (13,531)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 18,633 12,811
Net increase (decrease) in repurchase agreements 6,721 3,257
FHLB advances:
Proceeds 51,800 10,500
Repayments (60,728) (10,107)
Net increase (decrease) in payable due to acquisition (524) --
Proceeds from issuance of common stock 216 --
-------- --------
Net cash provided (used) by financing activities 16,118 16,461
-------- --------
Net increase (decrease) in cash and due from banks (557) 3,703
Cash and due from banks at beginning of year 8,695 4,581
-------- --------
Cash and due from banks at end of period $ 8,138 $ 8,284
======== ========
Supplementary Disclosures:
Cash paid during the period for interest $ 4,519 $ 3,800
Cash paid during the period for income taxes 669 9
Non-cash transactions:
Increase (decrease) in unrealized gain (loss) on securities
available for sale, net of estimated income taxes (301) 218
</TABLE>
5
<PAGE> 6
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") and its wholly-owned subsidiaries Boston
Private Bank & Trust Company (the "Bank"), 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.
6
<PAGE> 7
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 common stock authorized, par value
$1.00, 5,803,004 shares of Boston Private Bancorp, Inc. common stock were issued
and outstanding at June 30, 1996.
The Company pursues a "private banking" mission and is principally engaged
in providing banking, investment and fiduciary products 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. The
balance of the purchase price is payable in semi-annual installments over the
next two years, 75% in cash and 25% in the common stock of the Company. 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, loans repayments and sales,
borrowed funds, maturity of investment securities and sales of securities from
the available for sale portfolio. These sources fund the Company's lending and
investment activities.
7
<PAGE> 8
Management is responsible for establishing and monitoring liquidity targets
as well as strategies and tactics to meet these targets. At June 30, 1996, cash,
federal funds sold and securities available for sale amounted to $33.0 million,
or 12.8% 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% to 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 June 30,
1996 was $18.4 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 six months of
1996, plus the issuance of common stock relating to the acquisition of CH&P,
Inc. and the exercise of stock options, less 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 June 30,
1996, the Bank's Tier I leverage capital ratio was 5.81%, 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 9.94% and a
Total risk adjusted capital ratio of 11.19% at June 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 $16.4 million, or 6.8%, to $258.0
million at June 30, 1996, from $241.6 million at December 31, 1995. An increase
in portfolio lending during the first six months of 1996 was the primary reason
for the change. The increase in total assets was funded by growth in deposit
balances, which increased $18.6 million, or 10.4%.
-- Loans. Total loans were $174.8 million, or 67.8% of total assets, at
June 30, 1996, compared to $155.3 million, or 64.3% of total assets, at December
31, 1995. This increase of $19.5 million, or 12.6%, was primarily attributable
to increased loan originations in both the commercial and residential loan
portfolios. Residential mortgage loans increased $13.7 million, or 18.5%, while
commercial loans increased $4.3 million, or 5.9%, and home equity and other
loans increased $1.5 million, or 18.7%. The Company continues its efforts to
identify quality lending opportunities.
8
<PAGE> 9
-- Investments. Total investments (consisting of federal funds sold,
investment securities, mortgage-backed securities, and stock in the FHLB of
Boston) totaled $68.2 million, or 26.4% of total assets, at June 30, 1996,
compared to $71.0 million, or 29.4% of total assets, at December 31, 1995. Of
the total investment portfolio at June 30, 1996, $21.4 million were securities
identified as available for sale. The available for sale portfolio carried a
total of $283,000 in unrealized losses at June 30, 1996.
-- Deposits and Borrowings. Total deposits increased $18.6 million, or
10.4%, during the first half of 1996, from $178.9 million, or 74.1% of total
assets, at December 31, 1995, to $197.5 million, or 76.6% of total assets, at
June 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 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) decreased $2.2 million, or 5.3%,
during the first six months of 1996. The decrease was attributable to
management's ability to repay a portion of the Bank's FHLB borrowings with funds
generated from increases in deposit balances. 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>
JUNE 30, DECEMBER 31,
-------- ------------
1996 1995
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 473 $443
Loans past due 90 days or more, but still accruing 14 194
------ ----
Total non-performing loans 487 637
Other real estate owned 285 245
------ ----
Total non-performing assets $ 772 $882
====== ====
Restructured loans $1,186 $ --
====== ====
Delinquent loans 30-89 days past due $2,339 $304
====== ====
Non-performing loans as a percent of gross loans .28% .41%
Non-performing assets as a percent of total assets .30% .37%
Delinquent loans 30-89 days past due as a percent of
gross loans 1.34% .20%
</TABLE>
At June 30, 1996, the Company had non-performing assets of $772,000, which
represented .30% of total assets. The Company's non-performing assets consisted
of five non-accruing loans totaling $473,000, three loans, with an aggregate
balance of $14,000, over 90 days past due and still accruing interest, and two
OREO properties totaling $285,000. The decrease of $150,000, or 23.5%, in
non-performing loans, from $637,000 at December 31, 1995, to $487,000 at June
30, 1996 is primarily attributable to one loan, totaling $215,000, which was
transferred to OREO during the second quarter of 1996. Although no specific
reserves have been set aside for any of the non-performing
9
<PAGE> 10
loans, the quality rating of these credits has been factored into the overall
allowance for possible loan losses. See also discussion under "Allowance
for Possible Loan Losses." Non-performing assets decreased $110,000, or 12.5%,
from $882,000 at December 31, 1995, to $772,000 at June 30, 1996, as a result of
the final deposition 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 June 30, 1996, the Company had two restructured loans to one borrower
aggregating $1.2 million. The two loans constitute a troubled debt
restructuring. The most recent restructuring, which occurred during 1996,
involved the remaining two outstanding loans with respect to what was once the
Company's largest borrowing relationship and included restructuring the
repayment schedule of the loans to interest only for a period of time in
response to a recent unexpected cash flow problem experienced by the borrower.
At June 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 June 30, 1996, loans with an aggregate balance of $2.3
million were 30 to 89 days past due, an increase of $2.0 million, or 669.4%,
from $304,000 reported at December 31, 1995. These loans include both secured
and unsecured credits and management's success in keeping these borrowers
current varies from month to month.
-- Allowance for Possible Loan Losses. During the first six months of 1996,
the Company made provisions to the allowance for possible loan losses totaling
$211,000 and had $5,000 in recoveries net of charge-offs, bringing the balance
in the allowance to $2,158,000, compared to $1,942,000 at December 31, 1995. The
allowance, expressed as a percentage of total loans, stood at 1.23% as of June
30, 1996, compared to 1.25% at December 31, 1995. The allowance for possible
loan losses was 443.1% of non-performing loans at June 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 possible 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 possible 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 possible loan losses. Notwithstanding these
future evaluations, management believes that the allowance for possible loan
losses as of June 30, 1996 is adequate based upon the information currently
available.
10
<PAGE> 11
STATEMENTS OF INCOME, THREE MONTHS ENDED JUNE 30, 1996 and 1995
- ---------------------------------------------------------------
-- Net Income. The Company recorded net income of $554,000, or $.09 per
share, for the three months ended June 30, 1996, compared to $350,000, or $.06
per share, for the same period in 1995. Revenues generated by significant
increases in investment management and loan volumes were more than sufficient to
offset increases in funding costs and operating expense.
-- Net Interest Income. For the quarter ended June 30, 1996, net interest
income was $2.2 million, an increase of $422,000, or 23.3%, over the same period
in 1995. This increase was primarily attributable to an increase in the average
balance of earning assets, which was $31.6 million, or 15.3%, 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
$28.1 million, or 15.7%.
-- Interest Income: Loans. Income on commercial loans was $1.7 million for
the three months ended June 30, 1996, compared to $1.4 million for the same
period in 1995. Income from residential mortgage loans was $1.5 million,
compared to $1.1 million, and home equity and other loan interest was $188,000,
compared to $165,000, for the same periods, respectively. The average balances
of commercial and residential mortgage loans increased $14.6 million, or 25.0%,
and $23.9 million, or 38.9%, compared with the second quarter of 1995,
respectively. Meanwhile, the yields on commercial and residential mortgage loans
decreased 45 basis points, to 9.45%, and 8 basis points, to 7.27%, compared with
the prior year's period, respectively.
-- Interest Income: Investments. Total investment income decreased to $1.0
million during the second quarter of 1996, compared to $1.2 million during the
same period in 1995. The decrease in total investment income of $149,000, or
12.8%, was primarily attributable to a decrease in the average balance of
investments of $9.6 million, or 11.8%, and to a lesser extent, to a decrease of
6 basis points, to 5.70%, in the overall yield on investments.
-- Interest Expense: Deposits and Borrowings. Interest paid on deposits and
borrowings increased $152,000, or 7.3%, to $2.2 million for the three months
ended June 30, 1996, from $2.1 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 $28.1 million, or 15.7%,
between the two periods. Partially offsetting the increase in the average
balance, the overall yield on interest-bearing liabilities decreased 34 basis
points from 4.67% for the second quarter of 1995 to 4.33% for the second quarter
of 1996.
-- Provision for Possible Loan Losses. The provision for possible loan
losses was $144,000 for the quarter ended June 30, 1996, compared to $190,000
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 Possible Loan Losses."
11
<PAGE> 12
-- Fees and Other Income. Fees and other income were $973,000 for the three
month period ending June 30, 1996, compared to $300,000 for the same period in
1995. Trust and investment management fees attributable to the acquisition of
CH&P, Inc. for the 1996 period totaled $458,000; there was no similar fees for
the 1995 period. Additionally, gains from sales of loans were $31,000 during the
second quarter of 1996; there were no such gains during the same period in 1995.
-- Operating Expense. Total operating expense for the second quarter of
1995 increased to $2.3 million, compared to $1.6 million for the same period in
1995. This increase of $687,000, or 43.9%, in total operating expense was
primarily attributable to the addition of CH&P, Inc. on July 31, 1995, and the
Company's continued expansion in its lending and deposit products. Specifically,
the following expenses increased: a) salary and benefit expense increased
$394,000, or 45.3%, b) occupancy and equipment expense increased $85,000, or
72.0%, c) amortization of intangibles increased $71,000, or 788.9%, d) marketing
expense increased $54,000, or 145.9%, and e) other operating expense increased
$146,000, or 42.1%. These increases were partially offset by a decrease in FDIC
insurance premiums of $75,000, or 98.7%, resulting from a reduction in the
premium assessment rate which became effective in June of 1995.
-- Income Tax Expense. The Company became fully taxable for financial
statement purposes 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 31.9% during
the second quarter of 1996, compared to 2.5% for the second quarter of 1995. For
the foreseeable future the Company anticipates remaining fully taxable.
12
<PAGE> 13
STATEMENTS OF INCOME, SIX MONTHS ENDED JUNE 30, 1996 and 1995
- -------------------------------------------------------------
-- Net Income. The Company recorded net income of $1.1 million, or $.17 per
share, for the six months ended June 30, 1996, compared to $669,000, or $.12 per
share, for the same period in 1995. 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
$4.4 million, an increase of $886,000, or 25.5%, over the same period in 1995.
This increase was primarily attributable to higher volumes of business. Average
earning assets increased $30.9 million, or 15.2%, to $234.9 million, and average
interest-bearing liabilities increased $27.4 million, or 15.6%, to $203.5
million, from the comparable period a year earlier.
--Interest Income: Loans. Income on commercial loans was $3.4 million for
the six months ended June 30, 1996, compared to $2.6 million for the same period
in 1995. The average balance of commercial loans increased $18.1 million, or
33.0%, for the six month period. Income from residential mortgage loans was $3.0
million, compared to $2.1 million. The average balance of residential mortgage
loans increased $21.6 million, or 36.4%, for the same period. During these same
periods, the yield on commercial loans decreased 22 basis points, to 9.43%,
while the yield on residential mortgage loans increased 39 basis points, to
7.36%.
--Interest Income: Investments. Total investment income decreased to $2.1
million during the six months ended June 30, 1996, compared to $2.4 million
during the first half of 1995. This decrease in total investment income of
$312,000, or 13.0%, was primarily attributable to a decrease of $11.1 million,
or 13.3%, in the average balance of investments.
-- Interest Expense: Deposits and Borrowings. Interest paid on deposits and
borrowings increased $544,000, or 13.8%, to $4.5 million for the six months
ended June 30, 1996, from $3.9 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 $27.4 million, or 15.6%,
between the two periods. The overall yield on interest-bearing liabilities
decreased 7 basis points from 4.48% during 1995, to 4.41% during 1996.
-- Provision for Possible Loan Losses. The provision for possible loan
losses was $211,000 for the first half of 1996, compared to $228,000 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
possible loan losses. The Company's ratio of loan loss allowance to total loans
was 1.23% at June 30, 1996, consistent with the 1.25% reported at December 31,
1995. See also discussion under "Asset Quality -- Allowance for Possible Loan
Losses."
13
<PAGE> 14
-- Fees and Other Income. Total fees and other income were $1.8 million for
the first six months of 1996, compared to $540,000 for the same period in 1995.
Trust and investment management fees accounted for substantially all of the
increase in total fees and other income and increased $1.2 million, or 347.2%,
as the result of growth in the Company's trust and investment management
business and the acquisition CH&P, Inc., which added $941,000 in fees during the
1996 period.
-- Operating Expense. Total operating expense for the first six months of
1996 increased to $4.4 million, from $3.1 million for the same period in 1995.
An increase in salary and benefit expense of $918,000, or 53.7%, and an increase
in the remainder of non-interest expenses of $397,000, or 28.3%, 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 for financial
statement purposes 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 32.7% during the first
half of 1996, compared to 1.3% for the same period during 1995. For the
foreseeable future the Company anticipates remaining fully taxable.
14
<PAGE> 15
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.
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
<TABLE>
At the Annual Meeting of Stockholders, held May 22, 1996,
shareholders elected the Board's nominees to the Board of Directors. The vote
for director nominees was:
<CAPTION>
FOR WITHHELD
<S> <C> <C>
Peter C. Bennett 3,943,393 27,195
E. Christopher Palmer 3,956,393 14,195
Robert A. Radloff 3,946,393 24,195
</TABLE>
There were no broker non-votes in the election of directors.
ITEM 5. OTHER INFORMATION
No information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No information to report.
15
<PAGE> 16
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)
August 1, 1996 /s/ Timothy L. Vaill
- -------------- ----------------------------------
(Date) Timothy L. Vaill
President and
Chief Executive Officer
August 1, 1996 /s/ Albert R. Rietheimer
- -------------- ----------------------------------
(Date) Albert R. Rietheimer
Senior Vice President and
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,138
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,400
<INVESTMENTS-CARRYING> 39,963
<INVESTMENTS-MARKET> 39,503
<LOANS> 174,784
<ALLOWANCE> 2,158
<TOTAL-ASSETS> 257,955
<DEPOSITS> 197,518
<SHORT-TERM> 10,519
<LIABILITIES-OTHER> 2,329
<LONG-TERM> 29,215
<COMMON> 5,803
0
0
<OTHER-SE> 12,571
<TOTAL-LIABILITIES-AND-EQUITY> 257,955
<INTEREST-LOAN> 6,771
<INTEREST-INVEST> 1,902
<INTEREST-OTHER> 181
<INTEREST-TOTAL> 8,854
<INTEREST-DEPOSIT> 3,035
<INTEREST-EXPENSE> 4,489
<INTEREST-INCOME-NET> 4,365
<LOAN-LOSSES> 211
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 4,428
<INCOME-PRETAX> 1,567
<INCOME-PRE-EXTRAORDINARY> 1,567
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,055
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 7.54
<LOANS-NON> 473
<LOANS-PAST> 14
<LOANS-TROUBLED> 1,186
<LOANS-PROBLEM> 2,339
<ALLOWANCE-OPEN> 1,942
<CHARGE-OFFS> 57
<RECOVERIES> 62
<ALLOWANCE-CLOSE> 2,158
<ALLOWANCE-DOMESTIC> 2,158
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
