<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
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) 912-1900
(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, 1997:
Common Stock - Par Value $1.00 10,637,275 shares
(class) (outstanding)
1
<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 Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis or
Plan of Operations 7 - 11
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 13
Item 3 Default upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
Signature Page 14
2
<PAGE> 3
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 8,050 $ 7,646
Federal funds sold 1,250 6,950
Investment securities available for sale (amortized cost of $32,368 and 32,385 26,637
$26,738 at September 30, 1997 and December 31, 1996, respectively)
Investment securities held to maturity (market value of $7,635 and
$6,384 at September 30, 1997 and December 31, 1996, respectively) 7,782 6,387
Mortgage-backed securities held to maturity (market value of $20,023 and
$25,258 at September 30, 1997 and December 31, 1996, respectively) 19,817 25,289
Loans receivable:
Commercial 107,130 97,740
Residential mortgage 120,234 96,578
Home equity 14,733 11,481
Other 396 308
--------- ---------
Total loans 242,493 206,107
Less: Allowance for loan losses (3,084) (2,566)
--------- ---------
Net loans 239,409 203,541
Stock in Federal Home Loan Bank of Boston 3,317 3,317
Other real estate owned 85 85
Premises and equipment, net 2,320 1,437
Goodwill and intangible assets, net 3,827 4,068
Accrued interest receivable 2,148 1,745
Other assets 2,695 1,804
--------- ---------
Total assets $ 323,085 $ 288,906
========= =========
LIABILITIES:
Deposits $ 236,100 $ 209,302
Securities sold under agreements to repurchase 6,879 8,126
Federal funds purchased 2,000 --
FHLB borrowings 50,330 45,533
Payable due to acquisition -- 1,035
Accrued interest payable 439 348
Other liabilities 1,883 1,626
--------- ---------
Total liabilities 297,631 265,970
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value per share;
shares authorized: 18,000,000;
shares issued: 6,718,608 in 1997 and 6,592,496 in 1996 6,719 6,592
Additional paid-in capital 15,023 14,709
Retained earnings 3,701 1,699
Unrealized gain (loss) on securities available for sale, net 11 (64)
--------- ---------
Total stockholders' equity 25,454 22,936
--------- ---------
Total liabilities and stockholders' equity $ 323,085 $ 288,906
========= =========
</TABLE>
3
<PAGE> 4
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest and dividend income:
Commercial loans $ 2,465 $ 1,976 $ 6,882 $ 5,403
Residential mortgage loans 2,140 1,648 5,902 4,625
Home equity and other loans 295 209 827 575
Investment securities 492 405 1,328 1,389
Mortgage-backed securities 329 431 1,049 1,350
FHLB stock dividends 54 54 160 159
Federal funds sold 14 14 118 58
Deposits in banks 29 21 75 53
----------- ----------- ----------- -----------
Total interest and dividend income 5,818 4,758 16,341 13,612
----------- ----------- ----------- -----------
Interest expense:
NOW 58 53 176 156
Savings 27 31 84 96
Money market 932 718 2,545 2,161
Certificates of deposit 940 812 2,697 2,235
Federal funds purchased 173 56 267 125
Securities sold under agreements to repurchase 64 88 256 248
FHLB borrowings 679 616 2,079 1,802
Payable due to acquisition 3 13 16 53
----------- ----------- ----------- -----------
Total interest expense 2,876 2,387 8,120 6,876
----------- ----------- ----------- -----------
Net interest income 2,942 2,371 8,221 6,736
Provision for loan losses 130 212 259 423
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 2,812 2,159 7,962 6,313
----------- ----------- ----------- -----------
Fees and other income:
Investment management and trust 1,117 801 3,045 2,384
Deposit account service charges 67 40 160 121
Gain (loss) on sale of loans 15 22 43 88
Gain (loss) on sale of investment securities -- 2 -- 8
Gain (loss) on sale of mortgage-backed securities -- -- -- (2)
Other 47 65 177 173
----------- ----------- ----------- -----------
Total fees and other income 1,246 930 3,425 2,772
----------- ----------- ----------- -----------
Operating expense:
Salaries and employee benefits 1,897 1,334 5,275 3,960
Occupancy 193 110 474 340
Equipment 110 88 308 259
Data processing 59 31 170 84
FDIC insurance premiums 6 1 19 1
Legal 45 55 212 201
Marketing 53 87 252 244
Amortization of goodwill and intangibles 94 80 283 242
Other 449 422 1,572 1,306
----------- ----------- ----------- -----------
Total operating expense 2,906 2,208 8,565 6,637
----------- ----------- ----------- -----------
Income before income taxes 1,152 881 2,822 2,448
Income tax expense 354 299 820 811
----------- ----------- ----------- -----------
Net income $ 798 582 $ 2,002 $ 1,637
=========== =========== =========== ===========
Net income per share $ 0.11 $ 0.10 $ 0.28 $ 0.27
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding 7,077,180 6,107,200 7,056,981 6,088,763
=========== =========== =========== ===========
</TABLE>
4
<PAGE> 5
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,002 $ 1,637
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 600 456
(Gain) loss on sale of securities -- (6)
(Gain) loss on sale of loans (43) (88)
Provision for loan losses 259 423
Loans originated for sale (4,972) (10,342)
Proceeds from sale of loans 5,015 10,430
(Increase) decrease in:
Accrued interest receivable (403) 21
Deferred income tax asset, net (32) --
Other assets (891) (383)
Increase (decrease) in:
Accrued interest payable 91 (50)
Other liabilities 257 (153)
-------- --------
Net cash provided (used) by operating activities 1,883 1,945
-------- --------
Cash flows from investing activities:
Net decrease (increase) in fed funds sold 5,700 (3,125)
Investment securities available for sale:
Purchases (10,183) (23,144)
Sales 130 11,602
Maturities 4,317 13,300
Investment securities held to maturity:
Purchases (5,226) (2,934)
Maturities 4,000 5,775
Mortgage-backed securities available for sale:
Sales -- 117
Mortgage-backed securities held to maturity:
Principal payments 5,291 4,891
Net decrease (increase) in loans (36,303) (33,886)
Recoveries on loans previously charged off 281 62
Proceeds from sale of OREO -- 160
Capital expenditures (1,223) (164)
-------- --------
Net cash provided (used) by investing activities (33,216) (27,346)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 26,798 16,640
Net increase (decrease) in federal funds purchased 2,000 --
Net increase (decrease) in repurchase agreements (1,247) 3,548
FHLB borrowings:
Proceeds 36,120 56,100
Repayments (31,323) (50,821)
Net increase (decrease) in payable due to acquisition (1,051) (1,048)
Proceeds from issuance of common stock 440 411
-------- --------
Net cash provided (used) by financing activities 31,737 24,830
-------- --------
Net increase (decrease) in cash and due from banks 404 (571)
Cash and due from banks at beginning of year 7,646 8,695
-------- --------
Cash and due from banks at end of period $ 8,050 $ 8,124
======== ========
Supplementary Disclosures:
Cash paid during the period for interest $ 8,013 $ 6,881
Cash paid during the period for income taxes 896 870
Increase (decrease) in unrealized gain (loss) on securities
available for sale, net of estimated income taxes 76 (252)
</TABLE>
5
<PAGE> 6
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
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 direct and indirect
subsidiaries, Boston Private Bank & Trust Company (the "Bank"), Boston Private
Investment Management, Inc., Boston Private Asset Management Corporation, and
BPB Securities 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 loan losses. In connection with the determination of the allowance
for loan losses, 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 of a normal recurring nature, 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, 1996 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 1996 information has been reclassified to conform with the
1997 presentation.
6
<PAGE> 7
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
The discussions set forth below and elsewhere herein contain certain statements
that may be considered 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 Company's actual results could differ
materially from those projected in the forward-looking statements as a result
of, among other factors, changes in loan defaults and charge-off rates,
reduction in deposit levels necessitating increased borrowing to fund loans and
investments, changes in interest rates, and changes in assumptions used in
making such forward-looking statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
Boston Private Bancorp, Inc., (the "Company"), is a holding company which
owns all of the issued and outstanding shares of capital stock of Boston Private
Bank & Trust Company (the "Bank"), a Massachusetts chartered trust company. The
Company's other subsidiaries include Boston Private Investment Management, Inc.,
Boston Private Asset Management Corporation and BPB Securities Corporation,
which are principally engaged in providing investment management and related
services. Of the 18,000,000 authorized shares of Common Stock, $1.00 par value
per share, of the Company, 6,718,608 shares were issued and outstanding at
September 30, 1997.
The Company pursues an investment management and "private banking" mission
and is principally engaged in providing banking, investment and fiduciary
products to successful individuals, families and 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 Bank'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 Bank also offers
commercial, residential mortgage, home equity and consumer loans and credit card
services. In addition, the Company, through its Bank and other subsidiaries,
provides investment advisory and asset management services, securities custody
and safekeeping services, trust and estate administration and IRA and Keogh
accounts.
On October 31, 1997, the Company's subsidiary, Boston Private Investment
Management, Inc. acquired Westfield Capital Management Company, Inc.
("Westfield"), an investment management firm with approximately $1.4 billion of
assets under management in exchange for 3,918,367 newly issued shares of Boston
Private Bancorp, Inc. Common Stock. This transaction will be accounted for as a
pooling of interests. One-time costs and closing adjustments, net of taxes, were
approximately $600,000 and will be recognized as operating expense in the fourth
quarter of 1997, adversely affecting the Company's earnings. Westfield will
continue to operate as a separate subsidiary of the Company under its own name
and at its current location in Boston.
On July 31, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of an investment management business for a total
purchase price of approximately $4.2 million, of which $3.5 million was paid in
cash and the balance was paid with 333,613 shares of the Company's Common Stock.
The acquisition was accounted for as a purchase.
7
<PAGE> 8
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, borrowed
funds, maturity of investment securities and sales of securities from the
available for sale portfolio. These sources fund the Bank's lending and
investment activities.
Management is responsible for establishing and monitoring liquidity targets
as well as strategies and tactics to meet these targets. At September 30, 1997,
cash, federal funds sold and securities available for sale amounted to $41.7
million, or 12.9% of total assets. This compares to $41.2 million, or 14.3% of
total assets at December 31, 1996. 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.
The Company maintains minimal liquidity because substantially all of its
assets consist of the Common Stock of the Bank. Historically, the Company's
primary potential sources of funds were dividends from the Bank, issuance of
additional Common Stock of the Company, and borrowings. The addition of
Westfield presents an additional source of funds for liquidity or reinvestment
in the businesses of the Company.
-- Capital Resources. Total stockholders' equity of the Company at September
30, 1997 was $25.5 million, compared to $22.9 million at December 31, 1996. This
increase was principally the result of the Company's net income for the nine
month period ended September 30, 1997 of $2.0 million, the exercise of stock
options, and the change in the unrealized loss on securities available for sale,
net of estimated income tax benefit. In December 1996, the Company received $3.4
million of additional equity capital from a private placement of Common Stock.
Substantially all of the proceeds were subsequently invested in the Bank.
The Bank is subject to a number of regulatory capital measures. At September
30, 1997, the Bank's Tier I leverage capital ratio stood at 6.90%, compared to
6.59% at December 31, 1996. 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 11.10% and a
Total risk adjusted capital ratio of 12.38% at September 30, 1997. This compares
to a Tier I risk adjusted capital ratio of 10.92% and a Total risk adjusted
capital ratio of 12.17% at December 31, 1996. 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 is therefore considered to be
"well capitalized."
BALANCE SHEETS
-- Total Assets. Total assets increased $34.2 million, or 11.8%, from $288.9
million at December 31, 1996 to $323.1 million at September 30, 1997. The
increase was due largely to increases in residential mortgage, home equity, and
commercial loans and was funded by increases in deposits, and to a lesser
extent, borrowings.
-- Loans. Net loans were $239.4 million, or 74.1% of total assets at
September 30, 1997, compared to $203.5 million, or 70.5% of total assets at
December 31, 1996. Residential mortgage loans increased $23.7 million, or 24.5%,
commercial loans increased $9.4 million, or 9.6%, and home equity and other
loans increased $3.3 million, or 28.3%. The Company continues its efforts to
identify quality lending opportunities within its target market.
-- Investments. Total investments (consisting of cash, federal funds sold,
investment securities, mortgage-backed securities, and stock in the FHLB of
Boston) aggregated $72.6 million, or 22.5% of total assets, at September 30,
1997, compared to $76.2 million, or 26.4% of total assets, at December 31, 1996.
Of the total investment portfolio at September 30, 1997, $32.4 million were
securities identified as available for sale. The available for sale portfolio
carried a total of $17,000 in net unrealized gains at September 30, 1997 as
compared to $101,000 in net unrealized losses at December 31, 1996.
8
<PAGE> 9
-- Deposits and Borrowings. Total deposits increased $26.8 million, or 12.8%,
to $236.1 million, or 73.1% of total assets at September 30, 1997 from $209.3
million, or 72.4% of total assets at December 31, 1996. This increase was
primarily attributable to higher balances in money market accounts, NOW
accounts, and certificates of deposit. Total borrowings (consisting of
securities sold under agreements to repurchase, federal funds purchased, and
FHLB of Boston borrowings) increased $5.5 million, or 10.3%, during the first
nine months of 1997. The Bank increased the level of borrowings in order to help
fund new loan originations. Management will take advantage of opportunities to
fund asset growth with borrowings, but on a long-term basis, the Bank intends to
fund its growth with core deposits.
ASSET QUALITY
-- Non-Performing Assets. The following table sets forth information
regarding non-performing loans, non-performing assets, and delinquent loans
30-89 days past due as to interest or principal at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 977 $ 976
Loans past due 90 days or more, but still accruing 168 --
------ ------
Total non-performing loans 1,145 976
Other real estate owned 85 85
====== ======
Total non-performing assets $1,230 $1,061
====== ======
Delinquent loans 30-89 days past due $ 805 $3,066
====== ======
Non-performing loans as a percent of total loans .47% .47%
Non-performing assets as a percent of total assets .38% .37%
Delinquent loans 30-89 days past due as a percent of gross loans .33% 1.49%
</TABLE>
At September 30, 1997, the Company had non-performing assets of $1.2 million,
which represented 0.38% of total assets. The Company's non-performing assets
consisted of credit card balances over 90 days past due and still accruing
interest with an aggregate principal balance of $17,000, commercial loans over
90 days past due and still accruing interest with an aggregate principal balance
of $151,000, nonaccruing loans with an aggregate principal balance of $977,000
and one OREO property with a carrying value of $85,000.
Non-performing assets increased $169,000, or 15.9%, from $1.1 million at
December 31, 1996, to $1.2 million at September 30, 1997. 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. See "Allowance for Loan
Losses."
-- Delinquencies. At September 30, 1997, loans with an aggregate balance of
$805,000 were 30 to 89 days past due, a decrease of $2.3 million, or 73.7%, from
$3.1 million reported at December 31, 1996.
-- Allowance for Loan Losses. During the first nine months of 1997, the
Company made provisions to the allowance for loan losses totaling $259,000 and
had $260,000 in recoveries net of charge-offs, bringing the balance in the
allowance to $3.1 million, compared to $2.6 million at December 31, 1996. The
allowance for loan losses expressed as a percentage of total loans was 1.27% as
of September 30, 1997, compared to 1.25% at December 31, 1996, and was 269.4% of
non-performing loans at September 30, 1997, compared to 262.9% at December 31,
1996.
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 allowance 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 changes in economic conditions, 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, 1997 is adequate based upon the information
currently available.
9
<PAGE> 10
STATEMENTS OF INCOME, THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
-- Net Income. The Company recorded net income of $798,000, or $0.11 per
share, for the three months ended September 30, 1997, compared to $582,000, or
$.10 per share, for the same period in 1996. 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 September 30, 1997, net
interest income was $2.9 million, an increase of $571,000 or 24.1%, over the
same period in 1996. This increase was primarily attributable to an increase in
the average balance of earning assets, which was $51.4 million, or 20.9%, higher
than during the comparable period a year earlier. This increase in average
earning assets was mainly funded by an increase in average interest-bearing
liabilities of $39.0 million, or 18.3%.
-- Interest Income: Loans. Income on commercial loans was $2.5 million for
the three months ended September 30, 1997, compared to $2.0 million for the same
period in 1996. Income from residential mortgage loans was $2.1 million,
compared to $1.6 million, and home equity and other loan interest was $295,000,
compared to $209,000, for the same periods, respectively. The average balances
of commercial and residential mortgage loans increased $21.0 million, or 26.0%,
and $24.5 million, or 27.1%, compared with the third quarter of 1996,
respectively. The average yield on commercial loans decreased 9 basis points, to
9.69%, and the average yield on mortgage loans increased 15 basis points, to
7.45%, compared with the prior year's period.
-- Interest Income: Investments. Total investment income decreased to
$918,000 during the third quarter of 1997, compared to $925,000 during the same
period in 1996. The decrease in total investment income of $7,000 or 0.1%, was
attributable to a decrease of 23 basis points, from 5.79% to 5.56%, in the
average yield on investments, partially offset by an increase in the average
balance of investments of $2.1 million, or 3.3%. The reduction in the average
yield on investments is due mainly to an increase in lower yielding, but
tax-free, municipal bond investments.
-- Interest Expense: Deposits and Borrowings. Interest paid on deposits and
borrowings increased $489,000 or 20.5%, to $2.9 million for the three months
ended September 30, 1997, from $2.4 million for the same period during 1996.
This increase in the Bank's interest expense is primarily due to an increase in
the average balance of interest-bearing liabilities of $39.0 million, or 18.3%,
and to a lesser extent, an increase in the average cost of interest-bearing
liabilities of 8 basis points, or 1.8%.
-- Provision for Loan Losses. The provision for loan losses was $130,000 for
the quarter ended September 30, 1997, compared to $212,000 for the same period
in 1996. Management periodically evaluates several factors including new loan
originations, estimated charge-offs, and risk characteristics of the loan
portfolio when determining the provision for the quarter. The Company's ratio of
loan loss allowance to total loans was 1.27% at September 30, 1997, compared to
1.25% at December 31, 1996. See also discussion under "Asset Quality --
Allowance for Loan Losses."
-- Fees and Other Income. Fees and other income were $1.2 million for the
three month period ended September 30, 1997, compared to $930,000 for the same
period in 1996. This increase was mainly due to an increase in investment
management and trust fees of $316,000, or 39.5%, as assets under management grew
from $661 million at September 30, 1996 to $885 million at September 30, 1997.
-- Operating Expense. Total operating expense for the third quarter of 1997
increased to $2.9 million, compared to $2.2 million for the same period in 1996.
This increase of $698,000, or 31.6%, in total operating expense was primarily
attributable to the Company's continued growth in its asset and staffing levels.
The number of full-time equivalent employees has increased 29.6%, balance sheet
assets have increased 11.8% , and off-balance sheet assets under management have
increased 33.9% from September 30, 1996 to September 30, 1997. Specifically, the
following expenses increased: a) salary and benefits expense increased $563,000,
or 42.2%, b) occupancy and equipment expense increased $105,000, or 53.0%, c)
data processing expense increased $28,000, or 90.3%, and d) other operating
expense increased $27,000, or 6.4%. These increases were partially offset by a
decrease in legal expense of $10,000, or 18.2%, and a decrease in marketing
expense of $34,000, or 39.1%.
-- Income Tax Expense. The Company's effective tax rate for financial
statement purposes was 30.7% during the third quarter of 1997, compared to 33.9%
for the same period in 1996. This decrease is due to an increase in the amount
of tax-free municipal bonds in the investment portfolio, as well as tax credits
received from investment in a limited partnership formed to provide affordable
housing to Boston residents.
10
<PAGE> 11
STATEMENTS OF INCOME, NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
-- Net Income. The Company recorded net income of $2.0 million, or $0.28 per
share, for the nine months ended September 30, 1997, compared to $1.6 million,
or $0.27 per share, for the same period in 1996. 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 nine months ended September 30, 1997, net
interest income was $8.2 million, an increase of $1.5 million, or 22.0%, over
the same period in 1996. This increase was primarily attributable to higher loan
balances. Average earning assets increased $58.3 million, or 24.5%, to $296.7
million, and average interest-bearing liabilities increased $44.8 million, or
21.6%, to $252.3 million, from the comparable period a year earlier.
--Interest Income: Loans. Income on commercial loans was $6.9 million for the
nine months ended September 30, 1997, compared to $5.4 million for the same
period in 1996. Income from residential mortgage loans was $5.9 million,
compared to $4.6 million, and home equity and other loan interest was $827,000,
compared to $575,000, for the same periods, respectively. The average balances
of commercial and residential mortgage loans increased $20.0 million, or 26.5%,
and $22.5 million, or 26.8%, compared with the first nine months of 1996,
respectively. The average yield on commercial loans increased 7 basis points to
9.62% compared with the prior year's period, and the yield on residential
mortgages also increased 4 basis points to 7.38%.
--Interest Income: Investments. Total investment income decreased $279,000,
or 9.3%, to $2.7 million during the nine months ended September 30, 1997,
compared to $3.0 million during the same period in 1996. This decrease in total
investment income was primarily attributable to a decrease of $2.2 million,
or 3.3%, in the average balance of investments, and a decrease of 36 basis
points, or 6.2% in the average yield earned. The reduction in the average yield
on investments is due mainly to an increase in lower yielding, but tax-free,
municipal bond investments.
-- Interest Expense: Deposits and Borrowings. Interest paid on deposits and
borrowings increased $1.2 million, or 18.1%, to $8.1 million for the nine months
ended September 30, 1997, from $6.9 million for the same period in 1996. This
increase in the Bank's interest expense is due to an increase in the average
balance of interest-bearing liabilities of $44.8 million, or 21.6%, partially
offset by a decrease in the average cost of interest-bearing liabilities of 13
basis points, or 2.9%.
-- Provision for Loan Losses. The provision for loan losses was $259,000 for
the first nine months of 1997, compared to $423,000 for the same period in 1996.
Management periodically 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 1.27% at September 30, 1997,
compared to 1.25% at December 31, 1996. See also discussion under "Asset Quality
- -- Allowance for Loan Losses."
-- Fees and Other Income. Total fees and other income were $3.4 million for
the first nine months of 1997, compared to $2.8 million for the same period in
1996. Investment management and trust fees, which increased $661,000, or 27.7%,
accounted for substantially all of the increase in total fees and other income
as the result of continued growth in the Company's assets under management.
-- Operating Expense. Total operating expense for the first nine months of
1997 increased to $8.6 million, compared to $6.6 million for the same period in
1996. This increase of $1.9 million, or 29.0%, in total operating expense was
primarily attributable to the Company's continued growth in its asset and
staffing levels. Specifically, the following expenses increased: a) salary and
benefits expense increased $1.3 million, or 33.2%, b) occupancy and equipment
expense increased $183,000, or 30.6%, c) data processing expense increased
$86,000, or 102.4%, d) marketing expense increased $8,000, or 3.3%, e) legal
expense increased $11,000, or 5.5%, and f) other operating expense increased
$307,000, or 19.8%.
-- Income Tax Expense. The Company's effective tax rate for financial
statement purposes was 29.1% during the first nine months of 1997, compared to
33.1% for the same period in 1996. This decrease is due to an increase in the
amount of tax-free municipal bonds in the investment portfolio, as well as tax
credits received from investment in a limited partnership formed to provide
affordable housing to Boston residents.
11
<PAGE> 12
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 arising out of the transaction against numerous individuals and
entities, including the Bank and one of its former officers. The plaintiff
sought to recover compensatory damages of approximately $4 million.
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 sought reconsideration of its motion, and
on November 26, 1996, the court denied plaintiff's motion for reconsideration of
the summary judgment previously granted in favor of the Bank.
Notwithstanding the Court's dismissal of the underlying claims against the
Bank and its denial of the plaintiff's motion for reconsideration, litigation
continues among other parties. The Bank continues to believe it has valid
defenses to, and will vigorously defend, all claims and allegations of
wrongdoing in connection with the transaction. The Company has previously
incurred legal expenses of approximately $91,000, net of recoveries under an
insurance policy. No further estimate of any loss can be made at this time.
The Company is also involved in routine legal proceedings occurring in the
ordinary course of business. In the opinion of management, final disposition of
these proceedings will not have a material adverse effect on the financial
condition or results of operations of the Company.
12
<PAGE> 13
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
The Company filed a current report on Form 8K on August 20, 1997,
reporting "Item 5 - Other Events" regarding the execution on August
13, 1997 of a definitive agreement to acquire Westfield Capital
Management Capital Inc.
13
<PAGE> 14
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)
November 7, 1997 /s/ Timothy L. Vaill
- ---------------- -----------------------------------
Timothy L. Vaill
President and
Chief Executive Officer
November 7, 1997 /s/ Walter M. Pressey
- ---------------- -----------------------------------
Walter M. Pressey
Senior Vice President and
Chief Financial Officer
14
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