<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, 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
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(Address of Principal Executive Offices)
(617) 912-1900
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(Issuer's Telephone Number, Including Area Code)
Not Applicable
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(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, 1997:
-------------
Common Stock - Par Value $1.00 6,693,608 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 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
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 8,348 $ 7,646
Federal funds sold 14,500 6,950
Investment securities available for sale (amortized cost of $31,262 and
$26,738 at June 30, 1997 and December 31, 1996, respectively) 31,160 26,637
Investment securities held to maturity (market value of $ 6,361 and
$6,384 at June 30, 1997 and December 31, 1996, respectively) 6,365 6,387
Mortgage-backed securities held to maturity (market value of $21,649 and
$25,258 at June 30, 1997 and December 31, 1996, respectively) 21,610 25,289
Loans receivable:
Commercial 93,310 97,740
Residential mortgage 108,323 96,578
Home equity 13,054 11,481
Other 332 308
-------- --------
Total loans 215,019 206,107
Less: Allowance for loan losses (2,729) (2,566)
-------- --------
Net loans 212,290 203,541
Stock in Federal Home Loan Bank of Boston 3,317 3,317
Other real estate owned 85 85
Premises and equipment, net 2,328 1,437
Goodwill and intangible assets, net 3,907 4,068
Accrued interest receivable 1,869 1,745
Other assets 2,780 1,804
-------- --------
Total assets $308,559 $288,906
======== ========
LIABILITIES:
Deposits $236,004 $209,302
Securities sold under agreements to repurchase 10,545 8,126
FHLB borrowings 35,439 45,533
Payable due to acquisition 521 1,035
Accrued interest payable 398 348
Other liabilities 1,348 1,626
-------- --------
Total liabilities 284,255 265,970
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value per share;
shares authorized: 18,000,000;
shares issued: 6,637,441 in 1997 and 6,592,496 in 1996 6,637 6,592
Additional paid-in capital 14,829 14,709
Retained earnings 2,903 1,699
Unrealized gain (loss) on securities available for sale, net (65) (64)
-------- --------
Total stockholders' equity 24,304 22,936
-------- --------
Total liabilities and stockholders' equity $308,559 $288,906
======== ========
</TABLE>
3
<PAGE> 4
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest and dividend income:
Commercial loans $ 2,198 $ 1,721 $ 4,417 $ 3,428
Residential mortgage loans 1,964 1,547 3,762 2,977
Home equity and other loans 280 188 531 366
Investment securities 428 476 837 983
Mortgage-backed securities 350 444 720 919
FHLB stock dividends 54 53 106 105
Federal funds sold 58 29 104 44
Deposits in banks 25 17 46 32
---------- ---------- ---------- ----------
Total interest and dividend income 5,357 4,475 10,523 8,854
---------- ---------- ---------- ----------
Interest expense:
NOW 59 54 118 103
Savings 27 33 56 65
Money market 804 786 1,613 1,443
Certificates of deposit 901 671 1,757 1,424
Federal funds purchased 46 26 94 69
Securities sold under agreements to
repurchase 103 78 192 160
FHLB borrowings 715 571 1,400 1,186
Payable due to acquisition 6 19 14 39
---------- ---------- ---------- ----------
Total interest expense 2,661 2,238 5,244 4,489
---------- ---------- ---------- ----------
Net interest income 2,696 2,237 5,279 4,365
Provision for loan losses 91 144 129 211
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 2,605 2,093 5,150 4,154
---------- ---------- ---------- ----------
Fees and other income:
Trust and investment management 954 850 1,928 1,583
Deposit account service charges 53 41 93 81
Gain (loss) on sale of loans 12 31 28 66
Gain (loss) on sale of investment
securities -- 3 -- 6
Gain (loss) on sale of mortgage-backed
securities -- -- -- (3)
Other 60 48 130 108
---------- ---------- ---------- ----------
Total fees and other income 1,079 973 2,179 1,841
---------- ---------- ---------- ----------
Operating expense:
Salaries and employee benefits 1,708 1,263 3,378 2,626
Occupancy 148 119 281 230
Equipment 111 84 199 171
Data processing 59 25 111 52
FDIC insurance premiums 7 1 12 1
Legal 47 97 166 146
Marketing 130 91 199 157
Amortization of goodwill and intangibles 94 80 188 161
Other 551 493 1,125 884
---------- ---------- ---------- ----------
Total operating expense 2,855 2,253 5,659 4,428
---------- ---------- ---------- ----------
Income before income taxes 829 813 1,670 1,567
Income tax expense 228 259 466 512
---------- ---------- ---------- ----------
Net income $ 601 $ 554 $ 1,204 $ 1,055
========== ========== ========== ==========
Net income per share $ 0.09 $ 0.09 $ 0.17 $ 0.17
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding 6,982,851 6,088,209 6,965,207 6,084,150
========== ========== ========== ==========
</TABLE>
4
<PAGE> 5
BOSTON PRIVATE BANCORP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,204 $ 1,055
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 353 346
(Gain) loss on sale of securities -- (3)
(Gain) loss on sale of loans (28) (66)
Provision for loan losses 129 211
Loans originated for sale (3,264) (8,130)
Proceeds from sale of loans 3,292 8,196
(Increase) decrease in:
Accrued interest receivable (124) (96)
Deferred income tax asset, net (30) --
Other assets (976) (362)
Increase (decrease) in:
Accrued interest payable 50 (69)
Other liabilities (278) (438)
-------- --------
Net cash provided (used) by operating activities 328 644
-------- --------
Cash flows from investing activities:
Net decrease (increase) in fed funds sold (7,550) (3,000)
Investment securities available for sale:
Purchases (5,835) (17,970)
Sales 130 7,118
Maturities 1,205 11,280
Investment securities held to maturity:
Purchases (4,000) (2,934)
Maturities 4,000 4,775
Mortgage-backed securities available for sale:
Sales -- 116
Mortgage-backed securities held to maturity:
Principal payments 3,662 2,903
Net decrease (increase) in loans (8,840) (19,742)
Recoveries on loans previously charged off 47 61
Proceeds from sale of OREO -- 160
Capital expenditures (1,109) (86)
-------- --------
Net cash provided (used) by investing activities (18,290) (17,319)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 26,702 18,633
Net increase (decrease) in repurchase agreements 2,419 6,721
FHLB borrowings:
Proceeds 57,913 51,800
Repayments (68,007) (60,728)
Net increase (decrease) in payable due to acquisition (528) (524)
Proceeds from issuance of common stock 165 216
-------- --------
Net cash provided (used) by financing activities 18,664 16,118
-------- --------
Net increase (decrease) in cash and due from banks 702 (557)
Cash and due from banks at beginning of year 7,646 8,695
-------- --------
Cash and due from banks at end of period $ 8,348 $ 8,138
======== ========
Supplementary Disclosures:
Cash paid during the period for interest $ 5,180 $ 4,519
Cash paid during the period for income taxes 875 669
Non-cash transactions:
Increase (decrease) in unrealized gain (loss) on securities
available for sale, net of estimated income taxes (1) (301)
</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 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 loan losses and valuation of other real estate owned. In
connection with the determination of the allowance for 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 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
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 authorized shares of Common Stock, $1.00 par
value per share, of the Company, 6,637,441 shares were issued and outstanding at
June 30, 1997.
The Bank pursues a "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
Bank 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, it provides investment advisory and
asset management services, securities custody and safekeeping services, trust
and estate administration and IRA and Keogh accounts.
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. 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 $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 each of January
and July 1996 and January 1997, the Company made additional scheduled payments
consisting of $375,000 in cash and 41,667 shares of the Company's Common Stock.
The final installment payment of $375,000 in cash and 41,667 shares of the
Company's Common Stock was paid on July 10, 1997. The acquisition was accounted
for as a purchase. Accordingly, the results of operations of the acquired
business have been included with those of the Company subsequent to the date of
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, 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. In general,
the Bank maintains a high degree of liquidity. At June 30, 1997, cash, federal
funds sold and securities available for sale amounted to $54.0 million, or
17.5% 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.
In contrast to the Bank, the Company maintains minimal liquidity because
substantially all of its assets consist of the Common Stock of the Bank. The
Company's primary potential sources of funds are dividends from the Bank,
issuance of additional Common Stock of the Company, and borrowings.
7
<PAGE> 8
-- Capital Resources. Total stockholders' equity of the Company at June 30,
1997 was $24.3 million, compared to $22.9 million at December 31, 1996. This
increase was the result of the Company's net income for the six-month period
ended June 30, 1997 of $1.2 million, plus the issuance of Common Stock of the
Company relating to the acquisition of an investment management business and the
exercise of stock options, plus the change in the unrealized loss on securities
available for sale, net of estimated income tax benefit.
The Bank is subject to a number of regulatory capital measures. At June 30,
1997, the Bank's Tier I leverage capital ratio stood at 7.01%, 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 11.53% and a
Total risk adjusted capital ratio of 12.78% at June 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 $19.7 million, or 6.8% during the
first half of 1997, from $288.9 million at December 31, 1996 to $308.6 million
at June 30, 1997. An increase in residential mortgage and home equity loans was
funded by deposits, and excess deposits were used to pay down borrowings and
increase short-term investments.
-- Loans. Net loans were $212.3 million, or 68.8% of total assets at June
30, 1997, compared to $203.5 million, or 70.5% of total assets at December 31,
1996. Residential mortgage loans increased $11.7 million, or 12.2%, while
commercial loans decreased $4.4 million , or 4.5%, and home equity and other
loans increased $1.6 million, or 13.5%. 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 $85.3 million, or 27.6% of total assets, at June 30, 1997,
compared to $76.2 million, or 26.4% of total assets, at December 31, 1996. Of
the total investment portfolio at June 30, 1997, $31.2 million were securities
identified as available for sale. The available for sale portfolio carried a
total of $102,000 in net unrealized losses at June 30, 1997 as compared to
$101,000 in net unrealized losses at December 31, 1996.
-- Deposits and Borrowings. Total deposits increased $26.7 million, or
12.8%, during the first half of 1997, from $209.3 million, or 72.4% of total
assets, at December 31, 1996, to $236.0 million, or 76.5% of total assets, at
June 30, 1997. This increase was primarily attributable to a higher level of NOW
accounts and certificates of deposit. Total borrowings (consisting of securities
sold under agreements to repurchase, and FHLB of Boston borrowings) decreased
$7.7 million, or 14.3%, during the first six months of 1997. The Company was
able to reduce the level of borrowings by using excess cash flow from deposits
to pay down FHLB advances. Management will from time to time 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.
8
<PAGE> 9
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>
JUNE 30, DECEMBER 31,
-------- ------------
1997 1996
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 939 $ 976
Loans past due 90 days or more, but still accruing 14 --
------ ------
Total non-performing loans 953 976
Other real estate owned 85 85
------ ------
Total non-performing assets $1,038 $1,061
====== ======
Delinquent loans 30-89 days past due 1,000 3,066
Non-performing loans as a percent of gross loans .44% .47%
Non-performing assets as a percent of total assets .34% .37%
Delinquent loans 30-89 days past due as a percent of gross loans .47% 1.49%
</TABLE>
At June 30, 1997, the Company had non-performing assets of $1.0 million,
which represented .34% of total assets. The Company's non-performing assets
consisted of four credit card balances over 90 days past due and still accruing
interest with an aggregate principal balance of $14,000, eleven nonaccruing
loans with an aggregate principal balance of $939,000 and one OREO property with
a carrying value of $85,000.
Non-performing assets decreased $23,000, or 2.2%, from $1,061,000 at
December 31, 1996, to $1,038,000 at June 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 June 30, 1997, fourteen loans with an aggregate
balance of $1.0 million were 30 to 89 days past due, a decrease of $2.1 million,
or 67.4%, from $3.1 million reported at December 31, 1996.
-- Allowance for Loan Losses. During the first six months of 1997, the
Company made provisions to the allowance for loan losses totaling $129,000 and
had $34,000 in recoveries net of charge-offs, bringing the balance in the
allowance to $2.7 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 June 30, 1997, compared to 1.25% at December 31, 1996, and was 286.4% of
non-performing loans at June 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 June 30, 1997 is adequate based upon the information
currently available.
9
<PAGE> 10
STATEMENTS OF INCOME, THREE MONTHS ENDED JUNE 30, 1997 AND 1996
- ---------------------------------------------------------------
-- Net Income. The Company recorded net income of $601,000, or $.09 per
share, for the three months ended June 30, 1997, compared to $554,000, or $.09
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 June 30, 1997, net interest
income was $2.7 million, an increase of $459,000, or 20.5%, over the same period
in 1996. This increase was primarily attributable to an increase in the average
balance of earning assets, which was $39.7 million, or 16.6%, 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
$31.2 million, or 15.0%.
-- Interest Income: Loans. Income on commercial loans was $2.2 million for
the three months ended June 30, 1997, compared to $1.7 million for the same
period in 1996. Income from residential mortgage loans was $2.0 million,
compared to $1.5 million, and home equity and other loan interest was $280,000,
compared to $188,000, for the same periods, respectively. The average balances
of commercial and residential mortgage loans increased $17.1 million, or 23.5%,
and $21.2 million, or 24.9%, compared with the second quarter of 1996,
respectively. The average yields on commercial and residential mortgage loans
increased 33 basis points, to 9.78%, and 12 basis points, to 7.39%, compared
with the prior year's period, respectively.
-- Interest Income: Investments. Total investment income decreased to
$915,000 during the second quarter of 1997, compared to $1.0 million during the
same period in 1996. The decrease in total investment income of $104,000, or
10.2%, was attributable to both a decrease in the average balance of investments
of $2.8 million, or 4.0%, and to a decrease of 37 basis points, from 5.70% to
5.33%, in the average yield on investments. The reduction in the average yield
on investments is due mainly to an increase in tax-free municipal bond
investments.
-- Interest Expense: Deposits and Borrowings. Interest paid on deposits and
borrowings increased $423,000, or 18.9%, to $2.6 million for the three months
ended June 30, 1997, from $2.2 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 $31.2 million, or 15.0%, and
to a lesser extent, an increase in the average cost of interest-bearing
liabilities of 14 basis points, or 3.2%
-- Provision for Loan Losses. The provision for loan losses was $91,000 for
the quarter ended June 30, 1997, compared to $144,000 for the same period in
1996. 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."
-- Fees and Other Income. Fees and other income were $1.1 million for the
three month period ended June 30, 1997, compared to $973,000 for the same period
in 1996. This increase was mainly due to an increase in trust and investment
management fees of $104,000, or 12.2%, as assets under management grew from $628
million at June 30, 1996 to $823 million at June 30, 1997.
-- Operating Expense. Total operating expense for the second quarter of
1997 increased to $2.9 million, compared to $2.3 million for the same period in
1996. This increase of $602,000, or 26.7%, 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
30.9%, balance sheet assets have increased 19.6% , and off-balance sheet assets
under management have increased 31.1% from June 30, 1996 to June 30, 1997.
Specifically, the following expenses increased: a) salary and benefits expense
increased $445,000, or 35.2%, b) occupancy and equipment expense increased
$56,000, or 27.6%, c) data processing expense increased $34,000, or 136.0%, d)
amortization of goodwill and intangibles increased $14,000, or 17.5%, e)
marketing expense increased $39,000, or 42.9%, and f) other operating expense
increased $58,000, or 11.8%. These increases were partially offset by a decrease
in legal expense of $50,000, or 51.5%.
-- Income Tax Expense. The Company's effective tax rate for financial
statement purposes was 27.5% during the second quarter of 1997, compared to
31.9% for the second quarter of 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, SIX MONTHS ENDED JUNE 30, 1997 AND 1996
- --------------------------------------------------------------
-- Net Income. The Company recorded net income of $1.2 million, or $.17 per
share, for the six months ended June 30, 1997, compared to $1.1 million, or $.17
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 first half of 1997, net interest income was
$5.3 million, an increase of $914,000, or 20.9%, over the same period in 1996.
This increase was primarily attributable to higher loan balances. Average
earning assets increased $43.5 million, or 18.5%, to $278.4 million, and average
interest-bearing liabilities increased $34.4 million, or 16.8%, to $239.0
million, from the comparable period a year earlier.
-- Interest Income: Loans. Income on commercial loans was $4.4 million for
the six months ended June 30, 1997, compared to $3.4 million for the same period
in 1996. Income from residential mortgage loans was $3.8 million, compared to
$3.0 million, and home equity and other loan interest was $531,000, compared to
$366,000, for the same periods, respectively. The average balances of commercial
and residential mortgage loans increased $19.5 million, or 26.8%, and $21.5
million, or 26.6% compared with the first half of 1996, respectively. The
average yield on commercial loans increased 15 basis points to 9.78% compared
with the prior year's period, while the yield on residential mortgages remained
approximately the same at 7.35%.
-- Interest Income: Investments. Total investment income decreased to $1.8
million during the six months ended June 30, 1997, compared to $2.1 million
during the first half of 1996. This decrease in total investment income of
$270,000, or 13.0%, was primarily attributable to a decrease of $4.5 million, or
6.2%, in the average balance of investments, and a decrease of 83 basis points,
or 7.2% in the average yield earned. The reduction in the average yield on
investments is due mainly to an increase in tax-free municipal bond investments.
-- Interest Expense: Deposits and Borrowings. Interest paid on deposits and
borrowings increased $755,000, or 16.8%, to $5.2 million for the six months
ended June 30, 1997, from $4.5 million for the same period in 1996. This
increase in the Bank's interest expense is primarily due to an increase in the
average balance of interest-bearing liabilities of $34.4 million, or 16.8%,
between the two periods. The average cost of interest-bearing liabilities
remained flat at 4.39%.
-- Provision for Loan Losses. The provision for loan losses was $129,000
for the first half of 1997, compared to $211,000 for the same period in 1996.
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 1.27% at June 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 $2.2 million for
the first six months of 1997, compared to $1.8 million for the same period in
1996. Trust and investment management fees accounted for substantially all of
the increase in total fees and other income and increased $345,000, or 21.8%, as
the result of continued growth in the Company's assets under management.
-- Operating Expense. Total operating expense for the first half of 1997
increased to $5.6 million, compared to $4.4 million for the same period in 1996.
This increase of $1.2 million, or 27.8%, 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
30.9%, balance sheet assets have increased 19.6%, and off-balance sheet assets
under management have increased 31.1% from June 30, 1996 to June 30, 1997.
Specifically, the following expenses increased: a) salary and benefits expense
increased $752,000, or 28.6%, b) occupancy and equipment expense increased
$79,000, or 19.7%, c) data processing expense increased $59,000, or 113.5%, d)
amortization of goodwill and intangibles increased $27,000, or 16.8%, e)
marketing expense increased $42,000, or 26.8.%, f) legal expense increased
$20,000, or 13.7%, and g) other operating expense increased $241,000, or 27.3%.
-- Income Tax Expense. The Company's effective tax rate for financial
statement purposes was 27.9% during the first half of 1997, compared to 32.7%
for the first half of 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 principal underlying claims
against the Bank and its denial of the plaintiff's motion for reconsideration,
litigation continues among other parties, and the Bank was named as a
third-party defendant by another party defendant to the original case. The Bank
continues to believe it has valid defenses to, and is vigorously defending, all
claims and allegations of wrongdoing in connection with the transaction. The
Company has previously incurred legal expenses of approximately $340,000, a
portion of which is recoverable under an insurance policy. No further estimate
of any loss can be made at this time.
On December 6, 1995, Robert S. Lappin, Esq., a depositor, filed a complaint
in Suffolk Superior Court (Civil Action No. 95-6207-B). As part of the
complaint, Mr. Lappin included counts against the Bank (and five other financial
institutions) 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 Mr. 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 action in
the Suffolk Superior Court, (Civil Action No. 96-0330-B). In this action, the
Wallaces alleged that most of the misappropriated funds referred to by Mr.
Lappin in his complaint were in fact funds belonging to the Wallaces. The
Wallaces allege that Mr. 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 two other
Boston banks.
In September 1996, the Suffolk Superior Court entered an Order
consolidating the two civil actions referred to above. The Wallaces filed an
Amended Consolidated Complaint, on October 1, 1996, in which they reiterated
their allegations made in Civil Action No. 96-0330-B and added another count
against the three banks alleging that the banks aided and abetted Mr. Lappin in
the breach of his fiduciary responsibilities by clearing instruments and
accepting deposits without proper authorization.
On October 29, 1996, the Bank answered the Wallace's Amended Consolidated
Complaint denying all claims and allegations of wrongdoing against it, setting
forth substantial defenses in connection with the matter 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.
On July 9, 1997, the Suffolk Superior Court approved a motion for voluntary
dismissal of all claims filed by the plaintiffs against the Bank.
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
At the Annual Meeting of Stockholders, held May 21, 1997,
shareholders elected five Class III Directors to serve until 2000
and until their successors are duly elected and qualified, or
until their earlier death, resignation, or removal, and adopted
the Boston Private Bancorp, Inc. 1997 Long-Term Stock Incentive
Plan.
The vote for Class III Director nominees was:
<TABLE>
<CAPTION>
FOR WITHHELD
--------- --------
<S> <C> <C>
Herbert S. Alexander 4,113,371 35,900
Kate S. Flather 4,113,371 35,900
Lynn Thompson Hoffman 4,113,371 35,900
Timothy L. Vaill 4,113,371 35,900
Charles O. Wood 4,113,371 35,900
</TABLE>
The vote for adoption of the Boston Private Bancorp, Inc. 1997
Long-Term Stock Incentive Plan was:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN WITHHELD BROKER NON-VOTES
--------- ------- ------- -------- ----------------
<S> <C> <C> <C> <C>
4,036,369 62,537 115,047 133,637 -
</TABLE>
ITEM 5. OTHER INFORMATION
No information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No exhibits to report.
No reports on Form 8-K were filed during the period ended June 30,
1997.
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)
August 7, 1997 /s/ Timothy L. Vaill
- -------------- ----------------------------------------------------------
(Date) Timothy L. Vaill
President and
Chief Executive Officer
August 7, 1997 /s/ Walter M. Pressey
- -------------- ----------------------------------------------------------
(Date) Walter M. Pressey
Senior Vice President and
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 8,348
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,160
<INVESTMENTS-CARRYING> 27,975
<INVESTMENTS-MARKET> 28,010
<LOANS> 215,019
<ALLOWANCE> 2,729
<TOTAL-ASSETS> 308,559
<DEPOSITS> 236,004
<SHORT-TERM> 10,545
<LIABILITIES-OTHER> 2,267
<LONG-TERM> 35,439
0
0
<COMMON> 6,637
<OTHER-SE> 17,667
<TOTAL-LIABILITIES-AND-EQUITY> 308,559
<INTEREST-LOAN> 8,710
<INTEREST-INVEST> 1,557
<INTEREST-OTHER> 256
<INTEREST-TOTAL> 10,523
<INTEREST-DEPOSIT> 3,544
<INTEREST-EXPENSE> 5,244
<INTEREST-INCOME-NET> 5,279
<LOAN-LOSSES> 129
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,659
<INCOME-PRETAX> 1,670
<INCOME-PRE-EXTRAORDINARY> 1,670
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,204
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 7.64
<LOANS-NON> 939
<LOANS-PAST> 14
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,566
<CHARGE-OFFS> 13
<RECOVERIES> 47
<ALLOWANCE-CLOSE> 2,729
<ALLOWANCE-DOMESTIC> 2,729
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
