<PAGE> 1
As filed with the Securities and Exchange Commission on August 13, 1998
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (NO FEE REQUIRED)
For the quarterly period ended JUNE 30, 1998
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from _______ to _______.
Commission File Number: 0-17089
BOSTON PRIVATE FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
COMMONWEALTH OF MASSACHUSETTS 04-2976299
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
TEN POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (617) 912-1900
NOT APPLICABLE
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during 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
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date (July 31, 1998):
Common Stock - Par Value $1.00 10,741,219 shares
------------------------------ -----------------
(class) (outstanding)
================================================================================
<PAGE> 2
BOSTON PRIVATE FINANCIAL HOLDINGS, INC
FORM 10-Q
TABLE OF CONTENTS
PAGE
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 Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7 - 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 17
Item 3 Qualitative and Quantitative Disclosures about Market Risk 18
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in Securities and Use of Proceeds 18
Item 3 Defaults upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18 - 19
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 19
Signature Page 20
<PAGE> 3
BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 8,892 $ 12,361
Federal funds sold 12,400 1,200
Investment securities available for sale (amortized cost of $43,008
and $36,740, respectively) 43,019 36,776
Investment securities held to maturity (market value of $8,135
and $9,678, respectively) 8,106 9,654
Mortgage-backed securities held to maturity (market value of $14,251
and $18,141, respectively) 14,179 18,123
Loans receivable:
Commercial 143,266 134,685
Residential mortgage 155,018 124,865
Home equity 15,585 16,969
Other 293 306
--------- ---------
Total loans 314,162 276,825
Less allowance for loan losses (3,931) (3,645)
--------- ---------
Net loans 310,231 273,180
Stock in the Federal Home Loan Bank of Boston 4,027 3,511
Other real estate owned 85 85
Premises and equipment, net 3,435 2,857
Excess of cost over net assets acquired, net 3,585 3,746
Management fees receivable 3,486 2,750
Accrued interest receivable 2,690 2,169
Other assets 3,689 2,530
--------- ---------
Total assets $ 417,824 $ 368,942
========= =========
LIABILITIES:
Deposits $ 304,759 $ 258,301
Securities sold under agreements to repurchase 5,105 5,366
Federal funds purchased 2,500 13,255
FHLB borrowings 70,300 60,226
Other short-term borrowings -- 837
Accrued interest payable 585 609
Other liabilities 5,466 4,413
--------- ---------
Total liabilities 388,715 343,007
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value per share;
authorized: 30,000,000 shares in 1998 and 18,000,000 in 1997
issued: 10,737,969 shares in 1998 and 10,641,100 shares in 1997 10,738 10,641
Additional paid-in capital 12,615 12,140
Retained earnings 6,251 3,800
Stock subscriptions receivable (502) (669)
Accumulated other comprehensive income (loss) 7 23
--------- ---------
Total stockholders' equity 29,109 25,935
--------- ---------
Total liabilities and stockholders' equity $ 417,824 $ 368,942
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest and dividend income:
Commercial loans $ 3,208 $ 2,198 $ 6,284 $ 4,417
Residential mortgage loans 2,483 1,964 4,830 3,762
Home equity and other loans 321 280 653 531
Investment securities 664 428 1,234 837
Mortgage-backed securities 230 350 496 720
FHLB stock dividends 65 54 128 106
Federal funds sold 143 58 230 104
Deposits in banks 36 41 76 78
----------- ----------- ----------- -----------
Total interest and dividend income 7,150 5,373 13,931 10,555
----------- ----------- ----------- -----------
Interest expense:
Savings and NOW 110 86 211 174
Money market 1,384 804 2,523 1,613
Certificates of deposit 1,070 901 2,135 1,757
Federal funds purchased 9 46 48 94
Securities sold under agreements to repurchase 63 103 115 192
FHLB borrowings 1,058 715 2,159 1,400
Other short-term borrowings 5 6 19 14
----------- ----------- ----------- -----------
Total interest expense 3,699 2,661 7,210 5,244
----------- ----------- ----------- -----------
Net interest income 3,451 2,712 6,721 5,311
Provision for loan losses 331 91 615 129
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 3,120 2,621 6,106 5,182
----------- ----------- ----------- -----------
Fees and other income:
Trust and investment management 3,989 3,212 7,728 6,137
Deposit account service charges 58 53 109 93
Gain (loss) on sale of loans 60 12 99 28
Gain (loss) on sale of investment securities 1 -- 56 --
Other 121 60 382 130
----------- ----------- ----------- -----------
Total fees and other income 4,229 3,337 8,374 6,388
----------- ----------- ----------- -----------
Operating expense:
Salaries and employee benefits 3,793 3,143 7,619 6,230
Occupancy 356 231 685 447
Equipment 179 158 336 289
Professional Services 452 306 821 805
Marketing 87 138 181 209
Business Development 159 151 286 263
Amortization of intangibles 80 80 161 161
Merger Expenses -- 19 -- 110
Other 346 383 696 633
----------- ----------- ----------- -----------
Total operating expense 5,452 4,609 10,785 9,147
----------- ----------- ----------- -----------
Income before income taxes 1,897 1,349 3,695 2,423
Income tax expense 635 254 1,244 518
=========== =========== =========== ===========
Net income $ 1,262 $ 1,095 $ 2,451 $ 1,905
=========== =========== =========== ===========
Per share data:
Basic earnings per share $ 0.12 $ 0.10 $ 0.23 0.18
=========== =========== =========== ===========
Diluted earnings per share $ 0.11 $ 0.10 $ 0.22 0.17
=========== =========== =========== ===========
Average common shares outstanding 10,714,611 10,554,905 10,692,912 10,551,827
=========== =========== =========== ===========
Average diluted shares outstanding 11,186,923 10,909,786 11,135,675 10,889,855
=========== =========== =========== ===========
Proforma information:
Net income $ 1,262 $ 1,095 $ 2,451 1,905
Proforma adjustment for income taxes of entity
previously filing as an S-Corporation -- 187 -- 256
----------- ----------- ----------- -----------
Proforma net income after adjustment for income taxes $ 1,262 $ 908 $ 2,451 $ 1,649
=========== =========== =========== ===========
Proforma basic earnings per share $ 0.12 $ 0.09 $ 0.23 $ 0.16
=========== =========== =========== ===========
Proforma diluted earnings per share $ 0.11 $ 0.08 $ 0.22 $ 0.15
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED STOCK COMPREHENSIVE
STOCK CAPITAL EARNINGS SUBSCRIPTIONS INCOME (LOSS) TOTAL
------------ ------------- -------------- ------------- ---------------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 10,321 $ 11,991 $ 4,400 $ (847) $ (64) $ 25,801
Net income -- -- 1,904 -- -- 1,904
Other comprehensive income, net:
Change in unrealized gain (loss) on
securities available for sale -- -- -- -- (1) (1)
--------
Total other comprehensive income 1,903
Stock options exercised 3 12 -- -- -- 15
Proceeds from issuance of
231,000 shares of common stock 231 (82) -- -- -- 149
Stock subscription payments -- -- -- 171 -- 171
S-Corporation dividends paid -- -- (2,088) -- -- (2,088)
-------- -------- -------- -------- -------- --------
Balance at June 30, 1997 10,555 11,921 4,216 (676) (65) 25,951
Balance at December 31, 1997 10,641 12,140 3,800 (669) 23 25,935
Net income -- -- 2,451 -- -- 2,451
Other comprehensive income, net:
Change in unrealized gain (loss) on
securities available for sale -- -- -- -- (16) (16)
--------
Total other comprehensive income 2,435
Stock options exercised 97 475 -- -- -- 572
Stock subscription payments -- -- -- 167 -- 167
======== ======== ======== ======== ======== ========
Balance at June 30, 1998 $ 10,738 $ 12,615 $ 6,251 $ (502) $ 7 $ 29,109
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,451 $ 1,905
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization 803 425
Gain on sale of loans (99) (28)
Gain on sale of other real estate owned (4) --
Gain on sale of investment securities (56) --
Provision for loan losses 615 129
Distributed (undistributed) earnings of partnership investments (231) 1,113
Loans originated for sale (8,811) (3,264)
Proceeds from sale of loans 8,910 3,292
(Increase) decrease in:
Accrued interest receivable (521) (124)
Investment management fees receivable (736)
Other assets (1,262) (1,402)
Increase (decrease) in:
Accrued interest payable (24) 50
Other liabilities 1,053 818
-------- --------
Net cash provided (used) by operating activities 2,088 2,914
-------- --------
Cash flows from investing activities:
Net decrease (increase) in fed funds sold (11,200) (7,550)
Investment securities available for sale:
Purchases (40,712) (5,835)
Sales 30,917 130
Maturities 3,480 1,205
Investment securities held to maturity:
Purchases (874) (4,000)
Maturities 2,400 4,000
Mortgage-backed securities held to maturity:
Principal payments 3,921 3,662
Net decrease (increase) in loans (37,971) (8,840)
Purchase of FHLB stock (516) --
Recoveries on loans previously charged off 47 47
Proceeds from sales of other real estate owned 38 --
Capital expenditures (505) (1,286)
-------- --------
Net cash provided (used) by investing activities (50,975) (18,467)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 46,458 26,702
Net increase (decrease) in repurchase agreements (261) 2,419
Net increase (decrease) in federal funds purchased (10,755) --
FHLB advances:
Proceeds 26,480 57,913
Repayments (16,406) (68,007)
Net increase (decrease) in other short-term borrowings (837) (528)
S-corporation dividends paid -- (2,089)
Proceeds from stock subscriptions receivable 167 170
Proceeds from issuance of common stock 572 165
-------- --------
Net cash provided (used) by financing activities 45,418 16,745
-------- --------
Net increase (decrease) in cash and due from banks (3,469) 1,192
Cash and due from banks at beginning of year 12,361 8,709
-------- --------
Cash and due from banks at end of period $ 8,892 $ 9,901
======== ========
Supplementary disclosures of cash flow information:
Cash paid during the period for interest $ 7,244 $ 5,180
Cash paid during the period for income taxes 2,068 875
Supplementary disclosures of non-cash activities:
Transfer of loans to other real estate owned 42 --
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE> 7
BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements of Boston Private Financial Holdings, Inc.
(the "Company") include the accounts of the Company and its wholly-owned
subsidiaries, Boston Private Bank & Trust Company (the "Bank"), and Boston
Private Investment Management, Inc. ("BPIM"). The Bank's consolidated financial
statements include the accounts of its wholly-owned subsidiaries, BPB Securities
Corporation and Boston Private Asset Management Corporation, and BPIM's
consolidated financial statements include the accounts of its wholly-owned
subsidiary, Westfield Capital Management Company, Inc. ("Westfield"). 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. The interim results of consolidated operations are not
necessarily indicative of the results for the entire year.
The information in this report should be read in conjunction with the
consolidated financial statements and accompanying notes included in the
December 31, 1997 Annual Report to Shareholders.
(2) EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS 128, "Earnings Per Share."
This Statement establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock or
potential common stock. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The earnings per
share calculation is based upon the weighted average number of common shares and
common share equivalents outstanding during the period. Stock options, when
dilutive, are included as common stock equivalents using the treasury stock
method.
The following tables are a reconciliation of the numerators and denominators of
basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
1998 1997
--------------------------- --------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
-------- ------- ------- ------ -------- ------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net Income $1,262 10,715 $0.12 $1,095 10,555 $0.10
===== =====
EFFECT OF DILUTIVE SECURITIES
Stock Options -- 472 -- 355
-------- ------- ------ --------
DILUTED EPS
============================ ============================
Net Income $1,262 11,187 $0.11 $1,095 10,910 $0.10
============================ ============================
</TABLE>
7
<PAGE> 8
BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
1998 1997
---------------------------- --------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
---------------------------- --------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net Income $2,451 10,693 $0.23 $1,905 10,552 $0.18
===== ======
EFFECT OF DILUTIVE SECURITIES
Stock Options -- 443 -- 338
--------------------- ---------------
DILUTED EPS
============================ ==========================
Net Income $2,451 11,136 $0.22 $1,905 10,890 $0.17
============================ ==========================
</TABLE>
(3) RECLASSIFICATIONS
Certain fiscal 1997 information has been reclassified to conform with the 1998
presentation.
(4) RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair market value. Under this statement, an entity that elects to apply hedge
accounting is required to establish at the inception of the hedge the method it
will use for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge. This
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. This statement should have an immaterial effect on the Company's
consolidated financial statements.
Also in June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement establishes standards for
the way that public entities report information about operating segments in
annual financial statements, and requires that selected information about
operating segments be reported in interim financial reports issued to
shareholders. Operating segments are components of an entity about which
separate financial information is available and is evaluated by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This Statement requires that public entities report a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. It also requires reconciliation of the amounts disclosed for segments to
corresponding amounts in the consolidated financial statements. However, this
Statement does not require an entity to report information that is not prepared
for internal use if reporting it would be impracticable. The Statement is
effective for annual periods beginning after December 15, 1997, and for interim
periods beginning after December 15, 1998. This Statement only affects
presentation in the financial statements, it will have no impact on the
Company's results of operations.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 1998
This quarterly report contains certain statements that are 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,
fluctuations in assets under management and other sources of fee income, and
changes in assumptions used in making such forward-looking statements.
GENERAL
Boston Private Financial Holdings, Inc. (the "Company") is incorporated under
the laws of the Commonwealth of Massachusetts and is registered with the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board") as a
bank holding company under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). On July 1, 1988, the Company became the parent holding company of
Boston Private Bank & Trust Company (the "Bank"), a trust company chartered by
the Commonwealth of Massachusetts and insured by the Federal Deposit Insurance
Corporation (the "FDIC"). Effective April 22, 1998, the Company changed its name
from Boston Private Bancorp, Inc. to Boston Private Financial Holdings, Inc.
On October 31, 1997, the Company acquired Westfield Capital Management Company
Inc. ("Westfield"), a Massachusetts corporation engaged in providing a range of
investment management services to individual and institutional clients, in
exchange for 3,918,367 newly issued shares of the Company's common stock.
Concurrent with the acquisition, the Company formed a subsidiary, Boston Private
Investment Management, Inc., as a holding company for Westfield. The acquisition
was accounted for as a "pooling of interests." Accordingly, the current and
prior period results of operations of the Company have been restated to reflect
the results of operations on a consolidated basis.
The Company conducts substantially all of its business through its wholly-owned
operating subsidiaries, the Bank and Westfield. The Company's and the Bank's
principal office is located at Ten Post Office Square, Boston, Massachusetts,
and Westfield is located at One Financial Center, Boston, Massachusetts.
The Bank pursues a "private banking" business strategy and is principally
engaged in providing banking, investment, and fiduciary products and services to
high net worth individuals, their families and businesses in the greater Boston
area and New England and, to a lesser extent, Europe and Latin America. The Bank
offers its clients a broad range of basic deposit services, including 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 personal loans. In
addition, it provides investment advisory and asset management services,
securities custody and safekeeping services, trust and estate administration and
IRA and Keogh accounts.
Westfield is an investment management firm serving the investment needs of high
net worth individuals and institutions with endowments, pensions and
profit-sharing or 401(k) plans. Westfield primarily manages individually
invested accounts and also acts as managing general partner for two limited
partnerships, one of which invests primarily in technology stocks, and the other
of which invests primarily in small capitalization equities.
FINANCIAL CONDITION
TOTAL ASSETS Total assets increased $48.9 million, or 13.2%, from $368.9 million
at December 31, 1997 to $417.8 million at June 30, 1998. This increase was
primarily due to increases in total loans.
9
<PAGE> 10
INVESTMENTS Total investments (consisting of cash, federal funds sold,
investment securities, mortgage-backed securities, and stock in the FHLB of
Boston) totaled $90.6 million, or 21.7% of total assets, at June 30, 1998,
compared to $81.6 million, or 22.1% of total assets, at December 31, 1997. Funds
from the sale of $30.9 million of municipal securities, the maturity of $3.5
million of U.S. government and agency obligations, and $3.9 million of principal
repayments on mortgage-backed securities were reinvested in municipal securities
and U.S. government and agency obligations. Management evaluates investment
alternatives in order to properly manage the overall balance sheet. The timing
of sales and reinvestments is based on various factors, including management's
evaluation of interest rate trends and loan demand.
The following table is a summary of investment and mortgage-backed securities as
of June 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------------------------- ----------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
------------------- -----------------
Cost Gains Losses Value Cost Gains Losses Value
-------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
AT JUNE 30, 1998
U.S. Government and agencies $20,085 $ 4 $ (16) $20,073 $ -- $ -- $ -- $ --
Municipal bonds 22,923 35 (12) 22,946 8,106 29 -- 8,135
Mortgage-backed securities -- -- -- -- 14,179 116 (44) 14,251
======= ======= ======= ======= ======= ======= ===== =======
Total investments $43,008 $ 39 $ (28) $43,019 $22,285 $ 145 $ (44) $22,386
======= ======= ======= ======= ======= ======= ===== =======
AT DECEMBER 31, 1997
U.S. Government and agencies $17,589 $ 12 $ (18) $17,583 $ 4,654 $ 2 $ -- $ 4,656
Municipal bonds 19,151 42 -- 19,193 5,000 22 -- 5,022
Mortgage-backed securities -- -- -- -- 18,123 157 (139) 18,141
======= ======= ======= ======= ======= ======= ===== =======
Total investments $36,740 $ 54 $ (18) $36,776 $27,777 $ 181 $(139) $27,819
======= ======= ======= ======= ======= ======= ===== =======
</TABLE>
LOANS Total loans increased $37.3 million during the first half of 1998 from
$276.8 million, or 75.0% of total assets, at December 31, 1997, to $314.2
million, or 75.2% of total assets, at June 30, 1998. This increase was due to
increases in commercial and residential mortgage loans, partially offset by
decreases in the home equity and other loan portfolios.
Interest rates affect both the level of new loan originations and refinancings
or paydowns of existing loans. During the first half of 1998, interest rates
were at relatively stable, low levels, and demand for new loans and refinancings
was strong. As a result, commercial loans increased $8.6 million, or 6.4%, and
residential mortgage loans increased $30.2 million, or 24.1%. The decreases in
the home equity and other loan portfolios during the first half of 1998 were
mainly due to paydowns on lines of credit.
RISK ELEMENTS 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, 1998 DECEMBER 31, 1997
------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 361 $ 722
Loans past due 90 days or more, but still accruing 16 25
------ ------
Total non-performing loans 377 747
Other real estate owned 85 85
====== ======
Total non-performing assets $ 462 $ 832
====== ======
Delinquent loans 30-89 days past due 1,910 1,632
Non-performing loans as a percent of gross loans .12% .27%
Non-performing assets as a percent of total assets .11% .23%
</TABLE>
10
<PAGE> 11
The Company discontinues the accrual of interest on a loan when the
collectibility of principal or interest is in doubt. In certain instances, loans
that have become 90 days past due may remain on accrual status if the value of
the collateral securing the loan is sufficient to cover principal and interest
and the loan is in the process of collection. Other real estate owned consists
of real estate acquired through foreclosure proceedings and real estate acquired
through acceptance of a deed in lieu of foreclosure. In addition, the Company
may, under certain circumstances, restructure loans as a concession to a
borrower.
Total non-performing assets decreased by $370,000, or 44.5% during the first
half of 1998 due to several non-accruing loans moving back to performing status,
as well as principal payments received on non-performing loans. 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, 1998, loans with an aggregate balance of $1.9 million, or 0.61% of
total loans, were 30 to 89 days past due, an increase of $278,000, or 17.0%,
from the $1.6 million, or 0.59% of total loans, reported at December 31, 1997.
In management's view, most of these loans are adequately secured, but these
borrowers do not make timely payments on a regular basis.
ALLOWANCE FOR LOAN LOSSES Assessing the adequacy of the allowance for loan
losses involves substantial uncertainties and is based upon management's
evaluation of the amounts required to meet estimated charge-offs in the loan
portfolio after weighing various factors. Among these factors are the risk
characteristics of the loan portfolio, the quality of specific loans, the level
of nonaccruing loans, current economic conditions, trends in delinquencies and
charge-offs, and the value of underlying collateral, all of which can change
frequently. In connection with the determination of the allowance for loan
losses, management may obtain independent appraisals for significant properties.
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 and carrying amounts of other real estate owned. Such
agencies may require the financial institution to recognize additions to the
allowance based on their 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 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, 1998 is adequate based upon the information currently available.
The following table is an analysis of the Bank's allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Ending gross loans $ 314,162 $ 215,019 $ 314,162 $ 215,019
========= ========= ========= =========
Allowance for loan losses, beginning of period $ 3,555 $ 2,622 $ 3,645 $ 2,566
Provision for loan losses 331 91 615 129
Charge-offs -- -- (376) (13)
Recoveries 45 16 47 47
--------- --------- --------- ---------
Allowance for loan losses, end of period $ 3,931 $ 2,729 $ 3,931 $ 2,729
========= ========= ========= =========
Allowance for loan losses to ending gross loans 1.25% 1.27% 1.25% 1.27%
========= ========= ========= =========
</TABLE>
11
<PAGE> 12
DEPOSITS AND BORROWINGS The Company experienced an increase in total deposits of
$46.5 million, or 18.0%, during the first half of 1998, from $258.3 million, or
70.0% of total assets, at December 31, 1997, to $304.8 million, or 72.9% of
total assets, at June 30, 1998. This increase was primarily attributable to
growth in money market accounts.
The following table shows the composition of the Company's deposits at June 30,
1998 and December 31, 1997:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Demand deposits $ 36,628 $ 36,848
NOW 27,954 24,938
Savings 4,255 5,787
Money market 159,449 117,984
Certificates of deposit under $100,000 27,502 22,956
Certificates of deposit $100,000 or greater 48,971 49,788
-------- --------
Total $304,759 $258,301
======== ========
</TABLE>
Total borrowings (consisting of securities sold under agreements to repurchase,
federal funds purchased, FHLB borrowings, and other short-term borrowings)
decreased by $1.8 million, or 2.2%, during the first half of 1998. This decrease
was primarily attributable to a decrease in federal funds purchased and paydown
of other short-term borrowings, partially offset by an increase in FHLB
borrowings. Management will from time to time take advantage of opportunities to
fund asset growth with borrowings, but on a long-term basis, the Company intends
to replace a portion of its borrowings with core deposits.
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 Company'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 June 30, 1998, cash,
federal funds sold and securities available for sale amounted to $64.8 million,
or 15.5% of total assets. This compares to $50.3 million, or 13.6% of total
assets at December 31, 1997.
The Bank is a member of the 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.
Westfield's primary source of liquidity consists of investment management fees
which are generally collected on a quarterly basis. At June 30, 1998 Westfield
had working capital of approximately $1.7 million. Management believes that
Westfield has adequate liquidity to meet its commitments.
The Company's primary sources of funds are dividends from subsidiaries, issuance
of common stock, and borrowings. Management believes that the Company has
adequate liquidity to meet its commitments.
12
<PAGE> 13
CAPITAL RESOURCES Total stockholders' equity of the Company at June 30, 1998 was
$29.1 million, compared to $25.9 million at December 31, 1997. This increase was
the result of the Company's net income for the six months ended June 30, 1998 of
$2.5 million, combined with issuance of additional stock in connection with the
exercise of stock options, less the change in accumulated other comprehensive
income.
The following table presents actual capital amounts and regulatory capital
requirements as of June 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL ADEQUACY UNDER PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
----------------- ---------------------------- ----------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------- ------- ----------------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 1998
Total risk-based capital:
Company $28,717 11.25% $20,424 greater than 8.0% $23,530 greater than 10.0%
Bank 25,764 10.26 20,085 greater than 8.0 25,107 greater than 10.0
Tier I risk-based capital:
Company 25,517 10.00 10,212 greater than 4.0 15,318 greater than 6.0
Bank 22,616 9.01 10,043 greater than 4.0 15,064 greater than 6.0
Tier I leverage capital:
Company 25,517 6.47 15,772 greater than 4.0 19,715 greater than 5.0
Bank 22,616 5.79 15,621 greater than 4.0 19,526 greater than 5.0
AS OF DECEMBER 31, 1997
Total risk-based capital:
Company $25,000 11.07% $18,073 greater than 8.0% $22,590 greater than 10.0%
Bank 23,756 10.68 17,788 greater than 8.0 22,235 greater than 10.0
Tier I risk-based capital:
Company 22,166 9.81 9,036 greater than 4.0 13,554 greater than 6.0
Bank 20,966 9.43 8,894 greater than 4.0 13,341 greater than 6.0
Tier I leverage capital:
Company 22,166 6.54 13,554 greater than 4.0 16,943 greater than 5.0
Bank 20,966 6.28 13,354 greater than 4.0 16,693 greater than 5.0
</TABLE>
13
<PAGE> 14
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998
GENERAL. The Company recorded net income of $1.3 million, or $.11 per
fully-diluted share, for the three months ended June 30, 1998, compared to $1.1
million, or $.10 per fully-diluted share, for the same period in 1997. The
current quarter results include an increase in net interest income and fee
income, partially reduced by increases in the provision for loan losses,
operating expenses, and the Company's effective tax rate. The Company's
annualized return on average assets was 1.27% for the second quarter of 1998,
compared to 1.48% for the same period in 1997, and the annualized return on
stockholders' equity increased from 17.16% for the second quarter of 1997 to
17.73% for the quarter ended June 30, 1998.
NET INTEREST INCOME. For the quarter ended June 30, 1998, net interest income
was $3.5 million, an increase of $739,000, or 27.2%, over the same period in
1997. This increase was primarily attributable to an increase of $8.4 million,
or 20.7%, in the average balance of net earning assets.
INTEREST INCOME. During the second quarter of 1998, interest income was $7.2
million, an increase of $1.8 million, or 33.1%, over the same period in 1997.
Interest income on commercial loans increased 46.0% to $3.2 million for the
three months ended June 30, 1998, compared to $2.2 million for the same period
in 1997. Interest income from residential mortgage loans increased 26.4% to $2.5
million compared to $2.0 million, and home equity and other loans increased
14.6% to $321,000 compared to $280,000, for the same periods, respectively.
These increases were primarily due to an increase in loan volume. The average
balance of commercial loans increased 52.2% while the average rate decreased 40
basis points from 9.78% for the quarter ended June 30, 1997, to 9.38% for same
period in 1998. The average balance of residential mortgage loans increased
31.8%, while the average rate decreased 30 basis points to 7.09% for the same
period, and the average balance of home equity and other loans increased 14.1%,
while the average rate remained relatively flat at 8.35%.
Total investment income increased $207,000, or 22.2%, to $1.1 million during the
quarter ended June 30, 1998, compared to $931,000 during the same period in
1997. This increase was primarily attributable to an increase in the average
balance of investments of $16.4 million, or 23.5%.
INTEREST EXPENSE. Interest paid on deposits and borrowings increased $1.0
million, or 39.0%, to $3.7 million for the three months ended June 30, 1998,
from $2.7 million for the same period during 1997. This increase in the
Company's interest expense reflects an increase in the average balance of
interest-bearing liabilities of $90.7 million, or 37.9% between the two periods,
and an increase in the average cost of interest-bearing liabilities from 4.45%
for the second quarter of 1997 to 4.49% for the second quarter of 1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $331,000 for the
quarter ended June 30, 1998, compared to $91,000 for the same period in 1997.
Management evaluates several factors including new loan originations, estimated
charge-offs, and risk characteristics of the loan portfolio when determining the
provision for loan losses. These factors include the level and mix of loan
growth, the level of non-accrual and delinquent loans, and the level of
charge-offs and recoveries. Also see discussion under Financial Condition
- -"Allowance for Loan Losses." Net recoveries were $44,000 during the second
quarter of 1998 compared to $16,000 for the same period in 1997. The reserve
coverage as a percentage of total loans was 1.25% as of June 30, 1998.
FEES AND OTHER INCOME. Fees and other income increased $892,000, or 26.7% to
$4.2 million for the three month period ended June 30, 1998, compared to $3.3
million for the same period in 1997. The majority of fee income is attributable
to advisory fees earned on assets under management. These fees increased
$777,000, or 24.2%, to $4.0 million for the second quarter of 1998 compared to
$3.2 million for the same period in 1997. This increase is primarily due to a
19.6% increase in assets under management from $2.1 billion on June 30, 1997 to
$2.5 billion on June 30, 1998.
Deposit account service fees have increased $5,000, or 9.4%, to $58,000 as a
result of an increase in deposit account activity. Gain on sale of loans has
increased $48,000 to $60,000 due to a higher volume of fixed rate loans which
were sold in the secondary market. During the second quarter of 1998, the
Company realized $1,000 of gains from the sale of investment securities. There
were no sales of investment securities during the second quarter of 1997.
14
<PAGE> 15
OPERATING EXPENSE. Total operating expense for the second quarter of 1998
increased $843,000, or 18.3%, to $5.5 million compared to $4.6 million for the
same period in 1997. This increase in total operating expense was primarily
attributable to the Company's continued growth and expansion. The Company has
experienced a 33.3% increase in total assets, and a 15.5% increase in the number
of full time employees from June 30, 1997 to June 30, 1998. In addition, the
Company opened a new banking office in Wellesley, Massachusetts in April 1998
which contributed to the increase in operating expenses.
Salaries and benefits, the largest component of operating expense, increased
$650,000, or 20.7%, to $3.8 million for the quarter ended June 30, 1998, from
$3.1 million for the same period in 1997. This increase was due to a 15.5%
increase in the number of employees, normal salary increases, and the related
taxes thereon.
Occupancy and equipment expense increased $146,000, or 37.5%, to $535,000 for
the second quarter of 1998 from $389,000 for the same period last year. This
increase was primarily attributable to ongoing technology investments and
expense related to the new banking office in Wellesley, Massachusetts.
Professional services include outsourced data processing and custody expense,
legal fees, consulting fees, and other professional services such as audit and
tax preparation. These expenses increased $146,000, or 47.7%, as a result of
higher volume related charges for data processing and custody services,
partially offset by lower legal and consulting expenses.
Marketing expenses decreased $51,000, or 37.0%, to $87,000 for the second
quarter of 1998 as a result of timing differences related to ongoing advertising
designed to increase the visibility of the Company and its products and
services. The Company also experienced a $8,000, or 5.3% increase in business
development expense as a result of an increase in the number of employees and
new business activity. There were $19,000 of merger expenses incurred in the
second quarter of 1997 related to the acquisition of Westfield. There were no
such expenses during the second quarter of 1998.
Other expenses include supplies, telephone, postage, publications and
subscriptions, and other miscellaneous business expenses. These expenses have
decreased $37,000, or 9.7% to $346,000, primarily as a result of timing
differences.
INCOME TAX EXPENSE. The Company recorded income tax expense of $635,000 for the
second quarter of 1998 as compared to $254,000 for the same period last year.
The effective tax rate was 33.5% and 18.8% for the two periods, respectively.
The increase in the Company's effective tax rate is primarily due to the fact
that Westfield was a tax-exempt S-Corporation during 1997. If Westfield had been
a fully taxable entity, the Company would have incurred approximately $187,000
of additional income tax expense for the second quarter of 1997, which equates
to an effective tax rate of approximately 33.0%.
15
<PAGE> 16
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
GENERAL. The Company recorded net income of $2.5 million, or $.22 per
fully-diluted share, for the six months ended June 30, 1998, compared to $1.9
million, or $.17 per fully-diluted share, for the same period in 1997. The
current period results include an increase in net interest income and fee
income, partially reduced by increases in the provision for loan losses,
operating expenses, and the Company's effective tax rate. The Company's
annualized return on average assets was 1.27% for the first half of 1998,
compared to 1.30% for the first half of 1997, and the annualized return on
stockholders' equity increased from 14.93% to 17.70% for the same periods,
respectively.
NET INTEREST INCOME. For the six months ended June 30, 1998, net interest income
was $6.7 million, an increase of $1.4 million, or 26.5%, over the same period in
1997. This increase was primarily attributable to an increase of $7.5 million,
or 18.9%, in the average balance of net earning assets.
INTEREST INCOME. During the first half of 1998, interest income was $13.9
million, an increase of $3.4 million, or 32.0%, over the same period in 1997.
Interest income on commercial loans increased 42.3% to $6.3 million for the six
months ended June 30, 1998, compared to $4.4 million for the same period in
1997. Interest income from residential mortgage loans increased 28.4% to $4.8
million compared to $3.8 million, and home equity and other loans increased
23.0% to $653,000 compared to $531,000, for the same periods, respectively.
These increases were primarily due to higher average loan balances. The average
balance of commercial loans increased 45.8% while the average rate decreased 23
basis points from 9.58% for the six months ended June 30, 1997, to 9.35% for the
same period in 1998. The average balance of residential mortgage loans increased
31.9%, while the average rate decreased 20 basis points to 7.15% for the same
period, and the average balance of home equity and other loans increased 21.0%,
while the average rate increased 14 basis points to 8.30%.
Total investment income increased $319,000, or 17.3%, to $2.2 million during the
six months ended June 30, 1998, compared to $1.8 million during the same period
in 1997. This increase was primarily attributable to an increase in the average
balance of investments of $13.0 million, or 18.8%.
INTEREST EXPENSE. Interest paid on deposits and borrowings increased $2.0
million, or 37.5%, to $7.2 million for the six months ended June 30, 1998, from
$5.2 million for the same period during 1997. This increase in the Company's
interest expense reflects an increase in the average balance of interest-bearing
liabilities of $83.1 million, or 35.0% between the two periods, and an increase
in the average cost of interest-bearing liabilities from 4.42% for the first
half of 1997 to 4.50% for the first half of 1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $615,000 for the
six months ended June 30, 1998, compared to $129,000 for the same period in
1997. When determining the provision for loan losses, management evaluates
several factors including new loan originations, estimated charge-offs, and risk
characteristics of the loan portfolio. These factors include the level and mix
of loan growth, the level of non-accrual and delinquent loans, and the level of
charge-offs and recoveries. Also see discussion under Financial Condition
- -"Allowance for Loan Losses." Total loans increased $37.3 million, or 13.5%
during the first half of 1998, while the level of non-performing loans decreased
49.5%. Net charge-offs were $329,000 during the first half of 1998, compared to
$34,000 of net recoveries for the same period in 1997. The majority of the first
half 1998 charge-offs resulted from a loan which was written off due to concern
about the borrower's ability to repay. The Bank plans to pursue collection of
the outstanding balance. The reserve coverage as a percentage of total loans was
1.25% as of June 30, 1998.
FEES AND OTHER INCOME. Fees and other income increased $2.0 million, or 31.1% to
$8.4 million for the six month period ended June 30, 1998, compared to $6.4
million for the same period in 1997. The majority of fee income is attributable
to advisory fees earned on assets under management. These fees increased $1.6
million, or 25.9% to $7.7 million for the first half of 1998 compared to $6.1
million for the same period in 1997. This increase is primarily due to a 19.6%
increase in assets under management from $2.1 billion on June 30, 1997 to $2.5
billion on June 30, 1998.
During the first half of 1998, the Company accrued $205,000 of performance fees
as general partner of the limited partnerships it manages. These fees are not
determined until December 31st of each year, therefore, management has estimated
fees for the period based upon information available at the end of the period.
16
<PAGE> 17
Deposit account service fees have increased $16,000, or 17.2%, to $109,000 as a
result of an increase in of deposit account activity, and a revised fee schedule
which went into effect during the third quarter of 1997. Gain on sale of loans
has increased $71,000 to $99,000 due to a higher volume of fixed rate loans
which were sold in the secondary market. During the first half of 1998, the
Company realized $56,000 of gains from the sale of investment securities. There
were no sales of investment securities during the first quarter of 1997.
OPERATING EXPENSE. Total operating expense for the first half of 1998 increased
$1.6 million, or 17.9%, to $10.8 million compared to $9.1 million for the same
period in 1997. This increase in total operating expense was primarily
attributable to the Company's continued growth and expansion. The Company has
experienced a 33.3% increase in total assets, and a 15.5% increase in the number
of full time employees from June 30, 1997 to June 30, 1998. In addition, the
Company opened a new banking office in Wellesley, Massachusetts in April 1998
which has contributed to the increase in operating expenses.
Salaries and benefits, the largest component of operating expense, increased
$1.4 million, or 22.3%, to $7.6 million for the six months ended June 30, 1998,
from $6.2 million for the same period in 1997. This increase was due to a 15.5%
increase in the number of employees, normal salary increases, and the related
taxes thereon.
Occupancy and equipment expense increased $285,000, or 38.7%, to $1.0 million
for the first half of 1998, from $736,000 for the same period last year. This
increase was primarily attributable to ongoing technology investments and
expense related to the new banking office in Wellesley, Massachusetts.
Professional services include outsourced data processing and custody expense,
legal fees, consulting fees, and other professional services such as audit and
tax preparation. These expenses increased $16,000, or 2.0%, as a result of
higher volume related charges for data processing and custody, partially offset
by lower legal and consulting expenses.
Marketing expenses decreased $28,000, or 13.4%, to $181,000 for the first half
of 1998 as a result of timing differences related to ongoing advertising
designed to increase the visibility of the Company and its products and
services. The Company also experienced a $23,000, or 8.7% increase in business
development expense as a result of an increase in the number of employees and
new business activity. There were $110,000 of merger expenses incurred in the
first half of 1997 related to the acquisition of Westfield. There were no such
expenses during the first half of 1998.
Other expenses include supplies, telephone, postage, publications and
subscriptions, and other miscellaneous business expenses. These expenses have
increased $63,000, or 10.0%, to $696,000, primarily as a result of increased
business volume and an increase in the number of employees.
INCOME TAX EXPENSE. The Company recorded income tax expense of $1.2 million, for
the first half of 1998 as compared to $518,000 for the same period last year.
The effective tax rate was 33.7% and 21.4% for the two periods, respectively.
The increase in the Company's effective tax rate was primarily due to the fact
that Westfield was a tax-exempt S-Corporation during 1997. If Westfield had been
a fully taxable entity, the Company would have incurred approximately $256,000
of additional income tax expense for the first half of 1997, which equates to an
effective tax rate of approximately 31.9%.
17
<PAGE> 18
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
For information related to this item, see the Company's December 31, 1997 Form
10-KSB, Item 6 - Interest Rate Sensitivity and Market Risk. No material changes
have occurred since that date.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information related to this item, see the Company's December 31, 1997 Form
10-KSB. No material changes have occurred since that date.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
No changes in security holders' rights have taken place and no equity securities
of the Company have been sold during the period covered by this report.
ITEM 3. DEFAULTS 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 April 22, 1998, stockholders of the
Company approved four proposals. The votes for each proposal were as follows:
PROPOSAL I:
To elect three Class I Directors to serve until the 2001 Annual Meeting and
until their successors are duly elected and qualified:
FOR WITHHELD
--- --------
Eugene S. Colangelo 7,654,040 10,300
Allen Sinai 7,654,040 10,300
Timothy L. Vaill 7,654,040 10,300
The term of office of each of Arthur J. Baurenfeind, J. Michael Hazard, E.
Christopher Palmer, Robert A. Radloff, Herbert S. Alexander, Lynn Thompson
Hoffman, and Charles O. Wood, III as a director of the Company continued
after the annual meeting.
PROPOSAL II:
To adopt an amendment and restatement of the Boston Private Bancorp, Inc.
Director's Stock Option Plan (the "Plan") to increase the number of shares
of Common Stock available under the Plan by such aggregate number of shares
of Common Stock as does not exceed one percent (1%) of the total shares of
outstanding Common Stock of the Company as of the last business day of the
preceding fiscal year, and related matters.
FOR AGAINST ABSTAIN WITHHELD
--- ------- ------- --------
7,430,935 175,900 26,135 31,370
PROPOSAL III:
To adopt an amendment to the Company's Restated Articles of Organization to
change the name of the Company from Boston Private Bancorp, Inc. to Boston
Private Financial Holdings, Inc.
FOR AGAINST ABSTAIN
--- ------- -------
7,557,859 95,478 11,003
18
<PAGE> 19
PROPOSAL IV:
To adopt an amendment to the Company's Restated Articles of Organization to
increase the authorized shares of Common Stock by 12,000,000 shares from
18,000,000 to 30,000,000 shares of Common Stock.
FOR AGAINST ABSTAIN
--- ------- -------
7,464,302 147,175 52,863
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 three-month period ended June 30,
1998.
19
<PAGE> 20
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 FINANCIAL HOLDINGS, INC.
(Registrant)
August 13, 1997 /s/ Timothy L.Vaill
------------------------
Timothy L. Vaill
President and Chief
Executive Officer
August 13, 1997 /s/ Walter M. Pressey
-------------------------
Walter M. Pressey
Senior Vice President and
Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 8,892
<INT-BEARING-DEPOSITS> 3,958
<FED-FUNDS-SOLD> 12,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,019
<INVESTMENTS-CARRYING> 22,285
<INVESTMENTS-MARKET> 22,386
<LOANS> 314,162
<ALLOWANCE> (3,931)
<TOTAL-ASSETS> 417,824
<DEPOSITS> 304,759
<SHORT-TERM> 7,605
<LIABILITIES-OTHER> 6,051
<LONG-TERM> 70,300
0
0
<COMMON> 10,738
<OTHER-SE> 18,371
<TOTAL-LIABILITIES-AND-EQUITY> 417,824
<INTEREST-LOAN> 11,767
<INTEREST-INVEST> 2,164
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 13,931
<INTEREST-DEPOSIT> 4,869
<INTEREST-EXPENSE> 7,210
<INTEREST-INCOME-NET> 6,721
<LOAN-LOSSES> 615
<SECURITIES-GAINS> 56
<EXPENSE-OTHER> 10,785
<INCOME-PRETAX> 3,695
<INCOME-PRE-EXTRAORDINARY> 3,695
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,451
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 7.69
<LOANS-NON> 361
<LOANS-PAST> 1,910
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,645
<CHARGE-OFFS> 376
<RECOVERIES> 47
<ALLOWANCE-CLOSE> 3,931
<ALLOWANCE-DOMESTIC> 3,931
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
