Boston Private Financial Holdings, Inc. Reports First Quarter 2018 Results

Boston Private Financial Holdings, Inc. (NASDAQ: BPFH) (the “Company” or “BPFH”) today reported first quarter 2018 GAAP Net income attributable to the Company of $22.7 million, compared to a Net loss of $18.3 million for the fourth quarter of 2017 and Net income of $15.7 million for the first quarter of 2017. First quarter 2018 Diluted earnings / (loss) per share were $0.27, compared to $(0.24) in the fourth quarter of 2017, and $0.17 in the first quarter of 2017.

In addition to presenting the Company’s results in conformity with GAAP, the Company uses certain non-GAAP financial measures to provide information for investors to effectively analyze financial trends of ongoing business activities, and to enhance comparability with peers across the financial sector. For additional information on non-GAAP financial measures, see page 6. A full reconciliation of GAAP to non-GAAP results can be found in the footnotes beginning on page 16.

1 4Q17 results have been adjusted to exclude the impact of items related to the divestiture of Anchor, impairment of goodwill and the Tax Cuts and Jobs Act
See footnote 16 for a GAAP to non-GAAP reconciliation

“Overall, we are pleased with this quarter's results. Our Company demonstrated 59% year-over-year growth in diluted earnings per share and achieved a 12.0% return on average common equity,” said Clayton G. Deutsch, CEO. “This quarter's performance reflects year-over-year pre-tax, pre-provision income growth of 23% with positive operating leverage achieved through strong revenue growth and expense growth in line with our expectations. We have worked hard to return to positive operating leverage following stepped up investments in staff and technology throughout 2017.”

“The bank continues to exhibit strong credit quality in the form of lower Criticized and Classified loans, and our market-linked fee businesses achieved positive net flows on a consolidated basis amid increasing market volatility. Additionally, we announced that on April 13, we successfully completed the sale of our ownership interest in Anchor.”

Net interest income for the first quarter was $57.4 million, flat linked quarter, and an increase of 7% year-over-year. The year-over-year increase was primarily driven by higher yields on interest-earning assets, and higher asset volumes, partially offset by higher costs of deposits and borrowing volumes. The Company’s Core net interest margin (non-FTE basis) increased 3 basis points linked quarter to 2.90% driven primarily by higher asset yields and a mix shift from investments to loans, partially offset by increased deposit and borrowing costs.

Net interest margin (FTE basis) was 2.95% for the first quarter of 2018, a decrease of 9 basis points from the fourth quarter of 2017 and an increase of 1 basis point from the first quarter of 2017. The linked quarter decrease was driven primarily by a lower tax benefit on tax-exempt income.

2 Private banking fees includes Other banking fee income and Gain/ (loss) on sale of loans, net

Total core fees and income for the first quarter were $39.4 million, a 2% decrease on a linked quarter basis and a 9% increase year-over-year. The year-over-year increase was primarily driven by higher levels of assets under management in the Investment Management, Wealth Advisory, and Wealth Management and Trust segments. Investment management fees declined on a linked quarter basis primarily driven by $0.9 million of performance fees received in the fourth quarter. Private banking fees increased on a year-over-year basis due to increases in BOLI income.

3 Information excludes Anchor
4 Segments do not sum to Total assets under management due to $11 million intercompany relationship

Total assets under management, excluding Anchor, were $21.2 billion at the end of the first quarter, flat linked quarter and an increase of 8% year-over-year. The year-over-year increase was driven primarily by positive market action and positive net flows.

5 For information on non-GAAP financial measures, see page 7

Adjusted operating expense for the first quarter of 2018 was $70.9 million, up 3% linked quarter and 3% year-over-year. Salaries and employee benefits expense increased 8% linked quarter primarily driven by seasonal payroll expenses. The year-over-year increase in Salaries and employee benefits in the first quarter is primarily driven by incentive compensation and merit increases partially offset by a decrease in vacation accruals. Information systems expense increased 4% linked quarter and 9% year-over-year due to information technology investments. Amortization of intangible expense decreased 43% linked quarter primarily as a result of classifying Anchor as held for sale.

Income Tax Expense

The effective tax rate for continuing operations (excluding non-GAAP adjustments) for the first quarter decreased to 21.5% from 30.5% in the fourth quarter of 2017 and 30.7% in the first quarter of 2017. The decrease was primarily driven by the decrease in the corporate federal income tax rate from 35% to 21% enacted as part of the Tax Cuts and Jobs Act on December 22, 2017.

Average total loans in the first quarter increased 6% year-over-year driven primarily by increases in Residential and Commercial real estate loans partially offset by a decrease in Commercial and industrial loans.

Average total deposits increased 1% year-over-year. Average non-interest bearing deposits comprised 29% of Average total deposits in the first quarter of 2018 and the first quarter of 2017.

The Company recorded a provision credit of $1.8 million for the first quarter of 2018, compared to a credit of $0.9 million for the fourth quarter of 2017 and a credit of $0.2 million for the first quarter of 2017. The provision credit in the first quarter of 2018 was primarily driven by a decline in Total criticized loans and improved loss rates, partially offset by loan growth.

Total criticized loans as of March 31, 2018 were $124.1 million, decreases of 20% linked quarter and 8% year-over-year.

Total nonaccrual loans (“Nonaccruals”) as of March 31, 2018 were $16.4 million, an increase of 15% linked quarter and a decrease of 22% year-over-year. As a percentage of Total loans, Nonaccruals were 25 basis points as of March 31, 2018, up 3 basis points compared to December 31, 2017, and down 9 basis points from March 31, 2017.

7 See footnote 6 for a GAAP to non-GAAP reconciliation.
8 Current quarter information is presented based on estimated data.

Tangible book value per share as of March 31, 2018 increased 7% year-over-year to $7.17.

On March 28, 2018, the Company received a notice of non-objection from the Federal Reserve for a share repurchase program of up to $20 million of the Company’s outstanding shares. Shares may be repurchased from time to time in the open market for a two-year period.

Divestiture

On April 13, 2018, the Company completed the sale of its ownership interest in Anchor. Anchor’s results remain consolidated in the Company’s results during current and prior periods. For presentation purposes, Anchor’s AUM are excluded from current and prior period AUM amounts, but are included in the calculation of Core Fees and Income. The Company classified the assets and liabilities of Anchor as held for sale at March 31, 2018, which are included with Other assets and Other liabilities, respectively, on the Company’s consolidated balance sheet.

As a result of the transaction, Boston Private received approximately $32 million of cash and will receive future revenue share payments that have a net present value of approximately $15 million. During the second quarter, the Company will recognize a tax expense of approximately $11 million to $12 million attributable to the transaction. The net financial impact will increase the Company’s Tier 1 common equity by approximately $34 million to $35 million.

Dividend Payments

Concurrent with the release of first quarter 2018 earnings, the Board of Directors of the Company declared a cash dividend to common shareholders of $0.12 per share. The record date for this dividend is May 4, 2018, and the payment date is May 18, 2018.

The Board of Directors of the Company also declared a cash dividend to holders of the Non-Cumulative Perpetual Preferred Stock, Series D of $17.375 per share, which will result in a dividend of $0.434375 per depositary share. The record date for this dividend is May 15, 2018, and the payment date is June 15, 2018.

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures to provide information for investors to effectively analyze financial trends of ongoing business activities, and to enhance comparability with peers across the financial sector.

These non-GAAP financial measures include tangible book value per share; the TCE/TA ratio; return on average common equity; return on average tangible common equity; pre-tax, pre-provision income; total operating expense excluding intangibles, goodwill impairment, and restructuring; the efficiency ratio (FTE basis); the efficiency ratio (FTE basis) excluding amortization of intangibles, goodwill impairment, and restructuring; net interest income and net interest margin excluding interest recovered on previous nonaccrual loans, also referred to as core net interest margin; net income attributable to the Company excluding notable items; net income attributable to the common shareholders, treasury stock method, excluding notable items (non-GAAP); diluted earnings per share excluding notable items; operating basis total revenue; operating basis total operating expenses; operating basis pre-tax, pre-provision income; operating basis income before income taxes; operating basis income tax expense; operating basis net income/ (loss) attributable to the Company; operating basis net income/ (loss) attributable to the Common Shareholders; operating basis weighted average diluted shares outstanding; operating basis diluted total earnings/ (loss) per share; operating basis return on average common equity; operating basis return on average tangible common equity; and operating basis effective tax rate.

A detailed reconciliation table of the Company’s GAAP to non-GAAP measures is attached.

Conference Call

Management will hold a conference call at 8 a.m. Eastern Time on Thursday, April 19, 2018, to discuss the financial results, business highlights and outlook. To access the call:

Dial In #: (888) 317-6003
Elite Entry Number: 1736451

Replay Information:
Available from April 19, 2018 at 12 noon until April 26, 2018
Dial In #: (877) 344-7529
Conference Number: 10118831

The call will be simultaneously webcast and may be accessed on www.bostonprivate.com

Boston Private Financial Holdings, Inc.

Boston Private Financial Holdings, Inc. is a national financial services organization that owns Wealth Management, Trust, and Private Banking affiliates with offices in Boston, New York, Los Angeles, San Francisco, San Jose, Florida, and Wisconsin. The Company has total assets of approximately $8 billion, and manages over $21 billion of client assets.

The Company’s affiliates serve the high net worth marketplace with high quality products and services of unique appeal to private clients. The Company also provides strategic oversight and access to resources, both financial and intellectual, to support affiliate management, marketing, compliance and legal activities. (NASDAQ: BPFH)

For more information about BPFH, visit the Company’s website at www.bostonprivate.com.

Forward-Looking Statements

Certain statements in this press release that are not historical facts may constitute 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, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements include, among others, statements regarding our strategy, evaluations of future interest rate trends and liquidity, prospects for growth in assets, and prospects for overall results over the long term. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Company’s control. Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. The Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, adverse conditions in the capital and debt markets and the impact of such conditions on the Company’s private banking, investment management, wealth advisory, and trust activities; changes in interest rates; competitive pressures from other financial institutions; the effects of weakness in general economic conditions on a national basis or in the local markets in which the Company operates; changes in loan defaults and charge-off rates; changes in the value of securities and other assets, adequacy of loan loss reserves, or decreases in deposit levels necessitating increased borrowing to fund loans and investments; operational risks including, but not limited to, cybersecurity, fraud and natural disasters; changes in government regulation; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; the risk that the Company’s deferred tax asset may not be realized; risks related to the identification and implementation of acquisitions, dispositions and restructurings; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K and updated by the Company’s Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statement is made.

Note to Editors:

Boston Private Financial Holdings, Inc. is not to be confused with Boston Private Bank & Trust Company. Boston Private Bank & Trust Company is a wholly-owned subsidiary of BPFH. The information reported in this press release is related to the performance and results of BPFH.

Boston Private Financial Holdings, Inc.
Selected Financial Data
(Unaudited)

FOOTNOTES:

(1) On December 20, 2017, Boston Private Financial Holdings, Inc. (the “Company”) announced an agreement, effective December 19, 2017, to sell all of its current equity interest in Anchor Capital Advisors LLC, an indirect, majority-owned subsidiary of the Company (“Anchor”), to the management team of Anchor for an upfront cash payment and a non-voting, revenue share participation interest in Anchor. On April 13, 2018, the Company completed the sale of its ownership interest in Anchor. Anchor’s results remain consolidated in the Company’s results during current and prior periods. For presentation purposes, Anchor’s AUM are excluded from current and prior period AUM amounts, but are included in the calculation of Core Fees and Income. The Company classified the assets and liabilities of Anchor as held for sale at March 31, 2018 and December 31, 2017, which are included with Other assets and Other liabilities, respectively, on the Company’s consolidated balance sheet. For regulatory purposes, the goodwill and intangible assets of Anchor will be included in consolidated calculations. See footnotes 6 and 8, below.

(2) Total revenue is the sum of Net interest income, Total core fees and income, and Total other income.

(3) Net income from discontinued operations consists of contingent payments net of expenses related to our divested affiliate, Westfield Capital Management Company, LLC. The Company received its final contingent payment in the first quarter of 2018 related to this affiliate.

(4) Adjustments to net income attributable to the Company to arrive at net income attributable to the common shareholders, as presented in these tables, include decrease/ (increase) in noncontrolling interests redemption value and dividends paid on preferred stock.

(5) When the Company has positive net income from continuing operations attributable to the common shareholders, the Company adds additional shares to basic weighted average shares outstanding to arrive at diluted weighted average shares outstanding for the diluted earnings per share calculation. These additional shares reflect the assumed exercise, conversion, or contingent issuance of dilutive securities. If the additional shares would result in anti-dilution they would be excluded from the diluted earnings per share calculation. The potential dilutive shares relate to: unexercised stock options, unvested restricted stock, and unexercised stock warrants. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 16: Earnings Per Share” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 for additional information.

(6) The Company uses certain non-GAAP financial measures, such as: Tangible book value per share and the Tangible common equity (“TCE”) to Tangible assets (“TA”) ratio to provide information for investors to effectively analyze financial trends of ongoing business activities, and to enhance comparability with peers across the financial sector.

Reconciliations from the Company’s GAAP Total equity to Total assets ratio to the Non-GAAP TCE to TA ratio, and from GAAP Book value to Non-GAAP Tangible book value are presented below:

The Company calculates Tangible assets by adjusting Total assets to exclude Goodwill and intangible assets.

The Company calculates Tangible common equity by adjusting Total equity to exclude non-convertible Series D preferred stock and exclude Goodwill and intangible assets, net.

* Includes goodwill and intangible assets at affiliates held for sale.
** Risk weighted assets and Tier 1 common equity for March 31, 2018 are presented based on estimated data.

Boston Private Financial Holdings, Inc.
Selected Financial Data
(Unaudited)

(7) Assets under management and advisory for all periods shown have been reduced to exclude those assets managed or advised by Anchor.

(8) The Company uses certain non-GAAP financial measures, such as: Return on average common equity and Return on average tangible common equity to provide information for investors to effectively analyze financial trends of ongoing business activities, and to enhance comparability with peers across the financial sector.

Reconciliations from the Company’s GAAP Return on average equity ratio to the Non-GAAP Return on average common equity ratio, and the Non-GAAP Return on average tangible common equity ratio are presented below:

The Company annualizes income data based on the number of days in the period presented and a 365 day year. The Company calculates Average common equity by adjusting Average equity to exclude Average preferred equity. The Company calculates Average tangible common equity by adjusting Average equity to exclude Average goodwill and intangible assets, net and Average preferred equity.

* Includes goodwill and intangible assets at affiliates held for sale.

(9) The Company uses certain non-GAAP financial measures, such as: pre-tax, pre-provision income, total operating expenses excluding amortization of intangibles, goodwill impairment, and restructuring expense, and the efficiency ratio to provide information for investors to effectively analyze financial trends of ongoing business activities, and to enhance comparability with peers across the financial sector.

Reconciliations from the Company’s GAAP income from continuing operations before income taxes to non-GAAP pre-tax, pre-provision income; from GAAP total operating expense to non-GAAP total operating expense excluding amortization of intangibles, goodwill impairment, and restructuring; and from GAAP efficiency ratio to Non-GAAP efficiency ratio (FTE basis), excluding amortization of intangibles, goodwill impairment, and restructuring, are presented below: