| The parent company of Boston Private reported profits in the second quarter, but took a substantial hit that was expected due to its recent divestiture of Anchor Capital Advisors, while also facing significant deposit competition.
The company reported second quarter net income of $6.4 million, or $0.06 per diluted share, compared to $22.7 million in the linked quarter and $23.4 million in the second quarter of 2017.
Net interest income for the quarter was $57.5 million, $400,000 higher than the same time period one year ago. The net interest margin settled at 2.89, down 6 basis points from the linked quarter and 18 basis points year over year.
“This quarter’s reported results were heavily influenced by a $12.7 million tax charge related to the divestiture of Anchor Capital in April of 2018,” Boston Private CEO Clayton Deutsch said on an earnings call. “Despite this charge, the Anchor divestiture created economic value in the form of an ongoing cash flow stream and capital flexibility. Additionally, we utilized the proceeds to help fund the redemption of $50 million of preferred shares in order to benefit common shareholders in future periods.”
Boston Private will get approximately $32 million in cash at closing and future revenue share payments that have a net present value of approximately $15 million, subject to purchase price adjustments. The net financial impact also increased tier 1 common equity by approximately $30 million to $35 million.
The big story of the quarter, however, had to do with deposit pressure.
Total deposits at the end of the second quarter were $6.62 billion, up nearly $240 million year-over-year. But total interest-bearing deposits were at roughly $4.48 billion at the end of the second quarter, down slightly year-over-year.
Boston Private CFO Steven Gaven said the cost of interest bearing deposits was up 17 basis points from the linked quarter, while the cost of total deposits was up 12 basis points.
“We need to turn our full attention to deposit generation and NIM defense,” Deutsch said.
He added that the second half of the year has historically been the time when the bank brings in more deposits, and said the bank had a whole round of marketing initiatives and introductions set up. He also said the bank is interested in pursuing core deposits rather than “hot money.”
With a 104 percent loan-to-value ratio and continuing deposit pressure, one investor asked Boston Private executives if current loan projections were still reasonable. Gaven said everything would be based on how deposits come in.
Both the wealth management and advisory divisions saw negative flows in the second quarter, while the investment management division had its best quarter since early 2017, with $27 million in positive net flows of assets under management.
Deutsch attributed the $77 million of out flows in the wealth management division to the departure of a senior advisor, but expects a strong second half of the year.
The company recorded a provision expense of $0.5 million for the second quarter of 2018, compared to a credit of $1.8 million for the first quarter of 2018 and a credit of $6.1 million for the second quarter of 2017.
