| 
Investors honed in on operating expenses for Boston Private Financial Holdings, the parent company of Boston Private, after the company reported higher than expected expenses in the third quarter.
Total operating expenses for the $8.27 billion asset company for the three months ending Sept. 30 totaled $69.3 million, up $1.5 million from the second quarter and 12 percent year-over-year, primarily due to increased compensation expense and technology initiatives.
“We made a purposeful step on staffing and technology spending to drive a higher rate of client acquisition and development,” Clayton Deutsch, CEO and president of the company, told shareholders on an earnings call. “We accomplished what we set out to do for staffing.”
According to call reports for Boston Private and Bank Trust Co., the private banking side of the company added 30 new employees since the third quarter of 2016, bringing total full time equivalent employees in this sector to 759 as of Sept. 30.
The growth in employees brought the cost of employee benefits and salaries to $93.5 million, an increase of roughly $8.5 million since the third quarter of 2016.
Deutsch said he did not expect hiring to continue at this pace, and that there is probably $1 million of operating expenses he wouldn’t expect to see in the next quarter. He said he expects the investment to soon result in operating leverage.
Overall, the company had another quarter of double-digit net growth, with $19.8 million net income in the third quarter, a decrease of about $3.5 million from the linked quarter and a $0.2 million increase from the third quarter of last year.
Deutsch said the decline in net income from the previous quarter is due to a $6 million credit provision the company had in the second quarter.
This was driven by second quarter net recoveries, declines in quantitative loss factors, a decrease in criticized loans and a decline in commercial loans, partially offset by residential loan growth. The company in the second quarter recovered $3.1 million in loans that had previously been charged-off, primarily in the commercial real estate category and in the San Francisco and New England markets.
Net interest income for the quarter was $56.6 million, a 14 percent increase from the third quarter of 2016. The net interest margin for the third quarter was 3.02 percent, an increase of five basis points from the second quarter of 2017 and an increase of 16 basis points from the third quarter of 2016.
Total core fees and income for the third quarter was $39.1 million, a three percent increase year-over-year, reflecting higher levels of assets under management in the wealth management and trust, investment management and wealth advisory segments.
Net flows in the company’s investment management division were negative $152 million for the third quarter, down $41 million from the same time period of 2016. Net flows in the company’s wealth advisory division were negative $71 million for the third quarter, $35 million better than the third quarter of 2016. And net flows in the wealth management division for the third quarter were $114 million, $234 million higher than the third quarter of last year.
Total loans are up more than $500 million year-over-year, driven by growth in residential and commercial real estate. Total deposits grew $450 million year-over-year. The company once again had a credit provision of $432,000 in the third quarter.
