Boston Private Reports Fourth Quarter and Full Year 2020 Results

BOSTON--(BUSINESS WIRE)--Boston Private Financial Holdings, Inc. (NASDAQ: BPFH) (the “Company” or “Boston Private”) today reported fourth quarter 2020 Net income attributable to the Company of $25.0 million, compared to $22.7 million for the third quarter of 2020 and $21.2 million for the fourth quarter of 2019. Fourth quarter 2020 Diluted earnings per share were $0.30, compared to $0.28 in the third quarter of 2020 and $0.26 in the fourth quarter of 2019.

"Fourth quarter 2020 results were positively impacted by a release from our allowance for loan losses and Paycheck Protection Program revenue, while strong deposit growth enhanced on-balance sheet liquidity," said Anthony DeChellis, CEO of Boston Private. "I am extremely proud of our team's accomplishments throughout 2020. We continued to deliver exceptional client service in a challenging environment, while improving our client experience and executing on our strategic plan. We are excited about the prospects of our pending merger with SVB Financial Group. Together, we will be well positioned to grow and scale our business, while enhancing shareholder value."

Announced Merger

As previously announced, the Company entered into a definitive merger agreement with SVB Financial Group ("SVB") pursuant to which SVB will acquire Boston Private. The transaction has been unanimously approved by both companies' Boards of Directors and is expected to close in mid-2021, subject to the satisfaction of customary closing conditions, including receipt of customary regulatory approvals and approval by the shareholders of Boston Private.

The Company's financial results improved linked quarter and year-over-year primarily as a result of a Total provision credit of $5.4 million, Paycheck Protection Program ("PPP") fees, and higher swap fees in the fourth quarter of 2020.

Net interest income for the fourth quarter of 2020 was $59.4 million, a 3% increase linked quarter and a 6% increase year-over-year. The linked quarter and year-over-year increases were primarily driven by $3.8 million of PPP loan-related income, and prepayment penalties, partially offset by lower asset yields. The Small Business Administration ("SBA") forgave approximately $60 million of PPP loans in the fourth quarter of 2020, which drove the accelerated recognition of PPP income. Excluding the impact of PPP loans, prepayment penalties and interest recoveries, Net interest income was flat linked quarter.

Net interest margin decreased 9 basis points on a linked quarter basis to 2.52%. The decline was primarily driven by lower asset yields and excess cash balances, partially offset by lower funding costs.

Total core fees and income for the fourth quarter of 2020 was $25.2 million, a 15% increase linked quarter. The linked quarter increase was primarily driven by higher swap fees and higher BOLI income in the fourth quarter of 2020.

Total AUM were $17.1 billion as of December 31, 2020, a 5% increase linked quarter. The linked quarter increase was primarily driven by the impact of favorable market action, partially offset by net outflows.

Total net flows were negative $396 million during the fourth quarter of 2020, driven by net flows of negative $268 million at DGHM and negative $128 million in the Wealth Management and Trust segment. Negative flows in the Wealth Management and Trust segment were driven by distributions to existing clients during the quarter. New business at Wealth Management & Trust remained strong at $297 million for the fourth quarter of 2020, compared to $299 million for the third quarter of 2020 and $1.1 billion for the year 2020.

Total noninterest expense for the fourth quarter of 2020 was $58.0 million, a 5% decrease linked quarter. The improvement linked quarter was driven primarily by a provision credit for unfunded loan commitments of $2.4 million in the fourth quarter of 2020, compared to a $1.8 million expense in the third quarter of 2020, each of which are recognized in Other expense.

Excluding the Reserve for unfunded loan commitments, Total noninterest expense (non-GAAP) for the fourth quarter of 2020 was $60.4 million, an increase of 2% linked quarter and an increase of 3% year-over-year. The linked quarter and year-over-year increases are driven primarily by higher Information systems expense from technology initiatives placed in service and higher compensation expense.

Income Tax Expense

The Company's effective tax rate for the fourth quarter of 2020 was 19.7%. The increase in the effective tax rate linked quarter reflects the impact of higher pre-tax income.

Average total loans, excluding PPP (non-GAAP) in the fourth quarter of 2020 decreased 1% linked quarter and decreased 3% year-over-year.

• Commercial and industrial loans decreased 9% year-over-year driven by lower revolving line of credit usage
• PPP loans decreased 6% linked quarter driven by the SBA's forgiveness of approximately 200 loans totaling $60 million in the fourth quarter of 2020
• Commercial real estate loans increased 2% linked quarter driven by the conversion of two loans from construction to permanent financing during the fourth quarter of 2020
• Residential mortgage loans decreased 3% linked quarter and 7% year-over-year driven by the sale of $72 million of loans late in the third quarter of 2020

Average total deposits in the fourth quarter of 2020 increased 8% linked quarter and 20% year-over-year to $8.4 billion. The linked quarter and year-over-year increases were driven by a combination of existing and new client balances.

The Company recorded a Total provision credit for credit losses of $5.4 million during the fourth quarter of 2020. The provision release was primarily driven by an improved economic forecast related to the current expected credit losses methodology, partially offset by increased qualitative reserves for Commercial real estate. The Allowance for loan losses as a percentage of Total loans, excluding PPP loans (non-GAAP), was 1.19% in the fourth quarter of 2020, compared to 1.23% in the third quarter of 2020.

Total nonaccrual loans as of December 31, 2020 was $23.9 million, a decrease of $17.4 million, or 42%, linked quarter primarily driven by the payoff of a Commercial and industrial relationship in Northern California.

Total criticized and classified loans as of December 31, 2020 was $318.0 million, a decrease of $4.6 million, or 1%, linked quarter. In the fourth quarter of 2020, there were:

• $39 million of loan payoffs, paydowns and upgrades
• $35 million of loan downgrades, including $31 million of Commercial real estate loans across 8 relationships, primarily with retail, office, and hospitality collateral

As of December 31, 2020:

• Residential loans on deferral totaled approximately $15 million, or 0.6% of total residential loans, compared to a peak of approximately $220 million in the second quarter of 2020
• Commercial and industrial loans on deferral totaled approximately $11 million, or 1.1% of total Commercial and industrial loans, compared to a peak of approximately $125 million in the second quarter of 2020
• The majority of Commercial real estate clients that qualified for and accepted the debt service reserve program remain in the program, representing a total loan balance of approximately $72 million, or 2.6% of total Commercial real estate loans

The Company's tangible book value per share increased to $9.73 in the fourth quarter of 2020, a 8% increase year-over-year.

Dividend Payments

Concurrent with the release of fourth quarter 2020 earnings, the Board of Directors of the Company declared a cash dividend payable to common shareholders of $0.06 per share. The record date for this dividend is February 5, 2021, and the payment date is February 19, 2021.

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: return on average common equity; return on average tangible common equity; return on average assets; tangible book value per share; pre-tax, pre-provision income; tangible common equity / tangible assets; the efficiency ratio excluding amortization of intangibles; net income/(loss) attributable to the Company excluding notable items; total noninterest expense, excluding reserve for unfunded loan commitments; net income/(loss) attributable to the common shareholders, treasury stock method, excluding notable items; diluted earnings/(loss) per share excluding notable items; average total loans, excluding PPP; and total loans, excluding PPP.

A detailed reconciliation table of the Company’s GAAP to non-GAAP measures is included in the tables of this release and beginning on page 16 of the attached financial statements.

About Boston Private

Boston Private is a leading provider of integrated wealth management, trust and banking services to individuals, families, businesses and nonprofits.

For more than 30 years, Boston Private has delivered comprehensive advice coupled with deep technical expertise to help clients simplify their lives and achieve their goals. The firm offers the capabilities of a large institution with the superior service of a boutique firm to clients across the United States.

Boston Private is the corporate brand of Boston Private Financial Holdings, Inc. (NASDAQ: BPFH).

For more information, visit 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 interest rate trends and future liquidity; expectations as to changes in assets, deposits and results of operations; the impact of the COVID-19 pandemic; future operations; market position and financial position; and prospects, plans and objectives of management. 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, the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; the length and extent of the economic contraction as a result of the COVID-19 pandemic; continued deterioration in employment levels, general business and economic conditions on a national basis and in the local markets in which the Company operates; the failure to obtain our shareholder’s approval to our proposed merger with SVB; the risk that a condition to closing of the proposed merger may not be satisfied; the risk that a regulatory approval that may be required for the proposed merger is not obtained or is obtained subject to conditions that are not anticipated; the effect of the announcement of the proposed merger on our ability to maintain relationships with our key partners, customers and employees, and on our operating results and business generally; changes in customer behavior; the possibility that future credits losses are higher than currently expected due to changes in economic assumptions, customer behavior or adverse economic developments; turbulence in the capital and debt markets; changes in interest rates; increases in loan defaults and charge-off rates; decreases in the value of securities and other assets; changes in loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and investments; competitive pressures from other financial institutions; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; changes in regulation; reputational risk relating to the Company’s participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; risks 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 statements are made.