Boston Private Financial Holdings Inc. [BPFH] hopes that its strategic about-face in 2009 will enable it to get back to the business of wealth management growth this year.
The company spent 2009 exchanging its long-term expansion plans for extra capital. However, armed with a stronger balance sheet, analysts think the financial services firm can focus on developing a smaller—but stronger—network of wealth advisors.
“Steady progression was the story of the year for us,” Timothy L. Vaill, the chairman and chief executive of Boston Private, said during its earnings conference call Thursday. “Obviously, we had a challenging year in 2009,” Vaill said. “As we dealt with the recession, we made deliberate steps to ride out the storm and strengthen our balance sheet.” Vaill pointed that that there is more for the company to do to right the ship. “Though the work is not done, we believe things are heading in the right direction,” he said. “We remain resolute about improving our capital position.”
Earlier this month, the company announced that it received approval from the Treasury Department to begin repaying the $154 million in outstanding Series C preferred stock that was issued to the Treasury as part of its Capital Purchase Program. The redemption of $50 million of preferred stock was completed Jan. 14. Boston Private said it will result in annual savings of $2.5 million, or $0.04 per share, due to the elimination of the associated preferred dividends. However, a one-time, non-cash, after-tax reduction in earnings per share of $0.04 will be incurred in the company’s first quarter earnings. Vaill said Boston Private specifically requested not to fully repay the $154 million of TARP funding right away. “We think repaying in stages is the right way,” he said.
David Rochester, an analyst at FBR Capital Markets Corp., reiterated a “market perform rating” on Boston Private. He wrote in a research note Thursday that its “recent moves to de-risk the balance sheet and improve capital levels favorably” are excellent signs that the company has “incrementally reduced uncertainty with regard to the earnings stream and reduced the probability of a capital raise over the next year.” Rochester added: “Overall we believe trends continue to inch in the right direction, but the current premium valuation of the shares could limit opportunities for relative share outperformance in the near-term.”
Boston Private spent much of the second half of last year selling businesses to generate cash. In September, it sold Gibraltar Private Bank and Trust Co. in Coral Gables, Fla., to private investors for $93 million in cash, and Rinet Co. LLC, an advisory firm in Boston for the ultra-wealthy, to its management team for $6 million. In October, Boston Private said it would complete the sale of Westfield Capital Management Co. to the company's management team by the end of this quarter, rather than in 2014. That sale is expected to generate $59 million. In total, Vail said that these initiatives added $100 million of cash to the company’s balance sheet.
David Kay, Boston Private's chief financial officer, said that it has increased its Tier One capital ratio over 16%.
Analysts said Boston Private’s conservative approach is a swift departure for the company. As recently as two years ago its strategy was to establish hubs nationally by buying regional wealth managers and private banks. Analysts said it averaged a deal every 18 months and had its eye on expanding into 12 to 15 other regions.
Boston Private has retained operations in Boston, California and the Pacific Northwest. Vail said the company will take a long-term approach as it looks to strategically grow in those markets. “Vigilance will remain our watch word,” he said.
“We want to strengthen our core businesses and intend to continue a determined approach while eliminating risk,” he said. “Our long-term strategy remains clear. We want to develop strong relationships and holistic services in demographically attractive markets across the country. … We want to strengthen ties to set the stage for growth going forward.”
One silver lining for Boston Private was its wealth advisory group. Boston Private’s total assets under management rose 11% to $18.5 billion from a year earlier, despite declining 2% from the previous quarter. The wealth advisory group is responsible for 60% of those assets, according to Jay Cromarty, an executive vice president at Boston Private and CEO of its wealth advisory group. Despite economic conditions, the group has been able to retain its customers and seen an influx of new assets, Cromarty said.
On Thursday, Boston Private reported a fourth quarter net loss from continuing operations of $3.16 million, or $0.05 per share, compared to a loss of $13.62 million or $0.22 per share a year earlier. Excluding certain items, the company reported net income of $28.3 million or $0.42 per share, compared to a loss of $29.7 million or $0.47 per share a year earlier. The company beat analyst estimates by a penny, according to Thomson Reuters [TRI]. Revenue for the fourth quarter rose 38.8% to $83.4 million from a year earlier.