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.

         
Summary Financial Results - Reported
% Change
($ in millions, except for per share data) 1Q18 4Q17 1Q17

Linked
Quarter

Year over
Year

Net income/ (loss) attributable to the Company $22.7 $(18.3) $15.7 nm 45 %
Diluted earnings/ (loss) per share $0.27 $(0.24) $0.17 nm 59 %
 

Non-GAAP Financial Measures:

Pre-tax, pre-provision income $26.3 $2.5 $21.4 nm 23 %
Return on average common equity 12.0 % (9.9 )% 8.3 %
Return on average tangible common equity 15.2 % (11.9 )% 11.4 %
nm = not meaningful
 

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.

     
Summary Financial Results - Operating Basis (non-GAAP)
    % Change
($ in millions, except for per share data) 1Q18 4Q171 1Q17 Linked
Quarter		 Year over
Year
Net income/ (loss) attributable to the Company $22.7 $20.6 $15.7 10 % 45 %
Diluted earnings/ (loss) per share $0.27 $0.22 $0.17 23 % 59 %
 
Pre-tax, pre-provision income $26.3 $29.0 $21.4 (9 )% 23 %
Return on average common equity 12.0 % 10.2 % 8.3 %
Return on average tangible common equity 15.2 % 13.4 % 11.4 %

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 and Margin (non-GAAP, except for Net Interest Income)
      % Change
($ in millions) 1Q18 4Q17 1Q17 Linked
Quarter		 Year over
Year
Net interest income $57.4 $57.3 $53.6 — % 7 %
Add: FTE adjustment 1.0 2.9 2.8 (66 )% (65 )%
Net interest income, FTE basis 58.4 60.1 56.5 (3 )% 3 %
Less: Interest recovered on previous nonaccrual loans 0.1 0.4 0.3 (81 )% (73 )%
Core net interest income, FTE basis $58.3 $59.7 $56.2 (2 )% 4 %
 
Net interest margin (FTE basis) 2.95 % 3.04 % 2.94 %
Core net interest margin (FTE basis) 2.94 % 3.02 % 2.92 %
Core net interest margin (non-FTE basis) 2.90 % 2.87 % 2.78 %
 

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.

         
Noninterest Income
% Change
($ in millions) 1Q18 4Q17 1Q17

Linked
Quarter

Year over
Year
Investment management fees $11.4 $12.3 $10.8 (7 )% 5 %
Wealth advisory fees 13.5 13.5 12.8 — % 5 %
Wealth management and trust fees 12.2 11.8 10.8 3 % 12 %
Private banking fees2 2.3 2.6 1.8 (10 )% 28 %
Total core fees and income $39.4 $40.2 $36.3 (2 )% 9 %
Total other income $0.3 $(1.0) $0.2 nm 66 %
Total noninterest income $39.7 $39.2 $36.5 1 % 9 %

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.

         
Assets Under Management
% Change
($ in millions) 1Q18 4Q17 1Q17 Linked
Quarter		 Year over
Year
Wealth Management and Trust $7,831 $7,865 $7,260 — % 8 %
Investment Management 3 1,920 2,004 1,849 (4 )% 4 %
Wealth Advisory 11,446 11,350 10,579 1 % 8 %
Total assets under management 3 4 $21,186 $21,208 $19,677 — % 8 %
 
Net flows 1Q18 4Q17 1Q17
Wealth Management and Trust $77 $79 $34
Investment Management 3 (15) 20 30
Wealth Advisory 136 29 263
Total net flows 3 $198 $128 $327

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.

         
Operating Expense
% Change
($ in millions) 1Q18 4Q17 1Q17 Linked
Quarter		 Year over
Year
Salaries and employee benefits $47.2 $43.9 $45.8 8 % 3 %
Occupancy and equipment 7.7 7.8 7.2 — % 8 %
Professional services 3.2 4.0 3.3 (21 )% (4 )%
Marketing and business development 1.6 1.9 1.7 (17 )% (4 )%
Information systems 5.9 5.6 5.4 4 % 9 %
Amortization of intangibles 0.8 1.3 1.4 (43 )% (47 )%
Impairment of goodwill - 24.9 - (100 )% nm
FDIC insurance 0.7 0.7 0.8 10 % (3 )%
Other 3.7 3.8 3.2 (2 )% 16 %
Total operating expense $70.9 $94.0 $68.8 (25 )% 3 %
Less: Impairment of goodwill - 24.9 - nm nm
Less: Anchor divestiture legal expense - 0.4 - nm nm
Adjusted operating expense (non-GAAP) 5 $70.9 $68.7 $68.8 3 % 3 %

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.

         
Loans and Deposits - QTD Averages
% Change
($ in millions) 1Q18 4Q17 1Q17 Linked
Quarter		 Year over
Year
Commercial and industrial $933 $962 $984 (3 )% (5 )%
Commercial real estate 2,441 2,370 2,324 3 % 5 %
Construction and land 169 131 114 29 % 49 %
Residential 2,702 2,650 2,425 2 % 11 %
Home equity 97 105 118 (7 )% (17 )%
Other consumer 186 178 192 4 % (3 )%
Total loans $6,529 $6,396 $6,157 2 % 6 %
 

Non-interest bearing deposits

1,872 1,895 1,844 (1 )% 2 %
Interest bearing deposits 4,516 4,550 4,455 (1 )% 1 %
Total deposits $6,388 $6,445 $6,299 (1 )% 1 %
 

Non-interest bearing deposits as a % of Total deposits

29 % 29 % 29 %
 

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.

         
Provision and Asset Quality
 
($ in millions) 1Q18 4Q17 3Q17 2Q17 1Q17
Provision/ (credit) for loan loss $(1.8) $(0.9) $(0.4) $(6.1) $(0.2)
Total criticized loans 124.1 154.8 146.0 129.5 135.1
Total nonaccrual loans 16.4 14.3 13.6 16.2 20.9
Total loans 30-89 days past due and accruing 20.4 25.0 5.3 3.2 28.7
Total net loans (charged-off)/ recovered - 0.8 0.3 3.1 0.1
 
Ratios:
Allowance for loan losses as a % of Total loans 1.10 % 1.15 % 1.17 % 1.19 % 1.25 %
Nonaccrual loans as a % of Total loans 0.25 % 0.22 % 0.21 % 0.26 % 0.34 %
 

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.

         
Capital
  1Q18 4Q17 3Q17 2Q17 1Q17
Tangible common equity/ Total assets 7 7.4 % 7.3 % 7.4 % 7.4 % 7.0 %
Tangible book value per share 7 $7.17 $7.12 $7.16 $6.97 $6.73
 
Regulatory Capital Ratios: 8
Tier 1 common equity 10.4 % 10.3 % 10.4 % 10.3 % 10.0 %
Total risk-based capital 14.2 % 14.1 % 14.3 % 14.1 % 13.8 %
Tier 1 risk-based capital 12.9 % 12.9 % 13.0 % 12.9 % 12.6 %
Tier 1 leverage capital 9.4 % 9.3 % 9.4 % 9.3 % 9.2 %

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)

 
  March 31,
2018		   December 31,
2017		   September 30,
2017		   June 30,
2017		   March 31,
2017
(In thousands, except share and per share data)
Assets:
Cash and cash equivalents $ 77,085 $ 120,541 $ 110,440 $ 97,032 $ 165,186
Investment securities available-for-sale 1,118,497 1,170,328 1,189,827 1,188,720 1,256,208
Investment securities held-to-maturity 70,809 74,576 84,090 99,024 98,424
Stock in Federal Home Loan Bank and Federal Reserve Bank 54,455 59,973 61,714 45,568 50,133
Loans held for sale 3,918 4,697 1,957 2,870 350
Total loans 6,602,327 6,505,028 6,413,201 6,279,928 6,250,217
Less: Allowance for loan losses 72,898   74,742   74,873   75,009   78,031  
Net loans 6,529,429 6,430,286 6,338,328 6,204,919 6,172,186
Premises and equipment, net 43,627 37,640 36,546 34,135 32,974
Goodwill (1) 75,598 75,598 142,554 142,554 142,554
Intangible assets, net (1) 15,334 16,083 22,447 23,873 25,299
Fees receivable 10,640 11,154 12,560 12,639 12,230
Accrued interest receivable 22,614 22,322 21,823 20,680 20,790
Deferred income taxes, net 32,058 29,031 46,088 49,827 53,686
Other assets (1) 264,295   259,515   201,024   185,805   185,100  
Total assets $ 8,318,359   $ 8,311,744   $ 8,269,398   $ 8,107,646   $ 8,215,120  
Liabilities:
Deposits $ 6,584,322 $ 6,510,246 $ 6,262,347 $ 6,381,339 $ 6,246,620
Securities sold under agreements to repurchase 85,257 32,169 59,903 29,232 67,249
Federal funds purchased — 30,000 70,000 40,000 —
Federal Home Loan Bank borrowings 611,588 693,681 812,773 618,989 885,445
Junior subordinated debentures 106,363 106,363 106,363 106,363 106,363
Other liabilities (1) 125,004   135,880   127,069   115,088   110,310  
Total liabilities 7,512,534   7,508,339   7,438,455   7,291,011   7,415,987  
Redeemable noncontrolling interests (“RNCI”) 16,322 17,461 15,882 17,216 17,232
Shareholders’ equity:
Preferred stock, $1.00 par value; authorized: 2,000,000 shares 47,753 47,753 47,753 47,753 47,753
Common stock, $1.00 par value; authorized: 170,000,000 shares 84,194 84,208 84,082 84,015 84,134
Additional paid-in capital 612,526 607,929 606,802 602,507 602,748
Retained earnings 61,518 49,526 76,455 66,807 53,510
Accumulated other comprehensive income/ (loss) (21,313 ) (8,658 ) (4,823 ) (6,038 ) (10,237 )
Total Company’s shareholders’ equity 784,678   780,758   810,269   795,044   777,908  
Noncontrolling interests 4,825   5,186   4,792   4,375   3,993  
Total shareholders’ equity 789,503   785,944   815,061   799,419   781,901  
Total liabilities, redeemable noncontrolling interests and shareholders’ equity $ 8,318,359   $ 8,311,744   $ 8,269,398   $ 8,107,646   $ 8,215,120  
 
 

Boston Private Financial Holdings, Inc.

Selected Financial Data (Unaudited)

 
  Three Months Ended
March 31,
2018		   December 31,
2017		   September 30,
2017		   June 30,
2017		   March 31,
2017
Interest and dividend income: (In thousands, except share and per share data)
Loans $ 60,929 $ 59,496 $ 58,096 $ 57,736 $ 53,636
Taxable investment securities 1,510 1,562 1,569 1,592 1,670
Non-taxable investment securities 1,730 1,697 1,664 1,655 1,606
Mortgage-backed securities 3,178 3,125 3,267 3,495 3,504
Federal funds sold and other 1,009   978   916   831   600  
Total interest and dividend income 68,356   66,858   65,512   65,309   61,016  
Interest expense:
Deposits 6,524 6,048 5,356 4,949 4,531
Federal Home Loan Bank borrowings 3,344 2,626 2,657 2,489 2,111
Junior subordinated debentures 846 771 761 716 671
Repurchase agreements and other short-term borrowings 259   141   111   10   61  
Total interest expense 10,973   9,586   8,885   8,164   7,374  
Net interest income 57,383 57,272 56,627 57,145 53,642
Provision/ (credit) for loan losses (1,795 ) (942 ) (432 ) (6,114 ) (181 )
Net interest income after provision/ (credit) for loan losses 59,178   58,214   57,059   63,259   53,823  
Fees and other income:
Investment management fees 11,425 12,321 11,274 11,081 10,839
Wealth advisory fees 13,512 13,496 13,279 12,961 12,823
Wealth management and trust fees 12,151 11,756 11,619 11,161 10,826
Other banking fee income 2,273 2,531 2,726 1,964 1,694
Gain on sale of loans, net 74   85   169   59   138  
Total core fees and income 39,435   40,189   39,067   37,226   36,320  
Gain/ (loss) on sale of investments, net (24 ) (110 ) 230 237 19
Gain/ (loss) on OREO, net — — — — (46 )
Gain/ (loss) on sale of affiliates or offices — (1,264 ) — — —
Other 332   360   970   555   213  
Total other income 308   (1,014 ) 1,200   792   186  
Total revenue (2) 97,126 96,447 96,894 95,163 90,148
Operating expense:
Salaries and employee benefits 47,219 43,920 45,168 43,493 45,825
Occupancy and equipment 7,748 7,753 7,944 7,283 7,185
Professional services 3,177 4,035 3,308 3,106 3,314
Marketing and business development 1,593 1,919 2,216 1,971 1,660
Information systems 5,886 5,635 5,282 5,500 5,379
Amortization of intangibles 750 1,323 1,426 1,426 1,426
Impairment of goodwill — 24,901 — — —
FDIC insurance 744 677 647 879 766
Other 3,740   3,826   3,355   4,163   3,225  
Total operating expense 70,857   93,989   69,346   67,821   68,780  
Income before income taxes 28,064 3,400 27,980 33,456 21,549
Income tax expense 6,026   21,391   8,289   9,963   6,553  
Net income/ (loss) from continuing operations 22,038 (17,991 ) 19,691 23,493 14,996
Net income from discontinued operations (3) 1,698   989   1,186   1,063   1,632  
Net income/ (loss) before attribution to noncontrolling interests 23,736 (17,002 ) 20,877 24,556 16,628
Less: Net income attributable to noncontrolling interests 1,050   1,278   1,074   1,150   966  
Net income/ (loss) attributable to the Company $ 22,686   $ (18,280 ) $ 19,803   $ 23,406   $ 15,662  
 
 

Boston Private Financial Holdings, Inc.

Selected Financial Data (Unaudited)

 
  Three Months Ended
PER SHARE DATA: March 31,
2018		   December 31,
2017		   September 30,
2017		   June 30,
2017		   March 31,
2017
(In thousands, except share and per share data)
Calculation of income for EPS:
Net income/ (loss) attributable to the Company $ 22,686 $ (18,280 ) $ 19,803 $ 23,406 $ 15,662
Adjustments to Net income/ (loss) attributable to the Company to arrive at Net income/ (loss) attributable to common shareholders, treasury stock method (4) (23 ) (1,998 ) (1,146 ) (577 ) (1,166 )
Net income/ (loss) attributable to the common shareholders, treasury stock method $ 22,663   $ (20,278 ) $ 18,657   $ 22,829   $ 14,496  
 
End of period common shares outstanding 84,194,267 84,208,538 84,082,250 84,015,141 84,134,104
 
Weighted average shares outstanding:
Weighted average basic shares outstanding 83,097,758 82,904,776 82,556,225 82,298,493 81,951,179
Weighted average diluted shares outstanding (5) 85,271,650 82,904,776 84,888,311 84,741,680 84,560,918
 
Diluted total earnings/ (loss) per share $ 0.27 $ (0.24 ) $ 0.22 $ 0.27 $ 0.17
 
 

Boston Private Financial Holdings, Inc.

Selected Financial Data (Unaudited)

 
(In thousands, except per share data)  

March 31,
2018

   December 31,
2017		   September 30,
2017		   June 30,
2017		   March 31,
2017
FINANCIAL DATA:
Book value per common share $ 8.81 $ 8.77 $ 9.13 $ 8.95 $ 8.73
Tangible book value per share (6) $ 7.17 $ 7.12 $ 7.16 $ 6.97 $ 6.73
Market price per share $ 15.05 $ 15.45 $ 16.55 $ 15.35 $ 16.40
 
ASSETS UNDER MANAGEMENT AND ADVISORY:
Wealth Management and Trust $ 7,831,000 $ 7,865,000 $ 7,703,000 $ 7,429,000 $ 7,260,000
Investment Managers (7) 1,920,000 2,004,000 1,902,000 1,829,000 1,849,000
Wealth Advisory 11,446,000 11,350,000 10,992,000 10,744,000 10,579,000
Less: Inter-company Relationship (11,000 ) (11,000 ) (11,000 ) (11,000 ) (11,000 )
Total Assets Under Management and Advisory, excluding Anchor (7) $ 21,186,000   $ 21,208,000   $ 20,586,000   $ 19,991,000   $ 19,677,000  
Assets under management and advisory at Anchor 9,042,000   9,277,000   9,181,000   9,072,000   9,058,000  
Total assets under management and advisory, including Anchor $ 30,228,000   $ 30,485,000   $ 29,767,000   $ 29,063,000   $ 28,735,000  
 
FINANCIAL RATIOS:
Total equity/ Total assets 9.49 % 9.46 % 9.86 % 9.86 % 9.52 %
Tangible common equity/ Tangible assets (6) 7.38 % 7.33 % 7.43 % 7.37 % 7.04 %
Tier 1 common equity/ Risk weighted assets (6) 10.39 % 10.32 % 10.42 % 10.28 % 9.97 %
Allowance for loan losses/ Total loans 1.10 % 1.15 % 1.17 % 1.19 % 1.25 %
Allowance for loan losses/ Nonaccrual loans 445 % 523 % 550 % 464 % 373 %
Return on average assets - three months ended (annualized) 1.11 % (0.88 )% 0.96 % 1.15 % 0.79 %
Return on average common equity - three months ended (annualized) (8) 12.02 % (9.92 )% 9.87 % 12.12 % 8.26 %
Return on average tangible common equity - three months ended (annualized) (8) 15.20 % (11.94 )% 13.24 % 16.27 % 11.43 %
Efficiency ratio - three months ended (9) 71.46 % 68.23 % 68.06 % 67.69 % 72.45 %
 
DEPOSIT DETAIL:
Demand deposits (noninterest-bearing) $ 1,932,732 $ 2,025,690 $ 1,850,833 $ 1,935,622 $ 1,772,854
NOW 689,526 645,361 636,013 631,973 620,280
Savings 73,580 70,935 74,333 69,892 74,293
Money market 3,177,692 3,121,811 3,009,779 3,055,642 3,176,472
Certificates of deposit 710,792   646,449   691,389   688,210   602,721  
Total deposits $ 6,584,322   $ 6,510,246   $ 6,262,347   $ 6,381,339   $ 6,246,620  
 
 

Boston Private Financial Holdings, Inc.

Selected Financial Data (Unaudited)

 
  Average Balance   Interest Income/Expense   Average Yield/Rate
(In thousands) Three Months Ended Three Months Ended Three Months Ended
AVERAGE BALANCE SHEET: 03/31/18   12/31/17   03/31/17 03/31/18   12/31/17   03/31/17 03/31/18   12/31/17   03/31/17
AVERAGE ASSETS            
Interest-earning assets:
Cash and investments:
Taxable investment securities $ 333,253 $ 345,743 $ 395,728 $ 1,510 $ 1,562 $ 1,670 1.81 % 1.81 % 1.69 %
Non-taxable investment securities (10) 296,958 298,851 295,015 2,190 2,611 2,471 2.95 % 3.50 % 3.35 %
Mortgage-backed securities 588,461 608,508 672,683 3,178 3,125 3,504 2.16 % 2.05 % 2.08 %
Federal funds sold and other 161,573   172,656   160,001   1,009   978   600   2.51 %   2.23 %   1.51 %
Total cash and investments 1,380,245   1,425,758   1,523,427   7,887   8,276   8,245   2.29 %   2.32 %   2.17 %
Loans (11):
Commercial and industrial (10) 933,209 962,159 983,697 8,756 9,603 9,303 3.75 % 3.91 % 3.78 %
Commercial real estate (10) 2,441,215 2,369,526 2,324,367 26,341 26,473 23,544 4.32 % 4.37 % 4.05 %
Construction and land (10) 169,384 131,107 113,963 1,965 1,568 1,244 4.64 % 4.68 % 4.36 %
Residential 2,702,317 2,650,014 2,424,772 21,766 21,248 18,991 3.22 % 3.21 % 3.13 %
Home equity 97,191 105,044 117,702 1,042 1,074 1,089 4.35 % 4.06 % 3.75 %
Other consumer 185,596   177,951   192,136   1,573   1,489   1,420   3.44 %   3.32 %   3.00 %
Total loans 6,528,912   6,395,801   6,156,637   61,443   61,455   55,591   3.77 %   3.79 %   3.61 %
Total earning assets 7,909,157   7,821,559   7,680,064   69,330   69,731   63,836   3.51 %   3.52 %   3.33 %
LESS: Allowance for loan losses 74,834 75,608 78,122
Cash and due from banks (non-interest bearing) 51,944 43,648 41,469
Other assets 425,617   452,744   398,751  
TOTAL AVERAGE ASSETS $ 8,311,884   $ 8,242,343   $ 8,042,162  
AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits (11):
Savings and NOW $ 716,930 $ 687,172 $ 652,038 $ 215 $ 148 $ 128 0.12 % 0.09 % 0.08 %
Money market 3,141,564 3,177,687 3,213,092 4,314 3,998 3,122 0.56 % 0.50 % 0.39 %
Certificates of deposit 657,109   685,136   589,900   1,995   1,902   1,281   1.23 %   1.10 %   0.88 %
Total interest-bearing deposits (12) 4,515,603 4,549,995 4,455,030 6,524 6,048 4,531 0.59 % 0.53 % 0.41 %
Junior subordinated debentures 106,363 106,363 106,363 846 771 671 3.18 % 2.84 % 2.52 %
FHLB borrowings and other 878,093   728,374   726,978   3,603   2,767   2,172   1.64 %   1.49 %   1.19 %
Total interest-bearing liabilities 5,500,059   5,384,732   5,288,371   10,973   9,586   7,374   0.80 %   0.70 %   0.56 %

Non-interest bearing demand deposits (11) (12)

1,872,472 1,894,924 1,843,830
Payables and other liabilities 133,243   128,075   117,132  
Total average liabilities 7,505,774 7,407,731 7,249,333
Redeemable noncontrolling interests 22,085 21,094 18,578
Average shareholders’ equity 784,025   813,518   774,251  
TOTAL AVERAGE LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY $ 8,311,884   $ 8,242,343   $ 8,042,162  
Net interest income - on a fully taxable equivalent basis (FTE) $ 58,357 $ 60,145 $ 56,462
LESS: FTE adjustment (10) 974   2,873   2,820  
Net interest income (GAAP basis) $ 57,383   $ 57,272   $ 53,642  
Interest rate spread 2.71 % 2.82 % 2.77 %
Bank only net interest margin 3.00 % 3.08 % 2.98 %
Net interest margin 2.95 % 3.04 % 2.94 %
         

Boston Private Financial Holdings, Inc.

Selected Financial Data (Unaudited)

 
(In thousands) March 31,
2018

December 31,
2017

September 30,
2017		 June 30,
2017		 March 31,
2017
LOAN DATA (13):
Other commercial and industrial loans:
New England $ 444,419 $ 438,322 $ 503,322 $ 429,598 $ 458,687
San Francisco Bay Area 23,491 23,311 50,686 49,163 55,289
Southern California 63,183     59,359     64,248     62,995     66,378
Total other commercial and industrial loans $ 531,093   $ 520,992   $ 618,256   $ 541,756   $ 580,354

Commercial tax-exempt loans:

New England $ 313,955 $ 305,792 $ 320,172 $ 312,783 $ 318,137
San Francisco Bay Area 95,380 101,340 99,540 91,666 79,517
Southern California 11,422     11,566     11,638     11,708     11,778
Total commercial tax-exempt loans $ 420,757   $ 418,698   $ 431,350   $ 416,157   $ 409,432
Total commercial and industrial loans $ 951,850  

$

939,690

 

$

1,049,606

 

$

957,913

 

$

989,786

Commercial real estate loans:
New England $ 1,046,178 $ 1,002,092 $ 988,788 $ 993,426 $ 1,017,565
San Francisco Bay Area 721,871 725,454 698,148 688,751 686,019
Southern California 696,954     712,674     676,223     674,168     665,043
Total commercial real estate loans $ 2,465,003   $ 2,440,220   $ 2,363,159   $ 2,356,345   $ 2,368,627
Construction and land loans:
New England $ 79,563 $ 86,874 $ 61,635 $ 74,919 $ 58,737
San Francisco Bay Area 34,050 27,891 20,893 22,177 28,148
Southern California 51,627     50,225     35,763     33,808     30,122
Total construction and land loans $ 165,240   $ 164,990   $ 118,291   $ 130,904   $ 117,007
Residential loans:
New England $ 1,619,856 $ 1,598,072 $ 1,558,587 $ 1,540,393 $ 1,508,138
San Francisco Bay Area 511,903 512,189 510,956 488,854 474,294
Southern California 605,610     572,272     531,245     495,978     481,184
Total residential loans $ 2,737,369   $ 2,682,533   $ 2,600,788   $ 2,525,225   $ 2,463,616
Home equity loans:
New England $ 65,434 $ 67,435 $ 72,149 $ 71,953 $ 80,904
San Francisco Bay Area 19,314 22,462 26,052 28,400 26,006
Southern California 9,583     10,061     9,026     8,196     7,626
Total home equity loans $ 94,331   $ 99,958   $ 107,227   $ 108,549   $ 114,536
Other consumer loans:
New England $ 166,413 $ 149,022 $ 150,309 $ 175,644 $ 175,096
San Francisco Bay Area 13,569 14,707 15,302 17,909 17,163
Southern California 8,552     13,908     8,519     7,439     4,386
Total other consumer loans $ 188,534   $ 177,637   $ 174,130   $ 200,992   $ 196,645
Total loans:
New England $ 3,735,818 $ 3,647,609 $ 3,654,962 $ 3,598,716 $ 3,617,264
San Francisco Bay Area 1,419,578 1,427,354 1,421,577 1,386,920 1,366,436
Southern California 1,446,931     1,430,065     1,336,662     1,294,292     1,266,517
Total loans $ 6,602,327   $ 6,505,028   $ 6,413,201   $ 6,279,928   $ 6,250,217
 

Boston Private Financial Holdings, Inc.

Selected Financial Data (Unaudited)

 
(In thousands)   March 31,
2018		   December 31,
2017		   September 30,
2017		   June 30,
2017		   March 31,
2017
CREDIT QUALITY (13):
Special mention loans:
New England $ 33,282 $ 45,640 $ 37,569 $ 34,538 $ 21,596
San Francisco Bay Area 14,117 23,400 23,898 23,399 23,850
Southern California 15,689   18,134   17,207   4,327   4,350
Total special mention loans $ 63,088   $ 87,174   $ 78,674   $ 62,264   $ 49,796
Accruing substandard loans (14):
New England $ 8,767 $ 10,911 $ 8,196 $ 10,185 $ 12,157
San Francisco Bay Area 14,970 11,615 11,622 6,574 15,824
Southern California 21,436   30,826   33,923   34,339   36,398
Total accruing substandard loans $ 45,173   $ 53,352   $ 53,741   $ 51,098   $ 64,379
Nonaccruing loans:
New England $ 8,056 $ 6,061 $ 7,380 $ 9,880 $ 14,407
San Francisco Bay Area 1,442 1,473 1,494 1,857 2,312
Southern California 6,882   6,761   4,749   4,439   4,226
Total nonaccruing loans $ 16,380   $ 14,295   $ 13,623   $ 16,176   $ 20,945
Loans 30-89 days past due and accruing:
New England $ 10,571 $ 19,725 $ 4,664 $ 3,182 $ 9,843
San Francisco Bay Area 2,251 1,911 430 12 10,111
Southern California 7,554   3,412   198   —   8,771
Total loans 30-89 days past due and accruing $ 20,376   $ 25,048   $ 5,292   $ 3,194   $ 28,725
Loans (charged-off)/ recovered, net for the three months ended:
New England $ (285 ) $ 1,020 $ 73 $ 667 $ 79
San Francisco Bay Area 67 64 206 2,856 35
Southern California 169   (273 ) 17   (431 ) 21
Total net loans (charged-off)/ recovered $ (49 ) $ 811   $ 296   $ 3,092   $ 135
 

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.

         
(In thousands, except share and per share data) March 31,
2018		 December 31,
2017		 September 30,
2017		 June 30,
2017		 March 31,
2017
Total balance sheet assets $ 8,318,359 $ 8,311,744 $ 8,269,398 $ 8,107,646 $ 8,215,120
LESS: Goodwill and intangible assets, net * (138,026 ) (138,775 ) (165,001 ) (166,427 ) (167,853 )
Tangible assets (non-GAAP) $ 8,180,333 $ 8,172,969 $ 8,104,397 $ 7,941,219 $ 8,047,267
Total shareholders’ equity $ 789,503 $ 785,944 $ 815,061 $ 799,419 $ 781,901
LESS: Series D preferred stock (non-convertible) (47,753 ) (47,753 ) (47,753 ) (47,753 ) (47,753 )
LESS: Goodwill and intangible assets, net * (138,026 ) (138,775 ) (165,001 ) (166,427 ) (167,853 )
Total adjusting items (185,779 ) (186,528 ) (212,754 ) (214,180 ) (215,606 )
Tangible common equity (non-GAAP) $ 603,724   $ 599,416   $ 602,307   $ 585,239   $ 566,295  
Total equity/ Total assets 9.49 % 9.46 % 9.86 % 9.86 % 9.52 %
Tangible common equity/ Tangible assets (non-GAAP) 7.38 % 7.33 % 7.43 % 7.37 % 7.04 %
 
Total risk weighted assets ** $ 5,974,862 $ 5,892,286 $ 5,831,558 $ 5,765,471 $ 5,806,853
Tier 1 common equity ** $ 621,084 $ 607,800 $ 607,822 $ 592,845 $ 578,941
Tier 1 common equity/ Risk weighted assets ** 10.39 % 10.32 % 10.42 % 10.28 % 9.97 %
 
End of period shares outstanding 84,194,267 84,208,538 84,082,250 84,015,141 84,134,104
 
Book value per common share $ 8.81 $ 8.77 $ 9.13 $ 8.95 $ 8.73
Tangible book value per share (non-GAAP) $ 7.17 $ 7.12 $ 7.16 $ 6.97 $ 6.73

* 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.

 
Three Months Ended
(In thousands) March 31,
2018		   December 31,
2017		   September 30,
2017		   June 30,
2017		   March 31,
2017
Total average shareholders’ equity $ 784,025 $ 813,518 $ 808,596 $ 793,526 $ 774,251
LESS: Average Series D preferred stock (non-convertible) (47,753 ) (47,753 ) (47,753 ) (47,753 ) (47,753 )
Average common equity (non-GAAP) 736,272   765,765   760,843   745,773   726,498  
LESS: Average goodwill and intangible assets, net * (138,451 ) (157,978 ) (165,766 ) (167,204 ) (168,681 )
Average tangible common equity (non-GAAP) $ 597,821   $ 607,787   $ 595,077   $ 578,569   $ 557,817  
 
Net income/ (loss) attributable to the Company $ 22,686 $ (18,280 ) $ 19,803 $ 23,406 $ 15,662
LESS: Dividends on Series D preferred stock (869 ) (869 ) (868 ) (869 ) (869 )
Common net income/ (loss) (non-GAAP) 21,817 (19,149 ) 18,935 22,537 14,793
ADD: Amortization of intangibles, net of tax (35% in 2017, 21% in 2018) 593   860   927   927   927  
Tangible common net income/ (loss) (non-GAAP) $ 22,410   $ (18,289 ) $ 19,862   $ 23,464   $ 15,720  
 
Return on average equity - (annualized) 11.73 % (8.91 )% 9.72 % 11.83 % 8.20 %
Return on average common equity - (annualized) (non-GAAP) 12.02 % (9.92 )% 9.87 % 12.12 % 8.26 %
Return on average tangible common equity - (annualized) (non-GAAP) 15.20 % (11.94 )% 13.24 % 16.27 % 11.43 %
 

* 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:

 
Three Months Ended
(In thousands) March 31,
2018		   December 31,
2017		   September 30,
2017		   June 30,
2017		   March 31,
2017
Income before income taxes (GAAP) $ 28,064 $ 3,400 $ 27,980 $ 33,456 $ 21,549
ADD BACK: Provision/ (credit) for loan losses (1,795 ) (942 ) (432 ) (6,114 ) (181 )
Pre-tax, pre-provision income (non-GAAP) $ 26,269 $ 2,458 $ 27,548 $ 27,342 $ 21,368
 
Total operating expense (GAAP) $ 70,857 $ 93,989 $ 69,346 $ 67,821 $ 68,780
Less: Amortization of intangibles 750 1,323 1,426 1,426 1,426
Less: Goodwill impairment —   24,901   —   —   —  
Total operating expense (excluding amortization of intangibles, and goodwill impairment) (non-GAAP) $ 70,107 $ 67,765 $ 67,920 $ 66,395 $ 67,354
 
Net interest income $ 57,383 $ 57,272 $ 56,627 $ 57,145 $ 53,642
Total core fees and income 39,435 40,189 39,067 37,226 36,320
Total other income 308 (1,014 ) 1,200 792 186
FTE income 974   2,873   2,899   2,923   2,820  
Total revenue (FTE basis) $ 98,100 $ 99,320 $ 99,793 $ 98,086 $ 92,968
Efficiency ratio (GAAP) 72.95 % 97.45 % 71.57 % 71.27 % 76.30 %
Efficiency ratio, FTE Basis excluding amortization of intangibles, and goodwill impairment (non-GAAP) 71.46 % 68.23 % 68.06 % 67.69 % 72.45 %
 

(10) Interest income on Non-taxable investments and loans are presented on an FTE basis using the federal statutory rate of 35% in 2017 and 21% in 2018 for each respective period presented.

(11) Average loans includes Loans held for sale and Nonaccrual loans.

(12) Average total deposits is the sum of Average total interest-bearing deposits and Average non-interest bearing demand deposits.

(13) The concentration of the Private Banking loan data and credit quality is primarily based on the location of the lender’s regional offices.

(14) Accruing substandard loans include loans that are classified as substandard but are still accruing interest income. Boston Private Bank & Trust Company may classify a loan as substandard where known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present repayment terms and which may result in disclosure of such loans as nonaccrual at some time in the future.

(15) The Company uses certain non-GAAP financial measures, such as: net interest income excluding interest recovered on previous nonaccrual loans and net interest margin excluding interest recovered on previous nonaccrual loans, also referred to as core net interest margin, 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 net interest income to non-GAAP net interest income excluding interest recovered on previous nonaccrual loans; and from GAAP net interest margin to non-GAAP net interest margin excluding interest recovered on previous nonaccrual loans, are presented below:

 
Three Months Ended
(In thousands) March 31,
2018		   December 31,
2017		   September 30,
2017		   June 30,
2017		   March 31,
2017
Net interest income (GAAP basis) $ 57,383 $ 57,272 $ 56,627 $ 57,145 $ 53,642
ADD: FTE income 974   2,873   2,899   2,923   2,820  
Net interest income, FTE basis 58,357 60,145 59,526 60,068 56,462
LESS: Interest recovered on previously nonaccrual loans 80   429   133   1,971   299  

Net interest income, FTE basis, excluding interest recovered on previously nonaccrual loans (non-GAAP) - also referred to as Core net interest income, FTE basis (non-GAAP)

58,277   59,716   59,393   58,097   56,163  
 
Net interest margin (FTE basis) 2.95 % 3.04 % 3.02 % 3.07 % 2.94 %
Net interest margin, FTE basis, excluding interest recovered on previously nonaccrual loans (non-GAAP) - also referred to as Core net interest margin (FTE basis) 2.94 % 3.02 % 3.02 % 2.97 % 2.92 %

Net interest margin, non-FTE basis, excluding interest recovered on previously nonaccrual loans (non-GAAP) - also referred to as Core net interest margin (non-FTE basis) (non-GAAP)

2.90 % 2.87 % 2.87 % 2.82 % 2.78 %
 

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

(16) The Company uses certain non-GAAP financial measures, such as: net income attributable to the Company excluding notable items and diluted earnings per share excluding notable items 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 net income attributable to the Company to non-GAAP net income attributable to the Company excluding notable items and from GAAP diluted earnings per share to non-GAAP diluted earnings per share excluding notable items are presented below:

  Three Months Ended
(In thousands, except share and per share data) March 31,
2018		   December 31,
2017		   September 30,
2017		   June 30,
2017		   March 31,
2017
Net income/ (loss) attributable to the Company (GAAP) $ 22,686 $ (18,280 ) $ 19,803 $ 23,406 $ 15,662
LESS: Gain/ (loss) on sale of affiliates or offices — (1,264 ) — — —

ADD BACK: Anchor divestiture legal expense

— 400 — — —
ADD BACK: Impairment of goodwill — 24,901 — — —
ADD BACK: Tax adjustments — 12,880 — — —
Tax effect at 35% statutory rate *

—

   (582 ) —   —   —  

Net income attributable to the Company excluding notable items (non-GAAP)

$ 22,686 $ 20,583 $ 19,803 $ 23,406 $ 15,662
 

Net income/ (loss) attributable to the common shareholders, treasury stock method (GAAP)

$ 22,663 $ (20,278 ) $ 18,657 $ 22,829 $ 14,496
LESS: Gain/ (loss) on sale of affiliates or offices — (1,264 ) — — —

ADD BACK: Anchor divestiture legal expense

— 400 — — —
ADD BACK: Impairment of goodwill — 24,901 — — —
ADD BACK: Tax adjustments — 12,880 — — —
Tax effect at 35% statutory rate * —   (582 ) —   —   —  
Net income attributable to the common shareholders, treasury stock method, excluding notable items (non-GAAP) $ 22,663 $ 18,585 $ 18,657 $ 22,829 $ 14,496
 

Weighted average diluted shares outstanding (GAAP)

85,271,650

82,904,776

84,888,311

84,741,680

84,560,918

Weighted average diluted shares outstanding, excluding notable items (non-GAAP) **

85,271,650 85,196,760 84,888,311 84,741,680 84,560,918
 
Diluted total earnings/ (loss) per share (GAAP) $ 0.27 $ (0.24 ) $ 0.22 $ 0.27 $ 0.17
Diluted total earnings per share, excluding notable items (non-GAAP) $ 0.27 $ 0.22 $ 0.22 $ 0.27 $ 0.17
 
Average common equity (non-GAAP) $ 736,272 $ 765,765 $ 760,843 $ 745,773 $ 726,498
Average tangible common equity (non-GAAP) $ 597,821 $ 607,787 $ 595,077 $ 578,569 $ 557,817
Return on average common equity - (annualized), excluding notable items (non-GAAP) 12.02 % 10.21 % 9.87 % 12.12 % 8.26 %
Return on average tangible common equity - (annualized), excluding notable items (non-GAAP) 15.20 % 13.43 % 13.24 % 16.27 % 11.43 %
 

Pre-tax, pre-provision income (non-GAAP)

$

26,269

$

2,458

$

27,548

$

27,342

$

21,368

LESS: Gain/ (loss) on sale of affiliates or offices

—

(1,264

)

—

—

—

ADD BACK: Anchor divestiture legal expense

—

400

—

—

—

ADD BACK: Impairment of goodwill

 

—

  

24,901

   

—

   

—

   

—

 
Pre-tax, pre-provision income, excluding notable items (non-GAAP) $

26,269

 $ 29,023 $ 27,548 $ 27,342 $ 21,368

* Due to the nature of the goodwill related to Anchor, no tax effect is applied to the goodwill impairment in the fourth quarter of 2017.
** For the fourth quarter of 2017, weighted average diluted shares outstanding include the dilutive effects when the excluded notable items move net income/ (loss) attributable to the common shareholders from a net loss to a net income position.