Boston Private Financial Holdings Inc. will not back away from its expansion plans as a result of its “disappointing” second-quarter earnings decline, its chairman and chief executive said.
One of its units will add an office in New York by the end of October, but that will not preclude growth in the Southeast and perhaps Colorado, and the opening of additional offices in Massachusetts, executives said Thursday during Boston Private’s quarterly conference call.
“Our early read on New York is that there is deep competition from well-established firms, but it is a very fragmented market,” said Steven D. Hayworth, the president and chief executive officer of its Gibraltar Financial Corp. “We think the opportunity with customers with $1 million to $15 million is wide open. It is a very fragmented market, and there is enormous potential for deposit gathering.”
There will be a lot of synergy between his unit’s operations in southeast Florida and the office it will open in Manhattan, Mr. Hayworth said. Gibraltar is already making loans in the New York market, he said.
In the past year Boston Private has bought two private banks: Gibraltar in October and Anchor Capital Holdings LLC in June. Excluding the acquisitions, second-quarter revenue rose 11.4% from a year earlier, to $67.6 million, and expenses jumped 14.1%, to $49.3 million.
Gerard Cassidy, an analyst with Royal Bank of Canada’s RBC Capital Markets, who covers Boston Private, said the company has demonstrated it can grow organically and through acquisitions, and he expects that growth to continue.
“This company has been an active acquirer and continues to look for acquisition opportunities to expand their franchise,” he said. “Whether they announce something this month or this year is hard to say, but the strategy will probably continue.”
The only thing that could dampen Boston Private’s strategy is a drop in its stock price to a level that makes its acquisition strategy cost-prohibitive, Mr. Cassidy said. “Right now their stock price isn’t low enough to prevent them from making another deal, but if the company continues facing challenges in the second half of this year, it could crimp their acquisition growth strategy somewhat.”
Despite confidence about its growth prospects and strong year-over-year numbers, Boston Private reported its fourth consecutive quarter of net outflows.
It announced late Wednesday that earnings per share slipped 2 cents from a year earlier, to 33 cents, missing the average of analysts’ estimates by 4 cents, according to Thomson First Call. Net income jumped 19.4%, to $12.3 million.
“Our earnings were flat to slightly down, and I am disappointed by those results,” Timothy L. Vaill, Boston Private’s chairman and CEO, said during the conference call. “The main culprit was the net interest rate environment. … Unfortunately, I don’t see these conditions easing in the near future.”
Boston Private’s assets under management jumped 37.5% from a year earlier, to $30.2 billion. Excluding the acquisitions, they rose 9.3% from a year earlier but fell 1.75% from the first quarter.
Robert J. Whelan, the company’s chief financial officer, said during the conference call that the company is optimistic about the activity in its pipeline and expects flows to rebound.
“We are in transition in a number of our subsidiaries, and we are moving into new products,” he said. “Our large-cap performance is outstanding, and we are getting good performance from our Boston Private value products.”
Fee income from the wealth advisory business rose 9.4% from a year earlier, to $5.1 million, and investment management fee income jumped 29.2%, to $32.6 million, predominantly because of the two acquisitions.
“Our plan is still to open offices in Massachusetts and New York City” for Boston Private Wealth Management Group, Mr. Whelan said. “We believe that we have to invest today in order to grow tomorrow. It is really in the best interest of the company.”
