As reports swirl in the marketplace that Boston Bancorp is negotiating a sale to Bank of Boston, the thrift company is taking action to answer regulatory criticism of its management policies that led to the resignation of top two executives six months ago.
The $2.1 billion-asset thrift purchased four branches that it had leased from a limited partnership dominated by former chairman Richard Laine and president Paul Archibald.
That relationship, which dates to a 1987 sale-leaseback arrangement designed as an employee benefit for 48 thrift officers and employees, was a focal point of regulatory criticism.
The company paid fair-market value of about $6.6 million for the buildings, a spokesman said. The partnership does not own any other branches.
Boston Bancorp also made a lump-sum payment of $1.4 million to help the partnership repay mortgage loans and compensate limited partners who are still employed by the bank for their share in the partnership. The payment included mortgage prepayment penalties of about $440,000.
The company said it expects to save about $300,000 annually after taxes because of the purchase, but the one-time charges reduced Boston's net income for the quarter ended July 31 by about $942,000 after taxes.
The thrift reported net income of $4.5 million for the third quarter, down from $6.2 million for the year-earlier quarter. Net income for the nine-month period was $14.4 million, down from $20.2 million for the same period last year.
Without the one-time charges, Boston's third-quarter earnings would have been $5.4 million.
The branch purchases come as the company is rumored to be in merger talks with $45 billion-asset Bank of Boston. Initial reports early last week pointed to an imminent announcement, but sources later told the Boston Herald that the discussions have little likelihood of success.
Thrift officials declined to comment on the rumors.
Boston Bancorp reported gains on its securities portfolio of $3.4 million in the third quarter, compared with only $251,000 last year. Gains for the nine-month period were $4.0 million, down from $7.3 million for the same period in 1994.
The thrift also had an unrealized gain in its available-for-sale portfolio at July 31 of $23.8 million, compared with an unrealized loss of $25.8 million at Oct. 31, 1994.
The company reported return on assets of 0.94% and return on equity of 12.92% for the first nine months, compared with 1.30% and 17.20%, respectively, for the same period last year.
The thrift reported that mortgage originations dropped sharply, however, to $5.7 million for the third quarter and $48.6 million for nine months. That's down from $36.9 million and $103.8 million, respectively, for the periods last year.
Officials blamed the showing on a decline in loan demand, tough competition for loans, and a focus by management on operational and strategic reviews following the harsh regulatory review.
Regulators had criticized the company for high salaries paid to the two top executives and accused it of nepotism, citing a limited partnership and commissions paid to Mr. Archibald's brother, a broker, for building up the thrift's securities portfolio.