Strong results from its fee-based businesses helped Boston Private Financial Holdings Inc. offset some of the loan losses and a pair of charges in a money-losing fourth quarter, but analysts said its loan exposure in markets such as southern Florida and California could hamper growth this year.
Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners LP, said Boston Private and others with no exposure to subprime mortgages are still feeling the effects of the credit crisis.
"This is a hot button issue for investors," Mr. Fitzgibbon said in an interview Thursday. "They bought trust-oriented bank stocks to get away from credit risk. I think people are surprised by the magnitude of exposure that banks like Boston Private have to credit."
Boston Private recorded $506,000 of net charges for the quarter, less than 1 basis point of total loans. Timothy L. Vaill, its chairman and chief executive, said during an earnings conference call Thursday that though that is well below the SNL Bank Index average of 30 basis points, no one is immune from the housing crisis.
"The credit crunch affects all of us in one way or another," Mr. Vaill said. "We all have credit issues and chargeoffs at some point, and we aren't immune from that." He said Boston Private's philosophy and business mix will work in its favor.
James D. Dawson, Boston Private Bank and Trust Co.'s president and chief operating officer, said during the conference call that one reason Boston Private has spared itself major credit problems is that its practice is to "buy quality companies rather than ones that need fixing up."
Boston Private was still generating loan growth in the fourth quarter in markets such as Northern California, the Pacific Northwest, and New England, Mr. Dawson said. "Our pipeline remains strong and we anticipate that will remain the case," he said.
Boston Private announced after the market closed Wednesday that it had a net fourth-quarter loss of $20.37 million, or 55 cents a share. For the fourth quarter of 2006 it reported a profit of $15.61 million, or 40 cents per diluted share.
The results included a noncash goodwill charge of $29 million, or 75 cents per diluted share, related to Gibraltar Private Bank and Trust Co., Boston Private's private banking unit in Coral Gables, Fla.
Boston Private warned on Jan. 14 that it would report the charge for Gibraltar, but it did not mention a goodwill charge, announced Thursday, of about $13.9 million, or 22 cents per diluted share, related to a reduction in the value of assets at Dalton, Greiner, Hartman, Maher & Co. LLC, a New York asset manager Boston Private bought in 2004.
In the third quarter Boston Private took a $10 million noncash charge to reduce goodwill related to Dalton Greiner. Analysts attributed the decline to the strategy of Steve Bruno, one of Dalton Greiner's co-presidents, who managed its technology funds before leaving the firm in October 2006.
According to analysts, Mr. Bruno's aggressive investment strategy led to poor performance that drove some of the outflows. But assets started to steady in May, and Boston Private remains committed to the New York market; in November it announced it would use Gibraltar's federal thrift charter to open a private bank in New York.
Mr. Vaill told American Banker in December that Boston Private can use Gibraltar's charter to open private banks in other markets it is considering entering, but the company still would prefer to grow through strategic acquisitions.
Walt Pressey, Boston Private's president, said during the earnings call that Dalton Greiner is improving steadily. "Whenever you get put in the penalty box, it takes a while to get out of that even though your investment process is superb." Mr. Pressey said the value sector, where Dalton Greiner's assets are focused, remains out of favor. Without the charges, Boston Private's fourth-quarter operating earnings would have increased 5%, to 42 cents per diluted share, 1 cent below the average estimate of analysts surveyed by Thomson Financial.
Gerard Cassidy, an analyst with an analyst at Royal Bank of Canada's RBC Capital Markets, said that despite its exposure in the lending business, fee revenue growth remains strong at Boston Private because of its private wealth management and asset management businesses. The company had $37.8 billion of assets under management on Dec. 31, 16% more than a year earlier. It had net inflows of $1 billion last year because of market appreciation.
Mr. Cassidy said Boston Private plans to keep expanding nationally by acquiring private banks and investment managers. In December it entered the Philadelphia market with its purchase of Davidson Capital Management.
