Boston Private falls to 52-week low, raises loan loss provision

Alex Alexandrov | Feb 21, 2008 3:45pm EST | Comment

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Shares of Boston Private Financial Holdings, Inc. (Nasdaq: BPFH) have declined to a new 52-week low on news the bank holding company will have to increase the loan loss provisions of one of its affiliates.

After the close on Wednesday, Boston Private announced that its Los Angeles, Calif.-based affiliate, First Private Bank & Trust, will record an increase to its loan loss reserve of between $16 million and $19 million for the quarter ended Dec. 31, 2007. The action is due to weakness in First Private’s portfolio of residential construction and land loans made primarily in southern California.

The provision is expected to have an after-tax impact on Boston Private’s earnings of between $10 million and $12 million, or $0.27 per share and $0.31 per share.

“As I have reported on numerous occasions in the past, Boston Private continually examines its loan activities in all markets and takes action as necessary,” said chairman and CEO Timothy Vaill in a statement. “We are taking these steps today to reflect deteriorating conditions in one of our important markets.”

Vaill also pointed out that Boston Private has not incurred any material losses to date on the loans but plans on increasing its reserves just in case.

“I was disappointed with the announcement,” said David Long, an analyst with Chicago-based investment firm William Blair & Company, L.L.C., in a phone interview. “The company went to great lengths to describe their credit quality and show that they are well reserved at end of the [2007] year.”

“This additional loan loss provision will be included in our 2007 financial statements,” said CFO David Kaye in a statement. “To fund these reserves, Boston Private will downstream approximately $11 million to $12 million of additional capital to First Private from current resources.”

“Boston Private traditionally has more conservative underwriting standards than most of its peers,” said Long, who lowered the stock’s rating to “market perform” from “outperform.”

“That said, what we are seeing in the current housing market is unprecedented. To try to make an accurate forecast over the next year is difficult to do.”

Long lowered his 2008 earnings estimate to $1.45 per share from a previous forecast of $1.70 per share. Similarly, the 2009 earnings estimate was lowered to $1.70 per share from $2 per share.

Analyst David Rochester of investment bank Friedman, Billings, Ramsey Group, Inc. (NYSE: FBR) also lowered his earnings estimate for 2008, to $1.51 per share from $1.53 per share.

“This event will likely reduce investor confidence in the loan grading and reserve methodologies at the subsidiary banks, which will undoubtedly result in weaker trading multiples over the next year as the credit cycle deepens,” Rochester wrote in a research note this morning. He is reiterating the stock’s “market perform” rating.

At 3:47 p.m. ET, shares of Boston Private Financial Holdings (BPFH) had declined $5.50, or 27%, to $14.55. The previous 52-week low of $17.06 was established on Jan. 22. The 52-week high of $30.33 was reached on Feb. 23, 2007.