BOSTON PRIVATE FINANCIAL HOLDINGS INC - FORM 10-Q

BOSTON PRIVATE FINANCIAL HOLDINGS INC - FORM 10-Q - August 6, 2010

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file	filename
EX-32.2 - SECTION 906 CEO CERTIFICATION - BOSTON PRIVATE FINANCIAL HOLDINGS INC	dex322.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - BOSTON PRIVATE FINANCIAL HOLDINGS INC	dex311.htm
EX-31.2 - SECTION 302 CEO CERTIFICATION - BOSTON PRIVATE FINANCIAL HOLDINGS INC	dex312.htm
EX-31.3 - SECTION 302 CFO CERTIFICATION - BOSTON PRIVATE FINANCIAL HOLDINGS INC	dex313.htm
EX-32.3 - SECTION 906 CFO CERTIFICATION - BOSTON PRIVATE FINANCIAL HOLDINGS INC	dex323.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - BOSTON PRIVATE FINANCIAL HOLDINGS INC	dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 0-17089

BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Commonwealth of Massachusetts		04-2976299
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
Ten Post Office Square Boston, Massachusetts		02109
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (888) 666-1363

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 30, 2010:


Common Stock-Par Value $1.00		76,031,090
(class)		(outstanding)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS


Index

PART I—FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	Executive Summary	29
	Critical Accounting Policies	30
	Financial Condition	31
	Condensed Consolidated Balance Sheets and Discussion	31
	Loan Portfolio and Credit Quality	33
	Liquidity	38
	Capital Resources	39
	Financial Regulatory Reform Legislation	41
	Results of Operations	41
	Recent Accounting Developments	46
Item 3	Quantitative and Qualitative Disclosures about Market Risk	47
Item 4	Controls and Procedures	47

PART II—OTHER INFORMATION
Item 1	Legal Proceedings	48
Item 1A	Risk Factors and Factors Affecting Forward-Looking Statements	48
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3	Defaults upon Senior Securities	48
Item 4	(Removed and Reserved)	48
Item 5	Other Information	48
Item 6	Exhibits	48

	Signature Page	50
	Certifications

PART I. FINANCIAL INFORMATION, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)


	June 30, 2010			December 31, 2009
	(In thousands, except share and per share data)
Assets:
Cash and due from banks	$	234,606		$	446,916
Federal funds sold		1,183			544

Cash and cash equivalents		235,789			447,460
Investment securities:
Available-for-sale (amortized cost of $716,724 and $876,910, respectively)		731,115			888,032
Held-to-maturity (fair value of $3,003 and $4,511, respectively)		2,995			4,501

Total investment securities		734,110			892,533
Loans held for sale		28,449			12,714
Loans:
Commercial		2,327,240			2,213,020
Construction and land		259,829			315,661
Residential mortgage		1,601,714			1,494,703
Home equity and other consumer loans		297,418			283,656

Total loans		4,486,201			4,307,040
Less: allowance for loan losses		79,073			68,444

Net loans		4,407,128			4,238,596
Other real estate owned (“OREO”)		12,113			16,600
Stock in Federal Home Loan Banks		46,941			47,490
Premises and equipment, net		27,514			28,349
Goodwill		108,695			108,692
Intangible assets, net		38,756			41,425
Fees receivable		7,486			7,320
Accrued interest receivable		18,453			19,292
Income tax receivable and deferred		70,388			52,267
Other assets		131,887			136,527

Total assets	$	5,867,709		$	6,049,265


Liabilities:
Deposits	$	4,380,793		$	4,255,219
Securities sold under agreements to repurchase		110,274			243,377
Federal funds purchased		30,000			—
Federal Home Loan Bank borrowings		505,620			555,012
Junior subordinated debentures		193,645			193,645
Other liabilities		87,039			99,008

Total liabilities		5,307,371			5,346,261

Redeemable noncontrolling interests		19,672			51,850

The Company’s Stockholders’ equity:
Preferred stock, $1.00 par value; authorized: 2,000,000 shares;
Series B, issued and outstanding (contingently convertible): 401 shares at June 30, 2010 and December 31, 2009; liquidation value: $100,000 per share		58,089			58,089
Series C, issued and outstanding: 0 shares at June 30, 2010 and 154,000 shares at December 31, 2009; liquidation value $1,000 per share		—			146,012
Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 74,824,812 shares at June 30, 2010 and 68,666,263 shares at December 31, 2009		74,825			68,666
Additional paid-in capital		651,795			629,001
Accumulated deficit		(251,961	)		(258,186	)
Accumulated other comprehensive income		7,918			7,572

Total stockholders’ equity		540,666			651,154

Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	5,867,709		$	6,049,265

See accompanying notes to unaudited consolidated financial statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands, except share and per share data)
Interest and dividend income:
Loans	$	57,434		$	57,292		$	115,300		$	115,626
Taxable investment securities		1,624			1,698			3,129			3,839
Non-taxable investment securities		1,262			1,663			2,587			3,398
Mortgage-backed securities		1,894			3,930			4,326			7,383
Federal funds sold and other		277			208			720			351

Total interest and dividend income		62,491			64,791			126,062			130,597

Interest expense:
Deposits		9,381			15,185			20,011			30,952
Federal Home Loan Bank borrowings		5,073			6,395			10,489			12,875
Junior subordinated debentures and other long-term debt		2,504			3,130			4,994			6,401
Other short-term borrowings		516			779			1,241			1,658

Total interest expense		17,474			25,489			36,735			51,886

Net interest income		45,017			39,302			89,327			78,711
Provision for loan losses		14,962			8,731			22,577			22,056

Net interest income after provision for loan losses		30,055			30,571			66,750			56,655

Fees and other income:
Investment management and trust fees		15,156			12,746			30,031			25,757
Wealth advisory fees		9,304			8,496			18,562			16,768
Gain on repurchase of debt		—			—			—			407
Gain on sale of investments, net		987			951			2,419			4,394
Gain on sale of loans, net		500			802			958			1,428
Gain on sale of non-strategic loans portfolios, net		—			1,276			—			2,435
(Loss)/ gain on sale of OREO, net		(1,611	)		(243	)		(2,020	)		2,242
Other		1,297			2,913			3,111			4,131

Total fees and other income		25,633			26,941			53,061			57,562

Operating expense:
Salaries and employee benefits		34,653			32,403			68,501			62,405
Occupancy and equipment		6,696			6,877			13,482			13,107
Professional services		4,324			4,909			9,168			9,933
Marketing and business development		2,042			1,804			3,553			3,413
Contract services and data processing		1,437			1,294			2,763			2,597
Amortization of intangibles		1,339			2,279			2,669			3,916
FDIC insurance		2,266			3,707			4,353			5,114
Other		3,908			4,383			8,209			8,798

Total operating expense		56,665			57,656			112,698			109,283

(Loss)/ income before income taxes		(977	)		(144	)		7,113			4,934
Income tax (benefit)/ expense		(1,202	)		(3	)		1,134			815

Net income/ (loss) from continuing operations		225			(141	)		5,979			4,119
Net income/ (loss) from discontinued operations		1,509			(7,763	)		1,545			(8,392	)

Net income/ (loss) before attribution to noncontrolling interests		1,734			(7,904	)		7,524			(4,273	)
Less: Net income attributable to noncontrolling interests		616			579			1,301			1,344

Net income/ (loss) attributable to the Company	$	1,118		$	(8,483	)	$	6,223		$	(5,617	)


Adjustments to net income attributable to the Company to arrive at net loss attributable to common shareholders		(6,160	)		(8,101	)		(9,628	)		(16,506	)

Net loss attributable to common shareholders for (loss)/ earnings per share calculation	$	(5,042	)	$	(16,584	)	$	(3,405	)	$	(22,123	)


(Loss)/ earnings per share attributable to the Company’s common shareholders:
(Loss)/ earnings per share from continuing operations:
Basic and diluted (loss)/ earnings per share	$	(0.09	)	$	(0.13	)	$	(0.07	)	$	(0.21	)
Earnings/ (loss) per share from discontinued operations:
Basic and diluted earnings/ (loss) per share	$	0.02		$	(0.11	)	$	0.02		$	(0.12	)
Net (loss)/ earnings per share attributable to the Company’s common shareholders:
Basic and diluted (loss)/ earnings per share	$	(0.07	)	$	(0.24	)	$	(0.05	)	$	(0.33	)
Weighted average basic and diluted common shares outstanding		68,787,389			67,860,696			68,331,183			66,264,319

See accompanying notes to unaudited consolidated financial statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


	Common Stock		Preferred Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Noncontrolling Interests		Total
	(In thousands, except share data)

Balance at December 31, 2008	$	63,874	$	178,345		$	654,903		$	(263,417	)	$	11,471		$	3,500	$	648,676
Comprehensive Income:
Net loss attributable to the Company		—		—			—			(5,617	)		—			—		(5,617	)
Other comprehensive income/(loss), net:
Change in unrealized loss on securities available-for-sale, net		—		—			—			—			(2,517	)		—		(2,517	)
Change in unrealized loss on cash flow hedge, net		—		—			—			—			(699	)		—		(699	)
Change in unrealized gain on other, net		—		—			—			—			15			—		15

Total comprehensive loss attributable to the Company, net																		(8,818	)
Dividends paid to common shareholders		—		—			(1,314	)		—			—			—		(1,314	)
Dividends paid to preferred shareholders		—		—			(3,867	)		—			—			—		(3,867	)
Net proceeds from issuance of 3,840,771 shares of common stock		3,841		—			7,135			—			—			—		10,976
Accretion of Series B Preferred stock Beneficial Conversion Feature		—		9,246			(9,246	)		—			—			—		—
Accretion of discount on Series C Preferred stock		—		622			(622	)		—			—			—		—
Issuance of 11,498 shares of incentive common stock		11		—			(11	)		—			—			—		—
Amortization of incentive stock grants		—		—			1,382			—			—			—		1,382
Amortization of stock options and employee stock purchase plan		—		—			1,781			—			—			—		1,781
Stock options exercised		72		—			238			—			—			—		310
Tax deficiency from certain stock compensation awards		—		—			(692	)		—			—			—		(692	)
Other equity adjustments		—		(178	)		(221	)		—			—			—		(399	)

Balance at June 30, 2009	$	67,798	$	188,035		$	649,466		$	(269,034	)	$	8,270		$	3,500	$	648,035


Balance at December 31, 2009	$	68,666	$	204,101		$	629,001		$	(258,186	)	$	7,572		$	—	$	651,154
Comprehensive Income:
Net income attributable to the Company		—		—			—			6,223			—			—		6,223
Other comprehensive income/(loss), net:
Change in unrealized gain on securities available-for-sale, net		—		—			—			—			1,619			—		1,619
Change in unrealized loss on cash flow hedges, net		—		—			—			—			(1,274	)		—		(1,274	)
Change in unrealized gain on other, net		—		—			—			—			1			—		1

Total comprehensive income attributable to the Company, net																		6,569
Dividends paid to common shareholders		—		—			(1,378	)		—			—			—		(1,378	)
Dividends paid to preferred shareholders		—		—			(2,954	)		—			—			—		(2,954	)
Net proceeds from issuance of 562,481 shares of common stock		563		—			3,176			—			—			—		3,739
Net proceeds from issuance of 4,715,000 shares of common stock in June 2010 public offering		4,715		—			22,322			—			—			—		27,037
Carlyle gross up rights equity receivable		—		—			6,268			—			—			—		6,268
Repurchase of 154,000 shares of Series C Preferred stock		—		(154,000	)		—			—			—			—		(154,000	)
Accretion of discount on Series C Preferred stock		—		7,988			(7,988	)		—			—			—		—
Issuance of 870,787 shares of incentive common stock		871		—			(871	)		—			—			—		—
Amortization of incentive stock grants		—		—			1,623			—			—			—		1,623
Amortization of stock options and employee stock purchase plan		—		—			744			—			—			—		744
Stock options exercised		10		—			34			—			—			—		44
Tax deficiency from certain stock compensation awards		—		—			(974	)		—			—			—		(974	)
Other equity adjustments		—		—			2,792			2			—			—		2,794

Balance at June 30, 2010	$	74,825	$	58,089		$	651,795		$	(251,961	)	$	7,918		$	—	$	540,666

See accompanying notes to unaudited consolidated financial statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
	2010			2009
	(In thousands)

Cash flows from operating activities:
Net income/ (loss) attributable to the Company	$	6,223		$	(5,617	)
Adjustments to arrive at net income from continuing operations
Net income attributable to noncontrolling interests		1,301			1,344
(Gain)/ loss from operating activities of discontinued operations, net of tax		(1,545	)		8,392

Net income from continuing operations		5,979			4,119


Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		8,591			8,446
Net income attributable to noncontrolling interests		(1,301	)		(1,344	)
Equity issued as compensation		2,367			3,163
Provision for loan losses		22,577			22,056
Loans originated for sale		(76,077	)		(180,190	)
Proceeds from sale of loans held for sale		79,293			178,726
Gain on the repurchase of debt		—			(407	)
(Increase)/ decrease in income tax receivable and deferred		(18,121	)		51,319
Net (increase)/ decrease in other operating activities		(4,327	)		15,437

Net cash provided by operating activities - continuing operations		18,981			101,325
Net cash provided by operating activities - discontinued operations		1,545			18,284

Net cash provided by operating activities		20,526			119,609


Cash flows from investing activities:
Investment securities available-for-sale:
Purchases		(388,262	)		(290,832	)
Sales		366,636			138,813
Maturities, redemptions, and principal payments		181,360			235,971
Investment securities held-to-maturity:
Purchases		(9,001	)		(4,016	)
Maturities and principal payments		10,507			4,008
Investments in trusts, net		(164	)		(510	)
Redemption of Federal Home Loan Bank stock		549			—
Net increase in portfolio loans		(216,464	)		(126,928	)
Proceeds from sale of OREO		10,217			13,765
Proceeds from sale and repayments of non-strategic loan portfolio, net of advances		184			6,072
Capital expenditures, net of sale proceeds		(2,152	)		(3,555	)
Acquisition of remaining 19% interest in KLS		(29,691	)		—
Cash paid for acquisitions, including deferred acquisition obligations, net of cash acquired		—			(645	)

Net cash used in investing activities - continuing operations		(76,281	)		(27,857	)
Net cash used in investing activities - discontinued operations		—			(11,728	)

Net cash used in investing activities		(76,281	)		(39,585	)


Cash flows from financing activities:
Net increase in deposits		125,574			317,779
Net decrease in securities sold under agreements to repurchase		(133,103	)		(117,446	)
Net increase in federal funds purchased		30,000			—
Net decrease in short-term Federal Home Loan Bank borrowings		—			(134,300	)
Advances of long-term Federal Home Loan Bank borrowings		46,040			19,127
Repayments of long-term Federal Home Loan Bank borrowings		(95,432	)		(32,850	)
Repurchase of debt		—			(48,444	)
Repurchase of Series C Preferred stock		(154,000	)		—
Dividends paid to common stockholders		(1,378	)		(1,314	)
Dividends paid to preferred stockholders		(2,954	)		(3,867	)
Tax deficiency from certain stock compensation awards		(974	)		(692	)

(Continued)

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

(Unaudited)


Proceeds from stock option exercises		44			310
Proceeds from issuance of common stock, net		436			351
Proceeds from issuance of common stock from June 2010 public offering, net		27,037			—
Other equity adjustments		2,794			(399	)

Net cash used in financing activities - continuing operations		(155,916	)		(1,745	)
Net cash used in financing activities - discontinued operations		—			(2,921	)

Net cash used in financing activities		(155,916	)		(4,666	)

Net (decrease)/ increase in cash and cash equivalents		(211,671	)		75,358
Cash and cash equivalents at beginning of year		447,460			281,275

Cash and cash equivalents at end of period	$	235,789		$	356,633


Supplementary schedule of non-cash investing and financing activities:
Cash paid for interest	$	39,765		$	54,402
Cash paid for income taxes, net of refunds received		21,113			75,005
Change in unrealized gain/ (loss) on securities available-for-sale, net of tax		1,619			(2,517	)
Change in unrealized loss on cash flow hedges, net of tax		(1,274	)		(699	)
Change in unrealized gain on other, net of tax		1			15
Non-cash transactions:
Loans transferred to other real estate owned from held for sale or portfolio		7,379			11,832
Equity issued for acquisitions, including deferred acquisition obligations		3,303			10,625
Equity receivable related to June 18, 2010 investment agreement with Carlyle		6,268			—

See accompanying notes to unaudited consolidated financial statements.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(1)

Basis of Presentation and Summary of Significant Accounting Policies

Boston Private Financial Holdings, Inc. (the “Company” or “BPFH”), is a holding company with three reportable segments, Private Banking, Investment Management, and Wealth Advisory. The Private Banking segment has four consolidated affiliate partners, consisting of Boston Private Bank & Trust Company (“Boston Private Bank”), Borel Private Bank & Trust Company (“Borel”), First Private Bank & Trust (“FPB”), and Charter Private Bank (formerly Charter Bank) (“Charter”) (together, the “Banks”). The Investment Management segment has two consolidated affiliate partners, consisting of Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”), and Anchor Capital Holdings, LLC (“Anchor”) (together, the “Investment Managers”). The Wealth Advisory segment has three consolidated affiliate partners, consisting of KLS Professional Advisors Group, LLC (“KLS”), Bingham, Osborn & Scarborough, LLC (“BOS”), and Davidson Trust Company (“DTC”) (together, the “Wealth Advisors”). In addition, the Company also holds a minority interest investment in Coldstream Holdings, Inc. (“Coldstream Holdings”).

During 2009, BPFH divested its interests in Gibraltar Private Bank & Trust Company (“Gibraltar”), RINET Company, LLC (“RINET”), Boston Private Value Investors, Inc. (“BPVI”) and Sand Hill Advisors, LLC (“Sand Hill”). The Company also entered into an agreement with the management team of Westfield Capital Management Company, LP (“Westfield”) to complete the purchase of Westfield during the fourth quarter of 2009, instead of in 2014 as contemplated in a previously announced agreement. Accordingly, the results of operations for the five divested affiliates are included in the results from discontinued operations for prior periods, and gain or loss on sale related to the divestitures are included in the interim periods in which the affiliates were divested. See Part II. Item 8. “Financial Statements and Supplementary Data—Note 2: Divestitures and Acquisitions” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 for further detail on the divestitures.

The Company conducts substantially all of its business through its three reportable segments. All significant intercompany accounts and transactions have been eliminated in consolidation. The minority investment in Coldstream Holdings is accounted for using the equity method and is included in other assets.

The unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and include all necessary adjustments of a normal recurring nature, which in the opinion of management, are required for a fair presentation of the results and financial condition of the Company. The interim results of consolidated operations are not necessarily indicative of the results for the entire year.

The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission (“SEC”). Prior periods’ amounts are reclassified whenever necessary to conform to the current periods’ presentation.

The Company’s significant accounting policies are described in Part II. Item 8. “Financial Statements and Supplementary Data—Note 3: Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC. For interim reporting purposes, the Company follows the same significant accounting policies.

(2)

Earnings Per Share

The computations of basic and diluted earnings per share (“EPS”) are set forth below:


	For the three months ended June 30,						For the six months ended June 30,
	2010			2009			2010			2009
	(In thousands, except share and per share data)

Basic earnings/ (loss) per share
Numerator:
Net income/ (loss) from continuing operations	$	225		$	(141	)	$	5,979		$	4,119
Less: Net income attributable to noncontrolling interests		616			579			1,301			1,344

Net (loss)/ income from continuing operations attributable to the Company		(391	)		(720	)		4,678			2,775


Decrease/ (increase) in noncontrolling interests redemption value (1)		190			(1,624	)		1,314			(2,771	)
Accretion of Series B Preferred stock Beneficial Conversion Feature (2)		—			(4,879	)		—			(9,246	)
Accretion of discount on Series C Preferred stock (3)		(4,963	)		(242	)		(7,988	)		(622	)
Dividends on preferred stock		(1,387	)		(1,356	)		(2,954	)		(3,867	)

Total adjustments to income attributable to common shareholders		(6,160	)		(8,101	)		(9,628	)		(16,506	)


Net loss from continuing operations attributable to common shareholders		(6,551	)		(8,821	)		(4,950	)		(13,731	)
Net income/ (loss) from discontinued operations		1,509			(7,763	)		1,545			(8,392	)

Net loss attributable to common shareholders	$	(5,042	)	$	(16,584	)	$	(3,405	)	$	(22,123	)


Denominator:
Weighted average basic and diluted common shares outstanding (4)		68,787,389			67,860,696			68,331,183			66,264,319

Basic and diluted earnings/ (loss) per share:
Basic and diluted loss per share from continuing operations	$	(0.09	)	$	(0.13	)	$	(0.07	)	$	(0.21	)
Basic and diluted earnings/ (loss) per share from discontinued operations	$	0.02		$	(0.11	)	$	0.02		$	(0.12	)
Basic and diluted loss per share attributable to common shareholders	$	(0.07	)	$	(0.24	)	$	(0.05	)	$	(0.33	)

Dividends declared on common stock	$	0.01		$	0.01		$	0.02		$	0.02

(1)

See Part I. Item 1. “Notes to the Unaudited Consolidated Financial Statements—Note 10: Noncontrolling Interests” for a description of the redemption values related to the redeemable noncontrolling interests. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), an increase in redemption value from period to period reduces income attributable to common shareholders. Decreases in redemption value from period to period increase income attributable to common shareholders, but only to the extent that the cumulative change in redemption value remains a cumulative increase since adoption of this standard in the first quarter of 2009.

(2)

See the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, Part II. Item 8. “Financial Statements and Supplementary Data—Note 16: Equity” for a description of the preferred stock that gave rise to the beneficial conversion feature. In accordance with ASC 480, the beneficial conversion feature is accounted for similar to a preferred stock dividend and reduces income attributable to common shareholders. The beneficial conversion feature on the Series B Preferred stock was fully accreted as of December 31, 2009.

(3)

See the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, Part II. Item 8. “Financial Statements and Supplementary Data—Note 16: Equity” for a description of the preferred stock that gave rise to the accretion of discount. In accordance with ASC 480, the accretion of the discount on the Series C Preferred stock is accounted for similar to a preferred

stock dividend and reduces income attributable to common shareholders. The Company repurchased $50.0 million of the Series C Preferred stock in January, 2010, and repurchased the remaining $104.0 million in June, 2010. The discount on the Series C Preferred stock was therefore fully accreted as of June 30, 2010.

(4)

The diluted EPS computation for the three and six months ended June 30, 2010 and 2009 does not assume conversion of the convertible trust preferred securities or the Series B Preferred stock, exercise or contingent issuance of options or other dilutive securities, or the exercise of the warrants issued to an affiliate of The Carlyle Group (“Carlyle”), because the result would have been anti-dilutive. As a result of the anti-dilution, the potential common shares excluded from the diluted EPS computation are as follows:


	For the three months ended June 30,		For the six months ended June 30,
	2010	2009	2010	2009
	(In thousands)
Potential common shares from:
Convertible trust preferred securities	1,860	3,229	1,860	3,229
Conversion of the Series B Preferred stock	7,261	7,261	7,261	7,261
Exercise or contingent issuance of options or other dilutive securities	1,855	981	1,656	1,026

Total potential common shares	10,976	11,471	10,777	11,516

If the effect of the conversion of the trust preferred securities would have been dilutive, interest expense, net of tax, related to the convertible trust preferred securities of $0.4 million and $0.9 million for the three and six month periods ended June 30, 2010, respectively, and $0.7 million and $1.5 million for the three and six month periods ended June 30, 2009, respectively, would have been added back to net loss attributable to common shareholders for diluted EPS computations for the periods presented.

If the effect of the conversion of the Series B Preferred stock would have been dilutive, preferred dividends related to the Series B Preferred stock of $0.1 million for the three and six month periods ended June 30, 2010 and 2009 would have been added back to net loss attributable to common shareholders for diluted EPS computations for the periods presented.

Options to purchase shares of common stock that were outstanding at June 30, 2010 were not included in the computation of diluted EPS or in the above anti-dilution table because the options’ exercise prices were greater than the average market price of the common shares during the period. These shares excluded from the diluted EPS computation amounted to 4.6 million and 4.4 million for the three and six month periods ended June 30, 2010, respectively, and 5.2 million for both the three and six month periods ended June 30, 2009.

A warrant to purchase approximately 2.9 million shares of common stock (the “TARP warrant”) was outstanding at June 30, 2010 and 2009, but was not included in the computation of diluted EPS because the warrant’s exercise price was greater than the average market price of the common shares for the three and six month periods ended June 30, 2010 and 2009.

(3)

Reportable segments

Management Reporting

The Company has three reportable segments (Private Banking, Investment Management, and Wealth Advisory) and the parent company (the “Holding Company”). The financial performance of the Company is managed and evaluated by these three areas. The segments are managed separately as a result of the concentrations in each function.

Measurement of Segment Profit and Assets

The accounting policies of the segments are the same as those described in Part II. Item 8. “Financial Statements and Supplementary Data—Note 1: Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Revenues, expenses, and assets are recorded by each segment, and separate financial statements are reviewed by their management and the Company’s Segment Chief Executive Officers.

Reconciliation of Reportable Segment Items

The following tables provide a reconciliation of the revenues, profits, assets, and other significant items of reportable segments as of and for the three and six months ended June 30, 2010 and 2009. Interest expense on junior subordinated debentures and a portion of the long-term debt are reported at the Holding Company.


	For the three months ended June 30,
	Net interest income						Non-interest income					Total revenues
	2010			2009			2010			2009		2010			2009
							(In thousands)
Total Banks	$	47,339		$	41,944		$	7,255		$	10,094	$	54,594		$	52,038
Total Investment Managers		35			46			9,418			7,686		9,453			7,732
Total Wealth Advisors		(14	)		18			9,305			8,496		9,291			8,514

Total Segments		47,360			42,008			25,978			26,276		73,338			68,284

Holding Company and Eliminations		(2,343	)		(2,706	)		(345	)		665		(2,688	)		(2,041	)

Total Company	$	45,017		$	39,302		$	25,633		$	26,941	$	70,650		$	66,243


	For the three months ended June 30,
	Non-interest expense				Income tax (benefit)/expense						Net income/(loss) from continuing operations
	2010		2009		2010			2009			2010			2009
	(In thousands)
Total Banks	$	36,117	$	38,418	$	10		$	1,278		$	3,505		$	3,611
Total Investment Managers		7,483		6,914		582			398			1,388			420
Total Wealth Advisors		7,325		5,900		755			885			1,211			1,729

Total Segments		50,925		51,232		1,347			2,561			6,104			5,760

Holding Company and Eliminations		5,740		6,424		(2,549	)		(2,564	)		(5,879	)		(5,901	)

Total Company	$	56,665	$	57,656	$	(1,202	)	$	(3	)	$	225		$	(141	)


	For the three months ended June 30,
	Net income from continuing operations attributable to noncontrolling interests					Net income/(loss) attributable to the Company (1)						Amortization of intangibles
	2010		2009			2010			2009			2010		2009
	(In thousands)
Total Banks	$	—	$	—		$	3,505		$	3,611		$	86	$	909
Total Investment Managers		340		(19	)		1,048			439			869		964
Total Wealth Advisors		276		598			935			1,131			357		379

Total Segments		616		579			5,488			5,181			1,312		2,252

Holding Company and Eliminations		—		—			(4,370	)		(13,664	)		27		27

Total Company	$	616	$	579		$	1,118		$	(8,483	)	$	1,339	$	2,279


	As of June 30,
	Assets (2)				Assets Under Management/ Advisory (“AUM”)
	2010		2009		2010			2009
	(In thousands)				(In millions)
Total Banks	$	5,661,275	$	5,483,004	$	3,405		$	3,241
Total Investment Managers		110,606		111,691		6,880			6,298
Total Wealth Advisors		72,854		74,260		7,210			6,400

Total Segments		5,844,735		5,668,955		17,495			15,939

Holding Company and Eliminations		22,974		1,596,783		(17	)		(16	)

Total Company	$	5,867,709	$	7,265,738	$	17,478		$	15,923


	For the six months ended June 30,
	Net interest income						Non-interest income					Total revenues
	2010			2009			2010			2009		2010			2009
	(In thousands)
Total Banks	$	93,886		$	83,986		$	16,069		$	24,788	$	109,955		$	108,774
Total Investment Managers		72			93			18,571			15,790		18,643			15,883
Total Wealth Advisors		(14	)		35			18,561			16,763		18,547			16,798

Total Segments		93,944			84,114			53,201			57,341		147,145			141,455

Holding Company and Eliminations		(4,617	)		(5,403	)		(140	)		221		(4,757	)		(5,182	)

Total Company	$	89,327		$	78,711		$	53,061		$	57,562	$	142,388		$	136,273


	For the six months ended June 30,
	Non-interest expense				Income tax expense/ (benefit)						Net income/ (loss) from continuing operations
	2010		2009		2010			2009			2010			2009
	(In thousands)
Total Banks	$	71,410	$	71,611	$	3,884		$	4,688		$	12,084		$	10,419
Total Investment Managers		14,787		14,181		1,412			730			2,444			972
Total Wealth Advisors		14,649		12,217		1,457			1,537			2,441			3,044

Total Segments		100,846		98,009		6,753			6,955			16,969			14,435

Holding Company and Eliminations		11,852		11,274		(5,619	)		(6,140	)		(10,990	)		(10,316	)

Total Company	$	112,698	$	109,283	$	1,134		$	815		$	5,979		$	4,119


	For the six months ended June 30,
	Net income from continuing operations attributable to noncontrolling interests				Net income/(loss) attributable to the Company (1)						Amortization of intangibles
	2010		2009		2010			2009			2010		2009
	(In thousands)
Total Banks	$	—	$	—	$	12,084		$	10,419		$	173	$	1,166
Total Investment Managers		703		210		1,741			762			1,738		1,936
Total Wealth Advisors		598		1,134		1,843			1,910			705		759

Total Segments		1,301		1,344		15,668			13,091			2,616		3,861

Holding Company and Eliminations		—		—		(9,445	)		(18,708	)		53		55

Total Company	$	1,301	$	1,344	$	6,223		$	(5,617	)	$	2,669	$	3,916

(1)

Net income/ (loss) from discontinued operations for the three months ended June 30, 2010 and 2009 of $1.5 million and $(7.8) million, respectively, and for the six months ended June 30, 2010 and 2009 of $1.5 million and $(8.4) million, respectively, are included in Holding Company and Eliminations in the calculation of net loss attributable to the Company.

(2)	At June 30, 2009, Holding Company and Eliminations assets include assets attributable to discontinued operations of $1.6 billion.

(4)

Investments

Available-for-sale and held-to-maturity securities are summarized as follows:


	Amortized Cost		Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
	(In thousands)

At June 30, 2010:
Available-for-sale securities at fair value:
U.S. government and agencies	$	13,558	$	157	$	(2	)	$	13,713
Government-sponsored entities		282,979		2,307		(6	)		285,280
Corporate bonds		11,564		49		(14	)		11,599
Municipal bonds		197,992		5,036		(106	)		202,922
Mortgage-backed securities (1)		207,694		6,999		(59	)		214,634
Other		2,937		97		(67	)		2,967

Total	$	716,724	$	14,645	$	(254	)	$	731,115


Held-to-maturity securities at amortized cost:
U.S. government and agencies	$	687	$	—	$	—		$	687
Government-sponsored entities		1,808		8		—			1,816
Other		500		—		—			500

Total	$	2,995	$	8	$	—		$	3,003


At December 31, 2009:
Available-for-sale securities at fair value:
U.S. government and agencies	$	184,719	$	3	$	—		$	184,722
Government-sponsored entities		187,557		1,400		(563	)		188,394
Corporate bonds		15,961		—		(18	)		15,943
Municipal bonds		179,008		5,680		(144	)		184,544
Mortgage-backed securities (1)		306,761		5,909		(1,159	)		311,511
Other		2,904		65		(51	)		2,918

Total	$	876,910	$	13,057	$	(1,935	)	$	888,032


Held-to-maturity securities at amortized cost:
U.S. government and agencies	$	4,001	$	10	$	—		$	4,011
Other		500		—		—			500

Total	$	4,501	$	10	$	—		$	4,511

(1)

Most mortgage-backed securities are guaranteed by U.S. agencies or government-sponsored entities.

The following table sets forth the maturities of investment securities available-for-sale and held-to-maturity, based on contractual maturity, at June 30, 2010:


	Available-for-sale				Held-to-maturity
	Amortized Cost		Market Value		Amortized Cost		Market Value
	Amortized Cost		Market Value		Amortized Cost		Market Value
	(In thousands)
Within one year	$	72,597	$	73,201	$	1,187	$	1,187
After one, but within five years		365,479		371,488		1,208		1,214
After five, but within ten years		90,737		92,283		600		602
Greater than ten years		187,911		194,143		—		—

Total	$	716,724	$	731,115	$	2,995	$	3,003

(1)

Mortgage-backed securities are shown based on their final maturity, but due to prepayments they are expected to have shorter lives.

The following table sets forth the proceeds from sales of available-for-sale securities and the resulting gains and losses realized using the specific identification method.


	For the three months ended June 30,						For the six months ended June 30,
	2010			2009			2010			2009
	(In thousands)						(In thousands)
Proceeds from sales	$	139,115		$	43,860		$	366,636		$	138,813
Realized gains		1,048			1,032			2,511			4,497
Realized losses		(61	)		(81	)		(92	)		(103	)

The following table sets forth information regarding securities at June 30, 2010 having temporary impairment due to the fair values having declined below the amortized costs of the individual securities, and the time period that the investments have been temporarily impaired. There were no held-to-maturity securities in an unrealized loss position at June 30, 2010.


	Less than 12 months					12 months or longer					Total					# of securities
Available-for-sale securities	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			# of securities
	(In thousands)

U.S. government and agencies	$	931	$	(2	)	$	—	$	—		$	931	$	(2	)	1
Government-sponsored entities		4,994		(6	)		—		—			4,994		(6	)	1
Corporate bonds		1,562		(14	)		—		—			1,562		(14	)	2
Municipal bonds		26,341		(99	)		937		(7	)		27,278		(106	)	29
Mortgage-backed securities		17,785		(59	)		—		—			17,785		(59	)	7
Other		146		(17	)		85		(50	)		231		(67	)	36

Total	$	51,759	$	(197	)	$	1,022	$	(57	)	$	52,781	$	(254	)	76

The U.S. government and agencies security, government-sponsored entities security, and mortgage-backed securities in the table above had a Moody’s credit rating of AAA or a Standard and Poor’s credit rating of Aaa. The corporate bonds in the table above had Moody’s credit ratings of A2 and A3. Most of the municipal bonds in the table above had a Moody’s credit ratings of at least Aa3 or Standard and Poor’s credit rating of at least AA-, while five of the municipal bonds had a Moody’s credit rating of A1, and one municipal bond was not rated. The other securities consisted of equity securities.

These investments are not considered other-than-temporarily impaired for the following reasons: the decline in fair value on investments is primarily attributed to changes in interest rates and recent market volatility and not credit quality, the Company has no current intent to sell these securities nor is it more likely than not that it will have to sell these securities before recovery of their amortized cost basis. Decisions to hold or sell securities are influenced by the need for liquidity at the Banks, alternative investments, risk assessment, and asset liability management.

No impairment losses were recognized through earnings related to available-for-sale or held-to-maturity securities during the three and six month periods ended June 30, 2010 and 2009.

Cost method investments, which are included in other assets, can be temporarily impaired when the fair values decline below the amortized costs of the individual investments. There were no cost method investments with unrealized losses at June 30, 2010. The Company invests primarily in low income housing partnerships which generate tax credits. The Company also holds partnership interests in venture capital funds formed to provide financing to small businesses and to promote community development. The Company had $25.7 million and $26.3 million in cost method investments included in other assets at June 30, 2010 and December 31, 2009, respectively.

(5)

Fair Value Measurements

Fair value is defined under GAAP as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company determines the fair values of its financial instruments based on the fair value hierarchy established in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value. Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets

or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.

Fair value measurements at reporting date using:

Description

At
June 30,
2010

Quoted prices in
active markets
for identical assets
(Level 1)

Significant other
observable inputs
(Level 2)

Significant
unobservable inputs
(Level 3)

(In thousands)

Assets:

Available-for-sale securities:

U.S. government and agencies

13,713

3,014

10,699

—

Government-sponsored entities

285,280

—

285,280

—

Corporate bonds

11,599

—

11,599

—

Municipal bonds

202,922

—

202,922

—

Mortgage-backed securities

214,634

—

214,634

—

Other

2,967

408

2,059

500

Total available-for-sale securities

731,115

3,422

727,193

500

Derivatives - interest rate floor

1,162

—

1,162

—

Derivatives - interest rate customer swaps

5,975

—

5,975

—

Derivatives - customer foreign exchange forward

—

Other investments

9,814

4,340

5,474

—

Liabilities:

Derivative - interest rate customer swaps (1)

6,177

—

6,177

—

Derivatives - customer foreign exchange forward (1)

—

Derivatives - junior subordinated debenture interest rate swap (1)

1,627

—

1,627

—

(1)

Derivatives - interest rate customer swaps and customer foreign exchange forward (liabilities) are netted with the derivative assets within other assets on the consolidated balance sheets.


	Fair value measurements at reporting date using:
Description	At December 31, 2009		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
			(In thousands)
Assets:
Available-for-sale securities:
U.S. government and agencies	$	184,722	$	178,048	$	6,674	$	—
Government-sponsored entities		188,394		—		188,394		—
Corporate bonds		15,943		—		15,943		—
Municipal bonds		184,544		—		184,544		—
Mortgage-backed securities		311,511		—		308,360		3,151
Other		2,918		412		2,006		500

Total available-for-sale securities		888,032		178,460		705,921		3,651
Derivatives - interest rate floor		2,646		—		2,646		—
Derivatives - interest rate customer swaps		4,924		—		4,924		—
Other investments		9,628		4,176		5,452		—

Liabilities:
Derivatives - interest rate customer swaps (1)	$	5,053	$	—	$	5,053	$	—

(1)

Derivatives - interest rate customer swaps (liabilities) is netted with the derivative assets within other assets on the consolidated balance sheets.

At June 30, 2010, available-for-sale securities consist primarily of U.S. government and agency securities, government-sponsored entities, corporate bonds, municipal bonds, mortgage-backed securities (primarily residential), and other available-for-sale securities. The U.S. government securities, and equities and mutual funds (which are categorized as other available-for-sale securities) are valued with prices quoted in active markets. Therefore, they have been categorized as a Level 1 measurement. The government-sponsored entities, corporate bonds, municipal bonds, mortgage-backed securities, and certain investments in SBA loans (which are categorized as U.S. government and agencies available-for-sale securities) generally have quoted prices but are traded less frequently than exchange-traded securities and can be priced using market data from similar assets. Therefore, they have been categorized as a Level 2 measurement. The remaining investments—two Community Reinvestment Act (“CRA”) loan funds (which are categorized as other available-for-sale securities)—had unobservable inputs and are not actively traded. The value for these securities is determined by third party pricing models. Therefore, they have been categorized as a Level 3 measurement.

At December 31, 2009, available-for-sale securities consist primarily of U.S. government and agency securities, government-sponsored entities, corporate bonds, municipal bonds, mortgage-backed securities (primarily residential), and other available-for-sale securities. The U.S. government securities, and equities and mutual funds (which are categorized as other available-for-sale securities) are valued with prices quoted in active markets. Therefore, they have been categorized as a Level 1 measurement. The government-sponsored entities, corporate bonds, municipal bonds, most of the mortgage-backed securities, and certain investments in SBA loans (which are categorized as U.S. government and agencies available-for-sale securities) generally have quoted prices but are traded less frequently than exchange-traded securities and can be priced using market data from similar assets. Therefore, they have been categorized as a Level 2 measurement. The remaining investments—one mortgage-backed security and two CRA loan funds (which are categorized as other available-for-sale securities)—have unobservable inputs and are not actively traded. The value for these securities is determined by third party pricing models. Therefore, they have been categorized as a Level 3 measurement.

Currently, the Company uses an interest rate floor, interest rate customer swaps, a junior subordinated debenture interest rate swap, and customer foreign exchange forward contracts to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. Therefore, they have been categorized as a Level 2 measurement. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements—Note 8: Derivatives and Hedging Activities” for further details.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value

measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

The Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, although the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Other investments, which are not considered available-for-sale investments, consist of deferred compensation trusts for the benefit of certain employees, which consist of publicly traded mutual fund investments that are valued at prices quoted in active markets. Therefore, they have been categorized as a Level 1 measurement.

The following table presents a rollforward of the Level 3 assets for the three and six months ended June 30, 2010:


	Balance at March 31, 2010		Purchases, (sales), issuances and (settlements), net		Transfers into (out of) Level 3 (1)		Unrealized gains (losses)		Amortization		Balance at June 30, 2010
					(In thousands)
Mortgage-backed securities	$	—	$	—	$	—	$	—	$	—	$	—
Other available-for-sale investments		500		—		—		—		—		500

Total Level 3 assets	$	500	$	—	$	—	$	—	$	—	$	500


	Balance at December 31, 2009		Purchases, (sales), issuances and (settlements), net		Transfers into (out of) Level 3 (1)			Unrealized gains (losses)		Amortization		Balance at June 30, 2010
					(In thousands)
Mortgage-backed securities	$	3,151	$	—	$	(3,151	)	$	—	$	—	$	—
Other available-for-sale investments		500		—		—			—		—		500

Total Level 3 assets	$	3,651	$	—	$	(3,151	)	$	—	$	—	$	500

(1)

One Mortgage-backed security was originally categorized as a Level 3 measurement because its value was being determined by a third party pricing matrix. During the first quarter of 2010, the Company was able to obtain pricing information and market data from similar assets, and therefore the security was changed to a Level 2 measurement.

The following tables present the Company’s assets and liabilities measured at fair value on a non-recurring basis for which there was an adjustment to fair value during the three and six months ended June 30, 2010 and during the year ended December 31, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.

Fair value measurements recorded during the three
months ended:

Description

June 30,
2010

Quoted prices in
active markets for
identical assets
(Level 1)

Significant other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

(In thousands)

Assets:

Impaired loans (1)

21,806

—

21,806

OREO (2)

1,273

—

1,273

23,079

—

23,079

(1)

Collateral-dependent impaired loans that had write-downs in fair value or whose specific reserve changed during the second quarter of 2010.

(2)

Two OREO properties had write downs during the second quarter of 2010.

Fair value measurements recorded during the six
months ended:

Description

June 30,
2010

Quoted prices in
active markets for
identical assets
(Level 1)

Significant other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

(In thousands)

Assets:

Impaired loans (1)

26,697

—

26,697

OREO (2)

4,234

—

4,234

30,931

—

30,931

(1)

Collateral-dependent impaired loans that had write-downs in fair value or whose specific reserve changed during the first six months of 2010.

(2)

Five OREO properties had write downs during the first six months of 2010.


			Fair value measurements recorded during the year ended:
Description	December 31, 2009		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
			(In thousands)
Assets:
Impaired loans (1)	$	25,650	$	—	$	—	$	25,650
Loans held for sale (2)		473		—		—		473
OREO (3)		6,129		—		—		6,129
Goodwill and identifiable intangible assets (4)		3,654		—		—		3,654

	$	35,906	$	—	$	—	$	35,906

(1)

Collateral-dependent impaired loans held at December 31, 2009 that had write-downs in fair value or whose specific reserve changed during 2009.

(2)

Two loans held for sale at December 31, 2009 had write downs during 2009.

(3)

Six OREO properties held at December 31, 2009 had write downs during 2009.

(4)

Goodwill and identifiable intangible assets at one affiliate partner had write downs during 2009.

Impaired loans include those loans that were adjusted to the fair value of underlying collateral as allowed under ASC 310. The amount does not include impaired loans that are measured based on expected future cash flows discounted at the respective loan’s original effective interest rate, as that amount is not considered a fair value measurement. The Company uses appraisals, which management may adjust to reflect estimated fair value declines, or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property or consideration of broker quotes. Therefore they have been categorized as a Level 3 measurement.

The loans held for sale in the table above represent the portfolio of loans in Southern California transferred to the held for sale category in the third quarter of 2008, as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, which had an adjustment to fair value during the year ended December 31, 2009. The fair value of these loans held for sale was based on appraised value, and as necessary on broker quotes, comparable market transactions and information from the Company’s agent hired to assist with the sale of the portfolio. Therefore they have been categorized as a Level 3 measurement.

The OREO in the tables above includes those properties that had an adjustment to fair value during the three and six months ended June 30, 2010 and during the year ended December 31, 2009. The Company uses appraisals, which management may adjust to reflect estimated fair value declines, or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property or consideration of broker quotes. Therefore they have been categorized as a Level 3 measurement.

The goodwill and identifiable intangible assets in the table above includes the goodwill and identifiable intangible assets at one affiliate that had an adjustment to fair value during the year ended December 31, 2009. The Company utilized a weighted average of the income and market approaches, with 80% from the income and 20% from the market approach, to determine fair value. Therefore they have been categorized as a Level 3 measurement. See Part II. Item 8. “Financial Statements and Supplementary Data—Note 10: Goodwill and Other Intangible Assets” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 for a detailed discussion of the fair value measurement techniques employed.

The following table presents the book and fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis (other than certain loans, as noted below):

June 30, 2010

December 31, 2009

Book Value

Fair Value

Book Value

Fair Value

(In thousands)

FINANCIAL ASSETS:

Cash and cash equivalents

235,789

447,460

Held-to-maturity securities

2,995

3,003

4,501

4,511

Loans, net (including loans held for sale)

4,435,577

4,528,184

4,251,310

4,314,744

Other financial assets

123,447

123,979

FINANCIAL LIABILITIES:

Deposits

4,380,793

4,389,791

4,255,219

4,265,309

Securities sold under agreements to repurchase

110,274

114,263

243,377

246,592

Federal funds purchased

30,000

29,995

—

Federal Home Loan Bank borrowings

505,620

533,492

555,012

577,705

Junior subordinated debentures

193,645

164,662

193,645

156,568

Other financial liabilities

12,713

15,588

The estimated fair values have been determined by using available quoted market information or other appropriate valuation methodologies. The aggregate fair value amounts presented do not represent the underlying value of the Company taken as a whole.

The fair value estimates provided are made at a specific point in time, based on relevant market information and the characteristics of the financial instrument. The estimates do not provide for any premiums or discounts that could result from concentrations of ownership of a financial instrument. Because no active market exists for some of the Company’s financial instruments, certain fair value estimates are based on subjective judgments regarding current economic conditions, risk characteristics of the financial instruments, future expected loss experience, prepayment assumptions, and other factors. The resulting estimates involve uncertainties and therefore cannot be determined with precision. Changes made to any of the underlying assumptions could significantly affect the estimates.

Cash and cash equivalents

The carrying value reported in the balance sheet for cash and cash equivalents approximates fair value due to the short-term nature of their maturities.

Held-to-maturity securities

The fair value presented for securities are based on quoted market prices received from third party pricing services, where available. If quoted market prices were not available, fair values were based on quoted market prices of comparable instruments, quotations, or analysis of estimated future cash flows.

Loans, net (including loans held for sale)

Fair value estimates are based on loans with similar financial characteristics. Fair values of commercial and residential mortgage loans are estimated by discounting contractual cash flows adjusted for prepayment estimates and using discount rates approximately equal to current market rates on loans with similar characteristics and maturities. The incremental credit risk for non-performing loans has been considered in the determination of the fair value of consumer loans. The fair value estimates for home equity and other loans are based on outstanding loan terms and pricing in each Bank’s local market. The method of estimating the fair value of the loans disclosed in the table above does not incorporate the exit price concept in the presentation of the fair value of these financial instruments.

Other financial assets

Other financial assets consist primarily of accrued interest and fees receivable, stock in Federal Home Loan Banks (“FHLBs”), and the cash surrender value of bank-owned life insurance, for which the carrying amount approximates fair value.

The Company carries the FHLB stock at the original cost basis (par value). Each of our Banks is a member of its local FHLB located in either Boston, Seattle, or San Francisco. At each period end, the Company evaluates its investment in the respective FHLB’s stock for other-than-temporary impairment. The Company has not recognized an other-than-temporary impairment loss with respect to stock in the FHLBs, based on the following considerations: the Company’s evaluation of the underlying investment, including the long-term nature of the asset; the liquidity position of the respective FHLBs; the actions being taken by the respective FHLBs to address their regulatory situations; and the second quarter 2010 redemption at par of a portion of FHLB stock held by the Company’s Northern California and Southern California Banks (both of whom are members of the San Francisco FHLB).

Deposits

The fair values reported for transaction accounts (demand, NOW, savings, and money market) equal their respective book values reported on the balance sheet. The fair values disclosed are, by definition, equal to the amount payable on demand at the reporting date. The fair values for certificates of deposit are based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on certificates of deposit with similar remaining maturities.

Securities sold under agreements to repurchase

The fair value of securities sold under agreements to repurchase are estimated based on contractual cash flows discounted at the Company’s incremental borrowing rate for FHLB borrowings with similar maturities.

Federal funds purchased

The carrying amount of federal funds purchased approximates fair value due to their short-term nature.

Federal Home Loan Bank borrowings

The fair value reported for FHLB borrowings is estimated based on the discounted value of contractual cash flows. The discount rate used is based on the Company’s estimated current incremental borrowing rate for FHLB borrowings of similar maturities.

Junior subordinated debentures

The fair value of the junior subordinated debentures issued by Boston Private Capital Trust I was based on the current market price of the securities at June 30, 2010 and December 31, 2009. The fair value of the junior subordinated debentures issued by Boston Private Capital Trust II was based on the present value of cash flows discounted using the current rate for similar securities. The fair value of the junior subordinated debentures acquired in the FPB, Gibraltar, and Charter acquisitions approximates book value because of the floating rate nature of the securities.

Other financial liabilities

Other financial liabilities consist of accrued interest payable and deferred compensation for which the carrying amount approximates fair value.

Financial instruments with off-balance sheet risk

The Company’s commitments to originate loans and for unused lines and outstanding letters of credit are primarily at market interest rates and therefore, the carrying amount approximates fair value.

(6)

Loans Receivable

The following table presents a summary of the loan portfolio based on the geography of the lender. The concentration of the Private Banking loan data is based on the location of the lender. Net loans from the Holding Company to certain principals of the Company’s affiliate partners, loans at the Company’s non-banking segments, and inter-company loan eliminations are identified as “Eliminations and other, net”.


	June 30, 2010			December 31, 2009
	(In thousands)
Commercial loans: (1)
New England	$	1,048,562		$	943,740
Northern California		946,171			927,074
Southern California		226,215			231,684
Pacific Northwest		106,607			111,039
Eliminations and other, net		(315	)		(517	)

Total commercial loans	$	2,327,240		$	2,213,020

Construction and land loans:
New England	$	105,642		$	117,817
Northern California		134,153			161,839
Southern California		3,068			7,719
Pacific Northwest		16,966			28,286

Total construction and land loans	$	259,829		$	315,661

Residential mortgage loans:
New England	$	1,134,756		$	1,113,842
Northern California		262,762			219,394
Southern California		158,425			124,212
Pacific Northwest		45,771			37,255

Total residential mortgage loans	$	1,601,714		$	1,494,703

Home equity and other consumer loans:
New England	$	197,410		$	179,792
Northern California		73,452			74,192
Southern California		18,078			20,947
Pacific Northwest		6,206			5,278
Eliminations and other, net		2,272			3,447

Total home equity and other consumer loans	$	297,418		$	283,656

Total loans	$	4,486,201		$	4,307,040

(1)

Commercial and industrial loans and commercial real estate loans are included in the commercial loans line item in the table above and on the consolidated balance sheets.

At June 30, 2010, non-accrual loans were $100.3 million, an increase of $10.0 million, or 11%, from $90.3 million at December 31, 2009. Included with non-accrual loans are $3.0 million of the Southern California non-strategic loans held for sale.

At June 30, 2010, loans with an aggregate balance of $7.5 million were 30-89 days past due, a decrease of $13.7 million, or 64%, as compared to $21.2 million at December 31, 2009.

There were no loans past due 90 days or more and still accruing interest at June 30, 2010 or December 31, 2009.

Impaired loans are generally included within the balance of non-accrual loans. At June 30, 2010, impaired loans totaled $95.4 million, as compared to $83.2 million at December 31, 2009. At June 30, 2010, $22.2 million of the impaired loans had $4.4 million in specific allocations to the general reserve. The remaining $73.2 million of impaired loans did not have specific allocations due primarily to the adequacy of the collateral or prior charge-offs taken. At December 31, 2009, $20.7 million of impaired loans had $5.0 million in specific allocations to the general reserve and the remaining $62.5 million of impaired loans did not have specific allocations.

(7)

Allowance for Loan Losses

The allowance for loan losses is reported as a reduction of outstanding loan balances, and totaled $79.1 million and $68.4 million at June 30, 2010 and December 31, 2009, respectively.

The increased level of allowance for loan losses in 2010 reflects the higher amount of classified loans, particularly in the New England and Northern California regions, recent historical charge-off trends and current economic conditions. An analysis of the risk in the loan portfolio as well as management judgment is used to determine the estimated appropriate amount of the allowance for loan losses as of both June 30, 2010 and December 31, 2009.

The following table summarizes the changes in the allowance for loan losses for the three and six months ended June 30, 2010 and 2009:


	At and for the three months ended June 30,						At and for the six months ended June 30,
	2010			2009			2010			2009
	(In thousands)						(In thousands)
Allowance for loan losses, beginning of period	$	73,262		$	67,591		$	68,444		$	64,091
Provision for loan losses		14,962			8,731			22,577			22,056
Charge-offs		(10,212	)		(5,438	)		(15,576	)		(15,818	)
Recoveries		1,061			118			3,628			673

Allowance for loan losses, end of period	$	79,073		$	71,002		$	79,073		$	71,002

The balance for the reserve for unfunded loan commitments, which is included in the consolidated balance sheets in other liabilities, totaled $2.9 million and $3.0 million at June 30, 2010 and December 31, 2009, respectively.

(8)

Derivatives and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and, to a lesser extent, the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are generally determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain variable rate loan assets and variable rate borrowings.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheet as of June 30, 2010 and December 31, 2009.

June 30, 2010

December 31, 2009

Asset derivatives

Liability derivatives

Asset derivatives

Liability derivatives

Balance sheet
location

Fair
value

Balance sheet
location

Fair
value

Balance sheet
location

Fair
value

Balance sheet
location

Fair
value

(In thousands)

Derivatives designated as hedging instruments:

Interest rate products

Other assets

1,162

Other assets

(1,627

)

Other assets

2,646

Other assets

—

Derivatives not designated as hedging instruments:

Interest rate products (1)

Other assets

5,975

Other assets

(6,177

)

Other assets

4,924

Other assets

(5,053

)

Foreign exchange contracts (1)

Other assets

(13

)

Other assets

—

Other assets

—

Total

7,150

(7,817

)

7,570

(5,053

)

(1)	Interest rate product and foreign exchange contracts derivative liabilities are netted with interest rate product and foreign exchange contracts derivative assets within other assets on the consoldiated balance sheet.

Cash Flow Hedges of Interest Rate Risk

The Company’s objective in using derivatives is to add stability to interest income and expense and to manage the risk related to exposure to changes in interest rates. To accomplish this objective, the Company has entered into an interest rate floor and an interest rate swap as part of its interest rate risk management strategy. One of the affiliate Banks entered into a $100 million prime-based interest rate floor (the “Floor”) to protect against movements in interest rates below the Floor’s strike rate of 6.5% over the life of the agreement. The Floor has an effective date of November 1, 2005, and a maturity date of November 1, 2010. The Floor hedges the variable cash flows associated with existing variable-rate loan assets that are based on the prime rate (“Prime”). For accounting purposes, the Floor is designated as a cash flow hedge of the overall changes in cash flows on the first Prime-based interest payments received by the Bank affiliate each calendar month during the term of the hedge that, in aggregate for each period, are interest payments on principal from specified portfolios equal to the notional amount of the Floor. The Holding Company also entered into one interest rate swap in the second quarter of 2010 with a notional amount of $75 million related to the Holding Company’s cash outflows associated with the subordinated debt related to trust preferred securities to protect against rising interest rates. The interest rate swap is a forward starting hedge with an effective date of December 30, 2010 and a term of five years. The swap is forward starting as that is the date the debt is scheduled to switch from a fixed rate of 6.25% to a variable rate of three-month LIBOR plus 1.68%. The interest rate swap will effectively fix the Holding Company’s interest rate payments on the $75 million of debt at 4.45%.

The Company uses the “Hypothetical Derivative Method” described in ASC 815, Derivatives and Hedging (“ASC 815”), for quarterly prospective and retrospective assessments of hedge effectiveness, as well as for measurements of hedge ineffectiveness. Under this method, the Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. The effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings in interest and dividend income when the hedged transactions affect earnings. Ineffectiveness resulting from the hedge is recorded as a gain or loss in the consolidated statement of operations as part of fees and other income. The Holding Company and the Bank affiliate did not have any hedge ineffectiveness recognized in earnings during the three and six months ended June 30, 2010 and 2009. The Holding Company and Bank affiliate also monitor the risk of counterparty default on an ongoing basis.

Interest payments received from loans that prepay are included in the hedged portfolio due to the guidance in ASC 815, which allows the designated forecasted transactions to be the variable, Prime-based interest payments on a rolling portfolio of prepayable interest-bearing loans using the first-payments-received technique.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are made or received on the Company’s variable-rate assets or liabilities. During the

next twelve months, the Company estimates that $1.0 million will be reclassified as an increase to interest income and $0.7 million will be reclassified as an increase in interest expense.

During the three and six months ended June 30, 2010 and 2009, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions relating to the Company’s previously designated interest rate floor becoming probable not to occur. The accelerated amount was an immaterial loss for both the three and six months ended June 30, 2010 and 2009.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from two different services the Bank affiliate provides to qualified commercial clients. The Bank affiliate offers certain derivative products directly to such clients. The Bank affiliate economically hedges derivative transactions executed with commercial clients by entering into mirror-image, offsetting derivatives with third parties. Derivative transactions executed as part of these programs are not designated in ASC 815-qualifying hedging relationships and are, therefore, marked-to-market through earnings each period. Because the derivatives have mirror-image contractual terms, the changes in fair value substantially offset through earnings. Fees earned in connection with the execution of derivatives related to this program are recognized in the consolidated statement of operations in other income. The derivative asset and liability values above include an adjustment related to the consideration of credit risk required under ASC 820 of less than $0.1 million in the three and six months ended June 30, 2010 and 2009, respectively. As of June 30, 2010 and December 31, 2009, the Bank affiliate had 18 interest rate swaps with an aggregate notional amount of $183.2 million and $184.2 million, respectively, related to this program. As of June 30, 2010, the Bank affiliate also had nine foreign currency exchange contracts with a notional amount of $4.7 million related to this program. There were no foreign currency exchange contracts as of December 31, 2009.

The tables below present the effect of the Company’s derivative financial instruments on the consolidated statement of operations for the three and six months ended June 30, 2010 and 2009.


	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Three Months Ended June 30,						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Three Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships	2010			2009				2010			2009

Interest rate products	$	(1,578	)	$	(78	)	Interest income	$	757		$	763
							Other income / expense		(1	)		(1	)

Total	$	(1,578	)	$	(78	)		$	756		$	762


	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) Six Months Ended June 30,					Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships	2010			2009			2010			2009

Interest rate products	$	(1,478	)	$	233	Interest income	$	1,506		$	1,516
						Other income / expense		(5	)		(6	)

Total	$	(1,478	)	$	233		$	1,501		$	1,510


Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative Three Months Ended June 30,
Derivatives Not Designated as Hedging Instruments		2010			2009

Interest rate products	Other income / expense	$	(61	)	$	(140	)

Total		$	(61	)	$	(140	)


Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative Six Months Ended June 30,
Derivatives Not Designated as Hedging Instruments		2010			2009

Interest rate products	Other income / expense	$	(74	)	$	(7	)

Total		$	(74	)	$	(7	)

The Holding Company and Bank affiliate have agreements with its derivative counterparties that contain provisions where, if the Holding Company or Bank affiliate defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Holding Company or Bank affiliate could also be declared in default on its derivative obligations. The Bank affiliate was in compliance with these provisions as of June 30, 2010 and December 31, 2009. The Holding Company, which had no derivative obligations at December 31, 2009, was in compliance with these provisions as of June 30, 2010.

The Holding Company and Bank affiliate also have agreements with certain of its derivative counterparties that contain provisions where, if the Holding Company or Bank affiliate fails to maintain its status as a well- or adequately-capitalized institution, then the counterparty could terminate the derivative positions and the Holding Company or Bank affiliate would be required to settle its obligations under the agreements. The Bank affiliate was in compliance with these provisions as of June 30, 2010 and December 31, 2009. The Holding Company, which had no derivative obligations at December 31, 2009, was in compliance with these provisions as of June 30, 2010.

Certain of the Holding Company and Bank affiliate’s agreements with its derivative counterparties contain provisions where if specified events or conditions occur that materially change the Holding Company’s or Bank affiliate’s creditworthiness in an adverse manner, the Holding Company or Bank affiliate may be required to fully collateralize its obligations under the derivative instruments. The Bank affiliate was in compliance with these provisions as of June 30, 2010 and December 31, 2009. The Holding Company, which had no derivative obligations at December 31, 2009, was in compliance with these provisions as of June 30, 2010.

As of June 30, 2010 and December 31, 2009, the fair value of derivatives in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $6.7 million and $2.4 million, respectively. As of June 30, 2010, the Company and Bank affiliate has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $2.6 million and $0.3 million, respectively, against its obligations under these agreements.

(9)

Income Taxes

Due to the divestiture of BPVI, Sand Hill, RINET, Gibraltar, and Westfield during the year ended December 31, 2009, the results of operations related to BPVI, Sand Hill, RINET, Gibraltar, and Westfield are included in discontinued operations. The pretax profits and losses attributable to investors other than the Company are reflected under noncontrolling interests in the table below. The components of income tax expense/ (benefit) for continuing operations, discontinued operations, noncontrolling interests and the Company are as follows:


	Six months ended June 30,
	2010			2009
	(In thousands)
Income from continuing operations:
Income before income taxes	$	7,113		$	4,934
Income tax expense		1,134			815

Net income from continuing operations	$	5,979		$	4,119

Effective tax rate, continuing operations		15.9	%		16.5	%

Income/ (loss) from discontinued operations:
Income/ (loss) before income taxes	$	2,474		$	(10,801	)
Income tax expense/ (benefit)		929			(2,409	)

Net income/ (loss) from discontinued operations	$	1,545		$	(8,392	)

Effective tax rate, discontinued operations		37.6	%		22.3	%

Income attributable to noncontrolling interests:
Income before income taxes	$	1,301		$	1,344
Income tax expense		—			—

Net income attributable to noncontrolling interests	$	1,301		$	1,344

Effective tax rate, noncontrolling interests		0.0	%		0.0	%

Income/ (loss) attributable to the Company
Income/ (loss) before income taxes	$	8,286		$	(7,211	)
Income tax expense/ (benefit)		2,063			(1,594	)

Net income/ (loss) attributable to the Company	$	6,223		$	(5,617	)

Effective tax rate, attributable to the Company		24.9	%		22.1	%

The effective tax rate for the six months ended June 30, 2010 was calculated based on a projected 2010 annual effective tax rate. The effective tax rate for continuing operations was 15.9%, with related tax expense of $1.1 million. The effective tax rate was less than the statutory rate of 35% due primarily to earnings from tax-exempt investments, tax credits, officers’ life insurance, and income attributable to noncontrolling interests. These savings were partially offset by state and local income taxes and executive compensation expenses, which cannot be deducted for tax purposes due to restrictions under the U.S. Department of the Treasury’s (the “Treasury”) Troubled Asset Relief Program’s Capital Purchase Program (the “TARP CPP”).

The effective tax rate for the six months ended June 30, 2009 was calculated based on a projected 2009 annual effective tax rate. The effective tax rate for continuing operations was 16.5%, with related tax expense of $0.8 million. The effective tax rate was less than the statutory rate of 35% due primarily to earnings from tax-exempt investments, tax credits, officers’ life insurance, and income attributable to noncontrolling interests. These savings were partially offset by prior year provision to return differences, state and local income taxes and executive compensation expenses, which cannot be deducted for tax purposes due to restrictions under the Treasury’s TARP CPP.

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Noncontrolling Interests

Noncontrolling interests typically consist of equity owned by management of the Company’s respective majority-owned affiliate partners. Net income attributable to noncontrolling interests in the consolidated statements of operations represents the net income allocated to the noncontrolling interest owners of the affiliate partners. The net income allocated to the noncontrolling interest owners was $0.6 million for the three months ended June 30, 2010 and 2009, and $1.3 million for the six months ended June 30, 2010 and 2009. To the extent that the increase in the estimated maximum redemption amounts exceeds the net income attributable to the noncontrolling interests, such excess reduces net income available to common shareholders for purposes of EPS computation. Decreases in redemption value from period to period increase income attributable to common shareholders for purposes of EPS computation, but only to the extent that the cumulative change in redemption value remains a cumulative increase since adoption of this standard in the first quarter of 2009.

Each affiliate operating agreement provides the Company and/or the noncontrolling interests with contingent call or put redemption features used for the orderly transfer of noncontrolling equity interests between the affiliate minority shareholders and the Company at fair value. Fair value is generally defined in the operating agreements as a multiple of earnings before interest, taxes, depreciation, and amortization. The aggregate amount of such redeemable noncontrolling

interests at the estimated maximum redemption amounts of $19.7 million and $51.9 million are included in the accompanying consolidated balance sheets at June 30, 2010 and December 31, 2009, respectively. The Company may pay for the purchases of these noncontrolling interests in cash, shares of the Company’s common stock, or other forms of consideration dependent on the operating agreement. These agreements are discussed in Part II. Item 8. “Financial Statements and Supplementary Data—Note 15: Noncontrolling Interests” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The following table summarizes the estimated maximum redemption amounts by affiliate:


	At June 30, 2010		At December 31, 2009
	(in thousands)
Anchor	$	11,700	$	12,973
BOS		4,685		5,159
DGHM		1,445		1,843
DTC		1,842		1,828
KLS (1)		—		30,047

Total	$	19,672	$	51,850

(1)

In January 2010, the Company increased its investment in KLS to 100% from 81%. The acquisition of the remaining 19% interest of KLS was made pursuant to the Amended and Restated Limited Liability Agreement (“Agreement”) between the Company and the minority shareholders of KLS dated December 31, 2004. The consideration paid by the Company was approximately $29.7 million which represents the value of the additional 19% interest and additional consideration paid for performance targets negotiated in the original Agreement.

The following table is an analysis of the Company’s redeemable noncontrolling interests for the periods indicated:


	For the six months ended June 30,
	2010			2009
	(In thousands)
Balance at beginning of year	$	51,850		$	50,167
Net income attributable to noncontrolling interests		1,301			1,344
KLS redemption		(29,691	)		—
Distributions		(1,286	)		(391	)
Adjustment to redemption value, net		(2,502	)		237

Balance at June 30	$	19,672		$	51,357

(11)

Equity

During 2010, the Company entered into four transactions that had an impact on stockholders’ equity.

On June 21, 2010, the Company completed a public offering of its common stock in which 4.7 million shares were sold to the public at a price of $6.10 per share, for total net proceeds, after underwriters’ discount and other related costs, of $27.0 million.

Related to the public offering, on June 18, 2010, the Company entered into an investment agreement (the “Investment Agreement”) with Carlyle pursuant to which the Company raised approximately $6.3 million. Under the terms of the Investment Agreement, Carlyle agreed to purchase 1.1 million shares of the Company’s common stock pursuant to Carlyle’s exercise of its gross up option under an investment agreement between the Company and Carlyle dated July 22, 2008. However, due to the timing of the Investment Agreement in relation to the quarter end, the delayed delivery date for the securities, which was ten business days after the closing date of June 22, occurred on July 7, 2010. This transaction created a receivable as of June 30, 2010 which is contained in other assets, and is offset in additional paid-in capital, on the consolidated balance sheet. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements—Note 13: Subsequent Events” for further details of the settlement of the Investment Agreement in July 2010.

On June 16, 2010, the Company redeemed $104.0 million of the Company’s outstanding Series C Preferred stock that was issued to the Treasury pursuant to the TARP CPP in November of 2008. The Company also paid $0.4 million for

accrued and unpaid dividends on the Series C Preferred stock in conjunction with this repurchase. At the date of redemption, the Company accelerated the remaining $5.0 million of the discount on the Series C Preferred stock. The discount accretion is treated as a preferred dividend for earnings per share purposes and thereby reduces net income attributable to common shareholders and earnings per share.

On January 13, 2010, the Company redeemed $50.0 million of the Company’s outstanding Series C Preferred stock that was issued to the the Treasury pursuant to the TARP CPP in November of 2008. The Company also paid $0.4 million for accrued and unpaid dividends on the Series C Preferred stock in conjunction with this repurchase. At the date of redemption, the Company accreted $2.7 million of the discount on the Series C Preferred stock. The discount accretion is treated as a preferred dividend for earnings per share purposes and thereby reduces net income attributable to common shareholders and earnings per share.

(12)

Recent Accounting Developments

In July 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”). ASU 2010-20 requires that more information be disclosed about the credit quality of a company’s loans and the allowance for loan losses held against those loans. A company will need to disaggregate new and existing disclosure based on how it develops its allowance for loan losses and how it manages credit exposures. Existing disclosures to be presented on a disaggregated basis include a rollforward of the allowance for loan losses, the related recorded investment in such loans. Additional disclosure is also required regarding information about troubled debt restructurings and significant purchases and sales of loans during the reporting period by class. ASU 2010-20 requires certain disclosures as of the end of a reporting period effective for periods ending on or after December 15, 2010. Other required disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The Company anticipates that adoption of these additional disclosures will not have a material effect on its financial position or results of operations.

In June, 2009, the FASB issued updates to ASC 860, Transfers and Servicing (“ASC 860 updates”). Among other things, the ASC 860 updates amend ASC 860 to remove the concept of a qualifying special purpose entity (“QSPE”) from the prior statement and remove the exception from applying FASB Interpretation No. 46, Consolidation of Variable Interest Entities, to QSPEs. Effective as of January 1, 2010, the ASC 860 updates do not have a material impact on the Company’s financial position or results of operations.

In June, 2009, the FASB issued ASC 810, updates to Consolidation (“ASC 810”). These updates require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. It determines whether a reporting entity is required to consolidate another entity based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. These updates were effective on a prospective basis in fiscal years beginning on or after November 15, 2009. Effective as of January 1, 2010, the ASC 810 updates do not have a material impact on the Company’s financial position or results of operations.

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Subsequent Events

The Company evaluated subsequent events through the date the accompanying unaudited interim financial statements were issued. Pursuant to the requirements of ASC 855, Subsequent Events, there were no events or transactions during the subsequent event reporting period that required disclosure in the financial statements, other than the following:

On July 7, 2010, the Company issued 1.1 million shares for $6.3 million in settlement of the Investment Agreement with Carlyle, as discussed in Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements—Note 11: Equity.”

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of and for the three and six months ended June 30, 2010

Certain statements contained in this Quarterly Report on Form 10-Q 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, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These statements include, among others, statements regarding our strategy, effectiveness of our investment programs, evaluations of future interest rate trends and liquidity, expectations as to growth in assets, deposits and results of operations, receipt of regulatory approval for pending acquisitions, success of acquisitions, future operations, market position, financial position, and prospects, plans and objectives of management. 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 others, factors referenced herein under the section captioned “Risk Factors”; adverse conditions in the capital and debt markets and the impact of such conditions on the Company’s private banking, investment management and wealth advisory activities; changes in interest rates; competitive pressures from other financial institutions; the effects of continuing deterioration in general economic conditions on a national basis or in the local markets in which the Company operates, including changes which adversely affect borrowers’ ability to service and repay our loans; changes in the value of the securities in our investment portfolio; changes in loan default and charge-off rates; the adequacy of loan loss reserves; reductions in deposit levels necessitating increased borrowing to fund loans and investments; increasing government regulation, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; risks related to the identification and implementation of acquisitions; and changes in assumptions used in making such forward-looking statements, as well as the other risks and uncertainties detailed in the Company’s Annual Report on Form 10-K 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 statements are made.

Executive Summary

The Company offers a full range of wealth management services to high net worth individuals, families, businesses and select institutions through its three reportable segments: Private Banking, Investment Management, and Wealth Advisory. This Executive Summary provides an overview of the most significant aspects of our operating segments and the Company’s operations in the second quarter of 2010. Details of the matters addressed in this summary are provided elsewhere in this document and, in particular, in the sections immediately following.


	Three months ended June 30,
	2010			2009			Change			% Change
	(In thousands, except per share data)
Total revenues	$	70,650		$	66,243		$	4,407		7	%
Provision for loan losses		14,962			8,731			6,231		71	%
Total operating expenses		56,665			57,656			(991	)	-2	%
Net income/ (loss) from continuing operations		225			(141	)		366		nm
Net income attributable to noncontrolling interests		616			579			37		6	%
Net income/ (loss) from discontinued operations		1,509			(7,763	)		9,272		nm
Net income/ (loss) attributable to the Company		1,118			(8,483	)		9,601		nm

(Loss)/ earnings per share:
From continuing operations	$	(0.09	)	$	(0.13	)	$	0.04		31	%
From discontinued operations		0.02			(0.11	)		0.13		nm
Attributable to the Company		(0.07	)		(0.24	)		0.17		71	%

nm not meaningful

The Company recorded net income attributable to the Company of $1.1 million in the three months ended June 30, 2010 compared to a net loss attributable to the Company of $8.5 million in the same period of 2009. The Company recognized a loss per share of $0.07 for the three months ended June 30, 2010, compared to a loss per share of $0.24 for the same period of 2009.

Key items that affected the Company’s second quarter 2010 results include:

•

A $6.2 million, or 71%, increase in provision for loan losses to $15.0 million for the three months ended June 30, 2010 from $8.7 million for the same period in 2009. The increase was primarily due to charge-offs and additional classified loans in the Northern California commercial real estate portfolio.

•

A 15 basis point increase in net interest margin (“NIM”) to 3.29% from 3.14% for the three month periods ended June 30, 2010 and 2009, respectively. A six basis point increase in NIM to 3.24% from 3.18% for the six month periods ended June 30, 2010 and 2009, respectively.

•

The full repurchase of the remaining $104.0 million of Series C Preferred stock issued under the U.S. Department of the Treasury’s (the “Treasury”) Troubled Asset Relief Program’s Capital Purchase Program (the “TARP CPP”) in June 2010. The repurchase triggered an acceleration of the accretion of the discount on the Series C Preferred stock of $5.0 million. The accretion, which is treated as a preferred stock dividend in the calculation of earnings per share, and the preferred dividends paid on the Series C Preferred stock, reduced earnings per share by $0.09 for the quarter.

•

The issuance of 4.7 million shares of common stock through a public offering in June 2010, which added $27.0 million of capital at June 30, 2010. In addition to the public offering, the Company agreed to issue common stock to Carlyle pursuant to Carlyle’s gross up rights, which added an additional $6.3 million of capital at June 30, 2010.

Except for the Northern California bank, credit quality improved during the quarter, as evidenced by decreased loan charge-offs, decreased past due loans, and, for two of the Banks, decreased non-performing assets.

The Company’s Private Banking segment reported net income of $3.5 million in the second quarter of 2010, compared to net income of $3.6 million in the same period of 2009. The $0.1 million decrease in net income was a result of the following items: a higher provision for loan losses as described above, and lower non-interest income due to lower volume of loan sales and increases in losses on sales of other real estate owned (“OREO”) in the second quarter of 2010 as compared to the same period of 2009. These changes were partially offset by increased net interest income due primarily to lower rates paid on deposits and decreased operating expenses compared to 2009 which included a Federal Deposit Insurance Corporation (“FDIC”) insurance special assessment.

The Company’s Investment Management segment reported net income of $1.0 million in the second quarter of 2010, compared to net income of $0.4 million in the same period of 2009. The $0.6 million increase was primarily due to a $1.7 million, or 22%, increase in investment management and trust fees for the second quarter of 2010 compared to the same period in 2009. The increase in investment management and trust fees was related to a $0.6 billion, or 9%, increase in assets under management/advisory (“AUM”) from June 30, 2009, of which $1.1 billion related to market appreciation, partially offset by $0.5 billion in net outflows. During the second quarter of 2010, the Investment Management segment experienced a $0.3 billion market depreciation, which will negatively affect the third quarter’s revenue as 85% of fees are billed quarterly in advance.

The Company’s Wealth Advisory segment reported net income of $0.9 million in the second quarter of 2010, compared to net income of $1.1 million in the same period of 2009. The $0.2 million, or 17%, decrease in net income was primarily due to a $1.3 million, or 33%, increase in compensation expense related to new compensation agreements that went into effect in 2010 and increased headcount. This increased expense was partially offset by an increase in wealth advisory fees of $0.8 million, or 10%, due to a $0.8 billion, or 13%, increase in AUM from June 30, 2009, of which $0.4 billion related to market appreciation and $0.4 billion related to net inflows. Also offsetting the increased expense was a $0.3 million decrease in income attributable to noncontrolling interests primarily due to the elimination of a noncontrolling interest at KLS as a result of the Company’s acquisition of the remaining 19% interest in KLS in January 2010.

Critical Accounting Policies

Critical accounting policies are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that its most critical

accounting policies upon which its financial condition depends, and which involve the most complex or subjective decisions or assessments are the allowance for loan losses, the valuation of goodwill and intangible assets and analysis for impairment, and tax estimates. These policies are discussed in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. There have been no changes to these policies through the filing of this Quarterly Report on Form 10-Q.

Financial Condition

Condensed Consolidated Balance Sheets and Discussion


	June 30, 2010		December 31, 2009		Increase/ (decrease)			% Change
	(In thousands)
Assets:
Total cash and investments	$	1,016,840	$	1,387,483	$	(370,643	)	-27	%
Loans held for sale		28,449		12,714		15,735		124	%
Total loans		4,486,201		4,307,040		179,161		4	%
Less: allowance for loan losses		79,073		68,444		10,629		16	%

Net loans		4,407,128		4,238,596		168,532		4	%
Goodwill and intangible assets		147,451		150,117		(2,666	)	-2	%
Other assets		267,841		260,355		7,486		3	%

Total assets	$	5,867,709	$	6,049,265	$	(181,556	)	-3	%

Liabilities and Equity:
Deposits	$	4,380,793	$	4,255,219	$	125,574		3	%
Total borrowings		839,539		992,034		(152,495	)	-15	%
Other liabilities		87,039		99,008		(11,969	)	-12	%

Total liabilities		5,307,371		5,346,261		(38,890	)	-1	%
Redeemable noncontrolling interests		19,672		51,850		(32,178	)	-62	%
Total stockholders’ equity		540,666		651,154		(110,488	)	-17	%

Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	5,867,709	$	6,049,265	$	(181,556	)	-3	%

Total Assets. Total assets decreased $181.6 million, or 3%, to $5.9 billion at June 30, 2010 from $6.0 billion at December 31, 2009. The repurchase of the Series C Preferred stock from the Treasury was the primary driver of this decrease.

Cash and Investments. Total cash and investments (consisting of cash and cash equivalents, investment securities, and stock in the FHLBs) decreased $370.6 million, or 27%, to $1.0 billion, or 17% of total assets in 2010 from $1.4 billion or 23% of total assets in 2009. The decrease was primarily due to the $211.7 million, or 47%, decrease in cash and cash equivalents and the $158.4 million, or 18%, decrease in investment securities. The decrease in cash and cash equivalents is primarily related to the level of loan growth and borrowing paydowns that were not offset by deposit growth, and the decrease in investment securities is primarily due to the Holding Company liquidating a portion of its investment portfolio during the first six months of 2010 to fund its $154.0 million repurchase of its Series C Preferred stock and the $29.7 million payment to the minority shareholders of KLS to acquire the remaining 19% interest in KLS along with additional consideration paid for performance targets negotiated in the original agreement with KLS.

The majority of the Company’s investments are held by the Banks. The Banks’ investment policies require management to maintain a portfolio of securities which will provide liquidity necessary to facilitate funding of loans and to cover deposit fluctuations, and to mitigate the Banks’ overall balance sheet exposure to interest rate risk, while at the same time achieving a satisfactory return on the funds invested. The securities in which the Banks may invest are subject to regulation and are generally limited to securities that are considered “investment grade.”

Investment maturities, principal payments and sales of the Company’s available-for-sale and held-to-maturity securities provided $0.6 billion of cash proceeds during the first half of 2010, and $0.4 billion was deployed on purchases of new investments. The timing of sales and reinvestments is based on various factors, including management’s evaluation of interest rate trends and the Company’s liquidity. The sale of investments resulted in recognized gains for the three and six months ended June 30, 2010 of $1.0 million and $2.4 million, respectively, due to changes in interest rates, the majority of which were previously recorded in unrealized gains within other comprehensive income. The Company’s available-for-sale

investment portfolio carried a total of $14.6 million of unrealized gains and $0.3 million of unrealized losses at June 30, 2010, compared to $13.1 million of unrealized gains and $1.9 million of unrealized losses at December 31, 2009.

No impairment losses were recognized through earnings related to available-for-sale or held-to-maturity securities during the three and six month periods ended June 30, 2010 and 2009. The amount of investment securities in an unrealized loss position greater than 12 months as well as the total amount of unrealized losses was not significant and was primarily due to movements in interest rates. The Company has no intent to sell any securities in an unrealized loss position at June 30, 2010, and it is not more likely than not that the Company would be forced to sell any of these securities prior to the full recovery of all unrealized losses.

See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements—Note 4: Investments” for further details of the Company’s investment securities.

Loans held for sale. Loans held for sale increased $15.7 million to $28.4 million at June 30, 2010 from $12.7 million at December 31, 2009. Included in loans held for sale at June 30, 2010 are $18.5 million of second mortgage loans that were transferred in from the loan portfolio during the second quarter of 2010 and are expected to be sold in the third quarter of 2010. Boston Private Bank periodically sells small balances of second mortgages related to their first time home buyer program as part of their overall asset liability management program when favorable prices for these type of loans are available in the secondary market. Also included in the total loans held for sale at June 30, 2010 is $3.0 million of the Company’s non-strategic Southern California portfolio loans. During the first six months of 2010, two of the five loans remaining in the non-strategic Southern California portfolio at December 31, 2009 were transferred to OREO. For these types of loans, the Company believes it will be easier to sell the asset as an OREO property versus as a loan, as there are fewer legal restrictions associated with an OREO property. Other factors affecting the balance of loans held for sale include the timing and volume of residential loans originated for sale in the secondary market. When mortgage rates are low, the Banks see an increase in the percentage of customer requests for fixed rate mortgage loans as compared to adjustable rate mortgages. The Banks sell the majority of their fixed rate loans in the secondary market to mitigate interest rate risk.

Goodwill and intangible assets, net. Goodwill and intangible assets decreased $2.7 million, or 2%, to $147.5 million at June 30, 2010 from $150.1 million at December 31, 2009. The decrease is primarily due to amortization of intangible assets. The Company tests goodwill for impairment on an annual basis and in between annual dates if events or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value, in accordance with ASC 350, Intangibles—Goodwill and Other. Management concluded that a triggering event occurred at June 30, 2010, due to the Company’s market capitalization decreasing to less than book value as of that date. Management’s test consisted of an evaluation of the relationship of aggregate fair values of its reporting units to the Company’s overall market capitalization and book value. Upon comparison of the fair values of its reporting units to their respective book values, management concluded that there was no impairment of goodwill or intangible assets at June 30, 2010.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company