Boston Private Financial Holdings, Inc. Announces Results for Second Quarter

Boston Private Financial Holdings, Inc. (NASDAQ: BPFH) ("Boston Private”) today reported a second quarter GAAP loss of $80.6 million or $2.11 per share. The GAAP loss was driven by two non-cash charges totaling $82 million, net of tax, with an impact of $2.15 per share and by an increased loan loss provision at First Private Bank & Trust of $17.8 million, net of tax, or $0.42 per share. The non-cash charges include the previously announced non-cash compensation charge for the equity ownership restructuring of Westfield Capital, as well as the non-cash goodwill and intangible impairment charges associated with First Private. The goodwill impairment charge is the direct result of continued economic deterioration in Southern California, its negative impact on First Private’s loan portfolio, and the resulting deterioration in the value of this affiliate. Operational highlights for the second quarter of 2008 include: Total revenue 24% higher than a year ago, up 2% on a linked quarter basis Loan growth of 4% and Deposit growth of 2% from the prior quarter AUM/Advisory grew 5% ($2 billion) during the quarter 88% of the Investment Management segments’ AUM performed in the top quartile of peer investment managers for the one year performance period. "Our financial performance, with the exception of First Private, was very strong in a number of areas despite difficult and challenging market conditions,” said Timothy L. Vaill, Chairman and CEO. "I believe we have been able to weather these challenges because of our diversification, our focus on and the performance in the wealth management sector and the hard work of our exceptional team. During the second quarter we experienced continued strength and growth in many areas of our business from our fee-based affiliates to our core Private Banking Group. The exception, as we’ve noted, has been First Private Bank. While the performance of this affiliate weighs on our overall results for the quarter, we have isolated the loan portfolio issues and are aggressively working to resolve them. Importantly, this experience helped drive us to look even more closely at overall credit standards across our banks and further scrutinize our loan portfolios across the enterprise. As a result, we have significantly improved our company-wide risk management practices, resources and procedures. We are confident that we have put the right team in place, both locally and at the corporate level, to oversee and execute this process, led by our Private Banking Group CEO, James Dawson.” Concurrent with this release of the second quarter 2008 earnings, and in conjunction with our capital plan, the Board of Directors of Boston Private Financial Holdings, Inc. voted to reduce the quarterly dividend from $0.10/share to $0.01/share effective with the next payout date of August 15, 2008. Mr. Vaill said, "By reducing our dividend at this time, we will significantly increase our internal generation of equity capital which, together with our external capital raising plan, will create a level of capital strength prudent in this kind of challenging economic environment. Over time, as and when conditions improve, we will re-evaluate our dividend rate and when appropriate, hope to return our dividend payout ratio to a level more in line with our historical practices.” Financial Highlights Total revenues for the second quarter 2008 were up 24% to $120.0 million, compared to revenues of $96.6 million a year ago. On a linked quarter basis, revenues were up $2.6 million, or 2%. Net Interest Income for the second quarter was up 17% to $51.8 million, compared to $44.2 million a year ago. On a linked quarter basis, net interest income was up $2.1 million, or 4%. Wealth Advisory fees for the second quarter were up 64% to $12.7 million, compared to $7.7 million a year ago. On a linked quarter basis, Wealth Advisory fees increased $0.3 million, or 2%. Investment Management and Trust fees for the second quarter were up 4% to $42.3 million as compared to $40.4 million a year ago. On a linked quarter basis, Investment Management and Trust fees were up $1.9 million, or 5%. The Company recognized a gain of $5.1 million, net of tax, or $0.13 per share, from repurchasing $86.5 million of its 3% contingent convertible senior notes due in 2027. The funds were replaced with funding sources that had lower interest rates, which contributed to the decrease in the Company’s borrowing yields. Total Assets Under Management/Advisory increased 5% or $2 billion to $38 billion from consolidated and unconsolidated affiliates on a linked quarter basis, with $700 million coming from net new flows and $1.3 billion from investment performance. Banking Segment (excluding First Private): Recorded $1.8 million in net charge-offs during the second quarter, which represented approximately 4 basis points of total loans as compared to $1.1 million or 2 basis points of total loans in net charge-offs during the first quarter of 2008. Non-performing loans as a percentage of total loans remained relatively flat at 71 basis points versus 70 basis points in the prior quarter. The allowance for credit losses as a percentage of total loans was 1.25%, higher than the prior quarter by 8 basis points. Classified loans, which include loans classified as either sub-standard, doubtful or loss, for the second quarter of 2008 were $92.5 million, up 76% from $52.5 million in the first quarter of 2008. 53% or $21.4 million is attributable to the Southern Florida region and 38% or $15.4 million is attributable to the Pacific Northwest region. First Private Bank: First Private recorded $21.1 million in net charge-offs during the second quarter, compared to $0.6 million in the prior quarter. Non-performing loans increased $18.2 million to $69.4 million from the prior quarter. The allowance for credit losses as a percentage of total loans increased to 7.5%, up 60 basis points from the prior quarter. The classified loans increased to $152.9 million, or 5% in the second quarter of 2008 from $145.1 million in the first quarter of 2008. As a result of the increased provision and non-performing loans, the Company recorded an additional $13.7 million in goodwill impairment at First Private. This charge was in addition to the $20.6 million of impairment at First Private recorded in the first quarter of 2008. "Our core banking business segment, excluding First Private, is performing well,” said David Kaye, CFO. "We had positive loan growth and deposit growth, and our investment portfolios are performing strongly. However, we are disappointed with the continuing deterioration and resultant charge-offs and provisions especially in Southern California. While we posted a provision expense of $31.9 million this quarter, 73% of the provision, or $23.3 million, is directly attributable to First Private, 18% attributable to other provisions, and 9% is directly related to strong loan growth at our other private banking affiliates. From 6/30/06 to 6/30/08 we have seen loans receivable increase from $4.0 billion to $5.6 billion, or 42%. As far as the rest of the business is concerned, we are pleased with the continuing strong performance from the fee-based businesses, which drove 50% of our revenues during the second quarter.” Jay Cromarty, CEO of the Investment Management and Wealth Advisory Group said, "We experienced continued strong performance in the Asset Management and Wealth Advisory segments of our business in the second quarter. AUM was up 6% year over year and 7% on a linked quarter basis. Highlights of the quarter included significant net flows of approximately $700 million at Westfield and $100 million at Anchor. Dalton, Greiner experienced strong investment performance which now puts every one of their strategies ahead of its respective benchmark for the one, three, five, ten year and since inception time periods.” Credit Commentary As previously announced, the Company retained a leading independent loan review company to review the portfolios and credit practices in place across all five of its private banks, which is now complete. Reviews at First Private and Gibraltar Private were completed in the first quarter and reviews at the other three banks were completed in the second quarter. Management considered this independent review, among other factors, when establishing the loan loss reserves at the end of each quarter. Similar reviews by the same firm will be conducted on a regular basis at all of the Company’s banks on a going forward basis. In addition to the independent loan review, the Company has undertaken a series of initiatives to implement enhanced credit quality, loan administration and overall risk management across the enterprise. These initiatives include naming James R. Shulman to the newly created position of Chief Credit Officer at the holding company, charged with overseeing credit across the organization and consolidating and standardizing key risk management practices including appraisal policies, loan reviews and loan loss reserve methodologies. Mr. Shulman brings over 20 years of experience working as an analyst on credit risk in both banking and investments. Continued economic decline in Southern California impacted overall banking results. Provisions for loan losses were $31.9 million in the second quarter which reflects an increase of $12.3 million over the first quarter of 2008 with $23.3 million or 73% attributable to First Private. "With continuing market deterioration, we and the banking industry as a whole face a challenging near-term outlook,” said James Dawson, CEO of the Private Banking Group. "However, we were encouraged by the results of the final report from the independent loan review firm on the loan portfolios across the Company. We’ve dedicated significant time to evaluating our credit quality and risk management practices, and I am confident that, with the additional steps we’ve taken and the people we have put in place, we are well positioned for the future.” In Closing Mr. Vaill concluded, "With the clarity of hindsight, we are committed to further enhancing the credit culture and portfolio, and mitigating our risks in Southern California going forward. We believe that the steps we’ve taken to strengthen our credit operations positions our Company for a strong recovery within a revised credit culture. Above all, we believe our core business strategy is very sound. We are focused on serving affluent customers in key geographic regions in the United States, providing wealth management products and services to help clients and their families and their businesses gather, protect, and grow their assets. We are diversified across banking and fee-based segments and with our affiliates located near pockets of emerging affluence, they are constantly generating new opportunities. "As I have said for many years now, we are focused on building an organization that will create value for shareholders, customers and employees both in the near term and over time. We have a quality management team that has proven it can execute and deliver results and we have some of the best employees in the business who are focused on doing all they can to meet client needs in these trying times. Although the current environment is difficult, and may remain this way for a while, the foundation of our business – serving clients with excellence – is solid. We believe we are well-positioned to maintain a steady course and I am confident in our future prospects.” Management will hold a conference call at 8:00 a.m. Eastern time on Wednesday, July 23, 2008, to discuss its financial results in more detail. To access the call: Dial In #: 866-383-8119 International Dial In #: 617-597-5344 Passcode: 77828245 Replay Information: Available from 7/23/2008 to 7/30/2008 Dial In #: 888-286-8010 International Dial In #: 617-801-6888 Passcode: 21295643 The call will be simultaneously webcast and may be accessed on the Internet by linking through www.bostonprivate.com. Boston Private Wealth Management Group Boston Private Wealth Management Group is a national financial service organization comprised of independently operated affiliates located in key regions of the U.S. that offer private banking, wealth advisory and investment management services to the high net worth marketplace, selected businesses and institutions. The Company enters demographically attractive markets through a very selective acquisition process and then expands by way of organic growth. It employs a distinct business strategy, empowering its affiliates to run independently such that they can best serve their clients at the local level, while at the same time providing strategic oversight and access to resources, both financial and intellectual, to support management, compliance, legal, marketing, and operations. (NASDAQ: BPFH). For more information about Boston Private, visit the Company's web site at www.bostonprivate.com. Statements in this press release that are not historical facts are 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 include, among others, statements regarding our strategy, evaluations of future interest rate trends and liquidity, prospects for growth in assets, and prospects for overall results over the long term. 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 Boston Private’s control. Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. Boston Private’s actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, adverse conditions in the capital and debt markets and the impact of such conditions on Boston Private’s private banking and asset investment advisory activities, changes in interest rates, competitive pressures from other financial institutions, a deterioration in general economic conditions on a national basis or in the local markets in which Boston Private operates, including changes which adversely affect borrowers’ ability to service and repay our loans, changes in loan defaults and charge-off rates, adequacy of loan loss reserves, reduction in deposit levels necessitating increased borrowing to fund loans and investments, the passing of adverse government regulation, the risk that goodwill and intangibles recorded in Boston Private’s financial statements will become impaired, and risks related to the identification and implementation of acquisitions, as well as the other risks and uncertainties detailed in Boston Private's Annual Report on Form 10-K and other filings submitted to the Securities and Exchange Commission. Boston Private 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. Boston Private Financial Holdings, Inc. Selected Financial Data (In Thousands, except share data) (Unaudited)             June 30, June 30, December 31, FINANCIAL DATA:   2008       2007     2007     Total Balance Sheet Assets $ 7,182,508 $ 5,939,469 $ 6,818,131 Stockholders' Equity 641,555 663,695 662,461 Investment Securities 798,111 576,137 719,934 Goodwill 317,733 311,240 349,889 Intangible Assets, Net 101,594 118,828 108,349   Commercial and Construction Loans 3,355,241 2,701,540 3,182,081 Residential Mortgage Loans 1,885,928 1,603,529 1,765,217 Home Equity and Other Consumer Loans   354,896       281,092     312,602   Total Loans 5,596,065 4,586,160 5,259,900   Loans Held for Sale 13,552 8,603 6,782   Deposits 4,462,607 3,902,432 4,375,101 Borrowings 1,947,619 1,256,505 1,632,944   Book Value Per Share $ 16.63 $ 17.84 $ 17.68 Market Price Per Share $ 5.67 $ 26.87 $ 27.08   ASSETS UNDER MANAGEMENT AND ADVISORY:   Private Banking $ 4,653,000 $ 4,298,000 $ 4,738,000 Investment Managers 22,930,000 21,891,000 23,058,000 Wealth Advisory (1) 9,705,000 8,860,000 9,055,000 Less: Inter-company Relationship   (317,000 )   (250,000 )   (286,000 ) Consolidated Affiliate Assets Under Management and Advisory $ 36,971,000 $ 34,799,000 $ 36,565,000   Unconsolidated   1,022,000     1,200,000     1,188,000   Total Unconsolidated Assets Under Management and Advisory $ 37,993,000 $ 35,999,000 $ 37,753,000   FINANCIAL RATIOS:   Stockholders' Equity/Total Assets 8.93 % 11.17 % 9.72 % Tangible Equity/Tangible Assets 3.29 % 4.24 % 3.21 % Allowance for Credit Losses/Total Loans 1.84 % 1.13 % 1.46 %         Three Months Ended     Six Months Ended June 30,   June 30, June 30,   June 30, OPERATING RESULTS:   2008       2007   2008       2007   Net Interest Income - on a Fully Taxable Equivalent Basis (FTE) $ 53,653 $ 45,960 $ 105,191 $ 90,980 FTE Adjustment   1,874       1,722   3,741       3,358 Net Interest Income   51,779       44,238   101,450       87,622 Investment Management and Trust Fees: Private Banking 8,167 7,182 15,982 13,856 Investment Managers   34,088       33,267   66,664       64,316 Total Investment Management Fees   42,255       40,449   82,646       78,172 Total Wealth Advisory Fees 12,684 7,737 25,071 15,003 Other Fees   4,468       4,141   7,422       7,789 Total Fees   59,407       52,327   115,139       100,964 Investment Gains 193 5 795 8 Gain on Retirement of Debt   8,582       -   19,906       -   Total Fees and Other Income   68,182       52,332   135,840       100,972 Total Revenue   119,961       96,570   237,290       188,594   Provision for Loan Losses   31,904       745   51,552       1,921 Salaries and Employee Benefits 53,869 46,672 106,712 93,272 Occupancy and Equipment 8,852 8,103 17,782 15,978 Professional Services 6,664 4,129 11,641 7,335 Marketing and Business Development 3,170 2,834 6,056 5,432 Contract Services and Processing 2,017 1,608 3,875 3,044 Amortization of Intangibles 3,550 3,508 6,770 7,057 Provision for Unfunded Loan Commitments (892 ) 422 (800 ) 585 Other   6,250       4,367   11,681       8,484 Total Operating Expense 83,480 71,643 163,717 141,187 Income Before Minority Interest, Income Taxes, Impairment and Westfield Profit Interest Granted 4,577 24,182 22,021 45,486 Westfield Profit Interest Granted 66,000 - 66,000 - Impairment, Net (6)   16,026       10,054   36,626       10,054 (Loss)/Income Before Minority Interest and Taxes (77,449 ) 14,128 (80,605 ) 35,432 Minority Interest   1,406       106   2,908       1,020 Net (Loss)/Income before Income Taxes (78,855 ) 14,022 (83,513 ) 34,412 Income Tax Expense   1,773       9,246   6,959       16,503 Net (Loss)/Income $ (80,628 )   $ 4,776 $ (90,472 )   $ 17,909           Three Months Ended     Six Months Ended June 30,   June 30, June 30,   June 30, RECONCILIATION OF GAAP EARNINGS TO CASH EARNINGS:   2008       2007   2008       2007   Net (Loss)/Income (GAAP Basis) $ (80,628 ) $ 4,776 $ (90,472 ) $ 17,909   Cash Basis Earnings (2) Book Amortization of Purchased Intangibles, Net 1,947 1,890 3,733 3,801 Cash Benefit of Tax Deductions from Purchased Intangibles & Goodwill 1,145 1,077 2,280 2,188 Stock options, ESPP, and Other Stock Compensation, Net 66,867 925 67,700 2,046 Impairment of Goodwill & Intangibles, Net   16,026       10,054   36,626       10,054 Total Cash Basis Adjustment   85,985       13,946   110,339       18,089 Cash Basis Earnings $ 5,357     $ 18,722 $ 19,867     $ 35,998         Three Months Ended     Six Months Ended June 30,   June 30, June 30,   June 30, 2008   2007 2008   2007 PER SHARE DATA: (In thousands, except per share data)   Calculation of Net Income for EPS:   Net (Loss)/Income as Reported for Basic EPS $ (80,628) $ 4,776 $ (90,472) $ 17,909 Interest on Convertible Trust Preferred Securities, Net of Tax -   - -   1,500 Net (Loss)/Income for Diluted EPS $ (80,628) $ 4,776 $ (90,472) $ 19,409   Interest on Convertible Trust Preferred Securities, Net of Tax for Cash EPS $ - $ 750 $ 1,480 -   Calculation of Average Shares Outstanding: Weighted Average Basic Shares 38,172 36,616 37,817 36,447 Dilutive Effect of: Stock Options, Stock Grants, and Other (3) - 1,487 - 1,579 Convertible Trust Preferred Securities (3) -   - -   3,184 Dilutive Potential Common Shares - 1,487 - 4,763 Weighted Average Diluted Shares 38,172 38,103 37,817 41,210 Weighted Average Diluted Shares for cash EPS 39,146 41,288 41,950 41,210 (Loss)/Earnings per Share: Basic ($2.11) $0.13 ($2.39) $0.49 Diluted ($2.11) $0.13 ($2.39) $0.47   RECONCILIATION OF GAAP EPS TO CASH EPS: (on a Diluted Basis)   (Loss)/Income Per Share (GAAP Basis) ($2.11) $0.13 ($2.39) $0.47 Cash Basis Adjustment 2.25   0.34 2.90   0.44 Cash Basis Earnings Per Diluted Share $0.14   $0.47 $0.51   $0.91         Three Months Ended     Six Months Ended June 30,   June 30, June 30,   June 30,   2008     2007     2008     2007   OPERATING RATIOS & STATISTICS:   Return on Average Equity (48.48 %) 2.89 % (26.96 %) 5.49 % Return on Average Assets (4.55 %) 0.32 % (2.58 %) 0.61 % Net Interest Margin 3.39 % 3.47 % 3.35 % 3.48 % Total Fees and Other Income/Total Revenue 56.84 % 54.19 % 57.25 % 53.54 % Net Loans Charged-off (Recovered) $ 22,936 ($525 ) $ 24,624 ($517 ) AVERAGE BALANCE SHEET: Three Months Ended   Three Months Ended               June 30, 2008 June 30, 2007 Average Income/ Yield/ Average Income/ Yield/ AVERAGE ASSETS Balance   Expense   Rate Balance   Expense   Rate Earnings Assets Cash and Investments $ 872,789 $ 9,083 4.16 % $ 735,046 $ 9,139 4.96 % Loans Commercial and Construc-tion 3,212,768 53,628 6.62 % 2,628,288 50,928 7.68 % Residential Mortgage 1,833,659 27,306 5.96 % 1,604,611 23,358 5.82 % Home Equity and Other Consumer   345,535     4,924   5.65 %   276,672     5,442   7.83 % Total Earning Assets   6,264,751     94,941   6.03 %   5,244,617     88,867   6.74 % Allowance for Loan Losses (90,072 ) (48,008 ) Cash and due From Banks 61,189 54,105 Other Assets   848,730     700,054   TOTAL AVERAGE ASSETS $ 7,084,598   $ 5,950,768       AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY   Interest-Bearing Liabilities: Deposits: Savings and NOW $ 678,791 $ 2,567 1.52 % $ 564,742 $ 3,014 2.14 % Money Market 1,729,658 10,133 2.36 % 1,867,200 15,727 3.38 % Certificate of Deposits   1,281,553     12,098   3.80 %   925,998     11,032   4.78 % Total Deposits 3,690,002 24,798 2.70 % 3,357,940 29,773 3.56 % Junior Subordinated Debentures and Other Long-term Debt 398,742 4,322 4.34 % 234,021 3,320 5.58 % FHLB Borrowings and Other   1,427,899     12,168   3.37 %   863,757     9,814   4.50 % Total Interest-Bearing Liabilities   5,516,643     41,288   2.99 %   4,455,718     42,907   3.85 % Non-interest Bearing Demand Deposits 791,517 706,598 Payables and Other Liabilities   111,221       126,942     Total Liabilities 6,419,381 5,289,258 Stockholders' Equity   665,217       661,510     TOTAL AVERAGE LIABILITIES & STOCKHOLDERS' EQUITY $ 7,084,598     $ 5,950,768       Net Interest Income $ 53,653 $ 45,960 Net Interest Margin 3.39 % 3.47 % AVERAGE BALANCE SHEET:   Six Months Ended   Six Months Ended               June 30, 2008 June 30, 2007 Average Income/ Yield/ Average Income/ Yield/   Balance   Expense   Rate Balance   Expense   Rate AVERAGE ASSETS Earnings Assets Cash and Investments $ 878,876 $ 19,131 4.35 % $ 713,827 $ 17,469 4.89 % Loans Commercial and Construction 3,180,259 109,290 6.81 % 2,585,912 100,056 7.70 % Residential Mortgage 1,814,997 54,905 6.05 % 1,595,097 46,192 5.79 % Home Equity and Other Consumer   331,216     10,206   6.10 %   271,644     10,623   7.79 % Total Earning Assets   6,205,348     193,532   6.20 %   5,166,480     174,340   6.73 % Allowance for Loan Losses (81,820 ) (47,447 ) Cash and due From Banks 63,788 55,086 Other Assets   823,853     701,859   TOTAL AVERAGE ASSETS $ 7,011,169   $ 5,875,978       AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY   Interest-Bearing Liabilities: Deposits: Savings and NOW $ 670,198 $ 5,813 1.74 % $ 557,772 $ 5,944 2.15 % Money Market 1,795,326 23,978 2.69 % 1,870,212 31,437 3.09 % Certificate of Deposits   1,194,131     24,579   4.14 %   907,013     21,303   5.35 % Total Deposits 3,659,655 54,370 2.99 % 3,334,997 58,684 3.55 % Junior Subordinated Debentures and Other Long-term Debt 452,959 10,157 5.50 % 234,021 6,613 5.68 % FHLB Borrowings and Other   1,324,639     23,814   3.55 %   802,931     18,063   4.48 % Total Interest-Bearing Liabilities   5,437,253     88,341   3.25 %   4,371,949   83,360 3.83 % Non-interest Bearing Demand Deposits 778,306 718,178 Payables and Other Liabilities   124,485       133,506     Total Liabilities 6,340,044 5,223,633 Stockholders' Equity   671,125       652,345     TOTAL AVERAGE LIABILITIES & STOCKHOLDERS' EQUITY $ 7,011,169     $ 5,875,978       Net Interest Income $ 105,191 $ 90,980 Net Interest Margin       3.35 %           3.48 %     PRIVATE BANKING LOAN DATA AND CREDIT QUALITY (4):   June 30,   June 30,   December 31,           2008     2007     2007 Commercial Loans: New England $ 948,583 $ 808,287 $ 861,992 Northern California 775,093 678,276 698,353 South Florida 338,648 318,662 339,710 Pacific Northwest   160,347     -     153,686 Subtotal Commercial Loans $ 2,222,671 $ 1,805,225 $ 2,053,741 Southern California   266,785     216,618     265,651 Total Commercial Loans $ 2,489,456   $ 2,021,843   $ 2,319,392   Construction Loans: New England $ 115,897 $ 90,716 $ 123,242 Northern California 169,507 107,331 146,075 South Florida 271,727 259,723 268,731 Pacific Northwest   68,014     -     64,431 Subtotal Construction Loans $ 625,145 $ 457,770 $ 602,479 Southern California   241,520     221,927     261,172 Total Construction Loans $ 866,665   $ 679,697   $ 863,651   Residential Mortgage Loans: New England $ 1,109,596 $ 945,381 $ 1,022,155 Northern California 189,791 128,159 152,417 South Florida 548,565 519,408 553,356 Pacific Northwest   25,922     -     24,526 Subtotal Residential Mortgage Loans $ 1,873,874 $ 1,592,948 $ 1,752,454 Southern California   12,054     10,581     12,763 Total Residential Mortgage Loans $ 1,885,928   $ 1,603,529   $ 1,765,217   Home Equity and Other Consumer Loans: New England $ 69,801 $ 47,161 $ 55,802 Northern California 64,777 44,698 50,700 South Florida 196,872 181,611 191,820 Pacific Northwest   2,702     -     4,164 Subtotal Home Equity and Other Consumer Loans $ 334,152 $ 273,470 $ 302,486 Southern California   13,483     4,310   4,204 Subtotal Home Equity and Other Consumer Loans $ 347,635   $ 277,780           Subtotal Private Banking Loans $ 5,055,842   $ 4,129,413   $ 4,711,160 Southern California   533,842     453,436     543,790 Total Private Banking Loans $ 5,589,684   $ 4,582,849   $ 5,254,950   Allowance for Credit Losses: New England $ 25,423 $ 23,133 $ 24,131 Northern California 13,488 10,945 12,111 South Florida 16,965 11,793 12,406 Pacific Northwest   7,261     -     2,704 Subtotal Allowance for Credit Losses $ 63,137 $ 45,871 $ 51,352 Southern California   40,039     6,124     25,695 Total Allowance for Credit Losses $ 103,176   $ 51,995   $ 77,047   Classified Loans (5): New England $ 9,300 $ 6,069 $ 12,807 Northern California 5,336 - - South Florida 55,865 2,210 25,559 Pacific Northwest   22,025   -     1,236 Subtotal Classified Loans $ 92,526 $ 8,279 $ 39,602 Southern California   152,887     8,919     80,499 Total Classified Loans $ 245,413   $ 17,198   $ 120,101   Non-performing Loans: New England $ 7,794 $ 2,823 $ 7,390 Northern California 726 - - South Florida 25,029 2,261 18,508 Pacific Northwest   2,213     -     - Subtotal Non-performing Loans $ 35,762 $ 5,084 $ 25,898 Southern California   69,356     8,919     26,725 Total Non-performing Loans $ 105,118   $ 14,003   $ 52,623   Loans 30-89 Days Past Due: New England $ 2,894 $ 4,031 $ 9,412 Northern California - - 479 South Florida 2,924 8,471 3,944 Pacific Northwest   1,769     -     75 Subtotal Loans 30-89 Days Past Due $ 7,587 $ 12,502 $ 13,910 Southern California   22,932     390     8,453 Total Loans 30-89 Days Past Due $ 30,519   $ 12,892   $ 22,363   Net Loans Charged-off/(Recovered) for the Three Months Ended: New England $ 953 $ 50 $ 4 Northern California $ 1 - $ 10 South Florida $ 365 - $ 480 Pacific Northwest $ 500     -   $ 12 Subtotal Net Loans Charged-off/(Recovered) $ 1,819 $ 50 $ 506 Southern California   21,117     (575 )   - Total Net Loans Charged-off/(Recovered) $ 22,936     ($525 ) $ 506           June 30, March 31,   2008       2008   FINANCIAL DATA:   Total Balance Sheet Assets $ 7,182,508 $ 6,889,070 Stockholders' Equity 641,555 668,020 Investment Securities 798,111 728,542 Goodwill 317,733 330,743 Intangible Assets, Net 101,594 108,942   Commercial and Construction Loans 3,355,241 3,253,109 Residential Mortgage Loans 1,885,928 1,795,814 Home Equity and Other Consumer Loans   354,896       333,768   Total Loans 5,596,065 5,382,691   Loans Held for Sale 13,552 7,324 Deposits 4,462,607 4,370,379 Borrowings 1,947,619 1,742,158   Book Value Per Share $ 16.63 $ 17.35 Market Price Per Share $ 5.67 $ 10.59   ASSETS UNDER MANAGEMENT AND ADVISORY:   Private Banking $ 4,653,000 $ 4,727,000 Investment Managers 22,930,000 20,766,000 Wealth Advisory 9,705,000 9,805,000 Less: Inter-company Relationship   (317,000 )     (313,000 ) Consolidated Affiliate Assets Under Management and Advisory $ 36,971,000 $ 34,985,000   Unconsolidated   1,022,000       1,050,000   Total Unconsolidated Assets Under Management and Advisory $ 37,993,000 $ 36,035,000   FINANCIAL RATIOS:   Stockholders' Equity/Total Assets 8.93 % 9.70 % Tangible Equity/Tangible Assets 3.29 % 3.54 % Allowance for Credit Losses/Total Loans 1.84 % 1.77 %         Three Months Ended   June 30, March 31, OPERATING RESULTS:   2008       2008     Net Interest Income - on a Fully Taxable Equivalent Basis (FTE) $ 53,653 $ 51,538 FTE Adjustment   1,874       1,868   Net Interest Income   51,779       49,670   Investment Management and Trust Fees: Private Banking 8,167 7,815 Investment Managers   34,088       32,576   Total Investment Management Fees 42,255 40,391 Total Wealth Advisory Fees 12,684 12,387 Other Fees   4,468       2,776   Total Fees   59,407       55,554   Investment Gains \ Losses 193 781 Gain on Retirement of Debt   8,582       11,324     Total Fees and Other Income   68,182       67,659   Total Revenue   119,961       117,329     Provision for Loan Losses   31,904       19,648     Salaries and Employee Benefits 53,869 52,843 Occupancy and Equipment 8,852 8,930 Professional Services 6,664 4,977 Marketing and Business Development 3,170 2,885 Contract Services and Processing 2,017 1,858 Amortization of Intangibles 3,550 3,221 Provision for unfunded loan commitments (892 ) 92 Other   6,251       5,429   Total Operating Expense 83,481 80,235 Income Before Minority Interest, Income Taxes, Impairment and Westfield Profit Interest Granted 4,576 17,445 Westfield Profit Interest Granted 66,000 - Impairment, Net (6)   16,026       20,600   Loss Before Minority Interest and Taxes (77,450 ) (3,155 ) Minority Interest   1,406       1,503   Loss Before Income Taxes (78,856 ) (4,657 ) Income Tax Expense   1,773       5,187   Net Loss $ (80,628 )   $ (9,844 )           Three Months Ended June 30,   March 31, RECONCILIATION OF EARNINGS BEFORE Q1 '08 IMPAIRMENT   2008       2008   TO CASH EARNINGS:   Net Loss (GAAP basis) $ (80,628 ) $ (9,844 )   Cash Basis Earnings (2) Book Amortization of Purchased Intangibles, Net 1,947 1,785 Cash Benefit of Tax Deductions from Purchased Intangibles & Goodwill 1,145 1,136 Stock options, ESPP, and Other Stock Compensation, Net 66,867 833 Impairment of Goodwill and Intangibles, Net   16,026       20,600   Total Cash Basis Adjustment   85,985       24,354   Cash Basis Earnings $ 5,357     $ 14,510           Three Months Ended June 30,   March 31,   2008       2008   PER SHARE DATA: (In thousands, except per share data)   Calculation of Net Income for EPS:   Net Loss Reported for Basic EPS $ (80,628 ) $ (9,844 ) Interest on Convertible Trust Preferred Securities, Net of Tax   -       -   Net Loss for Diluted EPS $ (80,628 ) $ (9,844 )   Interest on Convertible Trust Preferred Securities, Net of Tax for Cash EPS $ - $ 740 Calculation of Average Shares Outstanding: Weighted Average Basic Shares 38,172 37,457 Dilutive Effect of: Stock Options, Stock Grants, and Other (3) - - Convertible Trust Preferred securities (3)   -       -   Dilutive Potential Common Shares - - Weighted Average Diluted Shares 38,172 37,457 Weighted Average Diluted Shares for Cash EPS 39,146 41,539   Loss per Share: Basic ($2.11 ) ($0.26 ) Diluted ($2.11 ) ($0.26 )   RECONCILIATION OF GAAP EPS TO CASH EPS: (on a Diluted Basis)   Loss Per Share ($2.11 ) ($0.26 ) Cash Basis Adjustment $ 2.25     $ 0.63   Cash Basis Earnings Per Diluted Share $ 0.14     $ 0.37     OPERATING RATIOS & STATISTICS: Return on Average Equity (48.48 %) (5.78 %) Return on Average Assets (4.55 %) (0.57 %) Net Interest Margin 3.39 % 3.32 % Total Fees and Other Income/Total Revenue 56.84 % 57.67 % Net Loans Charged-off / (Recovered) $ 22,936     $ 1,688             June 30,   March 31,   2008     2008 PRIVATE BANKING LOAN DATA AND CREDIT QUALITY (4): Commercial Loans: New England $ 948,583 $ 914,683 Northern California 775,093 726,479 South Florida 338,648 342,474 Pacific Northwest   160,347     150,546 Subtotal Commercial Loans $ 2,222,671 $ 2,134,182 Southern California   266,785     273,221 Total Commercial Loans $ 2,489,456   $ 2,407,403   Construction Loans: New England $ 115,897 $ 93,709 Northern California 169,507 148,827 South Florida 271,727 268,966 Pacific Northwest   68,014     72,280 Subtotal Construction Loans $ 625,145 $ 583,782 Southern California   241,520     262,920 Total Construction Loans $ 866,665   $ 846,702     Residential Mortgage Loans: New England $ 1,109,596 $ 1,040,972 Northern California 189,791 169,810 South Florida 548,565 546,828 Pacific Northwest   25,922     27,378 Total Residential Mortgage Loans $ 1,873,874 $ 1,784,988 Southern California   12,054     10,826 Total Residential Mortgage Loans $ 1,885,928   $ 1,795,814   Home Equity and Other Consumer Loans: New England $ 69,801 $ 57,047 Northern California 64,777 58,443 South Florida 196,872 193,578 Pacific Northwest   2,702     3,716 Subtotal Home Equity and Other Consumer Loans $ 334,152 $ 312,784 Southern California   13,483     13,560 Total Home Equity and Other Consumer Loans $ 347,635   $ 326,344           Subtotal Private Banking Loans $ 5,055,842   $ 4,815,736 Southern California   533,842     560,527 Total Private Banking Loans $ 5,589,684   $ 5,376,263     Allowance for Credit Losses: New England $ 25,423 $ 24,375 Northern California 13,488 12,559 South Florida 16,965 16,330 Pacific Northwest   7,261     3,175 Subtotal Allowance for Credit Losses: $ 63,137 $ 56,439 Southern California   40,039     38,664 Total Allowance for Credit Losses: $ 103,176   $ 95,103   Classified Loans (5): New England $ 9,300 $ 11,348 Northern California 5,336 - South Florida 55,865 34,476 Pacific Northwest   22,025     6,641 Subtotal Classified Loans $ 92,526 $ 52,465 Southern California   152,887     145,105 Total Classified Loans $ 245,413   $ 197,570   Non-performing Loans: New England $ 7,794 $ 7,240 Northern California 726 479 South Florida 25,029 20,447 Pacific Northwest   2,213     5,704 Subtotal Non-performing Loans $ 35,762 $ 33,870 Southern California   69,356     51,197 Total Non-performing Loans $ 105,118   $ 85,067   Loans 30-89 days past due: New England $ 2,894 $ 13,147 Northern California - 726 South Florida 2,924 1,357 Pacific Northwest   1,769     - Subtotal Loans 30-89 Days Past Due $ 7,587 $ 15,230 Southern California   22,932     10,510 Total Loans 30-89 Days Past Due $ 30,519   $ 25,740   Net Loans Charged-off for the Three Months Ended: New England $ 953 $ 1,005 Northern California 1 15 South Florida 365 76 Pacific Northwest   500     - Subtotal Net Loans Charged-off/(Recovered) $ 1,819 $ 1,096 Southern California   21,117   $ 592 Total Net Loans Charged-off/(Recovered) $ 22,936   $ 1,688   (1)   The Company went from a minority to majority ownership of Bingham, Osborn, & Scarborough in Q3 2007. Prior period financial information is included with Earnings in Equity Investments. Prior period AUM data is shown for comparative purposes as being included with the consolidated Company.   (2) The Company calculates its cash earnings by adjusting net income to exclude the amortization of the purchased intangibles (net of tax), the tax benefit on the portion of the purchase price allocated to goodwill, which is deductible over a 15 year life, impairment, and certain non-cash share based compensation plans (net of tax). The tax savings are deferred under GAAP accounting but are included in cash earnings since the tax savings (lower tax payment) will be retained unless the acquired company is sold. The Company uses certain non-GAAP financial measures, such as Cash Earnings, to provide information for investors to effectively analyze financial trends of ongoing business activities.   (3) 3,187,800 and 3,187,275 potential common shares from the convertible trust preferred securities were excluded from the diluted EPS computations for the three and six months ended June 30, 2008, respectively because the effect would be anti-dilutive. If the effect had been dilutive, interest expense, net of tax, related to the convertible trust preferred securities of $0.7 million and $1.5 million would be added back to net income for diluted EPS computations for the three and six months ended June 30, 2008, respectively. In addition 974,084 and 945,583 potential common shares from outstanding stock options, stock grants and other were also excluded from the diluted EPS computations for the three and six months ended June 30, 2008, respectively.     (4) The concentration of the Private Banking loan data and credit quality is based on the location of the lender.   (5) Classified loans include loans classified as either substandard, doubtful, or loss.   (6) Gross impairment expense for the three and six months ended June 30, 2008 was $17.4 million and $38.0 million, respectively.