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Boston Private Financial Holdings, Inc. (NASDAQ:BPFH)

Q4 2008 Earnings Call

January 29, 2009 9:00 pm ET

Executives

Timothy L. Vaill – Chairman of the Board & Chief Executive Officer

Catharine Sheehan – Senior Vice President, Corporate Communications

David J. Kaye – Executive Vice President & Chief Financial Officer

James D. Dawson – Executive Vice President & Chief Executive Officer – Private Banking Business

Joseph H. Cromarty – Executive Vice President & Chief Executive Officer – Investment Management & Wealth Advisory

Walter M. Pressey – President and Vice Chairman

Analysts

John Pancari – JPMorgan.

Christopher Marinac – FIG Partners, LLC

Murali Gopal – KBW

Gerard Cassidy – RBC Capital Markets

Mark Fitzgibbon - Sandler O'Neill & Partners L.P.

Cheryl Pate – Morgan Stanley

[Steve Covington] – [Steven Capital]

[Faye Elliott] – Bank of America Securities

Operator

Good morning ladies and gentlemen, and welcome to the fourth quarter and year-end 2008 Boston Private Financial Holdings earnings conference call. At this time, all participants are in listen-only mode. Later you will have the opportunity to ask questions during our Q&A session. I would now like to turn the presentation over to your host for today's call, Mr. Timothy Vaill, Chairman and Chief Executive Officer. Please proceed sir.

Timothy L. Vaill

Good morning, everybody. This is Tim Vaill, Chairman and the Chief Executive Officer of Boston Private Financial Holdings. Welcome to our fourth quarter 2008 earnings conference call. Joining me this morning are Walt Pressey, president of the company; David Kaye, Chief Financial Officer; Jim Dawson, the CEO of our Private Banking Business; Jay Cromarty, the CEO of our Wealth Advisory and Investment Management Businesses; and Catharine Sheehan, our Director of Corporate Communications. At this time I'm going to ask Catharine to read the Safe Harbor provisions before we make additional remarks. Catharine?

Catharine Sheehan

Good morning. This call contains forward-looking statements regarding strategic objectives and expectations for future results of operations and financial prospects. They are based upon the current beliefs and expectations of Boston Private's management and are subject to certain risks and uncertainties.

Actual results may differ from those set forth in the forward-looking statements. I refer you also to the forward-looking statements contained in our press release, which identified a number of factors that could cause material differences, between actual and anticipated results or other expectations expressed. Additional factors that could cause Boston Private Financial Holding's results to differ materially from those described in the forward-looking statements can be found in the company's other press releases and filings submitted with the SEC.

All subsequent written and oral forward-looking statements attributable to Boston Private Financial Holdings or any person acting on our behalf are expressly qualified by these cautionary statements. Boston Private Financial Holding does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the forward-looking statements are made. And with that, I will turn it back to Tim Vaill.

Timothy L. Vaill

Thank you, Catharine. And thank you all for attending this morning. Obviously, this past year presented us all with unprecedented market challenges and considerable deterioration within the financial services industry and the American economy as a whole.

Our business was not immune to these external factors naturally and we added to this with our own shortfalls as well. In a minute, Dave is going to present the financial details to you and Jim and Jay will discuss the business perspective. But first I want to give a summary of review. Clean and simple 2008 was not a good year for Boston Private Financial Holdings.

Clearly, I can say that the broad economy was terrible and we were not exempt. But our own issues were not inconsiderable. Our primary problem was that we were lending in a non-strategic market in Southern California, which knew about, but didn’t get out off soon enough and were affected by the rapid shift in market dynamics that resulted when the full force of the housing bubble collapse, and the recession hit that region. As we move First Private Bank more quickly toward achieving our private banking ideal it might have been a different story, but it was not.

There were number of other factors impacting our loss in 2008 including some impairment charges as market valuations declined and some additional loan loss provisions in other parts of the country as the economy began to affect us. But the overriding issue was our lending problems in Southern California.

However, I also want to keep things in balance and mentioned how our diversified portfolio helped us during the year. For example, it would be a disservice to many of our affiliates to suggest that their employees and management teams and then results were as negatively affected as some others. The reality is they were not. Despite the unprecedented marketplace challenges many of our affiliates performed quite well, with several achieving outstanding results for 2008. Boston Private Bank in Boston and Borel Private Bank in the San Francisco Bay Area posted strong loan and deposit growth throughout the year and achieved record earnings in 2008.

Further, Gibraltar Private Bank in South Florida despite being in one of the more troubled geographies in the county is performing well. Wealth Advisors, KLS in New York and Bingham, Osborn in San Francisco also had superb years in terms of client acquisition and retention. In addition, our investment managers took in over $1 billion of net new flow this year for the second year in a row and maintained solid investment performance throughout the year especially at Dalton, Greiner in New York and Anchor Capital in Boston.

In fact, 85% of our investment management assets performed in the top quartile of their competitive universes for the three-year period, a timeframe marked by extreme volatility. In sum, a number of facets in our wealth management group performed very well for the year. But the challenges of 2008 taught us many valuable lessons. Going forward, we are committed to making a stronger, more profitable company and remain sitting on the front edge of our chair with respect to risk management. To this effect, we took a number of positive steps in 2008 to strengthen the broader enterprise.

For example, we considerably strengthened our balance sheet and liquidity position by raising a $173 million of common equity capital in a private/public fund raising transaction, where the Carlyle Group was a lead investor. We applied for and received TARP investment funds in the form of a $154 million of low cost perpetual preferred stock, which will allow us to expand lending in all our regions to our core small businesses and affluent clients thus supporting our communities and backing the efforts of the U.S. Treasury to stabilize the financial system. As a result of these moves, we have improved our tangible common equity to tangible assets ratio by 182 basis points year-over-year, and our Tier 1 capital ratio was double what is needed to be considered well capitalized.

We've also worked very hard to proactively manage our risks by improving our ability to move quickly to identify and resolve problems. We instituted centralized credit policies, consistent loan loss calculation methodologies and third party loan reviews to assess credit risk and minimize losses. All this under the newly designated Chief Credit Officer of the Corporation, Jim Shulman. Where we identified credit deterioration, we aggressively added to reserves to strength our position. And at this stage, we have scrutinized our loan portfolios and adjusted the value of our assets appropriately to reflect current conditions through the end of the year. But we remain very cautious and concerned about deteriorating credit quality. I am intensely focused on continuously monitoring our portfolios and staying ahead of the curve.

We are also very proud of our treasury teams on our asset liability process under Corporate Treasurer, Joe Regan, who together have managed a very safe securities portfolio to modest premium to book value at year end, with no exposure to the toxic investments that have been so debilitating to the industry. Finally, to close the loop on First Private Bank and as discussed last quarter, we moved to reduce our risk exposure in Southern California by marking 72 non-strategic loans to market in September and moving aggressively to sell or work them out. We have reduced our exposure in this market by 90% and we will continue that process during the first quarter of this year, with a desire to put all of the non-strategic loans behind us. You will hear more about that later on this call.

We are pleased that the turnaround is underway at First Private under the leadership of CEO, Charlie Jackson, who is refocusing the company and its core private banking mission recapitalized the bank and put a proven new management team in place. While our executive team and I have taken many effective measures to address the challenges our company faced last year. And while we have made substantial progress to reposition the company for resumed profitability, expense control, and growth including with the reducing the authorized headcount at the holding company by 17%. Before we recognize that the financial results of 2008 were unacceptable. As a consequence the senior executive team at Boston Private Financial Holdings had declined consideration by the Board of Directors for any bonus awards related to 2008 performance in addition our salaries have been frozen.

Our main focus will be on the restoration of profitability and improve returns for our company's shareholders. To conclude we recognized considerable shortfalls of 2008 and tried to address them and we feel we have appropriately prepared the business for 2009, but we also know that the work never ends. We are continuously evaluating ourselves across business lines, geographies and affiliates to ensure that we are best serving our high net worth marketplace and ultimately our shareholders. We believe we are now in a far stronger position to face future challenges and take advantage of market opportunities when a recovery begins. We remain optimistic that the true earnings power of our franchise will become clear in 2009. Now, I am going to ask Dave Kaye, if he will go through the financials in some more detail. Dave?

David J. Kaye

All right, thanks Tim. Good morning everyone. My comments are going to refer to the fourth quarter earnings release presentation. If you turn to slide five entitled quarterly earnings. Fourth quarter we had a GAAP loss of approximately $25 million or $0.47 per share. This result was driven by $25 million or $0.40 per share of non-cash after-tax impairment charges related to general economic deterioration and $4.8 million or $0.08 per share of accounting adjustments related to our capital raises. Both of these non-cash charges have no impact on our regulatory capital strength or our liquidity.

Also impacting the fourth quarter was a $14.4 million or $0.23 per share after-tax loan loss provision taken as a result of continued degradation in the Pacific Northwest Southern California and Florida. This charge strengthens our reserves and as a prudent move as we had into 2009. Finally, the disposition of the non-strategic loans held for sale had an impact of about a $1 million or $0.02 per share after-tax in the fourth quarter. But that was part of a move that reduced our risk exposure in Southern California by 90%.

We disposed off a portfolio originally valued at approximately $278 million as of March 31, 2008 and we brought that down to carrying value of $30 million as of today. Our pre-tax preprovision operating earnings were approximately $20 million for the quarter and cash earnings were $0.04 a share. For the full year 2008, our GAAP loss was nearly $390 million or $8.87 a share. Now more than $320 million of that loss was driven by non-cash charges such as the impairments and the Westfield recapitalization and thus having no impact on our capital or our liquidity. Approximately, a $120 million of the after-tax loss for the full year was the result of eliminating the non-strategic loan portfolio concentrated in the Inland Empire in Southern California.

Turning to slide six on revenues. Quarterly revenues for the fourth quarter were $90.6 million, now that is down 13% on a linked quarter basis and its down 17% on a year-over-year basis. You can see that mostly the declines were due to the fee-based revenues. Net interest income has remained relatively flat as increasing volumes were offset by slightly tightening margins.

Moving on to slide seven, operating leverage. Here you can see that the operating leverage was negatively impacted by the revenue drop. However, expenses were reduced over a 11% in the third quarter of 2008 and that is due primarily to lower variable compensation cost. The decrease in expenses reflects our focus on the tightening of our belts in the current environment and ensuring that we’re running as efficiently as possible from an operational standpoint both at the holding company and at the affiliate levels. Some actions we took at the holding company included very significant bonus reductions as Tim mentioned, executive salaries frozen for 2009, headcount reductions of 17%, and overall cost reductions of 12%. And we’ve had cutbacks and wage freezes at several affiliates as well.

Moving onto slide eight, which is the allowance for loan loss, our allowance for loan loss as a percentage of total loans increased from 1.31% in the third quarter to 1.63% in the fourth quarter. This reflects the actions that we have taken to strengthen our reserves due to asset quality declines. You noticed that charge-offs in the fourth quarter were 7 basis points and that declined significantly over the prior two quarters, which had been elevated due to the non-strategic loan portfolio in Southern California, which has been essentially eliminated.

Moving onto slide nine, tangible common equity. As Tim mentioned earlier, we worked hard over the year to strengthen our capital position by raising capital through a private and public transaction and by participating in the government TARP program. As a result of the July equity raise, we have significantly improved our tangible common equity or TCE to tangible assets ratio by over a 180 basis points. We brought it up to over 5% at year-end. This is a very strong position, when you consider that at the same time, we absorbed a $190 million in charge-offs. It's important to understand that when looking at our publicly reported ratios depending on the source, we do not get credit for the Carlyle Preferreds. These securities are all for all intends and purposes common equity and it's simply a matter of time and they will convert officially to common equity.

Moving onto slide 10. I am willing to provide some insight into our TCE to TA ratio. Our diversified business model gives us a somewhat unique advantage, when it comes to building capital strength. Now, approximately half of our business is in private banking, which is capital intensive. The other half of our business is comprised of fee based wealth advisors and investment managers, businesses where is not required, but instead is generated. Our asset managers generated $47 million in pre-tax operating earnings in 2008, which financed strategic initiatives throughout the enterprise and bolstered our bank's capital positions. We've deployed our capital to our banks, which collectively have a very strong TCE to TA ratio of 7.67%.

Moving onto slide 11. I wanted to point out that in addition to capital, another important focus has been liquidity. Despite the challenging environment, we have made great strides in bolstering that decision over the course of the year. Not only have we grown our deposits and Jim will have more on that later, but we've grown our primary liquidity measures by 45% over the past six months. So, now let me turn it over to Jim Dawson, to provide some details of the banking business. Jim?

James D. Dawson

Thanks Dave and good morning everyone. Let me start by talking about how we have strengthened our position in the private banking business over the past year. Despite the deep challenges presented by the economy, we were able to take some important steps forward executing against our plans by adding some strong talent throughout our company including Charlie Jackson, Ed Fix and others at First Private Bank. The new Chief Credit Officer at Boston Private Financial Holdings, Jim Shulman and several other top credit and workout and business development people throughout our company.

Additionally, we have put stronger credit practices in place, positioned ourselves to ride out the current downturn and we have significantly reduced our risk exposure especially in Southern California. We further strengthened the company through our participation in TARP. We are pleased to receive the TARP funding in December, which we downstream to our affiliate banks in the form of deposits. Before receiving TARP funding, we expected that lending would slow in 2009. With the TARP funds now deployed our banks are re-focused on loan growth.

Lets look at slide 13. Total loans increased 2% on a linked quarter basis to $5.5 billion and are up 4% on year-over-year basis. This is a positive trend overall, much of the growth is coming from New England and Northern California, which account for 66% of our consolidated portfolio. Slide 14 shows past due loans. Past due loans 30 to 89 days as a percentage of average assets were relatively flat at 33 basis points for the fourth quarter. Excluding Southern California, our past due performance is up to 26 basis points from 14 basis points, but we remain significantly lower than industry averages.

Next slide, classified loans shows on a linked quarter basis we were down 16% to $148 million a result of the non-strategic loan sales in Southern California. Excluding the Southern California portfolio, we saw an increase in classified loans of 25% from the third quarter to the fourth quarter due to continued softening in some of our regions, especially the Pacific Northwest. We saw a decrease of classified loans in New England in the fourth quarter and classified loans leveled out in Florida. However, the economic environment in Southern California continue to decline with classified loans increasing by $9 million, 80% of which is represented by one borrower. The Pacific Northwest also reported an increase in classified loans reflecting the continued market degradation-taking place in that region.

We have disposed off non-strategic assets in that region, which were portfolios of leases purchased from a local leasing company consisting of small leases from non-clients. We have also added workout expertise to our staff in this region. We do expect continued challenges in the region going forward. Finally, Northern California also experienced an increase in classified loans this quarter. Classified loans represent 81 basis points of their total loan portfolio.

The next slide number 16 shows our significantly reduced risk exposure; I’m pleased to report the progress we’ve made on the sale of a loan portfolio in Southern California, particularly with the broader market uncertainties in the fourth quarter. While we had hoped to have the entire non-strategic loan portfolio behind us by year-end, we decided it was important to balance the benefit of completely eliminating all of the non-strategic loans versus prudent balance sheet management and preservation of capital. We decided to workout some of the loans ourselves and as a result we’re able to attain higher values on many of them.

Both the loan sales and the workout process have been effective bringing our total exposure from 72 loans originally valued at approximately $278 million as of March 31, 2008 to 20 loans valued at $34 million as of December 31, 2008. During that time we either sold or worked out 52 loans with a carrying value of $50 million as of September 30 and booked a net gain of $7.7 million. With an abundance of caution we marked down the remaining loans by an additional $9.5 million with a net impact of $1.8 million pretax to the bottom line in the fourth quarter. Since the end of the year, we have worked out three additional loans and the portfolio has a current carrying value of $30 million.

The next slide shows non-performing assets. As a percentage of assets, net non-performing assets decreased to 1.49% in the quarter. Excluding Southern California, we saw an increase to 1.02%. Our trends mirror the industry trends. Next slide shows non-performing loans by region. Our non-performing loans as a percentage of total loans were 1.72% in the fourth quarter. In the third quarter, the industry average was 2.35% while our portfolio in Q3 was 2.17%.

We do not yet have the industry averages for the fourth quarter. A look at our portfolio by region shows that 91% of total loans are in New England, Northern California, and Florida and they are performing at or better than the industry. Clearly the continued degradation in Southern California and the Pacific Northwest markets has impacted the portfolio. Fortunately, these regions represent a small part of our total portfolio.

The next slide shows non-performers by type. Overall, non-performing loans declined by 20% for the quarter, when we look at the portfolio by loan type, you can see that the majority of our non-performing loans are construction and land loans. While real estate values in the Pacific Northwest have dropped this is no comparison to the precipitous drop in Southern California or in the portfolio of composition. There are few land loans or large multi unit speculative development loans in the Pacific Northwest.

The next slide shows loan concentrations and exposures. Our loan portfolio remains well diversified across geographies and loan types. If we look at loan balances as a percentage of total loans, you will see that two-thirds of our loan book is concentrated in New England and Northern California. We saw some solid growth and profits from affiliates in these markets as Tim indicated earlier, which helped us offset the ongoing deterioration in economically weaker markets underscoring the importance of our geographic diversification. 25% of our portfolio was in Florida, a region, which continues to be challenged. We have not seen significant negative migration here in the fourth quarter.

Our two smallest banks in Southern California and the Pacific Northwest, which represent about 10% of our loans, experienced the greatest impact from continued market degradation. Our overall portfolio was no longer heavy on construction and land loans, which represent just 13% of the total portfolio. 35% of our portfolio was comprised of first mortgage residential loans and approximately 45% of the portfolio is commercial loans. While our industry has experienced real pain with land loans, residential construction loans, and sub-prime mortgages in 2008, we all expect to encounter headwinds with commercial real estate and commercial and industrial loans in 2009.

That said 73% of our commercial real estate and commercial and industrial loans are in New England and Northern California where we have always had very strong underwriting. For the entire commercial real estate portfolio, 81% of loans have loan to values below 70% and only 2% are over 80%. The next slide shows deposits and you can see that deposits grew in the fourth quarter up 6% on a linked quarter basis to $4.9 billion and up 12% on a year-over-year basis. Our loan to deposit ratio has declined significantly to 111% from 116% in the prior quarter and 125% in the second quarter. Brokered deposits increased just slightly boosting our liquidity. Deposit growth momentum was building in December and that has continued in January. Now, let me turn it over to Jay Cromarty to discuss the Wealth Advisory and Investment Management segments.

Joseph H. Cromarty

Thanks Jim. As a general comment, I will note that this quarter the investment management and wealth advisory businesses continued to perform well in a very difficult environment driven chiefly by the exceptional service and topnotch performance that our advisors and mangers provide. Clients look to our professionals for steady and sound advice in a turbulent market and this was aptly demonstrated by our very high client retention rates for the year.

If you can turn to slide 23, investment performance. Harkening from Tim's earlier comments, investment performance at Boston Private held its own for the year despite some extraordinary challenges. On an asset-weighted basis for the one-year period, 61% of this segment's strategies are in the top quartile of performance. For the three period 85% are in the top quartile and on a five-year basis, 87% are in the top quartile. If you can turn to slide 24 assets under management net flows.

New outflows for the quarter were $277 million, but for the year total net flows were $1 billion consistent with our performance in 2007 yielding cumulative flows of more than $2 billion over the last two years, which demonstrates our ability to drive results in both up and down markets. Let me note further that all three segments of our business that is the private banking, the investment management and the wealth advisory segments achieved positive net new flows this past calendar year.

If you turn to slide 25, assets under management. Assets under management and advisory declined by 18% or $6.2 billion to $28.5 billion on a linked quarter basis and were down 25% on a year-over-year basis. It's important to remember that in the aggregate, our assets are heavily skewed towards domestic equities, due to the relative size of Westfield Capital Management and Anchor Capital.

As an aside, our exposure to higher risk less liquid investments i.e., alternative investments is very limited and this conservative approaches worked very well for our clients, who seek simpler and transparent products such as ETFs and mutual funds, which are in wide produced by our wealth advisors. If you turn to slide 26, investment management fees, you will see that investment management fees totaled $33 million for the quarter, a decrease of 16% on a linked quarter basis and a decline of 27% on a year-over-year basis due primarily to overall market performance.

Slide 27, wealth advisory fees. Our wealth advisory fees decreased 5% on a linked quarter basis, yet were up 7% on a year-over-year basis, results that demonstrate stability involved on markets as fees from our wealth advisors are not solely asset based. With that let me turn it back to Tim.

Timothy L. Vaill

Well thanks Dave and Jim and Jay for your reports. I just want to reiterate what I said at the beginning this has been an extraordinarily difficult time for the financial services industry and for our company. We worked tirelessly to improve those entity within our organization that have struggled and at the same time have used this opportunity to strengthen the overall company with the goal of delivering top tier results for our future cycles. As I mentioned earlier many of our affiliates are performing quite well and they posted strong results to meet the broad market declines. In these challenging times that their dedication and hard work as well as their excellent relationship in wealth management skills have paid off and we thank them for it.

Their efforts to reassure their clients while opening the door to new prospects seeking the safe haven have allowed us to maintain forward momentum toward gaining market share. Around this base of excellence, we will build for the future, we believe that our core business strategy of serving high net worth customers, who need our wealth management services now more than ever remain sound. We also believe that being diversified across the banking and fee based practices, as well as across geographies creates a unique degree of stability for our business. We maintain a cautious near term outlook and expect credit pressures and macroeconomic headwinds to continue. However, we also feel the steps we have taken to strengthen our capital, our balance sheet and our liquidity position puts us in a solid position going forward.

To navigate the ongoing market turmoil in 2009, we will continue to focus on capital illiquidity, risk management and strategic growth. With a strong team in place, a solid balance sheet and with many critical business improvements now under our belt, we are proceeding with what we feel is the right mix of confidence cautioned into the New Year. So, now why don’t we turn to the question and answer period. And we are happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of John Pancari of JPMorgan.

John Pancari - JPMorgan

Good morning.

David J. Kaye

Hi, John.

Timothy L. Vaill

Hi, good morning John

John Pancari - JP Morgan

Can you talk a little bit more about the credit trends more recently that you are seeing in Northern California as well as New England, delinquencies perhaps by loan type, just wanted to get an idea of how well things are holding there I know you indicated they are holding up, I wanted to get a better idea of that?

David J. Kaye

Hi, John I am happy too. We identified some time ago that the commercial real estate and C&I books would be under some stress and strain as we move forward. Hence we have seen in New England, we have seen some smaller businesses that have experienced some decreased revenues that has put pressure on their budgets and their cash flow, but the delinquencies in New England have been under control in fact at the end of the fourth quarter, we had one past due loan, in the commercial loan portfolio at Boston Private Bank & Trust Company. As a result of anticipating some slowdown in privately owned businesses and some degradation of value and increased vacancies in commercial real estate, we have done stress testing in that portfolio and we have identified situations where we need to look for credit enhancements or just solidify the relationships with the guarantors. And so, we feel the portfolio, we know it very well, its accurately risk rated, we are totally on top of the portfolio and as I said we had one past due loan in the commercial loan portfolio at Boston Private at the end of the fourth quarter. The portfolio in Northern California again we've got an experienced team on the ground there that has been monitoring the regional economy very closely, we do expect that commercial real estate will be challenge as we move forward as it will, across our nation, we had a little bit of activity as you saw with non-accruals in the fourth quarter, but again we have done some significant stress testing there. We have got the loan portfolio in Northern California I have mentioned before perhaps, you have heard me say it, has probably the most conservative loan policy and they generally restrict their loan to value to 65%, which covers a lot of ills especially in a market, where real estate values are dropping. At the end of the quarter, the fourth quarter they had three past due loan for $5 million, which is an increase from the prior period, which had one past due loan of $350,000.

John Pancari - JPMorgan

Okay, all right. And then in terms of the Pacific Northwest, the rate of deterioration clearly has picked up there notably, not unlike some of the Pacific Northwest peers, but can you talk a little bit about where, where things essentially went wrong there I mean I know, you are not unlike peers, but you had indicated you got two heavily in the transactional type of lending done in the Inland Empire, and we know what is going on in Florida, but how would you describe the issues that you are seeing in the Pacific Northwest specifically for Charter?

David J. Kaye

Yeah. I will talk specifically about Charter in the northwest and I do want to draw the distinction between the northwest and Southern California. And we've talked repeatedly about the toxic loan portfolio in the Inland Empire that toxic portfolio was dirtier than any portfolio I have seen in my 35 year career in banking. And it started by getting into a region where we didn’t have a presence doing non-strategic transactions with borrowers that were highly speculative developments, a high percentage of land loans and a high percentage of large, what I call large track loans, which are 20, 30, 40 unit subdivisions. And what we see in the Pacific Northwest is a lot of in-fill properties, a lot of one or two or three lot subdivisions or projects that were geared towards high net worth individuals these were not entry level homes. We identified John when we did our due diligence on Charter Bank that they had an experienced staff there that was used to doing construction lending, but we also felt that the loan to values and the structures were a little bit more aggressive and so in the second quarter of 2008. The credit staff and the lending staff at Charter saw that values were slowing and sales were slowing so they immediately cut back on their advanced rates and their underwriting was more conservative, but that said construction loans are often on the books for two years, 18 months, 24 months and clearly in this environment some get renewed for another 12 months. So, they started that process, but the unlike prior cycles where the Pacific Northwest has been somewhat insulated, it’s been hit hard this time, and so in the fourth quarter they had several loans that matured. Additionally, we worked with the team on the ground to eliminate watch category in their loan portfolio prior to the fourth quarter. They had a category of watch and our practice at across our company now is to hot have a watch category, we had a risk rate, credit as a problem credit, a special mention or substandard or surpass. And so some of those loans would determine to be special mention or classified. We’ve taken some significant steps there the team on the ground has taken significant steps there as I mentioned earlier in the second quarter they started to tighten their structures and their terms and in the fourth quarter they added a workout person and have an attorney who works part time, but almost full time on workouts and action plans. And we also have some support in the form of Jim Shulman, here at the holding company and some other resources in Southern California. So, we are having weekly meetings on the problem loan portfolio in the Pacific Northwest.

John Pancari - JPMorgan

Okay, Thank you very much.

Operator

Your next question comes from the line of Christopher Marinac of FIG Partners.

Christopher Marinac – FIG Partners, LLC

Thanks good morning.

Unidentified Management Representative

Hey, Chris.

Christopher Marinac – FIG Partners, LLC

Was curious on South Florida and that pertains to any deterioration that we wouldn't see just looking the classified and on non-accruals this quarter, is there anything on the surface that maybe coming out to concern you this year?

Unidentified Management Representative

Hi, Chris. We have not seen negative trends in the portfolio in South Florida. We took strong action in the fourth quarter when we had some of the classified loans with updated appraisals show a diminution of value, so we immediately added to the reserve. We've had some loans that been upgraded and some that been downgraded net-net there hasn't been much change in the fourth quarter. We are very close to the portfolio there including the past portfolio that gets reviewed by the team on the ground in South Florida, as well as Chastain and as well as Jim Shulman, who speak frequently with the team down there. We haven't seen any major deterioration, but we did take a strong stance on the loans that had updated appraisals, where there was diminution and we also have added to our unallocated reserve and our qualitative reserve because we are not convinced at the stability there yet. Also we have got I think 80% of the loans that are classified have appraisals that are within six months and the other 20% are in process now.

Christopher Marinac – FIG Partners, LLC

Okay. Great. And then on the loan sales in Southern California, how much of those were sort of one-off transactions, it certainly this is a not a big pool sale, but I [was] just curious on sort of how your best get their best price?

Unidentified Management Representative

Well we used an independent third party to do 50 loans and some of them were grouped together in small pools of 2 to 4 and the rest were single. In some cases, we put the pull out there and someone came back and said they only want one, so we broke the pool down. So, I would say at the end of the day, at least 80% of them were one-offs with the debt exchange and then clearly that ones we have worked out ourselves with the people on the ground in the Inland Empire those have been one-offs. So, not a lot of pool sales.

Christopher Marinac - FIG Partners, LLC

Okay, great. And then just one final question, I guess to Dave. When we talk about tangible equity, what is the difference this quarter in terms of how much assets are really on the total balance sheet related to the bank versus the asset managers, I note from the past Qs its not a huge number, but I was just curious if you roughly knew that difference?

David J. Kaye

Are you asking about the change quarter-over-quarter Chris or the...

Christopher Marinac - FIG Partners, LLC

Well, its just the whole season, I mean I think last quarter may have been a couple of $100 million of assets that are attributed to the investment management business with the rest paid for the banks?

David J. Kaye

Yeah. It's exactly, it's the same amount in terms of the tangible assets absolutely, yeah. It's just a couple of $100 million.

Christopher Marinac - FIG Partners, LLC

Okay. Good. Thanks a lot guys.

Operator

Your next question comes from the line of Murali Gopal of KBW.

Murali Gopal - KBW

Good morning.

David J. Kaye

Good morning.

Murali Gopal - KBW

Just a couple of quick questions, in terms of South Florida obviously the credit crunch particularly in terms of the classified loans remain flat and NPAs were down sequentially. But, I am just trying to understand just given what we are hearing in terms of what is going on at the market generally and it I think it will be helpful if you can just refresh our memory just in terms of how closely and how in depth you've looked at this portfolio when you did and given the more recent or continued deterioration in the market have you gone back and looked at the portfolio more recently and just – just so we understand what is the level of detailed evaluation you have done on this portfolio.

David J. Kaye

Hi Murali. It’s a good question and clearly its one, its on a lot of peoples minds, the portfolio in South Florida has been under scrutiny by the team on the ground all along, but as, Chastain & Associates has been onsite twice in 2008. Additionally, Jim Shulman and one of our senior workout officers from Southern California have been onsite working with the team in South Florida to review the problem loan portfolio as well as the past portfolio. And Jim Shulman and the Chief Credit Officer at Gibraltar review the entire problem portfolio on a monthly basis. And I’m on the Board of Directors of that bank and we have quarterly meetings and occasionally interim meetings to talk about liquidity and the asset portfolio. So, we have shown much improvement there, the Chastain review, the second time through was very complimentary of the changes that were incorporated in the credit administration of the team there. And as I indicated earlier 80% of the portfolio of the problem loan portfolio has appraisals that are within six months.

Murali Gopal – KBW

Okay. And then this is probably a question for Dave. Just in terms of the net interest margin can you give us some insight into your outlook there just given, if you’ve seen some pretty sharp Fed funds rate cuts and so just from that perspective just help us understand a little there?

David J. Kaye

Yeah Murali. I would say that you did a see a little bit of tightening in our margin this quarter. Some of that was due to the fact that we had some loss interest income due to rising NPAs we have to reverse some interest income and then also with the FHLB cutting back on dividends we lost some interest income. So, if you take out the reversals of the, or the impact of reversals of the interest income in the FHLB it was about an impact of about 6 basis points. The other thing that is weighing heavily on our net interest margin is of course the First Private portfolio. And First Private as we are going through this loan sale obviously they have a lot of their assets not earning anything and so as we sell these assets and get the cash we are going to redeploy these into higher earning assets. So, we should get some benefit there going forward, but as you mentioned we do have face challenges with the rate cuts, but there is some upside on the First Private side.

Murali Gopal - KBW

Okay. And lastly in terms of your deposit growth sequentially you did have a nice growth in deposits and it looks like it's mostly core deposits less brokered. Can you just talk just literally in terms of the trend you are seeing there and was it some kind of and obviously there is some are you seeing a continuing flow of deposits coming in or was it, just have to be government guarantee, FDIC guarantee program you did see some pickup, but that is kind of normalized now.

David J. Kaye

Yeah. I think we did see, earlier in the year we had seen some outflows of deposits and that was due to some of the clients being generally, skittish and moving a portion of their relationship outside of our banks with the guarantee program as you mentioned I think we've seen a movement back into the bank particularly in, these non-interest bearing accounts and then I’d say the other factor that we've seen a lot interest in and has picked up momentum is on the CDARS. So, clients coming back and putting their money in the CDARS program, which again is very protected program and so we are hopeful on the positive trends there.

Murali Gopal - KBW

Okay, great thanks.

Operator

Your next question comes from the line of Gerard Cassidy of RBC.

Gerard Cassidy – RBC Capital Markets

Thank you. Good morning guys.

David J. Kaye

Good morning.

Gerard Cassidy – RBC Capital Markets

Jim can you share with us on the 52 loans that were sold, what was the original carrying value of the loans just of those 52, I know its 278 total portfolio, but for the 52 what was the original carrying value and what did you actually receive in proceeds on those loans?

David J. Kaye

I do not have.

James D. Dawson

Yeah. I do not have that number Gerard broken down by.

Timothy L. Vaill

Gerard I can’t give you specific numbers, but let me give you this sort of analysis. Of the 52 loans that were sold or resolved, approximately 30 were sold at auction and if you look at those individually as I have done not surprised, and a large number of them were sold roughly plus or minus a small amount to the amount that we marked into in the third quarter. They were relatively small number, which were either quite higher, or quite low relative to the mark, but on total they came out to a relatively small loss on those 30 that were sold. On the 20 are sold that we actually resolved we got significantly higher dollars than the amount that we marked into it. So, in total, surprisingly the mark we did in the third quarter was within 1 or 2% of the actual amounts received to-date. So, we feel pretty good about that mark, now I think if you look at the numbers we have given here we had 278 million, in total as of the end of March, we marked that to about 92 million in September 30. So, you can do the math on that and I think that the actual activity puts us pretty close to that number. So, I do not know if that helps you or not, but I haven't broken the 52 loan.

David J. Kaye

Gerard, I do have a little more information. The loans that have been resolved at a carrying value initially of about 170 million.

Gerard Cassidy – RBC Capital Markets

Okay. Would you say on the ones that were sold you received $0.20, $0.15 on the dollar of the original amount $0.30 on the dollar.

David J. Kaye

It was higher than that I do not want to get too specific, because we had some loans that we are still working out here, but I will tell you that of the remaining portfolio, we had some that, we have very little, have had very little activity and therefore we wrote them down significantly at the end of the fourth quarter, but several of the loans we held onto we felt that there was an opportunity to receive significant value and we wanted to preserve the capital.

Gerard Cassidy – RBC Capital Markets

Okay, you guys mentioned the loan to deposit ratio has dropped to about a 111% is there a targeted number you’re focused on by the end of 2009 or into 2010?

David J. Kaye

There is not a targeted number we’re obviously much more comfortable at a 110% or a 100% we feel the margins are better when you're funding loans with deposits, but our biggest drive that started in the third quarter was to generate core deposits we feel that is the most profitable product for us and the CEOs of all the banks have put together plans to increase deposits, all deposits, our core deposits, demand deposit, money market, et cetera. And we do feel encouraged as Dave said with the progress we have made in the fourth quarter, we hired some people to focus on deposits we’ve designated people as so called [depositors] and our focus on deposits has been strong more even more so on the last two quarters and we’re very encouraged with the demand deposit and overall core deposit growth.

Gerard Cassidy - RBC Capital Markets

I may have overlooked it in the press release, can you give us what the Federal Home Loan Bank dividends were in the quarter versus the prior quarter you mentioned that that contributed to the margin pressure and what is your outlook for further cuts in those dividends from the Federal Home Loan Bank?

David J. Kaye

Yes, it's right. I think it was about a $200,000 impact or $250,000 impact a loss on the Federal Home Loan dividends and so, I going forward I do not expect that coming back so but in terms of the total dollars that we had, probably about 280,000 of actual income and as I said that is about a $200,000 reduction from our prior quarter.

Gerard Cassidy - RBC Capital Markets

Okay. So, by cutting half. Regarding the asset management business, the assets under management declined precipitously obviously quarter-to-quarter and you showed in your outflow chart the dollars that went out in the quarter, can you talk about what contributed to the outflows in the quarter and what you see [decline] from in the first quarter?

David J. Kaye

Sure, Gerard. I would say more than anything it’s the needful liquidity by the intuitional investment community. They are going to their own problems of marking assets to market and are unable to get, when they need liquidity they are unable to access it in a significant part of their portfolio, so we are finding that, certainly in the domestic equity portfolio. That is a readily available source of liquidity for them. So, we are fair a bid of that. I think we are pleased with the performance and certainly with the pipelines that exist in our affiliates here.

Gerard Cassidy - RBC Capital Markets

Would you expect the first quarter's assets under management to be positive number or is it going to continue the negative trend?

David J. Kaye

Well, if you have a crystal ball I would love to gaze though it Gerard, I think one of things that we see and hear particularly in the intuitional community and understand that Westfield, which is predominantly an institutional firm is about 30% of our total assets here, that drives a fair big of the AUM growth from quarter-to-quarter. And what we are seeing in the institutional community is just a lack of activity and lack of new hiring, I think that in aggregate they have got other issues that are dominating their agendas here. We do expect through the individual client lens particularly in the Wealth Advisory segment, we do expect continuation of asset growth I mean that will be mitigated to some extent by the seasonality of that business, but I think Wealth Advisory business is particularly KLS and Bingham, Osborn continue to generate good organic growth and we see no reason that that will continue.

Gerard Cassidy - RBC Capital Markets

When you look at your total $28.5 billion under management or advisory, what would be an estimate of what you consider institutional versus individual of that total amount?

David J. Kaye

I think you wouldn't be far off, if you assume 50-50.

Gerard Cassidy – RBC Capital Markets

Okay, very good. In terms of the performance of the asset managers, as you indicated in the one-year performance bucket 35% were in the top decile whether 28% was less than 50% and according to the graph on page 23 by far the largest that is ever been in the one, three or five year buckets. Have you seen your one-year performance have that much in the less than 50% bucket in years passed whether it was three years ago, or four years ago or just something new that may have contributed to some of the outflows in the quarter?

David J. Kaye

I honestly do not know because I do not think we've compiled the data in this basis with that one period of time. So, we just do not have that information readily available Gerard.

Gerard Cassidy – RBC Capital Markets

Okay. Thank you.

Operator

Your next question comes from the line of Mark Fitzgibbon of Sandler O'Neill.

Mark Fitzgibbon - Sandler O'Neill & Partners L.P.

Good morning. I guess the question is first for Jim. Jim I wondered if you could help us think about the loan loss provision going forward and I know there is a lot of moving parts and it will dependent on lot of things, but should we assume that 22.8 million is maybe a little overstated relative to what we’re likely to see in future quarters?

James D. Dawson

Well Mark. Every day, every week and certainly by the end of each quarter, we look very hard at each of our portfolios all five portfolios and we work very closely with the CEOs and the Chief Credit Officers and the credit people at all the banks. To ascertain where our risks are in the portfolios and we also have to put a little bit of Kentucky Windage in the calculation because we have to figure out what direction the economy is going and try to change and modify and update our qualitative factors and our unallocated to account for that. I guess what I would say is at each of our banks we know the portfolios well, we’ve identified problems and feel that the risk ratings were accurate and that we’ve incorporated in the fourth quarter some additional provision both unallocated and qualitative that anticipates further degradation and a challenging economy in 2009.

Mark Fitzgibbon - Sandler O'Neill & Partners L.P.

Okay. And then just a follow-up on a comment that you made earlier. You had said and I quote, "the portfolio on First Pacific was dirtier than anything you’ve seen in your career that it was toxic". I guess I’m wondering were you in your team part of the diligence process when you bought that company a few years ago and isn’t it the same credit team that is sort of now telling us the portfolio we have scrubbed the portfolios and they are okay.

James D. Dawson

Well the due diligence was done prior to the First Private entry into the Inland Empire, the portfolio at the time was concentrated in the valley, the headquarters was at Granada Hills and there was no exposure in the Inland Empire. And the team on the ground when those loans were made was terminated in February 2008. So, its an entirely different team.

Mark Fitzgibbon - Sandler O'Neill & Partners L.P.

But who is overseeing credit from a central standpoint at the holding company?

James D. Dawson

The credit practice at that time Mark was to have leadership on the ground supported by auditors, independent credit review people and Boards of Directors to review those portfolios. And the centralization at that time was gathering information on trends with risk ratings and past dues and that information that was supplied did not represent the toxic portfolio. So, we have made wholesale changes across our company in the reporting and that started with hiring Chastain to do independent loan review, actually it started before that with the termination of three senior officers at First Private.

Mark Fitzgibbon - Sandler O'Neill & Partners L.P.

Okay. And then in the press release, you guys say that you will continually look for ways to expand our franchises market conditions permit, should we take that to mean that you guys are still ready to do deals again?

Walter M. Pressey

Mark this is Walt I think what we have said to-date and we are still in this position that the turmoil that exist in this kind of a market is apt to provide opportunities either in the form of individuals who leave one organization and come to another or in terms of, say weaker organizations who are unable to make loans. So, our current focus is to look for opportunities within the markets that we currently exist in to try to increase the density that we have in some of those markets, improve our market share rather than going to new market. But, our business model that has been so successful from 1993 to 2007, we think is the right business model and at some point, we do expect to expand into new markets we are in seven different regions of the country today there are clearly 12 or 15 that we would love to be in and perhaps as many as 30 that could support the kind of business model that we have got in different regions and so while we do not plan to be there any time soon, until we get through the recession, we are certainly not going to give up that business model.

Mark Fitzgibbon - Sandler O'Neill & Partners L.P.

So, probably no acquisitions for at least a few quarters?

Walter M. Pressey

Well, I wouldn't say probably no acquisitions for at least a few quarters, but certainly no acquisitions in new markets and if there were any acquisitions, earlier than that it will be focused on dealing with existing opportunity to increase density in the existing markets that we are already in.

Mark Fitzgibbon - Sandler O'Neill & Partners L.P.

Okay. Thank you.

Operator

Your next comes from the line of Cheryl Pate of Morgan Stanley.

Cheryl Pate – Morgan Stanley

Hi good morning.

David J. Kaye

Good morning.

Timothy L. Vaill

Good morning.

Cheryl Pate – Morgan Stanley

Just wondering if I could first of all get your thoughts on further housing market deterioration from here particularly in Florida and the Pacific Northwest?

David J. Kaye

Cheryl are you asking us to share our thoughts on the economy in those regions.

Cheryl Pate – Morgan Stanley

Right.

David J. Kaye

Well.

Cheryl Pate – Morgan Stanley

Well, on sort of peak-to-trough, assumption for housing deterioration?

David J. Kaye

I will make a couple of general comments, about both regions and the - when we look across our company, there were some regions that were impacted by a slowdown in the economy before others. And Florida was early in the cycle, it's been a couple of years or a few years now since real estate values peaked. So, peak-to-trough that cycle started earlier, we do not think we've hit the trough yet, at least we are not going to run our business assuming that things are going to get better any time soon. We are going to assume that it's going to be a challenging economy at least for the next few quarters and we will run our business and make our credit decisions accordingly. In the Pacific Northwest, the cycle started much later, I think the economists would say it started in the first quarter of 2008 clearly those that are in the real estate business especially the residential real estate business in the Pacific Northwest would tell you that they started to see a slowdown in the home sales early in 2008. And so that cycle is really early stage, we would expect that in the Pacific Northwest that values, right now we feel they are dropping probably 1% a month. So, that many accelerate and we feel that in some cases some of the regions in the neighborhoods where, we have provided financing have dropped 15 or 20%, we are expecting it to get worse, we are expecting values to drop or expecting that residential real estate will continue to slow for some period of time.

Cheryl Pate – Morgan Stanley

Okay. And just turning back to the reserve billed particularly in the South Florida portfolio, is that fairly representative of the portfolio composition overall or is there one loan category that is contributing more?

David J. Kaye

Well we I think I mentioned earlier we had a couple of updated appraisals that showed significant drop in value and we used those in our FAS 114 calculations and added reserves for that reason we also added them because we feel the economy there is continuing to slow The largest loans that is in non-classified status is actually accruing because we are starting to sell properties now. Yeah, I guess the short answer is we added to the reserve because we identified some shortness in collateral and we are concerned about the economy in South Florida and we want to make sure we are adequately reserved.

Cheryl Pate – Morgan Stanley

Okay. Any additional color you can share on the construction book there.

David J. Kaye

In South Florida?

Cheryl Pate – Morgan Stanley

In South Florida, yeah?

David J. Kaye

Well there hasn’t been much activity recently, there were commitments made obviously in prior quarters that that need to be fulfilled as long as the borrowers are not in default, but you do not see a lot of loan growth in South Florida right now.

Cheryl Pate – Morgan Stanley

Okay. Thanks.

Operator

Your next question comes from the line of [Steve Covington of Steven Capital].

Steve Covington of Steven Capital

Good morning. Thanks for taking the question. I guess based on your experience with the loan sales in Southern California will it be reasonable to expect you would continue to use that that former disposition in at other markets?

David J. Kaye

I do not think so Steve that was for a non-strategic portfolio we did the same thing in the Pacific Northwest with our lease portfolio that was about $20 million didn’t fit our definition of strategic, but I would not expect that you would see pools of loan sold.

Steve Covington of Steven Capital

And in the Pacific Northwest from our recollection did Chastain finish the independent loan review during the third quarter and is some of this build as a result of some of the findings there or is that separate?

David J. Kaye

I would say that the Chastain review was done at the end of the third quarter and they had some recommendations but the team on the ground identified some issues in the fourth quarter with loans that were come due, as I mentioned earlier we eliminated the watch category, which caused some downgrades and the general economic conditions have deteriorated there. But I would not characterized this is Chastain prompted or a Chastain consequence.

Steve Covington of Steven Capital

Okay. Thank you.

Operator

Your next question comes from the line of [Faye Elliott] of Bank of America Securities.

Faye Elliott – Bank of America Securities

Hi good morning.

David J. Kaye

Good morning.

Faye Elliott – Bank of America Securities

Could you go over the 25 million tax charges associated with the goodwill and intangible and impairments I guess and may be touch on the goodwill and impairment themselves and kind of give layout what they're related to in the quarter?

David J. Kaye

Sure, I will take that question. On a pretax basis we had approximately 38 million of goodwill and intangible impairments really 25 million of that was related intangible assets and, we amortized those regularly and so that will have an effect on our amortization expense going forward, it obviously come down the intangible were primarily related, 20 out of the 25 were related to the core deposit intangibles at two of our banks and, it reflects the fact that we have less of those deposits on board today then we had originally bought, you have to look at it from what accounts you had when you originally bought the bank and then looking only at those some accounts not new deposits that you brought in, and comparing that to sort of what you have amortized off and if you have less than you have amortized off than you generally take an impairment charge. So, that had to do with the 20 of the 25 million, the remaining 5 on the intangible side was due to wealth advisory contracts and really and else of the goodwill charges were really related to the fact that the AUM has comedown in the market and, about these companies and their associated intangibles are valued lastly when the AUM is down. So, does that answer your question.

Faye Elliott – Bank of America Securities

Okay. And then, it should. And when you take these charges is this because you expect that there won't be a turnaround in levels, in terms of the, core deposit intangibles, are you expecting that its just the deposit position won't reverse and so you.

David J. Kaye

Well you have to only look at those deposit accounts that you had when you originally bought it. So, despite the fact that we are, as we mentioned we are bringing in new deposits from new customers and new relationships you do not actually get to account that when you are evaluating your intangible assets.

Faye Elliott – Bank of America Securities

Okay. So, in effect you could have the same level of deposits, but if there are different deposits you would still have to take the write down on…

David J. Kaye

That it. Yes.

Faye Elliott – Bank of America Securities

Okay.

David J. Kaye

That is absolutely correct.

Faye Elliott – Bank of America Securities

Okay. And then in terms of AUM portion of it, is that something that you are taking because, is it similar that, the level went down and so a rebuild from elsewhere would not that situation or does that kind of telegraph that you would expect the AUM to remain under pressure or at least not return over the near term?

David J. Kaye

No, we do project our AUM and you can't count new AUM or your projection on AUM going forward. When you are evaluating goodwill and evaluating any, possible increases. Two things really though, one you have to start at the level that you are at now and so obviously that was depressed with the market, and then two you have to look at comparable multiples of public companies and those multiples have come down significantly. So, valuation just in general, regardless of what we do has come down and that affects the goodwill evaluation. So, once you take this goodwill charge, there is no writing it backup you take it, its over and done with and as we said before it really doesn't have an impact on our capital or liquidity positions. So, it's not related to the core operations of our business, its more of an accounting charge.

Faye Elliott – Bank of America Securities

Okay. And how much would be remaining in terms the two banks that you are talking about how much core deposits intangible, what’s the balance there of those two banks?

David J. Kaye

We have a 17 million left of the core deposit intangibles.

Faye Elliott – Bank of America Securities

At those…

David J. Kaye

Yeah, those two banks. And those will be…

Faye Elliott – Bank of America Securities

Okay.

David J. Kaye

It’s actually three banks in total and then, we will be amortizing that again over the next 10 years.

Faye Elliott – Bank of America Securities

Okay. Great. Thank you so much.

David J. Kaye

Sure.

Operator

And your final question comes from the line of the Gerard Cassidy of RBC.

Gerard Cassidy – RBC Capital Markets

Yeah. Thank you for the follow on. Can you guys have your intangible book value per share was that dollar amount as per share?

David J. Kaye

Yes, right I would calculate that as about $5.5 a share.

Gerard Cassidy – RBC Capital Markets

Great. And then second in the commercial loan portfolio that you posted in the fourth quarter, the period end loans the totaled I guess 2.5 billion. How much is commercial real estate mortgages versus true C&I loans?

David J. Kaye

Gerard it's mostly commercial real estate, let me see if I have a schedule that gives me more of a breakdown here, no it doesn't its mostly commercial real estate.

Gerard Cassidy – RBC Capital Markets

Okay.

Timothy L. Vaill

The billion of C&I wasn't that, little less than a billion of C&I Gerard and then remainder would be commercial real estate.

Gerard Cassidy – RBC Capital Markets

How was that the traditional commercial real estate mortgage portfolio holding up where you might have a mortgage on a small office building in Florida or small, small or somewhere, what are you guys seeing in trends in the, again not construction, but the cash flowing properties.

David J. Kaye

Yeah I commented on two of the regions earlier Gerard and clearly in Florida we saw some slowdown back in the second quarter, I believe it was in commercial real estate, office buildings and some retail centers. We think commercial real estate and C&I as I said earlier will be a challenge as we move forward and that is why we have been doing stress testing at all of our banks. We do have a lot of the portfolio as owner occupied, so that helps because you got an operating business with cash flow, but in some cases it's double whammy because those businesses have slowdown as well, but we have not, when I talked about the past dues of our banks and two thirds of the portfolios are in – New England and Northern California and their past dues have not shown significant deterioration, but we do expect to have a headwind in 2009.

Timothy L. Vaill

Sure, Gerard I just want to say that, in terms of the non-performing loans in commercial real estate again it remained fairly small from 2 million in the third quarter to a little over 3 million at the end of the year. So, it went from really two properties to three properties, so very small increase on our non-performing commercial real estate.

Gerard Cassidy – RBC Capital Markets.

I see. And just finally, within the commercial real estate if you estimate it to maybe $1.5 billion, in total commercial real estate mortgages what dollar amount of the $1.5 billionish is owner occupied versus investor owned commercial mortgages.

David J. Kaye

Gerard let me correct the earlier comment, when you asked the question I thought you were asking about quarterly growth and that is why I said most of it is – its commercial real estate, the C&I portfolio is about 565 million and the commercial real estate portfolio is about a 1.95 and I am looking at a segmentation here it will just take me a moment. I would say the owner occupied is probably about of the non-residential it's probably about a third.

Gerard Cassidy – RBC Capital Markets.

Okay, good. All right. Thank you.

Operator

I would now like to turn the call back over to Mr. Timothy Vaill.

Timothy L. Vaill

Well, thank you all very much for joining us this morning we look forward to chatting with you in the days and weeks and months ahead and on to the next quarter. Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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Source: Boston Private Financial Holdings, Inc. Q4 2008 Earnings Call Transcript
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