JUNIOR SUBORDINATED DEBENTURES

The schedule below presents the detail of the Company’s junior subordinated debentures:



	December 31,
	2013		2012
	(In thousands)
Boston Private Capital Trust II junior subordinated debentures	$	103,093	$	103,093
Boston Private Capital Trust I junior subordinated debentures	3,270		13,749
Gibraltar junior subordinated debentures	—		16,495
FPB junior subordinated debentures	—		6,186
Charter junior subordinated debentures	—		4,124
Total	$	106,363	$	143,647

All of the Company’s junior subordinated debentures mature in more than five years.

Boston Private Capital Trust II junior subordinated debentures

In September 2005, the Company and Boston Private Capital Trust II, a Delaware statutory trust (“Trust II”) entered into a Purchase Agreement for the sale of $100 million of trust preferred securities issued by Trust II and guaranteed by the Company on a subordinated basis. Trust II’s preferred securities pay interest quarterly and had an annual distribution rate of 6.25% up to, but not including, December 30, 2010. Subsequently, Trust II’s preferred securities converted to a floating rate of a three-month LIBOR plus 1.68%; provided, however, that the interest rate does not exceed the highest rate permitted by New York law, and may be modified by the U.S. law of general application. At December 31, 2013, the interest rate for the Trust II’s preferred securities was 1.93%. The Company entered into an interest rate swap agreement beginning on December 30, 2010 to hedge the floating rate for a portion of this security. See Part II. Item 8. “Financial Statements and Supplementary Data - Note 9: Derivatives and Hedging Activities” for additional details.

Each of the Trust II preferred securities represents an undivided beneficial interest in the assets of Trust II. The Company owns all of Trust II’s common securities. Trust II’s only assets will be the junior subordinated debentures issued to it by the Company on substantially the same payment terms as Trust II’s preferred securities. The Company’s investment in Trust II was $3.1 million at both December 31, 2013 and 2012.

The junior subordinated debentures mature on December 30, 2035 and became redeemable after December 30, 2010.

The Company has the following covenants with regard to Trust II:


•	for so long as Trust II’s preferred securities remain outstanding, the Company shall maintain 100% ownership of the Trust II’s common securities;


•	the Company will use its commercially reasonable efforts to ensure Trust II remains a statutory trust, except in connection with a distribution of debt securities to the holders of the Trust II securities in liquidation of Trust II, the redemption of all Trust II’s securities or mergers, consolidations or incorporation, each as permitted by Trust II’s declaration of trust;


•	to continue to be classified as a grantor trust for U.S. federal income tax purposes; and


•	the Company will ensure each holder of Trust II’s preferred securities is treated as owning an undivided beneficial interest in the junior subordinated debentures.

At December 31, 2013 and 2012, the Company was in compliance with the above covenants.

So long as the Company is not in default in the payment of interest on the junior subordinated debentures, the Company has the right under the indenture to defer payments of interest for up to 20 consecutive quarterly periods. The Company has no current intention to exercise its right to defer interest payments on the junior debentures issued to Trust II. If the Company defers interest payments, it would be subject to certain restrictions relating to the payment of dividends on or purchases of its capital stock and payments on its debt securities ranking equal with or junior to the junior subordinated debentures.

Boston Private Capital Trust I junior subordinated debentures

In 2004, the Company and Boston Private Capital Trust I, a Delaware statutory trust (“Trust I”), entered into a Purchase Agreement and an option, which was exercised in 2004, for the sale of a combined total of $105 million of convertible trust preferred securities to be issued by Trust I and guaranteed by the Company on a subordinated basis. The convertible trust preferred securities have a liquidation amount of $50.00 per security, pay interest quarterly and have a fixed distribution rate of 4.875%. The quarterly distributions are cumulative. The junior subordinated convertible debentures will mature on October 1, 2034.

In 2011, the Company repurchased $11.6 million of the Trust I’s convertible trust preferred securities, recognizing a pre-tax gain on repurchase of $4.2 million.

In 2012, the Company repurchased $38.4 million of the Trust I’s convertible trust preferred securities, recognizing a pre-tax gain on repurchase of $3.4 million.

In 2013, the Company repurchased $10.5 million of the Trust I’s convertible trust preferred securities, recognizing a pre-tax gain on repurchase of $0.6 million.

As of December 31, 2013, there was an immaterial amount remaining outstanding of the Trust I convertible trust preferred securities held by third parties. The Company’s investment in Trust I was $3.2 million at both December 31, 2013 and 2012.

Each of the convertible trust preferred securities represents an undivided beneficial interest in the assets of Trust I. The Company owns all of Trust I’s common securities. Trust I’s only assets will be the junior subordinated debentures issued to it by the Company on substantially the same payment terms as the convertible trust preferred securities.

The initial conversion ratio was 1.5151 shares of the Company’s common stock, $1.00 par value, for each trust preferred security (equivalent to a conversion price of approximately $33.00 per share), subject to adjustment as described in the offering memorandum. The conversion ratio at December 31, 2013 was 1.5402. The trust preferred securities are currently redeemable in whole at any time or in part from time to time if the closing price of BPFH’s common stock for 20 trading days in a period of 30 consecutive trading days ending on the trading day prior to the mailing of the redemption notice exceeds 130% of the then prevailing conversion price of the trust preferred securities. Assuming the remaining amount of convertible trust preferred securities at December 31, 2013 are converted, the Company would issue approximately 685 shares of common stock, based on the December 31, 2013 conversion ratio.

The initial conversion ratio is subject to adjustment if the Company takes certain actions, including paying dividends to all holders of BPFH common stock, excluding any quarterly cash dividend on BPFH common stock to the extent that such quarterly cash dividend per share of BPFH common stock in any quarter does not exceed the greater of (i) $0.060 and (ii) 1.00% multiplied by the average of the daily closing prices per share of BPFH common stock for the ten consecutive trading days ending on the trading day immediately prior to the declaration date of the dividend. If an adjustment is required to be made as a result of a distribution that is a quarterly dividend, the adjustment would be based upon the amount by which the distribution exceeds the amount of the quarterly cash dividend permitted to be excluded.

The Company has the following covenants with regard to Trust I:


•	to cause Trust I to remain a statutory business Trust and not try to voluntarily dissolve, wind-up, liquidate, or terminate except as permitted by the Trust agreement;


•	to maintain directly or indirectly ownership of all of the common securities of Trust I;


•	to use its commercially reasonable efforts to ensure that Trust I will not be an “investment company” under the Investment Company Act of 1940, as amended from time to time, or any successor legislation; and


•	to take no action that would be reasonably likely to cause Trust I to be classified as an association or a partnership taxable as a corporation for U.S. federal income tax purposes.

At December 31, 2013 and 2012, the Company was in compliance with the above covenants.

So long as the Company is not in default in the payment of interest on the junior subordinated convertible debentures, the Company has the right under the indenture to defer payments of interest. The Company has no current intention to exercise its right to defer interest payments on the junior subordinated convertible debentures issued to Trust I. If the Company defers interest payments, it would be subject to certain restrictions relating to the payment of dividends on or purchases of its capital stock and payments on its debt securities ranking equal with or junior to the junior subordinated convertible debentures.

Legacy banks junior subordinated debentures

During 2013, the Company repurchased all of the junior subordinated debentures it acquired from its legacy banks. This includes the Gibraltar Financial Statutory Trust I junior subordinated debentures of $16.0 million, the First State (CA) Statutory Trust I junior subordinated debentures of $6.0 million, and the Charter Financial Trust I junior subordinated debentures of $4.0 million. No gain or loss on repurchase was recorded for any repurchases of the legacy bank junior subordinated debentures. The Company’s investment in these trusts was $0.5 million, $0.2 million, and $0.1 million, respectively, at December 31, 2012.

Management has determined that Trust I, Trust II, the Gibraltar Financial Statutory Trust I, the First State (CA) Statutory Trust I, and the Charter Financial Trust I qualify as variable interest entities under GAAP. The trusts issued preferred securities to investors and loaned the proceeds to the Company. Each of the trusts holds, as its sole asset, subordinated debentures issued by the Company.