Among the bank stocks that have gotten walloped as a result of the Great Credit Crunch—and there are plenty—one of our favorites is Boston Private Financial Holdings (BPFH). In fact, the stock is one of our largest positions.

Boston Private, with $5.9 billion in assets, provides private banking and asset management services via five subsidiaries, in California, Florida, Massachusetts, New York, Washington State, and (until recently) Florida. On the one hand, private banking is one of the true growth niches in the banking industry in recent years, and Boston Private in particular is a very successful player. Before the credit hurricane hit in earnest in 2008, the company generated average annual earnings per share growth of nearly 10% going back to 2000. 

But on the other hand, Boston Private has not been immune to the credit problems that have afflicted so many other lenders its size. It has been hurt in particular by residential construction loans at its Florida unit, as well as commercial real estate credits in California and the Pacific Northwest. Over the past nine quarters, the company has charged off $240 million of its $4 billion-ish loan portfolio, with more yet to come. At the end of the third quarter, non-performers came to 2.31% of total loans, compared to 1.97% at the end of the second quarter and 1.02% back at the end of 2007.

Not surprisingly, the company's earnings have gotten walloped as credit has deteriorated—and so has its stock price. Boston Private has lost money for the past six straight quarters, and is likely to keep on losing money through the end of this year. From an all-time high of $35 in mid-2006, the stock lately trades $6.20 per share. 

But while credit problems have laid Boston Private low, the company is well-positioned to deal with them, and then come out of the credit slump in a very strong competitive position. It's has taken a number of steps in the past few months to clean up its balance sheet and strengthen its finances. The first is the sale of its Florida subsidiary, Gibraltar Private Bank & Trust, announced on September 17, for $93 million in cash. Not only will the sale enhance the company's liquidity, it will rid Boston Private of $50 million in non-performing assets and another $91 million in classified assets. (The bulk of the problem assets are residential construction loans.) Overall, the sale will reduce problem assets by roughly one-third.