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EX-32.2 - EXHIBIT 32.2 - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex322q22015.htm
EX-31.2 - EXHIBIT 31.2 - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex312q22015.htm
EX-32.1 - EXHIBIT 32.1 - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex321q22015.htm
EX-31.1 - EXHIBIT 31.1 - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex311q22015.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number: 0-17089
BOSTON PRIVATE FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)  
 
 
Commonwealth of Massachusetts
04-2976299
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
Ten Post Office Square
Boston, Massachusetts
02109
(Address of principal executive offices)
(Zip Code)
 
 
Registrant’s telephone number, including area code: (617) 912-1900
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer x
 
 
 
Accelerated filer o    
Non-accelerated filer o   
 
(Do not check if a smaller reporting company)
 
Smaller reporting company o    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of August 1, 2015:
Common Stock, Par Value $1.00 Per Share
83,574,270
(class)
(outstanding)
 



BOSTON PRIVATE FINANCIAL HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3
 
Item 4
 
PART II—OTHER INFORMATION
Item 1
 
Item 1A
 
Item 2
 
Item 3
 
Item 4
 
Item 5
 
Item 6
 
 
 
 
 
Certifications
 



i



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

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 
June 30, 2015
 
December 31, 2014
 
(In thousands, except share and per share data)
Assets:
 
 
 
Cash and cash equivalents
$
63,099

 
$
172,609

Investment securities available for sale (amortized cost of $992,118 and $826,858 at June 30, 2015 and December 31, 2014, respectively)
992,007

 
829,993

Investment securities held to maturity (fair value of $129,181 and $142,339 at June 30, 2015 and December 31, 2014, respectively)
128,258

 
140,727

Stock in Federal Home Loan Banks
35,668

 
32,281

Loans held for sale
19,512

 
7,099

Total loans
5,463,250

 
5,269,936

Less: Allowance for loan losses
78,251

 
75,838

Net loans
5,384,999

 
5,194,098

Other real estate owned (“OREO”)
929

 
929

Premises and equipment, net
31,337

 
32,199

Goodwill
152,082

 
152,082

Intangible assets, net
36,461

 
39,718

Fees receivable
12,486

 
12,517

Accrued interest receivable
16,383

 
16,071

Deferred income taxes, net
47,388

 
47,576

Other assets
125,330

 
119,975

Total assets
$
7,045,939

 
$
6,797,874

Liabilities:
 
 
 
Deposits
$
5,429,028

 
$
5,453,879

Securities sold under agreements to repurchase
26,660

 
30,496

Federal funds purchased
100,000

 

Federal Home Loan Bank borrowings
541,529

 
370,150

Junior subordinated debentures
106,363

 
106,363

Other liabilities
95,074

 
112,170

Total liabilities
6,298,654

 
6,073,058

Redeemable Noncontrolling Interests
19,200

 
20,905

Shareholders’ Equity:
 
 
 
Preferred stock, $1.00 par value; authorized: 2,000,000 shares;
 Series D, 6.95% Non-Cumulative Perpetual, issued and outstanding: 50,000 shares at June 30, 2015 and December 31, 2014; liquidation preference: $1,000 per share
47,753

 
47,753

Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 83,539,785 shares at June 30, 2015 and 82,961,855 shares at December 31, 2014
83,540

 
82,962

Additional paid-in capital
597,424

 
610,903

Accumulated deficit
(1,003
)
 
(37,396
)
Accumulated other comprehensive income/ (loss)
(2,525
)
 
(697
)
Total Company’s shareholders’ equity
725,189

 
703,525

Noncontrolling interests
2,896

 
386

Total shareholders’ equity
728,085

 
703,911

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
7,045,939

 
$
6,797,874

See accompanying notes to consolidated financial statements.

1


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except share and per share data)
Interest and dividend income:
 
 
 
 
 
 
 
Loans
$
46,663

 
$
49,396

 
$
94,663

 
$
96,610

Taxable investment securities
1,075

 
730

 
2,070

 
1,366

Non-taxable investment securities
1,125

 
914

 
2,146

 
1,818

Mortgage-backed securities
2,775

 
1,689

 
5,389

 
3,625

Federal funds sold and other
282

 
253

 
516

 
599

Total interest and dividend income
51,920

 
52,982

 
104,784

 
104,018

Interest expense:
 
 
 
 
 
 
 
Deposits
3,822

 
3,375

 
7,714

 
6,591

Federal Home Loan Bank borrowings
2,017

 
2,359

 
3,948

 
4,685

Junior subordinated debentures
967

 
965

 
1,923

 
1,920

Repurchase agreements and other short-term borrowings
29

 
15

 
42

 
32

Total interest expense
6,835

 
6,714

 
13,627

 
13,228

Net interest income
45,085

 
46,268

 
91,157

 
90,790

Provision/ (credit) for loan losses

 
(5,000
)
 
(2,500
)
 
(6,200
)
Net interest income after provision/ (credit) for loan losses
45,085

 
51,268

 
93,657

 
96,990

Fees and other income:
 
 
 
 
 
 
 
Investment management fees
11,731

 
11,754

 
23,445

 
23,215

Wealth advisory fees
12,678

 
11,979

 
25,353

 
23,452

Wealth management and trust fees
13,545

 
7,043

 
27,103

 
14,004

Other banking fee income
2,031

 
1,677

 
3,941

 
3,357

Gain on sale of loans, net
362

 
1,694

 
665

 
1,783

Gain on sale of investments, net
8

 

 
16

 
1

Gain/ (loss) on OREO, net

 
19

 
89

 
838

Other
2,305

 
208

 
3,393

 
457

Total fees and other income
42,660

 
34,374

 
84,005

 
67,107

Operating expense:
 
 
 
 
 
 
 
Salaries and employee benefits
39,816

 
34,338

 
81,943

 
70,912

Occupancy and equipment
9,095

 
7,349

 
18,130

 
15,146

Professional services
3,214

 
3,526

 
6,235

 
6,369

Marketing and business development
1,706

 
2,730

 
3,054

 
4,156

Contract services and data processing
1,495

 
1,447

 
2,932

 
2,885

Amortization of intangibles
1,655

 
1,045

 
3,257

 
2,098

FDIC insurance
963

 
854

 
1,974

 
1,750

Restructuring
220

 

 
220

 

Other
4,254

 
3,113

 
8,100

 
6,054

Total operating expense
62,418

 
54,402

 
125,845

 
109,370

Income before income taxes
25,327

 
31,240

 
51,817

 
54,727

Income tax expense
8,000

 
10,333

 
16,572

 
17,471

Net income from continuing operations
17,327

 
20,907

 
35,245

 
37,256

Net income from discontinued operations
1,546

 
1,450

 
3,640

 
3,378

Net income before attribution to noncontrolling interests
18,873

 
22,357

 
38,885

 
40,634

(Continued)
 
 
 
 
 
 
 

2


 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except share and per share data)
Less: Net income attributable to noncontrolling interests
1,263

 
1,025

 
2,492

 
2,261

Net income attributable to the Company
$
17,610

 
$
21,332

 
$
36,393

 
$
38,373

Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders
$
(1,097
)
 
$
(1,327
)
 
$
(2,161
)
 
$
(2,511
)
Net income attributable to common shareholders for earnings per share calculation
$
16,513

 
$
20,005

 
$
34,232

 
$
35,862

Basic earnings per share attributable to common shareholders:
 
 
 
 
 
 
 
From continuing operations:
$
0.18

 
$
0.24

 
$
0.38

 
$
0.42

From discontinued operations:
$
0.02

 
$
0.02

 
$
0.04

 
$
0.04

Total attributable to common shareholders:
$
0.20

 
$
0.26

 
$
0.42

 
$
0.46

Weighted average basic common shares outstanding
80,778,562

 
78,438,636

 
80,647,191

 
78,292,721

Diluted earnings per share attributable to common shareholders:
 
 
 
 
 
 
 
From continuing operations:
$
0.18

 
$
0.23

 
$
0.37

 
$
0.41

From discontinued operations:
$
0.02

 
$
0.02

 
$
0.04

 
$
0.04

Total attributable to common shareholders:
$
0.20

 
$
0.25

 
$
0.41

 
$
0.45

Weighted average diluted common shares outstanding
83,038,481

 
80,298,425

 
82,828,829

 
80,158,842


 See accompanying notes to consolidated financial statements.

3


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Net income attributable to the Company
$
17,610

 
$
21,332

 
$
36,393

 
$
38,373

Other comprehensive income/ (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain/ (loss) on securities available for sale
(4,317
)
 
2,226

 
(1,986
)
 
3,351

Reclassification adjustment for net realized gain/ (loss) included in net income
4

 

 
9

 
1

Net unrealized gain/ (loss) on securities available for sale
(4,321
)
 
2,226

 
(1,995
)
 
3,350

Unrealized gain/ (loss) on cash flow hedges
83

 
(885
)
 
(1,017
)
 
(1,472
)
Reclassification adjustment for net realized gain/ (loss) included in net income
(593
)
 
(422
)
 
(1,184
)
 
(777
)
Net unrealized gain/ (loss) on cash flow hedges
676

 
(463
)
 
167

 
(695
)
Net unrealized gain/ (loss) on other

 

 

 

Other comprehensive income/ (loss), net of tax
(3,645
)
 
1,763

 
(1,828
)
 
2,655

Total comprehensive income attributable to the Company, net
$
13,965

 
$
23,095

 
$
34,565

 
$
41,028

 See accompanying notes to consolidated financial statements.


4


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings/
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Income/
(Loss)
 
Non-
controlling
Interests
 
Total
 
(In thousands, except share data)
Balance, December 31, 2013
$
47,753

 
$
79,838

 
$
616,334

 
$
(106,211
)
 
$
(4,197
)
 
$
171

 
$
633,688

Net income attributable to the Company

 

 

 
38,373

 

 

 
38,373

Other comprehensive income/ (loss), net

 

 

 

 
2,655

 

 
2,655

Dividends paid to common shareholders: $0.16 per share

 

 
(12,786
)
 

 

 

 
(12,786
)
Dividends paid to preferred shareholders

 

 
(1,738
)
 

 

 

 
(1,738
)
Net change in noncontrolling interests

 

 

 

 

 
61

 
61

Net proceeds from issuance of:
 
 
 
 
 
 
 
 
 
 
 
 
 
61,440 shares of common stock

 
61

 
514

 

 

 

 
575

450,960 shares of incentive stock grants, net of 63,804 shares canceled or forfeited and 73,230 shares withheld for employee taxes

 
314

 
(1,239
)
 

 

 

 
(925
)
Amortization of stock compensation and employee stock purchase plan

 

 
2,578

 

 

 

 
2,578

Stock options exercised

 
181

 
1,238

 

 

 

 
1,419

Tax benefit/ (deficiency) from certain stock compensation awards

 

 
585

 

 

 

 
585

Other equity adjustments

 

 
(1,834
)
 

 

 

 
(1,834
)
Balance, June 30, 2014
$
47,753

 
$
80,394

 
$
603,652

 
$
(67,838
)
 
$
(1,542
)
 
$
232

 
$
662,651

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2014
$
47,753

 
$
82,962

 
$
610,903

 
$
(37,396
)
 
$
(697
)
 
$
386

 
$
703,911

Net income attributable to the Company

 

 

 
36,393

 

 

 
36,393

Other comprehensive income/ (loss), net

 

 

 

 
(1,828
)
 

 
(1,828
)
Dividends paid to common shareholders: $0.18 per share

 

 
(14,882
)
 

 

 

 
(14,882
)
Dividends paid to preferred shareholders

 

 
(1,738
)
 

 

 

 
(1,738
)
Net change in noncontrolling interests

 

 

 

 

 
2,510

 
2,510

Net proceeds from issuance of:
 
 
 
 
 
 
 
 
 
 
 
 
 
59,315 shares of common stock

 
59

 
620

 

 

 

 
679

622,523 shares of incentive stock grants, net of 132,067 shares canceled or forfeited and 100,148 shares withheld for employee taxes

 
390

 
(1,638
)
 

 

 

 
(1,248
)
Amortization of stock compensation and employee stock purchase plan

 

 
4,399

 

 

 

 
4,399

Stock options exercised

 
129

 
896

 

 

 

 
1,025

Tax benefit/ (deficiency) from certain stock compensation awards

 

 
95

 

 

 

 
95

Other equity adjustments

 

 
(1,231
)
 

 

 

 
(1,231
)
Balance, June 30, 2015
$
47,753

 
$
83,540

 
$
597,424

 
$
(1,003
)
 
$
(2,525
)
 
$
2,896

 
$
728,085


See accompanying notes to consolidated financial statements.

5


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six months ended June 30,
 
2015
 
2014
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to the Company
$
36,393

 
$
38,373

Adjustments to arrive at net income from continuing operations
 
 
 
Net income attributable to noncontrolling interests
2,492

 
2,261

Less: Net income from discontinued operations
(3,640
)
 
(3,378
)
Net income from continuing operations
35,245

 
37,256

Adjustments to reconcile net income from continuing operations to net cash provided by/ (used in) operating activities:
 
 
 
Depreciation and amortization
11,391

 
9,193

Net income attributable to noncontrolling interests
(2,492
)
 
(2,261
)
Equity issued as compensation
4,399

 
2,578

Provision/ (credit) for loan losses
(2,500
)
 
(6,200
)
Loans originated for sale
(89,008
)
 
(22,033
)
Proceeds from sale of loans held for sale
77,260

 
25,497

Deferred income tax expense/ (benefit)
1,300

 
2,684

Net decrease/ (increase) in other operating activities
(20,254
)
 
(8,588
)
Net cash provided by/ (used in) operating activities of continuing operations
15,341

 
38,126

Net cash provided by/ (used in) operating activities of discontinued operations
3,640

 
3,378

Net cash provided by/ (used in) operating activities
18,981

 
41,504

Cash flows from investing activities:
 
 
 
Investment securities available for sale:
 
 
 
Purchases
(274,333
)
 
(118,323
)
Sales
5,835

 
5,331

Maturities, redemptions, and principal payments
99,747

 
123,802

Investment securities held to maturity:
 
 
 
Purchases

 
(34,936
)
Principal payments
12,061

 
8,155

(Investments)/ distributions in trusts, net
(365
)
 
(300
)
(Purchase)/ redemption of Federal Home Loan Banks stock
(3,387
)
 
3,336

Net (increase)/ decrease in portfolio loans
(194,290
)
 
(52,185
)
Proceeds from recoveries of loans previously charged-off
5,025

 
5,320

Proceeds from sale of OREO

 
838

Proceeds from sale of portfolio loans

 
58,568

Capital expenditures, net of sale proceeds
(2,489
)
 
(2,520
)
Cash used in other investing activities

 
(1,601
)
Net cash provided by/ (used in) investing activities of continuing operations
(352,196
)
 
(4,515
)
Net cash provided by/ (used in) investing activities
(352,196
)
 
(4,515
)
(Continued)
 
 
 

6


 
Six months ended June 30,
 
2015
 
2014
 
(In thousands)
Cash flows from financing activities:
 
 
 
Net increase/ (decrease) in deposits
(24,851
)
 
(158,518
)
Net increase/ (decrease) in securities sold under agreements to repurchase
(3,836
)
 
34,981

Net increase/ (decrease) in federal funds purchased
100,000

 

Net increase/ (decrease) in short-term Federal Home Loan Bank borrowings
120,000

 
40,000

Advances of long-term Federal Home Loan Bank borrowings
67,636

 
20,000

Repayments of long-term Federal Home Loan Bank borrowings
(16,257
)
 
(10,675
)
Dividends paid to common shareholders
(14,882
)
 
(12,786
)
Dividends paid to preferred shareholders
(1,738
)
 
(1,738
)
Tax benefit/ (deficiency) from certain stock compensation awards
95

 
585

Proceeds from stock option exercises
1,025

 
1,419

Proceeds from issuance of common stock, net
(569
)
 
(350
)
Distributions paid to noncontrolling interests
(2,405
)
 
(2,162
)
Other equity adjustments
(513
)
 
(445
)
Net cash provided by/ (used in) financing activities of continuing operations
223,705

 
(89,689
)
Net cash provided by/ (used in) financing activities
223,705

 
(89,689
)
Net increase/ (decrease) in cash and cash equivalents
(109,510
)
 
(52,700
)
Cash and cash equivalents at beginning of year
172,609

 
191,881

Cash and cash equivalents at end of period
$
63,099

 
$
139,181

Supplementary schedule of non-cash investing and financing activities:
 
 
 
Cash paid for interest
$
13,627

 
$
15,980

Cash paid for income taxes, net of (refunds received)
23,038

 
19,368

Change in unrealized gain/ (loss) on securities available for sale, net of tax
(1,995
)
 
3,350

Change in unrealized gain/ (loss) on cash flow hedges, net of tax
167

 
(695
)
Change in unrealized gain/ (loss) on other, net of tax

 

Non-cash transactions:
 
 
 
Loans transferred into/ (out of) held for sale from/ (to) portfolio

 
56,967

Loans charged-off
(112
)
 
(944
)

See accompanying notes to consolidated financial statements.


7

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements



1.     Basis of Presentation and Summary of Significant Accounting Policies
Boston Private Financial Holdings, Inc. (the “Company” or “BPFH”), is a bank holding company (the “Holding Company”) with four reportable segments: Private Banking, Wealth Management and Trust, Investment Management, and Wealth Advisory.
The Private Banking segment is comprised of the banking operations of Boston Private Bank & Trust Company (the “Bank” or “Boston Private Bank”), a trust company chartered by The Commonwealth of Massachusetts, insured by the Federal Deposit Insurance Corporation (the “FDIC”), and a wholly-owned subsidiary of the Company. Boston Private Bank currently operates in three geographic markets: New England, San Francisco Bay, and Southern California.
The Wealth Management and Trust segment is comprised of the trust operations of Boston Private Bank and the operations of Boston Private Wealth, LLC (“BP Wealth”). BP Wealth was formed in the first quarter of 2015 and combines Boston Private Bank's existing wealth management business and the business of Banyan Partners, LLC (“Banyan”), which Boston Private Bank purchased in the fourth quarter of 2014. The segment offers investment management, wealth management, family office, and trust services to individuals, families, and institutions. The Wealth Management and Trust segment operates in New England; South Florida; Texas; California; Atlanta, Georgia; and Madison, Wisconsin. For comparative purposes, the Wealth Management and Trust data that was previously included within the Private Banking segment has been reclassified into the Wealth Management and Trust segment.
The Investment Management segment has two consolidated affiliates, consisting of Dalton, Greiner, Hartman, Maher & Co., LLC (“DGHM”) and Anchor Capital Advisors, LLC (“Anchor”) (together, the “Investment Managers”).
The Wealth Advisory segment has two consolidated affiliates, consisting of KLS Professional Advisors Group, LLC (“KLS”) and Bingham, Osborn & Scarborough, LLC (“BOS”) (together, the “Wealth Advisors” and, together with the Wealth Management and Trust and Investment Management segments, the “Wealth and Investment businesses”).
The Company conducts substantially all of its business through its four reportable segments. All significant intercompany accounts and transactions have been eliminated in consolidation.
The unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), and include all necessary adjustments of a normal recurring nature which, in the opinion of management, are required for a fair presentation of the results of operations and financial condition of the Company. The interim results of consolidated operations are not necessarily indicative of the results for the entire year.
The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (“SEC”). Prior period amounts are reclassified whenever necessary to conform to the current period presentation.
The Company’s significant accounting policies are described in Part II. Item 8. “Financial Statements and Supplementary Data - Note 1: Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC. For interim reporting purposes, the Company follows the same significant accounting policies.

2.    Earnings Per Share
The two class method of calculating earnings per share (“EPS”) is presented below for the three and six months ended June 30, 2015 and 2014. The following tables present the computations of basic and diluted EPS:

8

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
(In thousands, except share and per share data)
 
Basic earnings per share - Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
17,327

 
$
20,907

 
$
35,245

 
$
37,256

Less: Net income attributable to noncontrolling interests
1,263

 
1,025

 
2,492

 
2,261

Net income from continuing operations attributable to the Company
16,064

 
19,882

 
32,753

 
34,995

Decrease/ (increase) in noncontrolling interests’ redemption values (1)
(157
)
 
(253
)
 
(251
)
 
(369
)
Dividends on participating securities
(907
)
 
(942
)
 
(1,818
)
 
(1,887
)
Total adjustments to income attributable to common shareholders
(1,064
)
 
(1,195
)
 
(2,069
)
 
(2,256
)
Net income from continuing operations attributable to common shareholders, before allocation to participating securities
15,000

 
18,687

 
30,684

 
32,739

Less: Amount allocated to participating securities
(28
)
 
(118
)
 
(75
)
 
(218
)
Net income from continuing operations attributable to common shareholders, after allocation to participating securities
$
14,972

 
$
18,569

 
$
30,609

 
$
32,521

Net income from discontinued operations, before allocation to participating securities
$
1,546

 
$
1,450

 
$
3,640

 
$
3,378

Less: Amount allocated to participating securities
(5
)
 
(14
)
 
(17
)
 
(37
)
Net income from discontinued operations, after allocation to participating securities
$
1,541

 
$
1,436

 
$
3,623

 
$
3,341

Net income attributable to common shareholders, before allocation to participating securities
$
16,546

 
$
20,137

 
$
34,324

 
$
36,117

Less: Amount allocated to participating securities
(33
)
 
(132
)
 
(92
)
 
(255
)
Net income attributable to common shareholders, after allocation to participating securities
$
16,513

 
$
20,005

 
$
34,232

 
$
35,862

 
 
 
 
 
 
 
 
Basic earnings per share - Denominator:
 
 
 
 
 
 
 
Weighted average basic common shares outstanding
80,778,562

 
78,438,636

 
80,647,191

 
78,292,721

Per share data - Basic earnings per share from:
 
 
 
 
 
 
 
Continuing operations
$
0.18

 
$
0.24

 
$
0.38

 
$
0.42

Discontinued operations
$
0.02

 
$
0.02

 
$
0.04

 
$
0.04

Total attributable to common shareholders
$
0.20

 
$
0.26

 
$
0.42

 
$
0.46




9

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
(In thousands, except share and per share data)
 
 
 
 
 
 
 
Diluted earnings per share - Numerator:
 
 
 
 
 
 
 
Net income from continuing operations attributable to common shareholders, after allocation to participating securities
$
14,972

 
$
18,569

 
$
30,609

 
$
32,521

Add back: income allocated to dilutive securities

 

 

 

Net income from continuing operations attributable to common shareholders, after allocation to participating securities, after assumed dilution
14,972

 
18,569

 
30,609

 
32,521

Net income from discontinued operations, after allocation to participating securities
1,541

 
1,436

 
3,623

 
3,341

Net income attributable to common shareholders, after allocation to participating securities, after assumed dilution
$
16,513

 
$
20,005

 
$
34,232

 
$
35,862

Diluted earnings per share - Denominator:
 
 
 
 
 
 
 
Weighted average basic common shares outstanding
80,778,562

 
78,438,636

 
80,647,191

 
78,292,721

Dilutive effect of:
 
 
 
 
 
 
 
 Stock options and non-participating performance-based and certain time-based restricted stock (2)
1,009,576

 
685,683

 
967,330

 
693,420

 Warrants to purchase common stock (2)
1,250,343

 
1,174,106

 
1,214,308

 
1,172,701

Dilutive common shares
2,259,919

 
1,859,789

 
2,181,638

 
1,866,121

Weighted average diluted common shares outstanding (2)
83,038,481

 
80,298,425

 
82,828,829

 
80,158,842

Per share data - Diluted earnings per share from:
 
 
 
 
 
 
 
Continuing operations
$
0.18

 
$
0.23

 
$
0.37

 
$
0.41

Discontinued operations
$
0.02

 
$
0.02

 
$
0.04

 
$
0.04

Total attributable to common shareholders
$
0.20

 
$
0.25

 
$
0.41

 
$
0.45

Dividends per share declared and paid on common stock
$
0.09

 
$
0.08

 
$
0.18

 
$
0.16

_____________________
(1)
See Part II. Item 8. “Financial Statements and Supplementary Data—Note 14: Noncontrolling Interests” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for a description of the redemption values related to the redeemable noncontrolling interests. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”), an increase in redemption value from period to period reduces income attributable to common shareholders. Decreases in redemption value from period to period increase income attributable to common shareholders, but only to the extent that the cumulative change in redemption value remains a cumulative increase since adoption of this standard in the first quarter of 2009.
(2)
The diluted EPS computations for the three and six months ended June 30, 2015 and 2014 do not assume the conversion, exercise, or contingent issuance of the following shares for the following periods because the result would have been anti-dilutive for the periods indicated. As a result of the anti-dilution, the potential common shares excluded from the diluted EPS computation are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
(In thousands)
2015
 
2014
 
2015
 
2014
Shares excluded due to exercise price exceeding the average market price of common shares during the period (total outstanding):
 
Potential common shares from:
 
 
 
 
 
 
 
Stock options, restricted stock, or other dilutive securities
538

 
780

 
585

 
865

Total shares excluded due to exercise price exceeding the average market price of common shares during the period
538

 
780

 
585

 
865



10

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

3.    Reportable segments
Management Reporting
The Company has four reportable segments (Private Banking, Wealth Management and Trust, Investment Management, and Wealth Advisory) and the Holding Company (Boston Private Financial Holdings, Inc.). The financial performance of the Company is managed and evaluated by these four areas. The segments are managed separately as a result of the concentrations in each function.
Measurement of Segment Profit and Assets
The accounting policies of the segments are the same as those described in Part II. Item 8. “Financial Statements and Supplementary Data - Note 1: Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Revenues, expenses, and assets are recorded by each segment, and separate financial statements are reviewed by their management and the Company’s segment chief executive officers.
Reconciliation of Reportable Segment Items
The following tables present a reconciliation of the revenues, profits, assets, and other significant items of reportable segments as of and for the three and six months ended June 30, 2015 and 2014. Interest expense on junior subordinated debentures is reported at the Holding Company.

 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
Private Banking
(In thousands)
Net interest income
$
46,017

 
$
47,236

 
$
93,007

 
$
92,641

Fees and other income
3,437

 
3,472

 
6,221

 
6,182

Total revenues
49,454

 
50,708

 
99,228

 
98,823

Provision/ (credit) for loan losses

 
(5,000
)
 
(2,500
)
 
(6,200
)
Operating expense
28,281

 
27,860

 
57,086

 
55,894

Income before income taxes
21,173

 
27,848

 
44,642

 
49,129

Income tax expense
6,848

 
9,703

 
14,616

 
16,815

Net income from continuing operations
14,325

 
18,145

 
30,026

 
32,314

Net income attributable to the Company
$
14,325

 
$
18,145

 
$
30,026

 
$
32,314

 
 
 
 
 
 
 
 
Assets
$
6,860,288

 
$
6,198,778

 
$
6,860,288

 
$
6,198,778

Amortization of intangibles
$
45

 
$
60

 
$
91

 
$
127

Depreciation
$
1,159

 
$
1,322

 
$
2,364

 
$
2,730


11

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014 (1)
 
2015
 
2014 (1)
Wealth Management and Trust
(In thousands)
Fees and other income
$
14,647

 
$
7,043

 
$
28,604

 
$
14,004

Total revenues
14,647

 
7,043

 
28,604

 
14,004

Operating expense
12,777

 
5,310

 
25,108

 
10,920

Income before income taxes
1,870

 
1,733

 
3,496

 
3,084

Income tax expense
806

 
723

 
1,500

 
1,290

Net income from continuing operations
1,064

 
1,010

 
1,996

 
1,794

Net income attributable to the Company
$
1,064

 
$
1,010

 
$
1,996

 
$
1,794

 
 
 
 
 
 
 
 
Assets
$
78,480

 
$
4,658

 
$
78,480

 
$
4,658

AUM
$
9,028,000

 
$
4,716,000

 
$
9,028,000

 
$
4,716,000

Amortization of intangibles
$
624

 
$

 
$
1,195

 
$

Depreciation
$
194

 
$
21

 
$
381

 
$
43

 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
Investment Management
(In thousands)
Net interest income
$
5

 
$
5

 
$
11

 
$
11

Fees and other income
11,739

 
11,754

 
23,461

 
23,216

Total revenues
11,744

 
11,759

 
23,472

 
23,227

Operating expense
8,544

 
9,102

 
17,230

 
17,436

Income before income taxes
3,200

 
2,657

 
6,242

 
5,791

Income tax expense
1,040

 
877

 
2,042

 
1,924

Net income from continuing operations
2,160

 
1,780

 
4,200

 
3,867

Noncontrolling interests
620

 
540

 
1,257

 
1,175

Net income attributable to the Company
$
1,540

 
$
1,240

 
$
2,943

 
$
2,692

 
 
 
 
 
 
 
 
Assets
$
100,029

 
$
101,626

 
$
100,029

 
$
101,626

AUM
$
10,695,000

 
$
10,917,000

 
$
10,695,000

 
$
10,917,000

Amortization of intangibles
$
739

 
$
739

 
$
1,478

 
$
1,478

Depreciation
$
70

 
$
63

 
$
140

 
$
122


12

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
Wealth Advisory
(In thousands)
Net interest income
$
2

 
$
(32
)
 
$
4

 
$
4

Fees and other income
12,708

 
12,040

 
25,415

 
23,504

Total revenues
12,710

 
12,008

 
25,419

 
23,508

Operating expense
8,720

 
8,124

 
17,852

 
15,907

Income before income taxes
3,990

 
3,884

 
7,567

 
7,601

Income tax expense
1,483

 
1,509

 
2,804

 
2,901

Net income from continuing operations
2,507

 
2,375

 
4,763

 
4,700

Noncontrolling interests
643

 
486

 
1,231

 
1,045

Net income attributable to the Company
$
1,864

 
$
1,889

 
$
3,532

 
$
3,655

 
 
 
 
 
 
 
 
Assets
$
76,847

 
$
74,203

 
$
76,847

 
$
74,203

AUM
$
9,941,000

 
$
9,760,000

 
$
9,941,000

 
$
9,760,000

Amortization of intangibles
$
247

 
$
246

 
$
493

 
$
493

Depreciation
$
216

 
$
82

 
$
427

 
$
154

 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
Holding Company and Eliminations
(In thousands)
Net interest income
$
(939
)
 
$
(941
)
 
$
(1,865
)
 
$
(1,866
)
Fees and other income
129

 
65

 
304

 
201

Total revenues
(810
)
 
(876
)
 
(1,561
)
 
(1,665
)
Operating expense
4,096

 
4,006

 
8,569

 
9,213

Income/ (loss) before income taxes
(4,906
)
 
(4,882
)
 
(10,130
)
 
(10,878
)
Income tax expense/(benefit)
(2,177
)
 
(2,479
)
 
(4,390
)
 
(5,459
)
Net income/(loss) from continuing operations
(2,729
)
 
(2,403
)
 
(5,740
)
 
(5,419
)
Noncontrolling interests

 
(1
)
 
4

 
41

Discontinued operations
1,546

 
1,450

 
3,640

 
3,378

Net income/(loss) attributable to the Company
$
(1,183
)
 
$
(952
)
 
$
(2,104
)
 
$
(2,082
)
 
 
 
 
 
 
 
 
Assets
$
(69,705
)
 
$
9,558

 
$
(69,705
)
 
$
9,558

AUM
$
(22,000
)
 
$
(23,000
)
 
$
(22,000
)
 
$
(23,000
)
Depreciation
$
13

 
$
31

 
$
44

 
$
141


13

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
Total Company
(In thousands)
Net interest income
$
45,085

 
$
46,268

 
$
91,157

 
$
90,790

Fees and other income
42,660

 
34,374

 
84,005

 
67,107

Total revenues
87,745

 
80,642

 
175,162

 
157,897

Provision/ (credit) for loan losses

 
(5,000
)
 
(2,500
)
 
(6,200
)
Operating expense
62,418

 
54,402

 
125,845

 
109,370

Income before income taxes
25,327

 
31,240

 
51,817

 
54,727

Income tax expense
8,000

 
10,333

 
16,572

 
17,471

Net income from continuing operations
17,327

 
20,907

 
35,245

 
37,256

Noncontrolling interests
1,263

 
1,025

 
2,492

 
2,261

Discontinued operations
1,546

 
1,450

 
3,640

 
3,378

Net income attributable to the Company
$
17,610

 
$
21,332

 
$
36,393

 
$
38,373

 
 
 
 
 
 
 
 
Assets
$
7,045,939

 
$
6,388,823

 
$
7,045,939

 
$
6,388,823

AUM
$
29,642,000

 
$
25,370,000

 
$
29,642,000

 
$
25,370,000

Amortization of intangibles
$
1,655

 
$
1,045

 
$
3,257

 
$
2,098

Depreciation
$
1,652

 
$
1,519

 
$
3,356

 
$
3,190

____________
(1)    Financial data for the Wealth Management and Trust segment includes the trust and wealth management operations of Boston Private Bank only prior to the October 2, 2014 acquisition of Banyan.

14

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements - (Continued)

4.    Investments
The following table presents a summary of investment securities:
 
Amortized
Cost
 
Unrealized
 
Fair
Value
Gains
 
Losses
 
(In thousands)
As of June 30, 2015
 
 
 
 
 
 
 
Available for sale securities at fair value:
 
 
 
 
 
 
 
U.S. government and agencies
$
21,600

 
$
145

 
$
(45
)
 
$
21,700

Government-sponsored entities
294,192

 
1,921

 
(136
)
 
295,977

Municipal bonds
254,444

 
2,431

 
(1,261
)
 
255,614

Mortgage-backed securities (1)
404,778

 
1,762

 
(5,228
)
 
401,312

Other
17,104

 
322

 
(22
)
 
17,404

Total
$
992,118

 
$
6,581

 
$
(6,692
)
 
$