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EX-32.1 - EXHIBIT 32.1 CEO CERT - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex321q32015.htm
EX-31.2 - EXHIBIT 31.2 CFO CERT - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex312q32015.htm
EX-31.1 - EXHIBIT 31.1 CEO CERT - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex311q32015.htm
EX-32.2 - EXHIBIT 32.2 CFO CERT - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex322q32015.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 September 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 November 6, 2015:
Common Stock, Par Value $1.00 Per Share
83,652,864
(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)
 
September 30, 2015
 
December 31, 2014
 
(In thousands, except share and per share data)
Assets:
 
 
 
Cash and cash equivalents
$
43,640

 
$
172,609

Investment securities available for sale (amortized cost of $1,016,215 and $826,858 at September 30, 2015 and December 31, 2014, respectively)
1,023,255

 
829,993

Investment securities held to maturity (fair value of $123,186 and $142,339 at September 30, 2015 and December 31, 2014, respectively)
121,679

 
140,727

Stock in Federal Home Loan Banks
35,518

 
32,281

Loans held for sale
7,685

 
7,099

Total loans
5,607,472

 
5,269,936

Less: Allowance for loan losses
79,246

 
75,838

Net loans
5,528,226

 
5,194,098

Other real estate owned (“OREO”)
776

 
929

Premises and equipment, net
30,841

 
32,199

Goodwill
152,082

 
152,082

Intangible assets, net
34,806

 
39,718

Fees receivable
11,308

 
12,517

Accrued interest receivable
17,039

 
16,071

Deferred income taxes, net
45,438

 
47,576

Other assets
128,235

 
119,975

Total assets
$
7,180,528

 
$
6,797,874

Liabilities:
 
 
 
Deposits
$
5,647,859

 
$
5,453,879

Securities sold under agreements to repurchase
35,698

 
30,496

Federal funds purchased
60,000

 

Federal Home Loan Bank borrowings
461,899

 
370,150

Junior subordinated debentures
106,363

 
106,363

Other liabilities
109,695

 
112,170

Total liabilities
6,421,514

 
6,073,058

Redeemable Noncontrolling Interests
18,257

 
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 September 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: 83,645,364 shares at September 30, 2015 and 82,961,855 shares at December 31, 2014
83,645

 
82,962

Additional paid-in capital
598,968

 
610,903

Retained earnings/ (accumulated deficit)
5,960

 
(37,396
)
Accumulated other comprehensive income/ (loss)
1,287

 
(697
)
Total Company’s shareholders’ equity
737,613

 
703,525

Noncontrolling interests
3,144

 
386

Total shareholders’ equity
740,757

 
703,911

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
7,180,528

 
$
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 September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except share and per share data)
Interest and dividend income:
 
 
 
 
 
 
 
Loans
$
48,058

 
$
47,931

 
$
142,721

 
$
144,541

Taxable investment securities
1,094

 
876

 
3,164

 
2,242

Non-taxable investment securities
1,264

 
942

 
3,410

 
2,760

Mortgage-backed securities
2,681

 
1,605

 
8,070

 
5,230

Federal funds sold and other
425

 
379

 
941

 
978

Total interest and dividend income
53,522

 
51,733

 
158,306

 
155,751

Interest expense:
 
 
 
 
 
 
 
Deposits
4,007

 
3,603

 
11,721

 
10,194

Federal Home Loan Bank borrowings
2,051

 
2,354

 
5,999

 
7,039

Junior subordinated debentures
979

 
976

 
2,902

 
2,896

Repurchase agreements and other short-term borrowings
12

 
17

 
54

 
49

Total interest expense
7,049

 
6,950

 
20,676

 
20,178

Net interest income
46,473

 
44,783

 
137,630

 
135,573

Provision/ (credit) for loan losses
2,600

 
(2,600
)
 
100

 
(8,800
)
Net interest income after provision/ (credit) for loan losses
43,873

 
47,383

 
137,530

 
144,373

Fees and other income:
 
 
 
 
 
 
 
Investment management fees
11,360

 
12,011

 
34,805

 
35,226

Wealth advisory fees
12,515

 
12,278

 
37,868

 
35,730

Wealth management and trust fees
12,424

 
7,251

 
39,527

 
21,255

Other banking fee income
2,780

 
1,835

 
6,721

 
5,192

Gain on sale of loans, net
364

 
183

 
1,029

 
1,966

Gain on sale of investments, net
5

 
8

 
21

 
9

Gain/ (loss) on OREO, net
35

 
150

 
124

 
988

Other
(37
)
 
53

 
3,356

 
510

Total fees and other income
39,446

 
33,769

 
123,451

 
100,876

Operating expense:
 
 
 
 
 
 
 
Salaries and employee benefits
37,938

 
35,855

 
119,881

 
106,767

Occupancy and equipment
9,064

 
7,346

 
27,194

 
22,492

Professional services
2,848

 
2,796

 
9,083

 
9,165

Marketing and business development
2,008

 
1,408

 
5,062

 
5,564

Contract services and data processing
1,600

 
1,404

 
4,532

 
4,289

Amortization of intangibles
1,655

 
1,031

 
4,912

 
3,129

FDIC insurance
916

 
857

 
2,890

 
2,607

Restructuring
1,504

 

 
1,724

 

Other
4,396

 
3,302

 
12,496

 
9,356

Total operating expense
61,929

 
53,999

 
187,774

 
163,369

Income before income taxes
21,390

 
27,153

 
73,207

 
81,880

Income tax expense
8,182

 
8,993

 
24,754

 
26,464

Net income from continuing operations
13,208

 
18,160

 
48,453

 
55,416

Net income from discontinued operations
1,316

 
1,272

 
4,956

 
4,650

Net income before attribution to noncontrolling interests
14,524

 
19,432

 
53,409

 
60,066

(Continued)
 
 
 
 
 
 
 

2


 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except share and per share data)
Less: Net income attributable to noncontrolling interests
994

 
1,167

 
3,486

 
3,428

Net income attributable to the Company
$
13,530

 
$
18,265

 
$
49,923

 
$
56,638

Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders
$
146

 
$
(871
)
 
$
(2,006
)
 
$
(3,380
)
Net income attributable to common shareholders for earnings per share calculation
$
13,676

 
$
17,394

 
$
47,917

 
$
53,258

Basic earnings per share attributable to common shareholders:
 
 
 
 
 
 
 
From continuing operations:
$
0.15

 
$
0.20

 
$
0.53

 
$
0.62

From discontinued operations:
$
0.02

 
$
0.02

 
$
0.06

 
$
0.06

Total attributable to common shareholders:
$
0.17

 
$
0.22

 
$
0.59

 
$
0.68

Weighted average basic common shares outstanding
81,103,938

 
78,687,062

 
80,801,113

 
78,425,613

Diluted earnings per share attributable to common shareholders:
 
 
 
 
 
 
 
From continuing operations:
$
0.15

 
$
0.20

 
$
0.52

 
$
0.60

From discontinued operations:
$
0.01

 
$
0.02

 
$
0.06

 
$
0.06

Total attributable to common shareholders:
$
0.16

 
$
0.22

 
$
0.58

 
$
0.66

Weighted average diluted common shares outstanding
83,369,195

 
80,610,958

 
83,017,921

 
80,324,628


 See accompanying notes to consolidated financial statements.

3


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

 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Net income attributable to the Company
$
13,530

 
$
18,265

 
$
49,923

 
$
56,638

Other comprehensive income/ (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain/ (loss) on securities available for sale
4,337

 
(659
)
 
2,351

 
2,692

Reclassification adjustment for net realized gain/ (loss) included in net income
3

 
4

 
12

 
5

Net unrealized gain/ (loss) on securities available for sale
4,334

 
(663
)
 
2,339

 
2,687

Unrealized gain/ (loss) on cash flow hedges
(1,118
)
 
390

 
(2,135
)
 
(1,082
)
Reclassification adjustment for net realized gain/ (loss) included in net income
(597
)
 
(503
)
 
(1,781
)
 
(1,280
)
Net unrealized gain/ (loss) on cash flow hedges
(521
)
 
893

 
(354
)
 
198

Net unrealized gain/ (loss) on other
(1
)
 

 
(1
)
 

Other comprehensive income/ (loss), net of tax
3,812

 
230

 
1,984

 
2,885

Total comprehensive income attributable to the Company, net
$
17,342

 
$
18,495

 
$
51,907

 
$
59,523

 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

 

 

 
56,638

 

 

 
56,638

Other comprehensive income/ (loss), net

 

 

 

 
2,885

 

 
2,885

Dividends paid to common shareholders: $0.24 per share

 

 
(19,216
)
 

 

 

 
(19,216
)
Dividends paid to preferred shareholders

 

 
(2,606
)
 

 

 

 
(2,606
)
Net change in noncontrolling interests

 

 

 

 

 
92

 
92

Net proceeds from issuance of:
 
 
 
 
 
 
 
 
 
 
 
 
 
126,219 shares of common stock

 
126

 
1,130

 

 

 

 
1,256

493,290 shares of incentive stock grants, net of 75,598 shares canceled or forfeited and 128,003 shares withheld for employee taxes

 
289

 
(1,899
)
 

 

 

 
(1,610
)
Amortization of stock compensation and employee stock purchase plan

 

 
4,024

 

 

 

 
4,024

Stock options exercised

 
211

 
1,423

 

 

 

 
1,634

Tax benefit/ (deficiency) from certain stock compensation awards

 

 
1,016

 

 

 

 
1,016

Other equity adjustments

 

 
(2,170
)
 

 

 

 
(2,170
)
Balance, September 30, 2014
$
47,753

 
$
80,464

 
$
598,036

 
$
(49,573
)
 
$
(1,312
)
 
$
263

 
$
675,631

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2014
$
47,753

 
$
82,962

 
$
610,903

 
$
(37,396
)
 
$
(697
)
 
$
386

 
$
703,911

Net income attributable to the Company

 

 

 
49,923

 

 

 
49,923

Other comprehensive income/ (loss), net

 

 

 

 
1,984

 

 
1,984

Dividends paid to common shareholders: $0.27 per share

 

 
(16,703
)
 
(5,698
)
 

 

 
(22,401
)
Dividends paid to preferred shareholders

 

 
(1,737
)
 
(869
)
 

 

 
(2,606
)
Net change in noncontrolling interests

 

 

 

 

 
2,758

 
2,758

Net proceeds from issuance of:
 
 
 
 
 
 
 
 
 
 
 
 
 
138,463 shares of common stock

 
138

 
1,437

 

 

 

 
1,575

705,585 shares of incentive stock grants, net of 145,992 shares canceled or forfeited and 154,862 shares withheld for employee taxes

 
405

 
(2,340
)
 

 

 

 
(1,935
)
Amortization of stock compensation and employee stock purchase plan

 

 
7,631

 

 

 

 
7,631

Stock options exercised

 
140

 
983

 

 

 

 
1,123

Tax benefit/ (deficiency) from certain stock compensation awards

 

 
(1,008
)
 

 

 

 
(1,008
)
Other equity adjustments

 

 
(198
)
 

 

 

 
(198
)
Balance, September 30, 2015
$
47,753

 
$
83,645

 
$
598,968

 
$
5,960

 
$
1,287

 
$
3,144

 
$
740,757


See accompanying notes to consolidated financial statements.

5


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Nine months ended September 30,
 
2015
 
2014
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to the Company
$
49,923

 
$
56,638

Adjustments to arrive at net income from continuing operations
 
 
 
Net income attributable to noncontrolling interests
3,486

 
3,428

Less: Net income from discontinued operations
(4,956
)
 
(4,650
)
Net income from continuing operations
48,453

 
55,416

Adjustments to reconcile net income from continuing operations to net cash provided by/ (used in) operating activities:
 
 
 
Depreciation and amortization
16,921

 
13,700

Net income attributable to noncontrolling interests
(3,486
)
 
(3,428
)
Equity issued as compensation
7,631

 
4,024

Provision/ (credit) for loan losses
100

 
(8,800
)
Loans originated for sale
(128,194
)
 
(48,625
)
Proceeds from sale of loans held for sale
128,637

 
50,171

Deferred income tax expense/ (benefit)
(109
)
 
4,642

Net decrease/ (increase) in other operating activities
(7,798
)
 
15,564

Net cash provided by/ (used in) operating activities of continuing operations
62,155

 
82,664

Net cash provided by/ (used in) operating activities of discontinued operations
4,956

 
4,650

Net cash provided by/ (used in) operating activities
67,111

 
87,314

Cash flows from investing activities:
 
 
 
Investment securities available for sale:
 
 
 
Purchases
(362,430
)
 
(192,350
)
Sales
5,850

 
5,566

Maturities, redemptions, and principal payments
162,040

 
153,869

Investment securities held to maturity:
 
 
 
Purchases

 
(34,936
)
Principal payments
18,449

 
13,847

(Investments)/ distributions in trusts, net
(68
)
 
(362
)
(Purchase)/ redemption of Federal Home Loan Banks stock
(3,237
)
 
6,078

Net (increase)/ decrease in portfolio loans
(340,813
)
 
(161,145
)
Proceeds from recoveries of loans previously charged-off
5,340

 
9,771

Proceeds from sale of OREO
277

 
988

Proceeds from sale of portfolio loans

 
58,568

Capital expenditures, net of sale proceeds
(3,593
)
 
(5,165
)
Cash used in other investing activities

 
(1,602
)
Net cash provided by/ (used in) investing activities of continuing operations
(518,185
)
 
(146,873
)
Net cash provided by/ (used in) investing activities
(518,185
)
 
(146,873
)
(Continued)
 
 
 

6


 
Nine months ended September 30,
 
2015
 
2014
 
(In thousands)
Cash flows from financing activities:
 
 
 
Net increase/ (decrease) in deposits
193,980

 
224,511

Net increase/ (decrease) in securities sold under agreements to repurchase
5,202

 
(28,931
)
Net increase/ (decrease) in federal funds purchased
60,000

 

Net increase/ (decrease) in short-term Federal Home Loan Bank borrowings
60,000

 

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

 
20,000

Repayments of long-term Federal Home Loan Bank borrowings
(35,887
)
 
(15,887
)
Dividends paid to common shareholders
(22,401
)
 
(19,216
)
Dividends paid to preferred shareholders
(2,606
)
 
(2,606
)
Tax benefit/ (deficiency) from certain stock compensation awards
(1,008
)
 
1,016

Proceeds from stock option exercises
1,123

 
1,634

Proceeds from issuance of common stock, net
(360
)
 
(354
)
Distributions paid to noncontrolling interests
(3,317
)
 
(3,272
)
Other equity adjustments
(257
)
 
(305
)
Net cash provided by/ (used in) financing activities of continuing operations
322,105

 
176,590

Net cash provided by/ (used in) financing activities
322,105

 
176,590

Net increase/ (decrease) in cash and cash equivalents
(128,969
)
 
117,031

Cash and cash equivalents at beginning of year
172,609

 
191,881

Cash and cash equivalents at end of period
$
43,640

 
$
308,912

Supplementary schedule of non-cash investing and financing activities:
 
 
 
Cash paid for interest
$
20,563

 
$
22,894

Cash paid for income taxes, net of (refunds received)
28,939

 
19,999

Change in unrealized gain/ (loss) on securities available for sale, net of tax
2,339

 
2,687

Change in unrealized gain/ (loss) on cash flow hedges, net of tax
(354
)
 
198

Change in unrealized gain/ (loss) on other, net of tax
(1
)
 

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

 
56,967

Loans charged-off
(2,032
)
 
(2,059
)

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 nine months ended September 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 September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
(In thousands, except share and per share data)
 
Basic earnings per share - Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
13,208

 
$
18,160

 
$
48,453

 
$
55,416

Less: Net income attributable to noncontrolling interests
994

 
1,167

 
3,486

 
3,428

Net income from continuing operations attributable to the Company
12,214

 
16,993

 
44,967

 
51,988

Decrease/ (increase) in noncontrolling interests’ redemption values (1)
1,028

 
112

 
777

 
(257
)
Dividends on preferred and participating securities
(874
)
 
(908
)
 
(2,692
)
 
(2,795
)
Total adjustments to income attributable to common shareholders
154

 
(796
)
 
(1,915
)
 
(3,052
)
Net income from continuing operations attributable to common shareholders, before allocation to participating securities
12,368

 
16,197

 
43,052

 
48,936

Less: Amount allocated to participating securities
(6
)
 
(66
)
 
(73
)
 
(284
)
Net income from continuing operations attributable to common shareholders, after allocation to participating securities
$
12,362

 
$
16,131

 
$
42,979

 
$
48,652

Net income from discontinued operations, before allocation to participating securities
$
1,316

 
$
1,272

 
$
4,956

 
$
4,650

Less: Amount allocated to participating securities
(2
)
 
(9
)
 
(18
)
 
(44
)
Net income from discontinued operations, after allocation to participating securities
$
1,314

 
$
1,263

 
$
4,938

 
$
4,606

Net income attributable to common shareholders, before allocation to participating securities
$
13,684

 
$
17,469

 
$
48,008

 
$
53,586

Less: Amount allocated to participating securities
(8
)
 
(75
)
 
(91
)
 
(328
)
Net income attributable to common shareholders, after allocation to participating securities
$
13,676

 
$
17,394

 
$
47,917

 
$
53,258

 
 
 
 
 
 
 
 
Basic earnings per share - Denominator:
 
 
 
 
 
 
 
Weighted average basic common shares outstanding
81,103,938

 
78,687,062

 
80,801,113

 
78,425,613

Per share data - Basic earnings per share from:
 
 
 
 
 
 
 
Continuing operations
$
0.15

 
$
0.20

 
$
0.53

 
$
0.62

Discontinued operations
$
0.02

 
$
0.02

 
$
0.06

 
$
0.06

Total attributable to common shareholders
$
0.17

 
$
0.22

 
$
0.59

 
$
0.68




9

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

 
Three months ended September 30,
 
Nine months ended September 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
$
12,362

 
$
16,131

 
$
42,979

 
$
48,652

Add back: income allocated to dilutive securities

 

 

 

Net income from continuing operations attributable to common shareholders, after allocation to participating securities, after assumed dilution
12,362

 
16,131

 
42,979

 
48,652

Net income from discontinued operations, after allocation to participating securities
1,314

 
1,263

 
4,938

 
4,606

Net income attributable to common shareholders, after allocation to participating securities, after assumed dilution
$
13,676

 
$
17,394

 
$
47,917

 
$
53,258

Diluted earnings per share - Denominator:
 
 
 
 
 
 
 
Weighted average basic common shares outstanding
81,103,938

 
78,687,062

 
80,801,113

 
78,425,613

Dilutive effect of:
 
 
 
 
 
 
 
 Stock options and non-participating performance-based and certain time-based restricted stock (2)
1,071,714

 
756,486

 
1,002,319

 
712,889

 Warrants to purchase common stock (2)
1,193,543

 
1,167,410

 
1,214,489

 
1,186,126

Dilutive common shares
2,265,257

 
1,923,896

 
2,216,808

 
1,899,015

Weighted average diluted common shares outstanding (2)
83,369,195

 
80,610,958

 
83,017,921

 
80,324,628

Per share data - Diluted earnings per share from:
 
 
 
 
 
 
 
Continuing operations
$
0.15

 
$
0.20

 
$
0.52

 
$
0.60

Discontinued operations
$
0.01

 
$
0.02

 
$
0.06

 
$
0.06

Total attributable to common shareholders
$
0.16

 
$
0.22

 
$
0.58

 
$
0.66

Dividends per share declared and paid on common stock
$
0.09

 
$
0.08

 
$
0.27

 
$
0.24

_____________________
(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 nine months ended September 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 September 30,
 
Nine months ended September 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
508

 
767

 
559

 
834

Total shares excluded due to exercise price exceeding the average market price of common shares during the period
508

 
767

 
559

 
834



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 nine months ended September 30, 2015 and 2014. Interest expense on junior subordinated debentures is reported at the Holding Company.

 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014 (1)
 
2015
 
2014 (1)
Private Banking
(In thousands)
Net interest income
$
47,417

 
$
45,720

 
$
140,424

 
$
138,361

Fees and other income
2,728

 
2,260

 
8,949

 
8,442

Total revenues
50,145

 
47,980

 
149,373

 
146,803

Provision/ (credit) for loan losses
2,600

 
(2,600
)
 
100

 
(8,800
)
Operating expense
27,428

 
26,817

 
84,514

 
82,711

Income before income taxes
20,117

 
23,763

 
64,759

 
72,892

Income tax expense
6,287

 
7,670

 
20,903

 
24,485

Net income from continuing operations
13,830

 
16,093

 
43,856

 
48,407

Net income attributable to the Company
$
13,830

 
$
16,093

 
$
43,856

 
$
48,407

 
 
 
 
 
 
 
 
Assets
$
7,000,818

 
$
6,502,182

 
$
7,000,818

 
$
6,502,182

Amortization of intangibles
$
46

 
$
46

 
$
137

 
$
173

Depreciation
$
1,110

 
$
1,292

 
$
3,474

 
$
4,022


11

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

 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014 (1)
 
2015
 
2014 (1)
Wealth Management and Trust
(In thousands)
Fees and other income
$
12,949

 
$
7,251

 
$
41,553

 
$
21,255

Total revenues
12,949

 
7,251

 
41,553

 
21,255

Operating expense
14,311

 
5,686

 
39,419

 
16,606

Income/ (loss) before income taxes
(1,362
)
 
1,565

 
2,134

 
4,649

Income tax expense/ (benefit)
(539
)
 
661

 
961

 
1,951

Net income/ (loss) from continuing operations
(823
)
 
904

 
1,173

 
2,698

Net income/ (loss) attributable to the Company
$
(823
)
 
$
904

 
$
1,173

 
$
2,698

 
 
 
 
 
 
 
 
Assets
$
78,315

 
$
4,517

 
$
78,315

 
$
4,517

AUM
$
8,060,000

 
$
4,701,000

 
$
8,060,000

 
$
4,701,000

Amortization of intangibles
$
624

 
$

 
$
1,819

 
$

Depreciation
$
196

 
$
20

 
$
577

 
$
63

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

 
$
6

 
$
16

 
$
17

Fees and other income
11,365

 
12,021

 
34,826

 
35,237

Total revenues
11,370

 
12,027

 
34,842

 
35,254

Operating expense
8,288

 
8,884

 
25,518

 
26,320

Income before income taxes
3,082

 
3,143

 
9,324

 
8,934

Income tax expense
1,007

 
1,066

 
3,049

 
2,990

Net income from continuing operations
2,075

 
2,077

 
6,275

 
5,944

Noncontrolling interests
596

 
622

 
1,853

 
1,797

Net income attributable to the Company
$
1,479

 
$
1,455

 
$
4,422

 
$
4,147

 
 
 
 
 
 
 
 
Assets
$
101,316

 
$
102,881

 
$
101,316

 
$
102,881

AUM
$
9,830,000

 
$
10,376,000

 
$
9,830,000

 
$
10,376,000

Amortization of intangibles
$
739

 
$
739

 
$
2,217

 
$
2,217

Depreciation
$
71

 
$
56

 
$
211

 
$
178


12

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

 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Wealth Advisory
(In thousands)
Net interest income
$
1

 
$
2

 
$
5

 
$
6

Fees and other income
12,545

 
12,209

 
37,960

 
35,713

Total revenues
12,546

 
12,211

 
37,965

 
35,719

Operating expense
9,304

 
8,376

 
27,156

 
24,283

Income before income taxes
3,242

 
3,835

 
10,809

 
11,436

Income tax expense
1,277

 
1,455

 
4,081

 
4,356

Net income from continuing operations
1,965

 
2,380

 
6,728

 
7,080

Noncontrolling interests
398

 
544

 
1,629

 
1,589

Net income attributable to the Company
$
1,567

 
$
1,836

 
$
5,099

 
$
5,491

 
 
 
 
 
 
 
 
Assets
$
78,205

 
$
80,319

 
$
78,205

 
$
80,319

AUM
$
9,537,000

 
$
9,731,000

 
$
9,537,000

 
$
9,731,000

Amortization of intangibles
$
246

 
$
246

 
$
739

 
$
739

Depreciation
$
218

 
$
98

 
$
645

 
$
252

 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Holding Company and Eliminations
(In thousands)
Net interest income
$
(950
)
 
$
(945
)
 
$
(2,815
)
 
$
(2,811
)
Fees and other income
(141
)
 
28

 
163

 
229

Total revenues
(1,091
)
 
(917
)
 
(2,652
)
 
(2,582
)
Operating expense
2,598

 
4,236

 
11,167

 
13,449

Income/ (loss) before income taxes
(3,689
)
 
(5,153
)
 
(13,819
)
 
(16,031
)
Income tax expense/ (benefit)
150

 
(1,859
)
 
(4,240
)
 
(7,318
)
Net income/ (loss) from continuing operations
(3,839
)
 
(3,294
)
 
(9,579
)
 
(8,713
)
Noncontrolling interests

 
1

 
4

 
42

Discontinued operations
1,316

 
1,272

 
4,956

 
4,650

Net income/ (loss) attributable to the Company
$
(2,523
)
 
$
(2,023
)
 
$
(4,627
)
 
$
(4,105
)
 
 
 
 
 
 
 
 
Assets (2)
$
(78,126
)
 
$
(814
)
 
$
(78,126
)
 
$
(814
)
AUM
$
(21,000
)
 
$
(22,000
)
 
$
(21,000
)
 
$
(22,000
)
Depreciation
$
12

 
$
32

 
$
56

 
$
173


13

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

 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Total Company
(In thousands)
Net interest income
$
46,473

 
$
44,783

 
$
137,630

 
$
135,573

Fees and other income
39,446

 
33,769

 
123,451

 
100,876

Total revenues
85,919

 
78,552

 
261,081

 
236,449

Provision/ (credit) for loan losses
2,600

 
(2,600
)
 
100

 
(8,800
)
Operating expense
61,929

 
53,999

 
187,774

 
163,369

Income before income taxes
21,390

 
27,153

 
73,207

 
81,880

Income tax expense
8,182

 
8,993

 
24,754

 
26,464

Net income from continuing operations
13,208

 
18,160

 
48,453

 
55,416

Noncontrolling interests
994

 
1,167

 
3,486

 
3,428

Discontinued operations
1,316

 
1,272

 
4,956

 
4,650

Net income attributable to the Company
$
13,530

 
$
18,265

 
$
49,923

 
$
56,638

 
 
 
 
 
 
 
 
Assets
$
7,180,528

 
$
6,689,085

 
$
7,180,528

 
$
6,689,085

AUM
$
27,406,000

 
$
24,786,000

 
$
27,406,000

 
$
24,786,000

Amortization of intangibles
$
1,655

 
$
1,031

 
$
4,912

 
$
3,129

Depreciation
$
1,607

 
$
1,498

 
$
4,963

 
$
4,688

____________
(1)    Prior to the October 2, 2014 acquisition of Banyan, financial data for the Wealth Management and Trust segment included the trust and wealth management operations of Boston Private Bank only. In prior year presentations, this data was included in the Private Banking segment.
(2)    Assets shown in the Holding Company and Eliminations table include the elimination of the Holding Company’s investments in its affiliates for both periods shown and, for September 30, 2015, the elimination of the Bank’s investment in BP Wealth.

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 September 30, 2015
 
 
 
 
 
 
 
Available for sale securities at fair value:
 
 
 
 
 
 
 
U.S. government and agencies
$
21,284

 
$
281

 
$
(48
)
 
$
21,517

Government-sponsored entities
320,563

 
3,374

 
(4
)
 
323,933

Municipal bonds
255,829

 
3,872

 
(253
)
 
259,448

Mortgage-backed securities (1)
400,707

 
2,167