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EX-31.2 - EX 31.2 CFO CERT - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex312q12016.htm
EX-32.1 - EX 32.1 CEO CERT - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex321q12016.htm
EX-32.2 - EX 32.2 CFO CERT - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex322q12016.htm
EX-31.1 - EX 31.1 CEO CERT - BOSTON PRIVATE FINANCIAL HOLDINGS INCbpfhex311q12016.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 March 31, 2016
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 May 2, 2016:
Common Stock, Par Value $1.00 Per Share
82,941,914
(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)
 
March 31, 2016
 
December 31, 2015
 
(In thousands, except share and per share data)
Assets:
 
 
 
Cash and cash equivalents
$
113,946

 
$
238,694

Investment securities available-for-sale (amortized cost of $1,135,880 and $1,084,105 at March 31, 2016 and December 31, 2015, respectively)
1,151,529

 
1,084,510

Investment securities held-to-maturity (fair value of $112,861 and $116,384 at March 31, 2016 and December 31, 2015, respectively)
111,337

 
116,352

Stock in Federal Home Loan Banks
34,202

 
35,181

Loans held for sale
5,383

 
8,072

Total loans
5,658,181

 
5,719,212

Less: Allowance for loan losses
76,427

 
78,500

Net loans
5,581,754

 
5,640,712

Other real estate owned (“OREO”)
98

 
776

Premises and equipment, net
31,575

 
31,036

Goodwill
152,082

 
152,082

Intangible assets, net
31,422

 
33,007

Fees receivable
11,041

 
11,258

Accrued interest receivable
17,590

 
17,950

Deferred income taxes, net
43,164

 
51,699

Other assets
128,540

 
121,179

Total assets
$
7,413,663

 
$
7,542,508

Liabilities:
 
 
 
Deposits
$
5,786,860

 
$
6,040,437

Securities sold under agreements to repurchase
63,182

 
58,215

Federal funds purchased
40,000

 

Federal Home Loan Bank borrowings
523,952

 
461,324

Junior subordinated debentures
106,363

 
106,363

Other liabilities
114,223

 
111,468

Total liabilities
6,634,580

 
6,777,807

Redeemable Noncontrolling Interests
16,938

 
18,088

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 March 31, 2016 and December 31, 2015; liquidation preference: $1,000 per share
47,753

 
47,753

Common stock, $1.00 par value; authorized: 170,000,000 shares; issued and outstanding: 83,023,755 shares at March 31, 2016 and 83,410,961 shares at December 31, 2015
83,024

 
83,411

Additional paid-in capital
599,825

 
600,670

Retained earnings
21,740

 
12,886

Accumulated other comprehensive income/ (loss)
6,687

 
(1,500
)
Total Company’s shareholders’ equity
759,029

 
743,220

Noncontrolling interests
3,116

 
3,393

Total shareholders’ equity
762,145

 
746,613

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
7,413,663

 
$
7,542,508

See accompanying notes to consolidated financial statements.

1


BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands, except share and per share data)
Interest and dividend income:
 
 
 
Loans
$
50,046

 
$
48,000

Taxable investment securities
1,594

 
995

Non-taxable investment securities
1,390

 
1,021

Mortgage-backed securities
3,065

 
2,614

Federal funds sold and other
507

 
234

Total interest and dividend income
56,602

 
52,864

Interest expense:
 
 
 
Deposits
4,182

 
3,892

Federal Home Loan Bank borrowings
1,953

 
1,931

Junior subordinated debentures
578

 
956

Repurchase agreements and other short-term borrowings
10

 
13

Total interest expense
6,723

 
6,792

Net interest income
49,879

 
46,072

Provision/ (credit) for loan losses
(3,133
)
 
(2,500
)
Net interest income after provision/ (credit) for loan losses
53,012

 
48,572

Fees and other income:
 
 
 
Investment management fees
10,658

 
11,714

Wealth advisory fees
12,712

 
12,675

Wealth management and trust fees
10,916

 
13,558

Other banking fee income
3,233

 
1,910

Gain on sale of loans, net
209

 
303

Gain on sale of investments, net
1

 
8

Gain/ (loss) on OREO, net
280

 
89

Other
13

 
1,088

Total fees and other income
38,022

 
41,345

Operating expense:
 
 
 
Salaries and employee benefits
42,560

 
42,127

Occupancy and equipment
9,587

 
9,035

Professional services
3,515

 
3,021

Marketing and business development
2,170

 
1,348

Contract services and data processing
1,679

 
1,437

Amortization of intangibles
1,586

 
1,602

FDIC insurance
1,020

 
1,011

Restructuring
1,112

 

Other
3,480

 
3,846

Total operating expense
66,709

 
63,427

Income before income taxes
24,325

 
26,490

Income tax expense
7,438

 
8,572

Net income from continuing operations
16,887

 
17,918

Net income from discontinued operations
2,065

 
2,094

Net income before attribution to noncontrolling interests
18,952

 
20,012

(Continued)
 
 
 

2


 
Three months ended March 31,
 
2016
 
2015
 
(In thousands, except share and per share data)
Less: Net income attributable to noncontrolling interests
911

 
1,229

Net income attributable to the Company
$
18,041

 
$
18,783

Adjustments to net income attributable to the Company to arrive at net income attributable to common shareholders
$
(289
)
 
$
(963
)
Net income attributable to common shareholders for earnings per share calculation
$
17,752

 
$
17,820

Basic earnings per share attributable to common shareholders:
 
 
 
From continuing operations:
$
0.19

 
$
0.19

From discontinued operations:
$
0.03

 
$
0.03

Total attributable to common shareholders:
$
0.22

 
$
0.22

Weighted average basic common shares outstanding
81,301,499

 
80,514,359

Diluted earnings per share attributable to common shareholders:
 
 
 
From continuing operations:
$
0.19

 
$
0.19

From discontinued operations:
$
0.02

 
$
0.02

Total attributable to common shareholders:
$
0.21

 
$
0.21

Weighted average diluted common shares outstanding
83,455,763

 
82,935,928


 See accompanying notes to consolidated financial statements.

3


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

 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Net income attributable to the Company
$
18,041

 
$
18,783

Other comprehensive income/ (loss), net of tax:
 
 
 
Unrealized gain/ (loss) on securities available-for-sale
9,088

 
2,331

Reclassification adjustment for net realized gain/ (loss) included in net income
1

 
5

Net unrealized gain/ (loss) on securities available-for-sale
9,087

 
2,326

Unrealized gain/ (loss) on cash flow hedges
(1,146
)
 
(1,100
)
Reclassification adjustment for net realized gain/ (loss) included in net income
(246
)
 
(591
)
Net unrealized gain/ (loss) on cash flow hedges
(900
)
 
(509
)
Net unrealized gain/ (loss) on other

 

Other comprehensive income/ (loss), net of tax
8,187

 
1,817

Total comprehensive income attributable to the Company, net
$
26,228

 
$
20,600

 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, 2014
$
47,753

 
$
82,962

 
$
610,903

 
$
(37,396
)
 
$
(697
)
 
$
386

 
$
703,911

Net income attributable to the Company

 

 

 
18,783

 

 

 
18,783

Other comprehensive income/ (loss), net

 

 

 

 
1,817

 

 
1,817

Dividends paid to common shareholders:
$0.09 per share

 

 
(7,424
)
 

 

 

 
(7,424
)
Dividends paid to preferred shareholders

 

 
(869
)
 

 

 

 
(869
)
Net change in noncontrolling interests

 

 

 

 

 
2,215

 
2,215

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

 
59

 
620

 

 

 

 
679

87,960 shares of incentive stock grants, net of 78,643 shares canceled or forfeited and 18,194 shares withheld for employee taxes

 
(9
)
 
(220
)
 

 

 

 
(229
)
Amortization of stock compensation and employee stock purchase plan

 

 
1,779

 

 

 

 
1,779

Stock options exercised

 
40

 
250

 

 

 

 
290

Tax benefit/ (deficiency) from certain stock compensation awards

 

 
(415
)
 

 

 

 
(415
)
Other equity adjustments

 

 
(478
)
 

 

 

 
(478
)
Balance, March 31, 2015
$
47,753

 
$
83,052

 
$
604,146

 
$
(18,613
)
 
$
1,120

 
$
2,601

 
$
720,059

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2015
$
47,753

 
$
83,411

 
$
600,670

 
$
12,886

 
$
(1,500
)
 
$
3,393

 
$
746,613

Net income attributable to the Company

 

 

 
18,041

 

 

 
18,041

Other comprehensive income/ (loss), net

 

 

 

 
8,187

 

 
8,187

Dividends paid to common shareholders:
$0.10 per share

 

 

 
(8,318
)
 

 

 
(8,318
)
Dividends paid to preferred shareholders

 

 

 
(869
)
 

 

 
(869
)
Net change in noncontrolling interests

 

 

 

 

 
(277
)
 
(277
)
Repurchase of 245,000 shares of common stock

 
(245
)
 
(2,505
)
 

 

 

 
(2,750
)
Net proceeds from issuance of:
 
 
 
 
 
 
 
 
 
 
 
 
 
76,596 shares of common stock

 
77

 
662

 

 

 

 
739

51,810 shares of incentive stock grants, net of 294,524 shares canceled or forfeited and 14,480 shares withheld for employee taxes

 
(257
)
 
96

 

 

 

 
(161
)
Amortization of stock compensation and employee stock purchase plan

 

 
(442
)
 

 

 

 
(442
)
Stock options exercised

 
38

 
243

 

 

 

 
281

Tax benefit/ (deficiency) from certain stock compensation awards

 

 
(658
)
 

 

 

 
(658
)
Other equity adjustments

 

 
1,759

 

 

 

 
1,759

Balance, March 31, 2016
$
47,753

 
$
83,024

 
$
599,825

 
$
21,740

 
$
6,687

 
$
3,116

 
$
762,145


See accompanying notes to consolidated financial statements.

5



BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to the Company
$
18,041

 
$
18,783

Adjustments to arrive at net income from continuing operations
 
 
 
Net income attributable to noncontrolling interests
911

 
1,229

Less: Net income from discontinued operations
(2,065
)
 
(2,094
)
Net income from continuing operations
16,887

 
17,918

Adjustments to reconcile net income from continuing operations to net cash provided by/ (used in) operating activities:
 
 
 
Depreciation and amortization
5,196

 
5,587

Net income attributable to noncontrolling interests
(911
)
 
(1,229
)
Equity issued as compensation, net of cancellations
(442
)
 
1,779

Provision/ (credit) for loan losses
(3,133
)
 
(2,500
)
Loans originated for sale
(18,411
)
 
(38,131
)
Proceeds from sale of loans held for sale
21,309

 
34,963

Deferred income tax expense/ (benefit)
2,348

 
314

Net decrease/ (increase) in other operating activities
(4,163
)
 
(11,047
)
Net cash provided by/ (used in) operating activities of continuing operations
18,680

 
7,654

Net cash provided by/ (used in) operating activities of discontinued operations
2,065

 
2,094

Net cash provided by/ (used in) operating activities
20,745

 
9,748

Cash flows from investing activities:
 
 
 
Available-for-sale investment securities:
 
 
 
Purchases
(100,759
)
 
(180,244
)
Sales
15,292

 
5,015

Maturities, calls, redemptions, and principal payments
32,051

 
35,572

Held-to-maturity investment securities:
 
 
 
Purchases

 

Principal payments
4,851

 
5,543

(Investments)/ distributions in trusts, net
(240
)
 
(322
)
(Purchase)/ redemption of Federal Home Loan Banks stock
979

 
(480
)
Net (increase)/ decrease in portfolio loans
57,880

 
(25,485
)
Proceeds from recoveries of loans previously charged-off
4,076

 
3,979

Proceeds from sale of OREO
958

 

Capital expenditures, net of sale proceeds
(2,284
)
 
(504
)
Net cash provided by/ (used in) investing activities of continuing operations
12,804

 
(156,926
)
Net cash provided by/ (used in) investing activities
12,804

 
(156,926
)
(Continued)
 
 
 

6


 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Cash flows from financing activities:
 
 
 
Net increase/ (decrease) in deposits
(253,577
)
 
(80,472
)
Net increase/ (decrease) in securities sold under agreements to repurchase
4,967

 
21,741

Net increase/ (decrease) in federal funds purchased
40,000

 
50,000

Net increase/ (decrease) in short-term Federal Home Loan Bank borrowings
70,000

 
70,000

Advances of long-term Federal Home Loan Bank borrowings
25,800

 
10,000

Repayments of long-term Federal Home Loan Bank borrowings
(33,172
)
 
(128
)
Dividends paid to common shareholders
(8,318
)
 
(7,424
)
Dividends paid to preferred shareholders
(869
)
 
(869
)
Repurchase of common stock
(2,750
)
 

Tax benefit/ (deficiency) from certain stock compensation awards
(658
)
 
(415
)
Proceeds from stock option exercises
281

 
290

Proceeds from issuance of common stock, net
578

 
450

Distributions paid to noncontrolling interests
(846
)
 
(1,060
)
Other equity adjustments
267

 
574

Net cash provided by/ (used in) financing activities of continuing operations
(158,297
)
 
62,687

Net cash provided by/ (used in) financing activities
(158,297
)
 
62,687

Net increase/ (decrease) in cash and cash equivalents
(124,748
)
 
(84,491
)
Cash and cash equivalents at beginning of year
238,694

 
172,609

Cash and cash equivalents at end of period
$
113,946

 
$
88,118

Supplementary schedule of non-cash investing and financing activities:
 
 
 
Cash paid for interest
$
6,717

 
$
6,574

Cash paid for income taxes, net of (refunds received)
3,785

 
1,890

Change in unrealized gain/ (loss) on available-for-sale securities, net of tax
9,087

 
2,326

Change in unrealized gain/ (loss) on cash flow hedges, net of tax
(900
)
 
(509
)
Change in unrealized gain/ (loss) on other, net of tax

 

Non-cash transactions:
 
 
 
Loans charged-off
(3,016
)
 
(54
)

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 Area, and Southern California.
The Wealth Management and Trust segment is comprised of the operations of Boston Private Wealth LLC (“Boston Private Wealth”), a wholly-owned subsidiary of Boston Private Bank, and the trust operations of Boston Private Bank. 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; Madison, Wisconsin; and the Washington, D.C. area.
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, 2015, 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, 2015, as filed with the SEC. For interim reporting purposes, the Company follows the same significant accounting policies.


2.    Earnings Per Share
The treasury stock method of calculating earnings per share (“EPS”) is presented below for the three months ended March 31, 2016 and 2015. 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 March 31,
 
2016
 
2015
(In thousands, except share and per share data)
 
Basic earnings per share - Numerator:
 
 
 
Net income from continuing operations
$
16,887

 
$
17,918

Less: Net income attributable to noncontrolling interests
911

 
1,229

Net income from continuing operations attributable to the Company
15,976

 
16,689

Decrease/ (increase) in noncontrolling interests’ redemption values (1)
580

 
(94
)
Dividends on preferred stock
(869
)
 
(869
)
Total adjustments to income attributable to common shareholders (2)
(289
)
 
(963
)
Net income from continuing operations attributable to common shareholders,
treasury stock method (2)
15,687

 
15,726

Net income from discontinued operations (2)
2,065

 
2,094

Net income attributable to common shareholders, treasury stock method (2)
$
17,752

 
$
17,820

 
 
 
 
Basic earnings per share - Denominator:
 
 
 
Weighted average basic common shares outstanding
81,301,499

 
80,514,359

Per share data - Basic earnings per share from:
 
 
 
Continuing operations
$
0.19

 
$
0.19

Discontinued operations
$
0.03

 
$
0.03

Total attributable to common shareholders
$
0.22

 
$
0.22



 
Three months ended March 31,
 
2016
 
2015
(In thousands, except share and per share data)
 
 
 
Diluted earnings per share - Numerator:
 
 
 
Net income from continuing operations attributable to common shareholders, after assumed dilution (2)
$
15,687

 
$
15,726

Net income from discontinued operations
2,065

 
2,094

Net income attributable to common shareholders, after assumed dilution
$
17,752

 
$
17,820

Diluted earnings per share - Denominator:
 
 
 
Weighted average basic common shares outstanding
81,301,499

 
80,514,359

Dilutive effect of:
 
 
 
 Stock options and performance-based and time-based restricted stock (2), (3)
1,224,325

 
1,269,211

 Warrants to purchase common stock (3)
929,939

 
1,152,358

Dilutive common shares
2,154,264

 
2,421,569

Weighted average diluted common shares outstanding (2), (3)
83,455,763

 
82,935,928

Per share data - Diluted earnings per share from:
 
 
 
Continuing operations
$
0.19

 
$
0.19

Discontinued operations
$
0.02

 
$
0.02

Total attributable to common shareholders
$
0.21

 
$
0.21

Dividends per share declared and paid on common stock
$
0.10

 
$
0.09

_____________________
(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, 2015 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

9

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

cumulative change in redemption value remains a cumulative increase since adoption of this standard in the first quarter of 2009.
(2)
The Company presents its EPS based on the treasury stock method. The Company reverted to the treasury stock presentation from the two-class presentation due to the immaterial number of participating shares outstanding as of March 31, 2016. If the EPS presentation had been based on the two-class method, the following adjustments would have been made to the presentation of EPS for the three months ended March 31, 2016. Net income attributable to common shareholders would have been reduced by an additional $4 thousand, and the allocation of net income to participating securities would have been $6 thousand, reducing net income attributable to common shareholders by a total of $10 thousand. Basic EPS would not change. Weighted average diluted shared outstanding would have been reduced by 37,298 shares. Diluted EPS would not change.
If the EPS presentation had been based on the two-class method, the following adjustments would have been made to the presentation of EPS for the three months ended March 31, 2015. Net income attributable to common shareholders would have been reduced by an additional $43 thousand, and the allocation of net income to participating securities would have been $60 thousand, reducing net income attributable to common shareholders by a total of $103 thousand. Basic EPS would not change. Weighted average diluted shared outstanding would have been reduced by 341,603 shares. Diluted EPS would not change.
(3)
The diluted EPS computations for the three months ended March 31, 2016 and 2015 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 March 31,
(In thousands)
2016
 
2015
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
387

 
660

Total shares excluded due to exercise price exceeding the average market price of common shares during the period
387

 
660


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, 2015.
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 months ended March 31, 2016 and 2015. Interest expense on junior subordinated debentures is reported at the Holding Company.


10

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

 
Three months ended March 31,
 
2016
 
2015
Private Banking
(In thousands)
Net interest income
$
50,420

 
$
46,990

Fees and other income
3,378

 
2,784

Total revenues
53,798

 
49,774

Provision/ (credit) for loan losses
(3,133
)
 
(2,500
)
Operating expense
31,275

 
28,805

Income before income taxes
25,656

 
23,469

Income tax expense
8,374

 
7,768

Net income from continuing operations
17,282

 
15,701

Net income attributable to the Company
$
17,282

 
$
15,701

 
 
 
 
Assets
$
7,250,371

 
$
6,688,472

Amortization of intangibles
$

 
$
46

Depreciation
$
1,146

 
$
1,205

 
Three months ended March 31,
 
2016
 
2015
Wealth Management and Trust
(In thousands)
Fees and other income
$
11,056

 
$
13,957

Operating expense (1)
15,852

 
12,331

Income/ (loss) before income taxes
(4,796
)
 
1,626

Income tax expense/ (benefit)
(1,939
)
 
694

Net income/ (loss) from continuing operations
(2,857
)
 
932

Net income/ (loss) attributable to the Company
$
(2,857
)
 
$
932

 
 
 
 
Assets
$
84,253

 
$
79,139

AUM
$
7,137,000

 
$
9,305,000

Amortization of intangibles
$
745

 
$
571

Depreciation
$
231

 
$
187

 
Three months ended March 31,
 
2016
 
2015
Investment Management
(In thousands)
Net interest income
$
4

 
$
6

Fees and other income
10,659

 
11,722

Total revenues
10,663

 
11,728

Operating expense
8,024

 
8,686

Income before income taxes
2,639

 
3,042

Income tax expense
879

 
1,002

Net income from continuing operations
1,760

 
2,040

Noncontrolling interests
477

 
637

Net income attributable to the Company
$
1,283

 
$
1,403

 
 
 
 
Assets
$
93,396

 
$
101,036

AUM
$
9,838,000

 
$
10,730,000

Amortization of intangibles
$
650

 
$
739

Depreciation
$
73

 
$
70


11

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

 
Three months ended March 31,
 
2016
 
2015
Wealth Advisory
(In thousands)
Net interest income
$
3

 
$
2

Fees and other income
12,742

 
12,707

Total revenues
12,745

 
12,709

Operating expense
9,694

 
9,132

Income before income taxes
3,051

 
3,577

Income tax expense
1,148

 
1,321

Net income from continuing operations
1,903

 
2,256

Noncontrolling interests
434

 
588

Net income attributable to the Company
$
1,469

 
$
1,668

 
 
 
 
Assets
$
74,901

 
$
76,042

AUM
$
9,857,000

 
$
10,012,000

Amortization of intangibles
$
191

 
$
246

Depreciation
$
215

 
$
211

 
Three months ended March 31,
 
2016
 
2015
Holding Company and Eliminations
(In thousands)
Net interest income
$
(548
)
 
$
(926
)
Fees and other income
187

 
175

Total revenues
(361
)
 
(751
)
Operating expense
1,864

 
4,473

Income/ (loss) before income taxes
(2,225
)
 
(5,224
)
Income tax expense/ (benefit)
(1,024
)
 
(2,213
)
Net income/ (loss) from continuing operations
(1,201
)
 
(3,011
)
Noncontrolling interests

 
4

Discontinued operations (2)
2,065

 
2,094

Net income/ (loss) attributable to the Company
$
864

 
$
(921
)
 
 
 
 
Assets
$
(89,258
)
 
$
(74,917
)
AUM
$
(21,000
)
 
$
(22,000
)
Depreciation
$
11

 
$
31


12

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

 
Three months ended March 31,
 
2016
 
2015
Total Company
(In thousands)
Net interest income
$
49,879

 
$
46,072

Fees and other income
38,022

 
41,345

Total revenues
87,901

 
87,417

Provision/ (credit) for loan losses
(3,133
)
 
(2,500
)
Operating expense
66,709

 
63,427

Income before income taxes
24,325

 
26,490

Income tax expense
7,438

 
8,572

Net income from continuing operations
16,887

 
17,918

Noncontrolling interests
911

 
1,229

Discontinued operations
2,065

 
2,094

Net income attributable to the Company
$
18,041

 
$
18,783

 
 
 
 
Assets
$
7,413,663

 
$
6,869,772

AUM
$
26,811,000

 
$
30,025,000

Amortization of intangibles
$
1,586

 
$
1,602

Depreciation
$
1,676

 
$
1,704

____________
(1)
Operating expense for 2016 includes $1.1 million in restructuring expenses related to the Wealth Management and Trust segment. Operating expense for 2015 includes no restructuring expenses.
(2)
Net income from discontinued operations for the three month periods ended March 31, 2016 and 2015 of $2.1 million in both periods is included in Holding Company and Eliminations in the calculation of net income attributable to the Company.


13

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 March 31, 2016
 
 
 
 
 
 
 
Available-for-sale securities at fair value:
 
 
 
 
 
 
 
U.S. government and agencies
$
30,911

 
$
481

 
$
(4
)
 
$
31,388

Government-sponsored entities
344,945

 
5,585

 

 
350,530

Municipal bonds
264,375

 
7,334

 
(95
)
 
271,614

Mortgage-backed securities (1)
477,488

 
3,657

 
(1,595
)
 
479,550

Other
18,161

 
291

 
(5
)
 
18,447

Total
$
1,135,880

 
$
17,348

 
$
(1,699
)
 
$
1,151,529

 
 
 
 
 
 
 
 
Held-to-maturity securities at amortized cost:
 
 
 
 
 
 
 
Mortgage-backed securities (1)
$
111,337

 
$
1,524

 
$

 
$
112,861

Total
$
111,337

 
$
1,524

 
$

 
$
112,861

 
 
 
 
 
 
 
 
As of December 31, 2015
 
 
 
 
 
 
 
Available-for-sale securities at fair value:
 
 
 
 
 
 
 
U.S. government and agencies
$
21,214

 
$
64

 
$
(27
)
 
$
21,251

Government-sponsored entities
345,033

 
874

 
(1,345
)
 
344,562

Municipal bonds
263,661

 
5,099

 
(116
)
 
268,644

Mortgage-backed securities (1)
431,446

 
1,329

 
(5,734
)
 
427,041

Other
22,751

 
268

 
(7
)
 
23,012

Total
$
1,084,105

 
$
7,634

 
$
(7,229
)
 
$
1,084,510

 
 
 
 
 
 
 
 
Held-to-maturity securities at amortized cost:
 
 
 
 
 
 
 
Mortgage-backed securities (1)
$
116,352

 
$
294

 
$
(262
)
 
$
116,384

Total
$
116,352

 
$
294

 
$
(262
)
 
$
116,384

___________________
(1)
 All mortgage-backed securities are guaranteed by U.S. government agencies or Government-sponsored entities.
The following table presents the maturities of available-for-sale investment securities, based on contractual maturity, as of March 31, 2016. Certain securities are callable before their final maturity. Additionally, certain securities (such as mortgage-backed securities) are shown within the table below based on their final (contractual) maturity, but due to prepayments and amortization are expected to have shorter lives.
 
Available-for-sale Securities
Amortized
cost
 
Fair
value
(In thousands)
Within one year
$
78,573

 
$
78,999

After one, but within five years
339,665

 
345,000

After five, but within ten years
199,337

 
203,373

Greater than ten years
518,305

 
524,157

Total
$
1,135,880

 
$
1,151,529



14

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

The following table presents the maturities of held-to-maturity investment securities, based on contractual maturity, as of March 31, 2016.
 
Held-to-maturity Securities
Amortized
cost
 
Fair
value
(In thousands)
Within one year
$

 
$

After one, but within five years

 

After five, but within ten years

 

Greater than ten years
111,337

 
112,861

Total
$
111,337

 
$
112,861

The following table presents the proceeds from sales, gross realized gains and gross realized losses for available-for-sale securities that were sold during the following periods:
 
Three months ended March 31,
2016
 
2015
(In thousands)
Proceeds from sales
$
15,292

 
$
5,015

Realized gains
2

 
8

Realized losses
(1
)
 

The following table presents information regarding securities as of March 31, 2016 having temporary impairment, due to the fair values having declined below the amortized cost of the individual securities, and the time period that the investments have been temporarily impaired.
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
# of
securities
Available-for-sale securities
(In thousands)
U.S. government and agencies
$

 
$

 
$
729

 
$
(4
)
 
$
729

 
$
(4
)
 
2

Government-sponsored entities

 

 

 

 

 

 

Municipal bonds
10,635

 
(29
)
 
2,772

 
(66
)
 
13,407

 
(95
)
 
10

Mortgage-backed securities (1)
26,422

 
(150
)
 
101,846

 
(1,445
)
 
128,268

 
(1,595
)
 
38

Other
70

 
(3
)
 
12

 
(2
)
 
82

 
(5
)
 
9

Total
$
37,127

 
$
(182
)
 
$
105,359

 
$
(1,517
)
 
$
142,486

 
$
(1,699
)
 
59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities (1)
$

 
$

 
$

 
$

 
$

 
$

 

Total
$

 
$

 
$

 
$

 
$

 
$

 

___________________
(1)
 All mortgage-backed securities are guaranteed by U.S. government agencies or Government-sponsored entities.
The U.S. government and agencies securities, and mortgage-backed securities in the table above had current Standard and Poor’s credit ratings of AA+. The municipal bonds in the table above had current Standard and Poor’s credit ratings of at least AA. The other securities consisted of equity securities. At March 31, 2016, the Company does not consider these investments other-than-temporarily impaired because the decline in fair value on investments is primarily attributed to changes in interest rates and not credit quality.
At March 31, 2016 and 2015, the amount of investment securities in an unrealized loss position greater than 12 months, as well as in total, was primarily due to changes in interest rates. The Company has no intent to sell any securities in an unrealized loss position at March 31, 2016 and it is not more likely than not that the Company would be forced to sell any of

15

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

these securities prior to the full recovery of all unrealized loss amounts. Subsequent to March 31, 2016 and through the date of the filing of this Annual Report on Form 10-Q, no securities were downgraded to below investment grade, nor were any securities in an unrealized loss position sold.
Cost method investments, which are included in other assets, can be temporarily impaired when the fair values decline below the amortized costs of the individual investments. There were no cost method investments with unrealized losses as of March 31, 2016 or December 31, 2015. The Company’s cost method investments primarily include low income housing partnerships which generate tax credits. The Company also holds partnership interests in venture capital funds formed to provide financing to small businesses and to promote community development. The Company had $26.5 million and $27.7 million in cost method investments included in other assets as of March 31, 2016 and December 31, 2015, respectively.

5.    Fair Value Measurements
Fair value is defined under GAAP as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company determines the fair values of its financial instruments based on the fair value hierarchy established in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value. Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.
The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall:
 
As of March 31, 2016
 
Fair value measurements at reporting date using:
Quoted prices in
active markets
for identical
assets (Level 1)
 
Significant 
other
observable
inputs (Level 2)
 
Significant
unobservable
inputs (Level 3)
(In thousands)
Assets:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
U.S. government and agencies
$
31,388

 
$
30,659

 
$
729

 
$

Government-sponsored entities
350,530

 

 
350,530

 

Municipal bonds
271,614

 

 
271,614

 

Mortgage-backed securities
479,550

 

 
479,550

 

Other
18,447

 
18,447

 

 

Total available-for-sale securities
1,151,529

 
49,106

 
1,102,423

 

Derivatives - interest rate customer swaps
16,952

 

 
16,952

 

Derivatives - risk participation agreement
16

 

 
16

 

Other investments
5,842

 
5,842

 

 

Liabilities:
 
 
 
 
 
 
 
Derivatives - interest rate customer swaps
$
17,682

 
$

 
$
17,682

 
$

Derivatives - interest rate swaps
3,437

 

 
3,437

 

Derivatives - risk participation agreement
20

 

 
20

 

Other liabilities
5,842

 
5,842

 

 




16

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

 
 
 
Fair value measurements at reporting date using:
As of December 31, 2015
 
Quoted prices in
active markets
for identical
assets (Level 1)
 
Significant 
other
observable
inputs (Level 2)
 
Significant
unobservable
inputs (Level 3)
(In thousands)
Assets:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
U.S. government and agencies
$
21,251

 
$
20,251

 
$
1,000

 
$

Government-sponsored entities
344,562

 

 
344,562

 

Municipal bonds
268,644

 

 
268,644

 

Mortgage-backed securities
427,041

 

 
427,041

 

Other
23,012

 
23,012

 

 

Total available-for-sale securities
1,084,510

 
43,263

 
1,041,247

 

Derivatives - interest rate customer swaps
7,960

 

 
7,960

 

Other investments
5,602

 
5,602

 

 

Liabilities:
 
 
 
 
 
 
 
Derivatives - interest rate customer swaps
$
8,084

 
$

 
$
8,084

 
$

Derivatives - interest rate swaps
1,907

 

 
1,907

 

Derivatives - risk participation agreement
11

 

 
11

 

Other liabilities
5,602

 
5,602

 

 

As of March 31, 2016 and December 31, 2015, available-for-sale securities consisted primarily of U.S. government and agencies securities, government-sponsored entities securities, municipal bonds, mortgage-backed securities, and other available-for-sale securities. The equities (which are categorized as other available-for-sale securities) are valued with prices quoted in active markets. Four U.S. Treasury securities at March 31, 2016 and three U.S. Treasury securities at December 31, 2015, are valued with prices quoted in active markets. Therefore, they have been categorized as a Level 1 measurement. The government-sponsored entities securities, municipal bonds, mortgage-backed securities, and certain investments in Small Business Administration (“SBA”) loans (which are categorized as U.S. government and agencies securities) generally have quoted prices but are traded less frequently than exchange-traded securities and can be priced using market data from similar assets. Therefore, they have been categorized as a Level 2 measurement. No investments held at March 31, 2016 or December 31, 2015 were categorized as Level 3.
The Company uses interest rate customer swaps, interest rate swaps, risk participation agreements, and a junior subordinated debenture interest rate swap to manage its interest rate risk, and customer foreign exchange forward contracts to manage its foreign exchange risk, if any. The junior subordinated debenture interest rate swap agreement matured on December 30, 2015. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. Therefore, they have been categorized as a Level 2 measurement as of March 31, 2016 and December 31, 2015. See Part I. Item 1. “Notes to Unaudited Consolidated Financial Statements-Note 8: Derivatives and Hedging Activities” for further details.
To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position.
The Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, although the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy as of March 31, 2016 and December 31, 2015.

17

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

Other investments, which are not considered available-for-sale investments, consist of deferred compensation trusts, which consist of publicly traded mutual fund investments that are valued at prices quoted in active markets. Therefore, they have been categorized as a Level 1 measurement as of March 31, 2016 and December 31, 2015. The remaining other investments categorized as Level 2 consist of the Company’s cost-method investments as of March 31, 2016 and December 31, 2015.
There were no Level 3 assets at March 31, 2016 or December 31, 2015.
The following tables present the Company’s assets and liabilities measured at fair value on a non-recurring basis during the periods ended March 31, 2016 and 2015, respectively, aggregated by the level in the fair value hierarchy within which those measurements fall:
 
As of March 31, 2016
 
Fair value measurements at reporting date using:
 
Gain (losses) from fair value changes
Quoted prices in
active markets
for identical
assets (Level 1)
 
Significant 
other
observable
inputs (Level 2)
 
Significant
unobservable
inputs (Level 3)
 
Three months ended March 31, 2016
(In thousands)
Assets:
 
 
 
 
 
 
 
 
 
Impaired loans (1)
$
2,428

 
$

 
$

 
$
2,428

 
$
(1,564
)
___________________
(1)
Collateral-dependent impaired loans held at March 31, 2016 that had write-downs in fair value or whose specific reserve changed during the first three months of 2016.
 
As of March 31, 2015
 
Fair value measurements at reporting date using:
 
Gain (losses) from fair value changes
Quoted prices in
active markets
for identical
assets (Level 1)
 
Significant 
other
observable
inputs (Level 2)
 
Significant
unobservable
inputs (Level 3)
 
Three months ended March 31, 2015
(In thousands)
Assets:
 
 
 
 
 
 
 
 
 
Impaired loans (1)
$
757

 
$

 
$

 
$
757

 
$

________________
(1)
Collateral-dependent impaired loans held at March 31, 2015 that had write-downs in fair value or whose specific reserve changed during the first three months of 2015.
The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value:
 
As of March 31, 2016
 
Fair Value
 
Valuation
technique
 
Unobservable
Input
 
Range of
Inputs
Utilized
 
Weighted
Average of
Inputs
Utilized
 
(In thousands)
 
 
Impaired Loans
$
2,428

 
Appraisals of Collateral
 
Discount for costs to sell
 
0% - 7%
 
5%
Appraisal adjustments
 
10% - 33%
 
16%


18

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

 
As of March 31, 2015
 
Fair Value
 
Valuation
technique
 
Unobservable
Input
 
Range of
Inputs
Utilized
 
Weighted
Average of
Inputs
Utilized
 
(In thousands)
 
 
Impaired Loans
$
757

 
Appraisals of Collateral
 
Discount for costs to sell
 
11%
 
11%
Appraisal adjustments
 
0%
 
—%
Impaired loans include those loans that were adjusted to the fair value of underlying collateral as required under ASC 310, Receivables. The amount does not include impaired loans that are measured based on expected future cash flows discounted at the respective loan’s original effective interest rate, as that amount is not considered a fair value measurement. The Company uses appraisals, which management may adjust to reflect estimated fair value declines, or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property or consideration of broker quotes. The appraisers use a market, income, and/or a cost approach in determining the value of the collateral. Therefore they have been categorized as a Level 3 measurement.
The following tables present the carrying values and fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis (other than certain loans, as noted below):
 
As of March 31, 2016
Book Value
 
Fair Value
 
Quoted prices 
in active
markets for
identical assets 
(Level 1)
 
Significant 
other
observable
inputs (Level 2)
 
Significant
unobservable
inputs (Level 3)
(In thousands)
FINANCIAL ASSETS:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
113,946

 
$
113,946

 
$
113,946

 
$

 
$

Held-to-maturity investment securities
111,337

 
112,861

 

 
112,861

 

Loans held for sale
5,383